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Related Party Transactions
3 Months Ended
Mar. 31, 2018
Disclosure Text Block [Abstract]  
Related Party Transactions

On March 31, 2017, the Company completed the sale of 620,000 shares of Class B Common Stock at a price of $4.00 per share for aggregate proceeds of $2,480,000 in a private placement (the “2017 Private Placement”). Officers and directors of the Company acquired 175,000 shares of Class B Common Stock in the 2017 Private Placement. In May 2017, the Company completed the sale of an additional 37,500 shares of Class B Common Stock in the 2017 Private Placement.

 

A key component of the Company’s business model is to utilize regional partners in the acquisition of pre­owned vehicles as well as utilize these regional partners to provide inspection, reconditioning and distribution services. These regional partners earn incremental revenue and enhance profitability through fees from inspection, reconditioning and distribution programs. In connection with the development of the regional partner program, the Company tested various aspects of the program by utilizing a dealership (the “Dealer”) to which Mr. Chesrown, the Company’s Chief Executive Officer, has provided financing in the form of a $400,000 convertible promissory note. The note matures on May 1, 2019, interest is payable monthly at 5% per annum and can be converted into a 25% ownership interest in the Dealer at any time. Revenue recognized by the Company from the Dealer for the three­months ended March 31, 2018 was $98,505 or 1.2% of the Company’s total Revenue. Included in Cost of Revenue for the Company at March 31, 2018 includes $93,491 or 1.2% of Total Cost of Revenue. Included in Accounts receivable at March 31, 2018 is $51,176 owed to the Company by the Dealer.

 

In addition, the Company presently subleases warehouse space from the Dealer that is separate and distinct from the location of the dealership, on the same terms as paid by the Dealer. This subleased facility serves as the northwestern regional distribution center for the Company. For the three-months ended March 31, 2018, the Company paid $45,000 in rent under the sublease. This amount is included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. There were no sublease payments for the three-months ended March 31, 2017.

 

In connection with the NextGen acquisition, the Company entered into a Services Agreement (the “Services Agreement”) with Halcyon Consulting, LLC (“Halcyon”), to provide development and support services to the Company. Mr. Kakarala, a director of the Company, currently serves as the Chief Executive Officer of Halcyon. Pursuant to the Services Agreement, the Company will pay Halcyon hourly fees for specific services, set forth in the Services Agreement, and such fees may increase on an annual basis, provided that the rates may not be higher than 110% of the immediately preceding year’s rates. The Company will reimburse Halcyon for any reasonable travel and pre-approved out-of-pocket expenses in connection with its services to the Company. For the three-months ended March 31, 2018 and 2017, the Company paid $54,159 and $184,470, respectively under the Services Agreement.

 

As of March 31, 2018, the Company had promissory notes of $370,556 and accrued interest of $24,086 due to an entity controlled by a director and to the director of the Company. The promissory notes were issued in connection with the completion of a private placement for the sale of an aggregate of 900,000 shares of common stock of the Company at a purchase price of $1.50 per share for aggregate proceeds of $1,350,000 on March 31, 2017 (the “2016 Private Placement”). Interest expense on the promissory notes for the three-months ended March 31, 2018 was $32,114 which included debt discount amortization of $26,175. The interest was charged to interest expense in the Condensed Consolidated Statements of Operations and included in accrued interest under long-term liabilities in the Condensed Consolidated Balance Sheets.

 

As of December 31, 2016, the Company had the BHLP Note payable of $197,358 and accrued interest of $5,508 due to an entity that is owned and controlled by Mr. Berrard a current officer and director of the Company. On March 31, 2017, the Company issued 275,312 shares of Class B Common Stock upon full conversion of the BHLP Note.