The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 - Nature of Operations and Principles
of Consolidation
Business Activity
LMP Motors.com, LLC (“LMP
Motors”) is engaged in the buying and selling of vehicles in the automotive industry and operates in the state of Florida.
LMP Motors is a limited liability company and was organized in the state of Delaware.
601 NSR, LLC (“NSR”)
was formed to enter into future potential strategic acquisitions and is currently inactive. NSR is a limited liability company
and was organized in the state of Delaware.
LMP Finance, LLC (“LMP
Finance”) is engaged in the purchasing, subscribing and renting of vehicles. LMP Finance operates in the state of Florida.
LMP Finance is a limited liability company and was organized in the state of Delaware.
LMP Automotive Holdings, LLC
(“LMP Automotive”) was formed to acquire the assets from LMP Motors.com LLC, LMP Finance, LLC and other subsidiary
companies. LMP Automotive operates in the state of Florida. LMP Automotive is a limited liability company and was organized in
the state of Delaware.
LMP Automotive Holdings, Inc.
(“Automotive”) is a holding company incorporated in the state of Delaware on December 15, 2017. On December 15, 2017,
the common ownership contributed 100% of its interest in LMP Motors, NSR, LMP Finance and LMP Automotive to Automotive.
Principles of Consolidation
These condensed consolidated
financial statements include the amounts of Automotive and its wholly-owned subsidiaries, LMP Motors, NSR, LMP Finance, and LMP
Automotive, collectively referred to as the “Company.” All significant intercompany balances and transactions are eliminated
in the consolidation.
Note 2 - Summary of Significant Accounting
Policies
Liquidity
The Company has sustained net
losses and an accumulated deficit of $(12,320,546) to date. Management plans to make strategic acquisitions of new and pre-owned
automobile dealerships to expedite the Company’s growth and produce positive margins. The Company completed an initial
public offering (“IPO”) during December 2019 and a secondary public offering in February 2020 to help facilitate business
growth and execute management’s plans to become profitable through acquisitions. Through these two public offerings,
the Company received net proceeds of approximately $27.8 million.
Management plans to continue
obtaining funding through 2020 for vehicle purchases and dealership acquisitions.
Basis of Presentation
The accompanying condensed consolidated
financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and note disclosures, which are included in annual financial statements,
have been omitted pursuant to these rules and regulations. Management believes the disclosures made in these interim unaudited
financial statements are adequate to make the information not misleading.
Note 2 - Summary of Significant Accounting
Policies (cont’d.)
Basis of Presentation (cont’d.)
Although these interim financial
statements for the three months ended March 31, 2020 and 2019 are unaudited, in the opinion of management, such statements include
all adjustments (consisting of normal recurring entries) necessary to present fairly the Company’s financial position, results
of operations and cash flows for the periods presented. The results for the three months ended March 31, 2020 are not necessarily
indicative of the results to be expected for the year ending December 31, 2020 or for any future period. For more complete information,
these unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements
for the year ended December 31, 2019.
Use of Estimates
The preparation of the condensed
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Accounts Receivable
The Company carries its accounts
receivable at cost. Accounts receivable are due upon receipt. Such estimates are based on management’s assessments of the
creditworthiness of its customers, the aged basis of its receivables, as well as current economic conditions and historical information.
Management has determined that no allowance for uncollectible accounts for accounts receivable is necessary at March 31, 2020 and
December 31, 2019.
Inventory
The Company’s inventory
consists of automobiles. Inventories are valued at the lower of cost or market, with cost determined by specific identification
and with market defined as net realizable value. Net realizable value is the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal, and transportation. Inventories at March 31, 2020 and December
31, 2019 are recorded based on perpetual inventory records.
The Company depreciates its fleet
inventory monthly based on 1% of initial cost starting in 2018 when the subscriptions and rentals were launched. For the three
months ended March 31, 2020 and 2019, fleet vehicle depreciation approximated $229,000 and $291,000, respectively.
Company management periodically
reviews its inventories to determine whether any inventories have declined in value. The Company wrote down approximately $92,000
and $49,000 of inventory to its net realizable value during the three months ending March 31, 2020 and year ended December 31,
2019, respectively.
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Automotive Inventory
|
|
$
|
14,824,570
|
|
|
$
|
10,907,755
|
|
Inventory Impairment
|
|
|
(91,742
|
)
|
|
|
(49,180
|
)
|
Inventory Accumulated Depreciation
|
|
|
(916,937
|
)
|
|
|
(822,672
|
)
|
Total Automotive Inventory, net
|
|
$
|
13,815,891
|
|
|
$
|
10,035,903
|
|
Note 2 - Summary of Significant Accounting
Policies (cont’d.)
Inventory
(cont’d.)
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Automotive Inventory- Fleet, net
|
|
$
|
13,304,369
|
|
|
$
|
9,083,469
|
|
Automotive Inventory- Available for Sale, net
|
|
|
511,522
|
|
|
|
952,434
|
|
Total Automotive Inventory, net
|
|
$
|
13,815,891
|
|
|
$
|
10,035,903
|
|
Property, Equipment and Leasehold
Improvements
Property, equipment and leasehold
improvements are stated at cost. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance
are expensed in the period incurred. When items included in property and equipment are sold or retired, the related costs and accumulated
depreciation are removed from the accounts and any gain or loss is included in selling, general and administrative expenses.
Vehicles and equipment are depreciated
utilizing the straight-line method over the estimated useful lives of the respective assets as follows:
Vehicles
|
|
5 years
|
Furniture and fixtures
|
|
10 years
|
Equipment
|
|
7 years
|
Leasehold improvements are amortized
over the shorter of the remaining term of the lease or the useful life of the improvement utilizing the straight-line method.
Intangible Assets
Intangible assets are stated
at their historical cost and amortized on a straight-line basis over their expected useful lives.
Long-lived Assets
The Company reviews long-lived
assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible
assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the
remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected
future cash flows. There were no deemed impairments of long-lived assets at March 31, 2020 and December 31, 2019.
Fair Value of Financial Instruments
Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which
prioritizes the inputs used in the valuation methodologies, is as follows:
Level 1 - Valuations based on
quoted prices for identical assets and liabilities in active markets.
Level 2 - Valuations based on
observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.
Note 2 - Summary of Significant Accounting
Policies (cont’d.)
Fair Value of Financial Instruments
(cont’d.)
Level 3 - Valuations based on
unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other
market participants. These valuations require significant judgment.
At March 31, 2020 and December
31, 2019, the fair value of these financial instruments, including cash, accounts receivable, net investment in sales-type lease,
and accounts payable, approximated book value due to the short maturity of these instruments. Vehicle financing and notes payable
and related party notes payable approximate fair value due to market interest rates.
Share-Based Compensation
The Company recognizes the cost
of employee services received in exchange for awards of stock options, based on the fair value of those awards at the date of grant
over the requisite service period, which generally is the vesting period of the award. The Company uses the Black-Scholes option
pricing model to determine the fair value of stock option awards.
Share-based compensation plans,
related expenses, and assumptions used in the Black-Scholes option pricing model are more fully described in Note 15.
Revenue Recognition
The Company recognizes revenue
in accordance with FASB Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers
(“ASC 606”). ASC 606 prescribes a five-step model that includes: (1) identify the contract; (2) identify the performance
obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize
revenue when (or as) performance obligations are satisfied.
Used Vehicle Sales Revenue
The Company’s business
consists of retail and wholesale sales of used vehicles to customers. Sales are based on a physical showroom and efficient online
showrooms on the Company’s websites. The Company offers a home delivery service so that it delivers the car to the place
agreed upon with the client. The Company also sells used vehicles in auctions.
The Company recognizes revenue
when it satisfies a performance obligation by transferring control of a vehicle to a customer. The prices of the vehicles are stated
in its contracts at stand-alone selling prices, which are agreed upon with its customer prior to delivery. The Company satisfies
its performance obligation for used vehicle sales upon delivery when the transfer of title, risks and rewards of ownership and
control pass to the customer. The Company recognizes revenue at the agreed-upon price stated in the contract, including any delivery
charges. In addition, any noncash consideration received from a customer (i.e., trade-in vehicles) is recognized at fair value.
Customer payment is received or third-party financing is confirmed prior to vehicle transfer.
The Company leases vehicles to third
parties that are accounted for in accordance with FASB ASC 842, Leases. These leases generally have lease terms less than
one year in duration. The accounting for investments in leases and leased vehicles is different depending on the type of lease.
Each lease is classified as either a direct-financing lease, sales-type lease, or operating lease, as appropriate. The Company
classifies leases as sales-type leases, where the present value of the sum of the lease payments and guaranteed residual value
exceeds the Company’s investment in the leased vehicle.
Note 2 - Summary of Significant Accounting
Policies (cont’d.)
Revenue Recognition (cont’d.)
Revenue on direct financing and
sales-type leases is recognized at the inception of the lease and the related interest income is recognized over the term of the
lease using the effective interest method. Revenues on the sales of vehicles at the end of a lease are recognized at the inception
of the lease, and any net gain or loss on sales of such vehicles is presented within Vehicle Sales Revenues and Vehicle Sales Cost
of Revenues in the condensed consolidated statements of operations. Interest income is derived from the discounted cash flows of
the lease payments. Investments in sales-type leases are comprised of the minimum lease payments receivable and guaranteed residual
at their present value.
The Company collects sales taxes
and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes are accounted for on a net
basis and are not included in sales or cost of sales.
Subscription Revenue
The Company offers a vehicle
subscription plan where a customer will pay a monthly fee in exchange for access to a vehicle. The Company’s subscriptions
include monthly swaps, scheduled maintenance and upkeep, license and registration and in most cases roadside assistance. Customers
have the flexibility to up-or-downgrade a vehicle monthly, with the vehicle payment adjusted accordingly. There is an activation
payment at subscription inception that varies based upon the monthly payment of the selected vehicle. Monthly vehicle payments
are dependent upon the vehicle selected by the customer. Due to the nature of the subscription contract, where the subscriber can
swap out the vehicle in the contract and the performance obligation is completed and recognized each month, the revenues earned
under these contracts are recognized in accordance with ASC 606.
The Company recognizes revenue
when it satisfies a performance obligation by transferring control of a vehicle to a customer under a subscription contract. The
prices of the vehicles are stated in its contracts at stand-alone subscription prices, which are agreed upon with the customer
prior to delivery. The Company satisfies its performance obligation for monthly subscription payments upon delivery to the customer
and in each subsequent month the customer retains possession of the vehicle. The Company recognizes revenue at the agreed-upon
price stated in the contract in the month earned.
The Company also receives a one-time,
non-refundable payment as an activation fee to its vehicle subscription program. This fee is deferred and amortized to income monthly
over the term of the subscription, as the performance obligation (providing a vehicle for the customer) is completed over the term
of the subscription.
Customer payment has been received
prior to initial vehicle transfer and on each monthly recurring anniversary date.
The Company collects sales taxes
and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes are accounted for on a net
basis and are not included in sales or cost of sales.
Rental Revenue
The Company accounts for revenue
earned from vehicle rentals and rental related activities wherein an identified asset is transferred to the customer and the customer
has the ability to control that asset under FASB ASC 842, Leases. Revenue from operating leases is recognized ratably on
a straight-line basis over the term of the agreement.
Performance obligations associated
with rental related activities, such as charges to the customer for the fueling of vehicles and value-added services such as loss
damage waivers, navigation units, and other ancillary and optional products, are also satisfied over the rental period.
Payments are due from customers
at the time of reservation. Additional charges incurred by the customers are collected at the time of vehicle return. The Company
collects sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes are
accounted for on a net basis and are not included in sales or cost of sales.
Note 2 - Summary of Significant Accounting
Policies (cont’d.)
Income Taxes
Income tax expense includes federal
and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting
and income tax purposes. Deferred tax assets and liabilities are determined based on the difference between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse.
The effect of a change in the tax rate on the deferred tax assets and liabilities is recognized in income in the period that includes
the enactment date. The Company establishes a valuation allowance when necessary to reduce its deferred tax assets to an amount
that is expected to be realized.
LMP Motors, NSR, LMP Finance,
and LMP Automotive are limited liability companies, which are treated as partnerships for income tax purposes. The income or loss
and credits from limited liability companies are passed through to their members and reported on the members’ income tax
returns. As such, there is no provision for income taxes. If applicable, the Company would recognize interest and penalties associated
with tax matters as part of operating expenses and include accrued interest and penalties with the related tax liability in its
condensed consolidated financial statements. There are no unrecognized tax benefits at March 31, 2020 and December 31, 2019.
Advertising
The Company expenses advertising
and marketing costs in the period incurred. Advertising expense was approximately $11,100 and $65,900 for the three months ended
March 31, 2020 and 2019, respectively.
Leases
The Company adopted ASU No. 2016-02, Leases
(“Topic 842”) using the modified retrospective adoption method with an effective date of January
1, 2019. The condensed consolidated financial statements for the three months ended March 31, 2020 and the year ended December
31, 2019 are presented under the new standard. This standard requires all lessees to recognize a right-of-use asset and a lease
liability, initially measured at the present value of the lease payments.
Under Topic 842, the Company
applied a dual approach to all leases whereby the Company is a lessee and classifies leases as either finance or
operating leases based on the principle of whether or not the lease is effectively a financed purchase by the Company.
Lease classification is evaluated at the inception of the lease agreement. Regardless of classification, the Company records a
right-of-use asset and a lease liability for all leases with a term greater than 12 months. The lease for the premises occupied in
Plantation, Florida, was classified as an operating lease as of March 31, 2019. Operating lease expense is recognized on a
straight-line basis over the term of the lease.
The adoption of the new lease
standard had a significant impact on the condensed consolidated balance sheets, resulting in the recognition of $1.4
million of right-of-use assets, $0.3 million of current lease liabilities, and $1.1 million of long-term lease
liabilities in the first quarter of 2019. In addition, the Company recognized an approximate $17,000 cumulative effect adjustment
to accumulated deficit on the condensed consolidated statements of shareholders’ equity related to the unamortized
deferred lease costs incurred in prior periods which do not meet the definition of initial direct costs under Topic 842. The
adoption of Topic 842 did not have a significant impact on the lease classification or a material impact on the condensed
consolidated statements of operations and liquidity.
Note 2 - Summary of Significant Accounting
Policies (cont’d.)
Leases (cont’d.)
The components of the right-of-use
asset and lease liabilities as of March 31, 2020 and December 31, 2019 are as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Operating lease right-of-use asset
|
|
$
|
1,016,741
|
|
|
$
|
1,100,271
|
|
Operating lease liability, current portion
|
|
$
|
340,222
|
|
|
$
|
335,338
|
|
Operating lease liability, net of current portion
|
|
$
|
708,574
|
|
|
$
|
795,147
|
|
Operating Leases
During 2018, the Company entered
into a lease with an entity related through common ownership for its facilities in Plantation, Florida. The five-year, triple-net
lease provides for monthly payments of $28,500 plus CAM and sales taxes, with annual escalations of three percent (3%). The Company
has an option to extend the lease for an additional five-year term, with annual escalations of three percent (3%). The option to
extend the lease is not recognized in the right-of-use asset or operating lease liability.
Discount Rate
When available, the Company uses
the rate implicit in the lease or a borrowing rate based on similar debt to discount lease payments to present value. However,
the lease generally does not provide a readily determinable implicit rate, and the Company’s existing debt does not have
similar terms. Therefore, the Company used the 5-year Treasury constant maturity at the lease commencement date to discount lease
payments.
Lease Cost
Operating lease cost related
to right-of-use assets (Plantation, FL Lease) is approximately $96,700 and $96,600 for the three months ended March 31, 2020 and
2019, respectively. The weighted average remaining term on the lease is 2.9 years. The weighted average discount rate is 2.63%.
Recently Issued Accounting
Pronouncements
In June 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments
– Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which changes the methodology for
measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance was
to be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB
issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases
(Topic 842) Effective Dates, which deferred the effective dates for the Company, as a smaller reporting company, until
fiscal year 2023. The Company currently plans to adopt the guidance at the beginning of fiscal 2023. The Company is continuing
to assess the impact of the standard on its consolidated financial statements.
Note 3 – Global Pandemic
On January 30, 2020, the World
Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China
(the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond the point
of origin. On March 20, 2020 the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
The full impact of the
COVID-19 outbreak continues to evolve as of the date of these condensed consolidated financial statements. As such, it is
uncertain as to the full magnitude that the pandemic will have on the Company’s combined financial condition,
liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its
consolidated financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the
COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the
COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020. In an effort to curb
the financial impacts of the outbreak, the Company has reduced the total compensation to a maximum of $120,000 per employee
for all current employees, effective beginning in May 2020, and will continue until further notice. The Company has also laid
off all nonessential employees, implemented cost cuts and canceled certain new vehicle orders to accommodate the current
demand.
The vehicle sales and rental industries have been significantly affected by the COVID-19
outbreak. Due to travel restrictions, car rentals and purchases have been reduced, with estimates of decreases compared to
the previous year across the industry as much as 6-8%. Online sales and delivery direct to customers may alleviate some of
this decrease, as they allow customers to comply with social distancing recommendations. Rental car sales have been significantly
affected, with major rental car companies seeing as much as 80% decreases in sales over the quarter due to travel restrictions
and cancellations.
Note 4 -
Asset Purchase Agreement
On February 19, 2020, the Company
entered into an asset purchase agreement whereby the Company purchased $4.2 million of assets, including vehicles ($2.87 million)
and a perpetual, non-exclusive license for leasing software ($1.35 million). The vehicles were financed by two different lenders,
and the Company paid approximately $526,000 in cash and issued 33,183 shares of common stock at $14.69 per share (closing price
of its common stock on February 19, 2020) for the remainder of the transaction.
The non-exclusive perpetual software
license is for a vehicle subscription service app for upcoming launch in the Apple App and Google Play stores. The license value
of $1.35 million is being amortized over its estimated useful life of three (3) years. Any enhancements to the software will be
the exclusive property of the Company.
The vehicle acquisition was financed
in part by two credit lines. The first line from Sutton Leasing funded the purchase of 30 vehicles for $2.4 million at the floating
LIBOR rate on the date of the advance, plus 2.80%, or 4.55% interest on the date of the advance, with terms ranging from 24 to
36 months. The second line from The Bancorp was a credit line for funding advances up to $850,000 at the Prime Rate per the Wall
Street Journal on the date of the advance plus 2%, but not less than 4% on advances on 48-month terms. The Company used approximately
$818,400 at 6.5% interest for the purchase of 13 vehicles, with terms ranging from 32 to 41 months.
Note 5 - Concentration of Credit Risk
The Company maintains its cash
balances in several financial institutions which are insured by the Federal Deposit Insurance Corporation (“FDIC”)
for up to $250,000 per institution. From time to time, its balances may exceed these limits.
Note 6 - Property, Equipment and Leasehold
Improvements
Property, equipment and leasehold
improvements, net are summarized as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Vehicles
|
|
$
|
28,730
|
|
|
$
|
28,730
|
|
Furniture, fixtures and equipment
|
|
|
331,594
|
|
|
|
301,417
|
|
Leasehold improvements
|
|
|
288,738
|
|
|
|
288,738
|
|
|
|
|
649,062
|
|
|
|
618,885
|
|
Less: Accumulated depreciation and amortization
|
|
|
(129,392
|
)
|
|
|
(109,530
|
)
|
|
|
$
|
519,670
|
|
|
$
|
509,355
|
|
Depreciation and amortization
expense related to vehicles, equipment, and leasehold improvements amounted to $22,687 and $18,868 for the three months ended March
31, 2020 and 2019, respectively.
Note 7 – Intangible Assets
Intangible assets, net, are summarized
as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Software license
|
|
$
|
1,350,000
|
|
|
$
|
-
|
|
Website design and other intangibles
|
|
|
116,897
|
|
|
|
99,776
|
|
|
|
|
1,466,897
|
|
|
|
99,776
|
|
Less: Accumulated depreciation and amortization
|
|
|
(89,020
|
)
|
|
|
(30,449
|
)
|
|
|
$
|
1,377,877
|
|
|
$
|
69,327
|
|
Amortization expense amounted
to $55,747 and $4,221 for the three months ended March 31, 2020 and 2019, respectively.
Note 8 – Investment in Leasing
Operations
Investment in leasing operations
consists of the following:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Sales-type leases:
|
|
|
|
|
|
|
|
|
Minimum lease payments receivable
|
|
$
|
980,741
|
|
|
$
|
157,542
|
|
Unearned income
|
|
|
(322,647
|
)
|
|
|
(47,114
|
)
|
Guaranteed residual value of vehicles
|
|
|
3,926,414
|
|
|
|
690,333
|
|
Total investment in leasing operations
|
|
$
|
4,584,508
|
|
|
$
|
800,761
|
|
As of March 31, 2020 and December
31, 2019, the total investment in sales-type leases is classified as short-term as all leases are due within one year of the balance
sheet date.
The assets held under the investment
are leased to five customers. A certain residual value of the vehicles is guaranteed by these customers, whether those customers
ultimately purchases the vehicle at the end of the lease term or not.
Leasing income as included in
Revenues on the Consolidated Condensed Statements of Operations consists of the following:
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
Interest income on sales-type leases
|
|
$
|
34,408
|
|
|
$
|
-
|
|
Selling profit at commencement of sales-type lease
|
|
|
286,013
|
|
|
|
-
|
|
Operating lease income
|
|
|
16,741
|
|
|
|
172,433
|
|
Leasing income
|
|
$
|
337,162
|
|
|
$
|
172,433
|
|
Note 9 - Related Party Transactions
During 2018, the Company entered
into a non-interest bearing revolving line of credit agreement with an entity related to the majority shareholder (credit limit
is $4,000,000). Amounts drawn on the line of credit become due and payable on the earlier of written demand by the lender or May
21, 2020, as defined in the agreement. The line of credit was paid in full in December 2019.
During 2018, the Company entered
into a lease with an entity related through common ownership for its facilities in Plantation, Florida. The five-year, triple-net
lease provides for monthly payments of $28,500 plus CAM and sales taxes, with annual escalations of three percent (3%). The Company
has an option to extend the lease for an additional five-year term, with annual escalations of three percent (3%). The option to
extend the lease is not recognized in the right-of-use asset or operating lease liability.
The Company leases vehicles under
its subscription program to certain officers and directors under 6-month contracts. Total payments made by officers and directors
for the vehicle leases was $23,590 for the three month period ended March 31, 2020.
Note 10 - Accounts Payable and Other
Current Liabilities
Accounts payable and other current
liabilities are summarized as follows:
Accounts Payable:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Accounts Payable
|
|
$
|
304,692
|
|
|
$
|
68,033
|
|
Credit Card Payable
|
|
|
16,910
|
|
|
|
44,807
|
|
Vehicle Purchase Payable
|
|
|
13,721
|
|
|
|
-
|
|
Total Accounts Payable
|
|
$
|
335,323
|
|
|
$
|
112,840
|
|
Other Current Liabilities:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Accrued Payroll
|
|
$
|
144,881
|
|
|
$
|
157,174
|
|
Customer Deposits On Hand
|
|
|
79,656
|
|
|
|
163,774
|
|
Subscription Deferred Activation Fees
|
|
|
98,187
|
|
|
|
145,986
|
|
Property Tax Accrual
|
|
|
76,971
|
|
|
|
61,577
|
|
Sales & Other Taxes Payable
|
|
|
19,052
|
|
|
|
42,483
|
|
Other Accruals
|
|
|
186,194
|
|
|
|
82,069
|
|
Total Other Current Liabilities
|
|
$
|
604,941
|
|
|
$
|
653,063
|
|
Note 11 - Lease
Commitments
The annual minimum lease payments,
including fixed rate escalations, on the Company’s operating lease liability with a related party under common ownership
in Plantation, FL as of March 31, 2020 are as follows:
Years Ending December 31:
|
|
|
|
2020 (nine months)
|
|
$
|
272,122
|
|
2021
|
|
|
371,898
|
|
2022
|
|
|
383,055
|
|
2023
|
|
|
64,154
|
|
Total minimum lease payments
|
|
|
1,091,229
|
|
Less: amount representing interest
|
|
|
(42,433
|
)
|
Present value of future payments
|
|
|
1,048,796
|
|
Less: current obligations
|
|
|
(340,222
|
)
|
Long-term obligations
|
|
$
|
708,574
|
|
Operating Leases
During 2018, the Company entered
into a third-party lease for its Miami Beach, Florida operations. The one year lease provided for monthly payments of $3,800, with
a renewal option for an additional 12 months at $4,000 monthly. The lease expired April 30, 2019 and was not renewed.
During 2018, the Company entered
into an agreement for the licensed right to use 201 garage parking spaces in Miami Beach, Florida. The 27-month agreement provided
for monthly payments of $140 per space ($28,140 per month total), with annual escalations of two percent (2%). In April 2019, the
Company terminated the license to use the parking spaces.
During 2019, the Company entered
into an agreement for the right to use certain parking spaces in Oakland Park, Florida. The month-to-month agreement calls for
monthly rent of $5,000 per month, plus sales tax.
Rent expense charged to operations
for the three months ended March 31, 2020 and 2019, inclusive of CAM and taxes, was $124,075 and $213,400, respectively.
Note 12 - Vehicle Financing and Notes
Payable
In 2019, Mercedes-Benz Financial
approved $3.5 million for the Company’s subscription and rental fleet inventory purchases. During 2019, the Company purchased
vehicles totaling approximately $2,400,000 under various Note and Security Agreements with 10% cash down payments and the remaining
$2,160,000 financed over 36 months at an interest rate of 4.89%.
During the three months ended
March 31, 2020, Mercedes-Benz Financial increased the approval amount from $3.5 million to $10 million. The Company financed vehicles
previously purchased totaling approximately $802,000 under a Note and Security Agreement with no cash down payment and financed
over 36 months at an interest rate of 4.09%. At March 31, 2020 and December 31, 2019, the outstanding principal balance was approximately
$2,786,000 and $2,103,000, respectively.
In 2019, NextGear Capital approved
a $250,000 vehicle floorplan line with an interest rate of 10% and principal payments due at 60 and 90 days and final payoff due
at 120 days or upon vehicle sale. The outstanding principal balance was $0 and $60,239 at March 31, 2020 and December 31, 2019,
respectively.
Note 13 - Contingencies
The Company is subject to asserted claims and liabilities
that arise in the ordinary course of business. The Company maintains third-party insurance to mitigate potential losses from these
actions. In the opinion of management, the amount of the ultimate liability with respect to these actions will not materially affect
the Company’s financial position or results of operations.
On February 10, 2020, a partial
summary judgement was granted for the plaintiff for alleged breach of its license agreement to use garage parking spaces in Miami
Beach, Florida which the Company terminated in April 2019. The current asserted losses by the plaintiff total approximately $224,250,
with a potential maximum exposure under the terminated agreement of approximately $580,450. The judge has ordered the parties to
further mediate the dispute, and the Company is appealing the summary judgment.
Note 14 - Equity
In February 2020, the Company
completed a secondary public offering, selling 1,200,000 shares of common stock at an offering price of $16.00 per share, and warrants
to purchase shares of common stock. Aggregate gross proceeds from the offering were approximately $19.2 million, and net proceeds
received after underwriting fees and offering expenses were approximately $17.3 million.
In February 2020, as part of
its asset purchase agreement, the Company issued 33,183 shares of common stock valued at a price of $14.69 per share, or $487,454.
Note 15 - Stock
Options
At March 31, 2020 and 2019, the
Company had $138,589 and $405,794, respectively, of unrecognized compensation costs related to stock options outstanding, which
will be recognized through 2024. The Company will recognize forfeitures as they occur. Share-based compensation expense was $79,022
and $37,404 for the three months ended March 31, 2020 and 2019, respectively. The total amount recorded in “Additional paid-in
capital” related to stock options as of March 31, 2020 was approximately $646,000. The weighted average remaining contractual
term for the outstanding options at March 31, 2020 and December 31, 2019 is 3.51 and 3.54 years, respectively.
Note 15 - Stock
Options (cont’d.)
Stock option activity for the
three months ended March 31, 2020 and year ended December 31, 2019, are as follows:
|
|
Number of Shares
|
|
|
Weighted Avg. Exercise Price
|
|
Outstanding at December 31, 2018
|
|
|
511,000
|
|
|
$
|
3.82
|
|
Options granted
|
|
|
112,500
|
|
|
|
7.01
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
Options forfeited or expired
|
|
|
(279,000
|
)
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
344,500
|
|
|
$
|
4.57
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
Options forfeited or expired
|
|
|
(7,500
|
)
|
|
|
-
|
|
Outstanding at March 31, 2020
|
|
|
337,000
|
|
|
$
|
4.54
|
|
Vested as of March 31, 2020
|
|
|
297,923
|
|
|
$
|
3.97
|
|
Expected to vest as of March 31, 2020
|
|
|
39,077
|
|
|
$
|
8.91
|
|
Note 16 - Purchase
Warrants
Common stock purchase warrant
activity for the years ended March 31, 2020 and December 31, 2019 are as follows:
|
|
Number of Warrants
|
|
|
Weighted Avg. Exercise Price
|
|
Outstanding at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Issued
|
|
|
115,000
|
|
|
|
6.25
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
115,000
|
|
|
$
|
6.25
|
|
Issued
|
|
|
36,000
|
|
|
|
20.00
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2020
|
|
|
151,000
|
|
|
$
|
9.53
|
|
In connection with the Company’s
IPO, the Company granted warrants to purchase 115,000 shares of its Common Stock at $6.25 per share to its underwriters.
In February 2020, in connection
with its second public offering, the Company granted warrants to purchase 36,000 shares of its Common Stock at $20.00 per share
to its underwriters.
Note 17 - Net Loss
per Share Attributable to Common Shareholders
The basic and diluted net loss
per common share was the same for each period presented as the Company’s potentially dilutive shares would be antidilutive.
The weighted average shares of Common Stock outstanding was 9,326,054 and 24,592,516 for the three months ended March 31, 2020
and 2019, respectively.
Note 18 - Subsequent Events
In May 2020, the Company offered to rescind the purchase
of certain shares of Company stock, including shares converted from debt in 2018 and 2019. The Company estimates that the maximum
amount of costs related to the rescission offer will be approximately $1.6 million, plus accrued interest.
In May 2020, in response to the uncertainty caused
by COVID-19, the Company set the annual compensation limit for all current employees to $120,000 until further notice.