UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from ____________ to ____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act: None.
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Indicate
by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| ☒ | Smaller reporting company | ||
| Emerging growth company |
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an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
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As of November 16, 2021, there were
TABLE OF CONTENTS
i
LMP AUTOMOTIVE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Net investment in sales-type leases | ||||||||
| Deposits held in escrow for acquisitions | - | |||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Land | ||||||||
| Property, equipment and leasehold improvements, net | ||||||||
| Intangible assets, net | ||||||||
| In place leases, net | ||||||||
| Right of use asset | ||||||||
| Franchise rights | ||||||||
| Tradenames | ||||||||
| Goodwill | ||||||||
| Deposits held in escrow for acquisitions | - | |||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Vehicle floorplan financing | ||||||||
| Premium finance contract | ||||||||
| Operating lease liability, current portion | ||||||||
| Vehicle financing and notes payable, current portion | ||||||||
| Bank term loan, current portion | ||||||||
| Income taxes payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Vehicle financing and notes payable, net of current portion | ||||||||
| Bank term loan, net of current portion | ||||||||
| Deferred compensation liability | ||||||||
| Warrant liability | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Other noncurrent liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Redeemable noncontrolling interests | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock at cost, | ( | ) | ( | ) | ||||
| Non-controlling interest in consolidated subsidiaries | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
LMP AUTOMOTIVE HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues: | ||||||||||||||||
| New vehicle retail | $ | $ | $ | $ | ||||||||||||
| Used vehicle retail | ||||||||||||||||
| Used vehicle wholesale | ||||||||||||||||
| Finance and insurance, net | ||||||||||||||||
| Service, body and parts | ||||||||||||||||
| Fleet and other | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of sales: | ||||||||||||||||
| New vehicle retail | ||||||||||||||||
| Used vehicle retail | ||||||||||||||||
| Used vehicle wholesale | ||||||||||||||||
| Service, body and parts | ||||||||||||||||
| Fleet and other | ||||||||||||||||
| Total cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Floorplan interest expense | ( | ) | ( | ) | ||||||||||||
| Other interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax provision | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Net income attributable to noncontrolling interest | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to LMP Automotive Holdings | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Calculation of income (loss) for earnings per share: | ||||||||||||||||
| Net income (loss) attributable to LMP Automotive Holdings | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Change in noncontrolling interest redemption value | ( | ) | ( | ) | ||||||||||||
| ( | ) | ( | ) | ( | ) | |||||||||||
| Less: net income allocated to preferred shareholders | - | - | - | |||||||||||||
| Net income (loss) attributable to common shareholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic net income (loss) per share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted net income (loss) per share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares of common stock outstanding, basic | ||||||||||||||||
| Weighted average shares of common stock outstanding, diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
LMP AUTOMOTIVE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| For the Three and Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in | Treasury | Non-Controlling | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Stock | Interest | Deficit | Total | ||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Common stock issued for cashless warrant exercises | ||||||||||||||||||||||||||||||||||||
| Common stock issued for cashless option exercises | ||||||||||||||||||||||||||||||||||||
| Adjustment for redemption value of noncontrolling interests | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common stock issued for options exercised for cash | ||||||||||||||||||||||||||||||||||||
| Convertible preferred stock issued for cash | ||||||||||||||||||||||||||||||||||||
| Common stock issued for acquisitions | ||||||||||||||||||||||||||||||||||||
| Noncontrolling interest in consolidated entities | - | - | ||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Adjustment for redemption value of noncontrolling interests | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Noncontrolling interest in consolidated entities | - | - | ||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for options exercised for cash | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Adjustment for redemption value of noncontrolling interests | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of preferred stock | ( | ) | ( | ) | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
LMP AUTOMOTIVE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| For the Three and Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in | Treasury | Non- Controlling | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Stock | Interest | Deficit | Total | ||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Issuance of shares for cash | ||||||||||||||||||||||||||||||||||||
| Issuance of shares for purchase of assets | ||||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Share based compensation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Common stock repurchased | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of shares for cash | - | |||||||||||||||||||||||||||||||||||
| Cashless exercise of warrants | - | |||||||||||||||||||||||||||||||||||
| Net income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
LMP AUTOMOTIVE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine
Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Share based compensation | ||||||||
| Revaluation of redeemable warrants | ( | ) | ||||||
| Principal collections on investment in sales-type lease contracts | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of right of use asset | ( | ) | ||||||
| Interest accrued on vehicle financing and notes payable | ||||||||
| (Increase) Decrease in assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Vehicles purchased for investment in sales-type lease contracts | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Increase (Decrease) in liabilities: | ||||||||
| Accounts payable | ||||||||
| Deferred compensation | ||||||||
| Other current & noncurrent liabilities | ||||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Acquisitions, net of cash acquired | ( | ) | ||||||
| Additions to intangible assets & other assets | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net cash received from issuance of common stock | ||||||||
| Proceeds from issuance of preferred stock | ||||||||
| Payment of fees for the issuance of preferred stock | ( | ) | ||||||
| Proceeds from redeemable warrants | ||||||||
| Proceeds from the sale of noncontrolling interest | ||||||||
| Proceeds received from related party | ||||||||
| Payment to related party | ( | ) | ||||||
| Distributions to noncontrolling interests | ( | ) | ||||||
| Distributions to redeemable noncontrolling interests | ( | ) | ||||||
| Proceeds received from term loan, net of debt discount | ||||||||
| Payments on term loan | ( | ) | ||||||
| Payments on insurance premium financing | ( | ) | ||||||
| Proceeds received from vehicle financing | ||||||||
| Proceeds from vehicle financing and notes payable | ||||||||
| Repurchase of common stock | ( | ) | ||||||
| Repayments of vehicle financing and notes payable | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH & RESTRICTED CASH | ( | ) | ||||||
| CASH & RESTRICTED CASH, BEGINNING OF PERIOD | ||||||||
| CASH & RESTRICTED CASH, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Issuance of common stock for acquisitions | $ | $ | ||||||
| Accrued share commitment liability | $ | $ | ||||||
| Acquisition holdback due to Seller | $ | $ | ||||||
| Right of use asset obtained in exchange for operating lease liability | $ | $ | ||||||
| Purchase of software license for debt and equity | $ | $ | ||||||
| Purchase of vehicles for debt and equity | $ | $ | ||||||
| Common stock issued for conversion of preferred stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Operations and Principles of Consolidation
Business Activity
In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “LMP”, “Automotive”, and “the Company” refer to LMP Automotive Holdings, Inc. and its consolidated subsidiaries, unless the context requires otherwise.
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 and subscribing 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.
Automotive
is a holding company incorporated in the state of Delaware on December 15, 2017. On December 15, 2017, the common ownership contributed
During the first nine months of 2021, Automotive, through LMP Automotive, acquired majority interests in 11 new vehicle franchises, comprising 7 new dealership locations. Automotive, through LMP Finance, also acquired a majority interest in LTO Holdings, LLC, a Connecticut based automotive leasing company with an associated collision center. These acquisitions transformed the Company, enabling us to offer a wide array of products and services fulfilling the entire vehicle ownership lifecycle, including new and used vehicles, finance and insurance products and automotive repair and maintenance.
On March 3, 2021, the Company completed certain acquisitions which resulted in the acquisition of Beckley Buick GMC, King Coal Chevrolet, Hometown Kia, Princeton Pre-owned, Lewisburg Pre-owned and Summerville Pre-Owned in West Virginia.
On March 4, 2021, the Company completed certain acquisitions which resulted in the acquisition of Fuccillo Kia of Port Charlotte and Cape Coral located in Florida, both operating under sales and service agreements with KIA Motors America, Inc.
On
March 9, 2021, LMP Finance, acquired a
On March 23, 2021, the Company completed the acquisition of Bachman-Bernard Chevrolet-Buick-GMC-Cadillac, along with its associated real estate.
On May 5, 2021, the Company completed the acquisition of Hometown Subaru in West Virginia, which is a dealership related to the March 3, 2021 acquisitions of Beckley Buick GMC, King Coal Chevrolet, Hometown Kia, Princeton Pre-owned, Lewisburg Pre-owned and Summerville Pre-Owned.
The
aggregate purchase price of these acquisitions totaled approximately $
The allocations of the purchase price for these acquisitions are preliminary. The allocations will be revised during the one year allocation period as management obtains additional information about the estimated fair values of the acquired assets, identification and quantification of assumed liabilities and finalization of working capital amounts related to these acquisitions.
Principles of Consolidation
These condensed consolidated financial statements include the amounts of Automotive and its subsidiaries, collectively referred to as the “Company.” All significant intercompany balances and transactions are eliminated in consolidation.
6
Note 2 - Summary of Significant Accounting Policies
Liquidity
The
Company has sustained net losses and has an accumulated deficit of approximately $
Management plans to continue to obtain funding through 2021 for strategic dealership acquisitions.
Basis of Presentation
These accompanying condensed consolidated financial statements contain unaudited information as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2020 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2020, is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2021. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
Reclassifications
Certain immaterial reclassifications of amounts previously reported have been made to the accompanying condensed consolidated financial statements to maintain consistency and comparability between periods presented.
Use of Estimates
The preparation of 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 financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. We periodically evaluate estimates and assumptions used in the preparation of the financial statements and make changes on a prospective basis when adjustments are necessary. Such estimates and assumptions affect, among other things, our goodwill, indefinite-lived intangible asset, and long-lived asset valuations; inventory valuation; assessment of the annual income tax expense; deferred income taxes and income tax contingencies; and measurement of compensation costs.
Fair Value of Assets Acquired and Liabilities Assumed
We estimate the fair value of the assets acquired and liabilities assumed in a business combination using various assumptions. The most significant assumptions used relate to determining the fair value of property and equipment, and intangible franchise rights.
We estimate the fair value of property and equipment based on a market valuation approach. We use prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets, as well as our historical experience in divestitures, acquisitions and real estate transactions. Additionally, we may use a cost valuation approach to value long-lived assets when a market valuation approach is unavailable. Under this approach, we determine the cost to replace the service capacity of an asset, adjusted for physical and economic obsolescence. When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and brokers, to corroborate our estimates of fair value.
We estimate the fair value of our franchise rights primarily using the Multi-Period Excess Earnings (MPEE) model. The forecasted cash flows used in the MPEE model contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, general operating expenses, and cost of capital. We use primarily internally-developed forecasts and business plans to estimate the future cash flows that each franchise will generate. We have determined that all cash flows of the store are directly attributable to the franchise rights. We estimate the appropriate interest rate to discount future cash flows to their present value equivalent taking into consideration factors such as a risk-free rate, a peer group average beta, an equity risk premium and a small stock risk premium. Additionally, we also may use a market approach to determine the fair value of our franchise rights. These market data points include our acquisition and divestiture experience and third-party broker estimates.
7
We use a relief-from-royalty method to determine the fair value of a trade name. Future cost savings associated with owning, rather than licensing, a trade name is estimated based on a royalty rate and management’s forecasted sales projections. The discount rate applied to the future cost savings factors an equity market risk premium, small stock risk premium, an average peer group beta, a risk-free interest rate and a premium for forecast risk.
Accounts Receivable
The Company carries its accounts receivable at cost. Accounts receivable consist of amounts due from customers, financial institutions, manufacturers and insurance providers. Management has determined that no allowance for uncollectible accounts for accounts receivable is necessary as of September 30, 2021 and December 31, 2020. 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.
Inventories
Inventories are valued at the lower of net realizable value or cost, using the specific identification method for new vehicles, pooled approach for used vehicles, and the first-in, first out method for parts. The cost of new and used vehicle inventories includes the cost of any equipment added, reconditioning and transportation. Inventories as of September 30, 2021 and December 31, 2020 are recorded based on perpetual inventory records.
The
Company launched its subscription business in 2018, at which time it started to depreciate the corresponding fleet inventory using a
monthly rate of
Company
management periodically reviews its inventories to determine whether any inventories have declined in value. The Company has a reserve
recorded for impairment to reflect inventory at net realizable value of approximately $
Inventories consisted of the following as of September 30, 2021 and December 31, 2020:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| New vehicles | $ | $ | ||||||
| Used vehicles | ||||||||
| Parts & accessories | ||||||||
| Fleet vehicles | ||||||||
| Accumulated depreciation | ( | ( | ) | |||||
| Total inventories | $ | $ | ||||||
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:
| Equipment | |||
| Vehicles | |||
| Furniture and fixtures | |||
| Buildings |
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.
Through acquisition, we have agreements (Franchise Rights) with our manufacturers. Franchise Rights represents a right received under Franchise Agreements with manufacturers and is identified on an individual dealership basis.
8
The Company evaluates the useful lives of our Franchise Rights based on the following factors:
As evidenced by our acquisitions, there is an active market for most automotive dealership franchises within the United States. We attribute value to the Franchise Rights acquired with the dealerships we purchase based on the understanding and industry practice that the Franchise Rights will be renewed indefinitely by the manufacturer.
Accordingly, we have determined that our Franchise Agreements will continue to contribute to our cash flows indefinitely and, therefore, have indefinite lives.
As an indefinite-lived intangible asset, franchise value is tested for impairment at least annually, and more frequently if events or circumstances indicate the carrying value may exceed fair value. The impairment test for indefinite-lived intangible assets requires the comparison of estimated fair value to carrying value. An impairment charge is recorded to the extent the fair value is less than the carrying value. We have the option to qualitatively or quantitatively assess indefinite-lived intangible assets for impairment. We will evaluate our indefinite-lived intangible assets using a qualitative assessment process. We have determined the appropriate unit of accounting for testing Franchise Rights for impairment is each individual store.
The testing of our indefinite-lived intangible assets for impairment will be performed on or before December 31 of each year and more frequently if events or circumstances indicate the carrying amount of the reporting unit more likely than not exceeds fair value.
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 long lived and 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 as of September 30, 2021 and December 31, 2020.
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.
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.
As of September 30, 2021, and December 31, 2020, the fair value of these financial instruments, including cash and restricted cash, accounts receivable, notes receivable, net investment in sales-type leases, 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. Our fair value measurements related to goodwill, intangible assets and contingent consideration are recognized in connection with acquisitions. Goodwill and intangible assets are valued using level 3 inputs, and contingent consideration is valued using level 2 inputs.
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value. As of September 30, 2021 the fair value of warrant liabilities is as follows:
| Description | Quoted Priced
in Active Markets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant Other Unobservable Inputs (Level 3) |
|||||||||
| Warrant liabilities | $ | $ | $ | |||||||||
Warrant Liability – The 2021 Warrants are accounted for as derivative liabilities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-40 Derivatives and Hedging (“ASC 815”) and are presented as a liability on the Company’s consolidated balance sheets. The warrant liability is measured at fair value at inception and on a recurring basis, with any subsequent changes in fair value presented in the Company’s statement of operation.
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Initial Measurement – The Company established the initial fair value for the 2021 Warrants on February 25, 2021, the date of the closing. The 2021 Warrants are measured at fair value on a recurring basis, using a Monte Carlo simulation, Option Pricing Model (“OPM”). The Company allocated the proceeds received from (i) the sale of the preferred units, first to the 2021 Warrants based on their fair values as determined at initial measurement, with the remaining proceeds allocated to Series A Convertible Preferred Stock. The 2021 Warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs.
The Company utilizes the OPM to value the 2021 Warrants at each reporting period, with any subsequent changes in fair value recognized in the consolidated statement of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in the OPM are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its shares of common stock based on historical volatility that matches the expected remaining life of the 2021 Warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the issuance date for a maturity similar to the expected remaining life of the 2021 Warrants. The expected life of the 2021 Warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. The aforementioned warrant derivative liability is not subject to qualified hedge accounting.
The following table provides quantitative information regarding Level 3 fair value measurements:
| September 30, 2021 | February
25, 2021 (initial measurement) | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Exercise Price | $ | $ | ||||||
| Stock Price | $ | $ | ||||||
| Dividend yield | % | % | ||||||
The following table presents the changes in the fair value of the warrant liability:
| Warrant Liability | ||||
| Fair value as of February 25, 2021 | $ | |||
| Change in valuation inputs or other assumptions (1) | ( | ) | ||
| Fair value as of March 31, 2021 | ||||
| Change in valuation inputs or other assumptions (1) | ||||
| Fair value as of June 30, 2021 | ||||
| Change in valuation inputs or other assumptions (1) | ||||
| Fair value as of September 30, 2021 | $ | |||
| (1) | Changes in valuation inputs or other assumptions are recognized in other income, net in the statement of operations for the three months ended March 31, 2021, June 30, 2021 and September 30, 2021. |
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.
Revenue Recognition
The Company recognizes revenue in accordance with the FASB 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.
The Company leases vehicles to third parties that are accounted for in accordance with FASB ASC 842, Leases (“ASC 842”). 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 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.
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Revenue on 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 fleet and other revenues and fleet and other 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.
New Retail Vehicle and Used Retail Vehicle Revenues
Revenue from the retail sale of a vehicle is recognized at a point in time, as all performance obligations are satisfied when a contract is signed by the customer, financing has been arranged or collectability is probable, and the control of the vehicle is transferred to the customer. The transaction price for a retail vehicle sale is specified in the contract with the customer and includes all cash and non-cash consideration including dealer fees. In a retail vehicle sale, customers often trade in their current vehicle. The trade-in is measured at its stand-alone selling price in the contract, utilizing various third-party pricing sources. There are no other non-cash forms of consideration related to retail sales. All vehicle rebates are applied to the vehicle purchase price at the time of the sale and are therefore incorporated into the price of the contract at the time of the exchange. We do not allow the return of new or used vehicles, except where mandated by state law.
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 revenues or cost of sales.
Service, Body and Parts Revenue
Revenue from service, body and parts sales is recognized upon the transfer of control of the parts or service to the customer. We allow for customer returns on sales of our parts inventory up to 30 days after the sale. Most parts returns generally occur within one to two weeks from the time of sale and are not significant.
Finance and Insurance, net
Revenue
from finance and insurance sales is recognized, net of estimated chargebacks, at the time of the sale of the related vehicle. Chargeback
reserves totaled approximately $
As a part of the vehicle sale, we seek to arrange financing for customers and sell a variety of add-ons, such as extended warranty service contracts. These products are inherently attached to the governing vehicle and performance of the obligation cannot be performed without the underlying sale of the vehicle. We act as an agent in the sale of these contracts as the pricing is set by the third-party provider, and our commission is preset. Revenues for these contracts are presented net of associated costs within the consolidated statements of operations.
Fleet and Other Revenue
Fleet and other revenue consists of revenue from sales-type and operating leases, subscription and interest. Effective July 1, 2021, dealer fees are now reflected in new and used vehicle revenue.
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, 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.
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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. Subscription revenues are recognized over time based on the duration of the contract
term with the customer. The amount of revenue recognized is calculated using an input method, which most closely depicts performance
of the contracts. Our subscription liability balance was approximately $
Customer payment is received prior to initial vehicle delivery 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.
Leasing 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. 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.
Dealer Fees
Dealer fees are earned primarily in connection with retail sales of new or used vehicles and are recorded at the same time as the retail sale. These consist of the standard dealer fees charged with each transaction.
Segment Reporting
We have determined that each of our retail stores along with our fleet operations, which are considered individual operating segments, are one reportable segment because they have similar operating revenues, margins, customers, product distribution, and regulatory environment. Additionally, there is one management team that reviews and manages our retail stores and fleet operations. Therefore, we have determined that we have one reportable segment: Retail & Fleet.
Our Retail & Fleet segment is comprised of our retail automotive locations that sell new vehicles manufactured by General Motors, Subaru and KIA Motors and Fleet leasing and sales. The franchises in each segment also sell used vehicles, wholesale vehicles, parts and automotive services, and automotive finance and insurance products.
We define our chief operating decision maker (“CODM”) to be a committee comprising of the Company’s Chief Executive Officer and Chief Operating Officer. Historical and forecasted operational performance is evaluated on a store-by-store basis and on a consolidated basis by the CODM. We derive the operating results of the segments directly from our internal management reporting system. The accounting policies used to derive segment results are substantially the same as those used to determine our consolidated results. Our CODM reviews capital expenditures on an aggregated one reporting unit basis. Performance measurement of the reportable segment by the CODM is based on several metrics, including earnings from operations. The CODM uses these results, in part, to evaluate the performance mainly associated with expected inventory and working capital requirements, of the reportable segment.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets are required to be reduced by a valuation allowance to the extent that, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized.
Advertising
The
Company expenses advertising and marketing costs in the period incurred. Advertising expense was approximately $
12
Leases
The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”) using the modified retrospective adoption method with an effective date of January 1, 2019. 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. Operating lease expense is recognized on a straight-line basis over the term of the lease.
The components of the right of use asset and lease liabilities as of September 30, 2021 and December 31, 2020 are as follows:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Operating lease right of use asset | $ | $ | ||||||
| Operating lease liability, current portion | $ | $ | ||||||
| Operating lease liability, net of current portion | $ | $ | ||||||
Operating Leases
During 2018, the Company entered into a lease with an entity related through common ownership for its facilities in Plantation, Florida.
In
September 2020, the Company entered into a lease with an unrelated entity for office space in Fort Lauderdale, Florida. The 34 month
lease provides for monthly payments of $
In
March 2021, two of the Company’s dealerships entered into
In
May 2021, one of the Company’s dealerships entered into two leases with a related entity for the dealership premises with monthly
rents of $
Total
operating lease cost for the Company’s lease locations was approximately $
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, therefore for the leases beginning in 2021, the Company used the Company’s incremental borrowing rate.
Lease Cost
Operating
lease cost related to right of use asset on the Plantation lease was approximately $
Operating
lease cost related to right of use asset on the Fort Lauderdale lease was approximately $
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued 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 year 2023. The Company is continuing to assess the impact of the standard on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We adopted the new guidance in the first quarter of 2021. The adoption of the guidance had no impact on our consolidated financial statements.
13
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We adopted the new guidance in the first quarter of 2021. The adoption of the guidance had no impact on our consolidated financial statements.
The Company early adopted ASU 2020-06 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity on a modified retrospective basis to financial instruments outstanding on January 1, 2021. This ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. There was no impact on accumulated deficit or other components of equity on the date of adoption. As a result, there were no convertible instruments outstanding at the time of adoption and the Company applied the update in determining the appropriate accounting for the preferred stock and 2021 Warrants issued during the quarter. See Note 17 – Equity.
The Company accounts for the 2021 Warrants as liability-classified instruments based on an assessment of the specific terms of the 2021 Warrants with the applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the 2021 Warrants require classification as a liability pursuant to ASC 480 and meet the requirements for equity classification under ASC 815, including whether the 2021 Warrants are indexed to the Company’s own equity and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification.
2021 Warrants that meet all of the criteria for equity classification are initially measured at fair value or relative fair value, depending on the circumstances, and are recorded as a component of additional paid-in capital at the time of issuance, and are not subsequently remeasured. 2021 Warrants that do not meet all the criteria for equity classification are recorded at their initial fair value as a liability on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of liability-classified 2021 Warrants are recognized as a gain or loss on the statements of operations.
The Company accounts for the 2021 Warrants in accordance with ASC 815-40 under which the 2021 Warrants do not meet the criteria for equity classification and must be recorded as liabilities.
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 consolidated 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. To curb the financial impacts of the outbreak, the Company initially reduced
the total compensation to a maximum of $
Beginning in January 2021, the Company resumed normal salaries, hiring practices, and vehicle purchases.
In the third quarter of 2021, U.S. industry
retail new vehicle unit sales decreased
Note 4 - Asset Purchase Agreements
On
February 19, 2020, the Company consummated an Asset Purchase Agreement whereby the Company purchased approximately $
The
non-exclusive perpetual software license is for a vehicle subscription service app in the Apple App and Google Play stores. The license
value of approximately $
14
The
vehicle acquisition was financed in part by two credit lines.
Note 5 - Acquisitions
Beckley Acquisitions – March 2021
On
March 3, 2021, through majority owned subsidiaries, the Company acquired a group of West Virginia dealerships and related real estate
for a purchase price totaling approximately $
The following table summarizes the total consideration.
| Cash | $ | |||
| Rollover equity | ||||
| Total consideration | $ |
The following table summarizes the allocation of the total consideration to the tangible and intangible assets acquired and the liabilities assumed based on the respective fair values at the acquisition date. The Company is still reviewing fair values of the assets acquired and the liabilities assumed, and rollover equity as provisional. Therefore, the fair values are provisional measurements and may be subject to change.
Net Assets Acquired – March 2021 Beckley acquisitions
| Assets acquired | ||||
| New vehicles | $ | |||
| Used vehicles | ||||
| Parts & accessories | ||||
| Property & equipment | ||||
| Real property | ||||
| Operating leases right of use assets | ||||
| Other assets | ||||
| Franchise rights | ||||
| Tradename | ||||
| Goodwill | ||||
| Total assets acquired | ||||
| Liabilities assumed | ||||
| Accrued personal property tax | ||||
| Accrued vacation | ||||
| We owes | ||||
| Intransit floorplan liability | ||||
| Operating lease liabilities | ||||
| Total liabilities assumed | ||||
| Net assets acquired | $ | |||
The fair value of the franchise rights was based on the excess earnings method. The fair value of the tradename was based on the relief from royalty method. The franchise rights and tradename are indefinite lived assets and not subject to amortization.
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The excess of the consideration transferred in the acquisition over the net amounts assigned to the fair value of the tangible assets and identifiable intangible assets acquired was recorded as goodwill, which is attributable primarily to expected synergies and an assembled workforce. Total goodwill is expected to be deductible for tax purposes.
The consolidated statements of operations include the following revenue and net income attributable to the acquired dealerships since the date of the acquisition:
| 2021 | ||||
| Revenue | $ | |||
| Net income | $ |
The following unaudited pro forma summary in the three and nine month periods ended September 30, 2021 and 2020, respectively, presents consolidated information as if the acquisition had occurred on January 1, 2020:
| Pro Forma | Pro Forma | |||||||||||||||
| For the Three Months | For the Nine Months | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenue | $ | $ | $ | |||||||||||||
| Net income | ( | ) | ( | ) | ( | ) | ||||||||||
These amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores have been adjusted to reflect the following: accounting for inventory on a specific identification method, compensation expense, recognition of interest expense for financing related to stores, and corporate income taxes based on geographic location. No nonrecurring pro forma adjustments directly attributable to the acquisitions are included in the reported pro forma revenues and earnings.
Beckley Subaru Acquisition – May 2021
On
May 5, 2021, through a majority-owned subsidiary, the Company acquired a Subaru dealership in West Virginia for a purchase price totaling
approximately $
The following table summarizes the total consideration.
| Cash | $ | |||
| Rollover equity | ||||
| Total consideration | $ |
16
The following table summarizes the allocation of the total consideration to the tangible and intangible assets acquired and the liabilities assumed based on the respective fair values at the acquisition date. The Company is still reviewing fair values of the assets acquired and the liabilities assumed, and rollover equity as provisional. Therefore, the fair values are provisional measurements and may be subject to change.
Net Assets Acquired – May 2021 Beckley Subaru acquisition
| Assets acquired | ||||
| New vehicles | $ | |||
| Used vehicles | ||||
| Property & equipment | ||||
| Operating leases right of use assets | ||||
| Other assets | ||||
| Franchise rights | ||||
| Tradename | ||||
| Goodwill | ||||
| Total assets acquired | ||||
| Liabilities assumed | ||||
| Accrued personal property tax | ||||
| Accrued vacation | ||||
| We owes | ||||
| Assumed floorplan | ||||
| Operating lease liabilities | ||||
| Total liabilities assumed | ||||
| Net assets acquired | $ | |||
The fair value of the franchise rights was based on the excess earnings method. The fair value of the trade name was based on the relief from royalty method. The franchise rights and trade name are indefinite lived assets and not subject to amortization.
The excess of the consideration transferred in the acquisition over the net amounts assigned to the fair value of the tangible assets and identifiable intangible assets acquired was recorded as goodwill, which is attributable primarily to expected synergies and an assembled workforce. Total goodwill is expected to be deductible for tax purposes.
The consolidated statements of operations include the following revenue and net income attributable to the acquired dealerships since the date of the acquisition:
| 2021 | ||||
| Revenue | $ | |||
| Net income | $ |
The following unaudited pro forma summary in the three and nine month periods ended September 30, 2021 and 2020, respectively, presents consolidated information as if the acquisition had occurred on January 1, 2020:
| Pro Forma | Pro Forma | |||||||||||||||
| For the Three Months | For the Nine Months | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenue | $ | $ | $ | |||||||||||||
| Net income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
These amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores have been adjusted to reflect the following: accounting for inventory on a specific identification method, compensation expense, recognition of interest expense for financing related to stores, and corporate income taxes based on geographic location. No nonrecurring pro forma adjustments directly attributable to the acquisitions are included in the reported pro forma revenues and earnings.
As
a result of the Beckley Acquisitions in March 2021, the Company issued noncontrolling interests in two of its wholly-owned subsidiaries,
LMP Beckley 001 Holdings, LLC (“001”) and LMP Beckley 002 Holdings, LLC (“002”), to the sellers of the Beckley
Acquisitions. The noncontrolling interests represent
17
The
sellers and the Company agreed to both put options exercisable by the noncontrolling interest holders and call options exercisable
by the Company for the remaining
The Company allocates income and losses to the noncontrolling interest holders based on the applicable membership interest percentage. At each reporting period, the redeemable noncontrolling interests are recognized at the higher of (1) the initial carrying amounts of the nonco