Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, and as a result of the material weaknesses described below, our principal executive officer and principal financial officer concluded that, as of December 31, 2020, our disclosure controls and procedures were not effective. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Management's Annual Report on Internal Control Over Financial Reporting
This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.
Material Weaknesses
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. In connection with our audit of consolidated financial statements for the year ended December 31, 2018, we identified material weaknesses in our internal control over financial reporting. We did not design or maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of personnel with (i) an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately, and (ii) an appropriate level of knowledge and experience to establish effective information technology processes and controls. This material weakness contributed to the following material weaknesses:
•
we did not design and maintain adequate controls over the preparation and review of certain account reconciliations and journal entries. Specifically, we did not design and maintain controls to ensure (i) the appropriate segregation of duties in the preparation and review of account reconciliations and journal entries and (ii) account reconciliations and journal entries were reviewed at the appropriate level of precision.
•
we did not design and maintain effective controls over certain information technology general controls for information systems and applications that are relevant to the preparation of the consolidated financial statements. Specifically, we did not design and maintain sufficient user and privileged access controls to ensure appropriate segregation of duties and adequate restricted user access to financial applications; program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; or computer operations controls as well as testing and approval controls for program development.
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The control deficiencies described above did not result in a misstatement to our annual or interim consolidated financial statements. However, each of the control deficiencies described above, if not remediated, could result in a misstatement of one or more account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected, and, accordingly, we determined that these control deficiencies constitute material weaknesses.
We have concluded that these material weaknesses arose because, as a private company, we did not have the necessary business processes, systems, personnel and related internal controls.
Remediation of Material Weakness
In the year ended December 31, 2019, we undertook measures to address material weaknesses in our internal controls. In particular, we (i) hired additional finance and accounting personnel with expertise in preparation of financial statements and account reconciliations; (ii) further developed and documented our accounting policies; and (iii) hired a director responsible for implementation of information technology general controls. In addition, in the year ended December 31, 2020, we continued to take steps to remediate these material weaknesses, including:
•
hiring additional qualified accounting, financial reporting and information technology personnel with public company experience;
•
providing additional training for our personnel on internal control over financial reporting;
•
implementing new financial systems and processes;
•
implementing additional review controls and processes and requiring timely account reconciliation and analyses;
•
implementing processes and controls to better identify and manage segregation of duties; and
•
engaging an external advisor to assist with evaluating and documenting the design and operating effectiveness of internal controls and assisting with the remediation of deficiencies, as necessary.
Changes in Internal Control over Financial Reporting
We are taking steps, as described above, to remediate the material weaknesses relating to our internal control over financial reporting. However, we will not be able to fully remediate these material weaknesses until these steps have been completed and the related internal controls have been operating effectively for a sufficient period of time. Except as otherwise described herein, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
As we approach the completion of our first full year as a public company, Mr. Adam Valkin indicated to us on March 2, 2021 that he plans to step down as a director effective as of our 2021 Annual Meeting of Stockholders, and therefore he will not stand for re-election at that meeting.
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PART III
Item 10. Directors, Executive Officers, and Corporate Governance
We have adopted a written code of ethics, entitled “Code of Business Conduct and Ethics,” that applies to all of our directors, executive officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions. We make available our code of ethics free of charge through our investor relations website which is located at ir.vroom.com . We intend to post on our website all disclosures that are required by law or Nasdaq listing standards concerning any amendments to, or waivers from, any provision of our code of ethics .
The information concerning our executive offers and directors required by this Item 10 is contained under the caption “Information about our Executive Officers and Directors” at the end of Part I of this Annual Report on Form 10-K . The remaining information required by this item is incorporated by reference to Vroom’s Proxy Statement for its 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2020.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to Vroom’s Proxy Statement for its 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2020.
Item 12. Security Ownership o f Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to Vroom’s Proxy Statement for its 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2020.
Item 13. Certain Relationships a nd Related Transactions, and Director Independence
The information required by this item is incorporated by reference to Vroom’s Proxy Statement for its 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2020.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to Vroom’s Proxy Statement for its 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2020.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
1.
Financial Statements: The Consolidated Financial Statements of Vroom are set forth in Part II, Item 8 of this Annual Report on Form 10-K.
2.
Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable, not material or the required information is shown in Part II, Item 8 of this Annual Report on Form 10-K.
3.
Exhibits: The exhibits listed in the accompanying Exhibit Index are filed, furnished or incorporated by reference as part of this Annual Report on Form 10-K.
INDEX TO EXHIBITS
Exhibit
Number
Exhibit Description
Form
File No.
Exhibit
Filing
Date
Filed Herewith
Furnished
Herewith
3.1
Amended and Restated Certificate of Incorporation of Vroom, Inc.
10-Q
001-39315
3.1
August 13, 2020
3.2
Amended and Restated Bylaws of Vroom, Inc.
10-Q
001-39315
3.2
August 13, 2020
4.1
Specimen Stock Certificate evidencing the shares of common stock
S-1/A
333-238482
4.1
June 1, 2020
4.2
Eighth Amended and Restated Investors’ Rights Agreement, dated as of November 21, 2019, by and among Vroom, Inc. and certain holders of its capital stock
S-1/A
333-238482
4.2
May 18, 2020
4.3
Description of the Registrant’s Securities
X
10.1†
Second Amended & Restated 2014 Equity Incentive Plan, as amended
S-1/A
333-238482
10.1
May 18, 2020
10.2†
First Amendment to the Second Amended and Restated Vroom, Inc. 2014 Equity Incentive Award Plan
10-Q
001-39315
10.3
August 13, 2020
10.3†
Second Amendment to the Second Amended and Restated Vroom, Inc. 2014 Equity Incentive Award Plan
10-Q
001-39315
10.4
August 13, 2020
10.4†
Form of Stock Option Agreement pursuant to the Second Amended and Restated 2014 Equity Incentive Award Plan
X
10.5†
Form of Restricted Stock Unit Agreement pursuant to the Second Amended and Restated 2014 Equity Incentive Award Plan
X
10.6†
2019 Short Term Incentive Plan
S-1/A
333-238482
10.2
May 18, 2020
10.7†
2020 Incentive Award Plan
S-1/A
333-238482
10.3
June 1, 2020
10.8†
Form of Restricted Stock Unit Agreement pursuant to the 2020 Incentive Award Plan
10-Q
001-39315
10.2
August 13, 2020
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Exhibit
Number
Exhibit Description
Form
File No.
Exhibit
Filing
Date
Filed Herewith
Furnished
Herewith
10.9†
Non-Employee Director Compensation Policy
S-1/A
333-238482
10.4
June 1, 2020
10.10†
Form of Indemnification Agreement
S-1/A
333-238482
10.5
June 1, 2020
10.11†
Executive Severance Plan
X
10.12
Commercial Lease Agreement, dated August 10, 2009, as amended, by and between Texas Direct Auto and Robert P. Archer, ETAL
S-1/A
333-238482
10.6
June 1, 2020
10.13
Lease Agreement, dated May 21, 2011, as amended, by and between Beechnut FEC LLC and Left Gate Property Holding, Inc. d/b/a as Texas Direct Auto
S-1/A
333-248655
10.7
June 1, 2020
10.14
Second Amendment to Lease Agreement, dated January 3, 2019, by and between Beechnut FEC LLC and Vroom, Inc.
X
10.15
Third Amendment to Lease Agreement, dated February 2, 2021, by and between Beechnut FEC LLC and Left Gate Property Holding, LLC d/b/a Texas Direct Auto
X
10.16
Lease Agreement, dated May 21, 2011, by and between Sohani Heritage Trust and Left Gate Property Holding, Inc. d/b/a Texas Direct Auto
S-1/A
333-248655
10.8
June 1, 2020
10.17
First Amendment to Lease Agreement, dated December 28, 2018, by and between Sohani Heritage Trust and Left Gate Property, Inc. d/b/a Texas Direct Auto
X
10.18
Second Amendment to Lease Agreement, dated April 28, 2020, by and between Sohani Heritage Trust and Vroom, Inc., as successor to Left Gate Property Holding, Inc. d/b/a Texas Direct Auto
X
10.19
Third Amendment to Lease Agreement, dated January 28, 2021, by and between Sohani Heritage Trust and Left Gate Property Holding, LLC d/b/a Texas Direct Auto
X
10.20
Development Agreement, dated June 28, 2011, as amended, by and between The City of Meadows Place, Texas and Left Gate Property Holding, Inc. d/b/a Texas Direct Auto and Vroom
S-1/A
333-248655
10.9
June 1, 2020
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Exhibit
Number
Exhibit Description
Form
File No.
Exhibit
Filing
Date
Filed Herewith
Furnished
Herewith
10. 2 1 #
Inventory Financing and Security Agreement, dated March 6, 2020, by and among Ally Bank, Ally Financial Inc., Left Gate Property Holding, LLC and Vroom, Inc.
S-1/A
333-248655
10.10
May 18, 2020
10.22#
First Amendment to Inventory Financing and Security Agreement, dated June 19, 2020, by and among Ally Bank, Ally Financial Inc., Left Gate Property Holding, LLC and Vroom, Inc.
10-Q
001-39315
10.9
August 13, 2020
10.23#
Second Amendment to Inventory Financing and Security Agreement, dated October 1, 2020 by and among Ally Bank, Ally Financial, Inc., Left Gate Property Holding, LLC and Vroom, Inc.
10-Q
001-39315
10.1
November 12, 2020
10.24#
Customer Experience Management Agreement, dated April 17, 2020, by and between Rock Connections LLC and Left Gate Property Holding, LLC
S-1/A
333-248655
10.11
June 1, 2020
10.25#
Assignment and Assumption Agreement, dated August 17, 2020, by and between Left Gate Property Holding, LLC, Rock Connections LLC and Rocket Auto LLC
X
10.26#
Retail Reconditioning Services Agreement, dated May 20, 2020, by and between Manheim Remarketing, Inc d/b/a Manheim Retail Solutions and Left Gate Property Holding, LLC d/b/a Vroom
S-1/A
333-248655
10.12
June 1, 2020
10.27 †
Employment Agreement, dated June 8, 2016, by and between Vroom, Inc. and Paul J. Hennessy
S-1/A
333-248655
10.13
June 1, 2020
10.28 †
Employment Offer Letter, dated October 15, 2018, by and between Vroom, Inc. and David K. Jones
S-1/A
333-248655
10.14
June 1, 2020
10.29 †
Employment Offer Letter, dated January 6, 2019, by and between Vroom, Inc. and Mark Roszkowski
S-1/A
333-248655
10.15
June 1, 2020
10.30 †
Employment Offer Letter, dated December 29, 2018, by and between Vroom, Inc. and Patricia Moran
S-1/A
333-248655
10.18
September 8, 2020
10.31 †
Employment Offer Letter, dated November 3, 2016, by and between Vroom, Inc. and Carol Denise Stott
S-1/A
333-248655
10.19
September 8, 2020
10.32 †
Nominee and Indemnity Agreement, dated September 1, 2020, by and among Catterton Management Company, L.L.C. as investment manager of CGP2 Lone Star, L.P., Scott Dahnke and Vroom, Inc.
S-1/A
333-248655
10.20
September 8, 2020
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Exhibit
Number
Exhibit Description
Form
File No.
Exhibit
Filing
Date
Filed Herewith
Furnished
Herewith
10.33 †
Nominee and Indemnity Agreement, dated September 1, 2020, by and among Catterton Management Company, L.L.C. as investment manager of CGP2 Lone Star, L.P., Michael Farello and Vroom, Inc.
S-1/A
333-248655
10.21
September 8, 2020
21.1
Subsidiaries of the Registrant
X
23.1
Consent of PricewaterhouseCoopers LLP
X
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XX
32.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XX
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy Extension Schema Document
X
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
X
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
X
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
X
† Indicates a management contract or compensatory plan or arrangement.
# Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, Item ( 601)(b)(10).
Item 16. Form 10-K Summary
None.
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SIGNA TURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Vroom, Inc.
Date: March 3, 2021
By:
/s/ Paul J. Hennessy
Paul J. Hennessy
Chief Executive Officer
(principal executive officer)
Date: March 3, 2021
By:
/s/ David K Jones
David K. Jones
Chief Financial Officer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated .
Signature
Title
Date
/s/ Paul J. Hennessy
Paul J. Hennessy
Chief Executive Officer (Principal Executive Officer) and Director
March 3, 2021
/s/ David K. Jones
David K. Jones
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
March 3, 2021
/s/ Robert J. Mylod, Jr.
Robert J. Mylod, Jr.
Director
March 3, 2021
/s/ Scott A. Dahnke
Scott A. Dahnke
Director
March 3, 2021
/s/ Michael J. Farello
Michael J. Farello
Director
March 3, 2021
/s/ Laura W. Lang
Laura W. Lang
Director
March 3, 2021
/s/ Laura G. O’Shaughnessy
Laura G. O’Shaughnessy
Director
March 3, 2021
/s/ Adam Valkin
Adam Valkin
Director
March 3, 2021
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