NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except per share amounts)
NOTE
1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS
Lazydays
Holdings, Inc. (“Holdings”), a Delaware corporation, which was originally formed on October 24, 2017, as a wholly
owned subsidiary of Andina Acquisition Corp. II (“Andina”), an exempted company incorporated in the Cayman Islands
on July 1, 2015 for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization,
reorganization or other similar business combination with one or more business targets. On October 27, 2017, a merger agreement
was entered into by and among Andina, Andina II Holdco Corp. (“Holdco”), a Delaware corporation and wholly-owned subsidiary
of Andina, Andina II Merger Sub Inc., a Delaware corporation, and a wholly-owned subsidiary of Holdco (“Merger Sub”),
Lazy Days’ R.V. Center, Inc. (and its subsidiaries), a Delaware corporation (“Lazydays RV”), and solely for
certain purposes set forth in the merger agreement, A. Lorne Weil (the “Merger Agreement”). The Merger Agreement provided
for a business combination transaction by means of (i) the merger of Andina with and into Holdco, with Holdco surviving, changing
its name to Lazydays Holdings, Inc. and becoming a new public company (the “Redomestication Merger”) and (ii) the
merger of Lazydays RV with and into Merger Sub with Lazydays RV surviving and becoming a direct wholly-owned subsidiary of Holdings
(the “Transaction Merger” and together with the Redomestication Merger, the “Mergers”). On March 15, 2018,
the Mergers were consummated.
Lazydays
RV has subsidiaries that operate recreational vehicle (“RV”) dealerships in seven locations including two in the state
of Florida, two in the state of Colorado, one in the state of Arizona, one in the state of Tennessee and one in the state of
Minnesota. Lazydays RV also has a dedicated service center location near Houston, Texas which opened in February
2020. Through its subsidiaries, Lazydays RV sells and services new and pre-owned recreational vehicles, and sells related
parts and accessories. It also offers to its customers such ancillary services as extended service contracts, overnight campground
and restaurant facilities. The Company also arranges financing for vehicle sales through third-party financing sources.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
Successor
The
consolidated financial statements for the year ended December 31, 2019 and the period from March 15, 2018 to December 31,
2018 include the accounts of Holdings, Lazydays RV and its wholly owned subsidiary LDRV Holdings Corp. LDRV Holdings Corp is the
sole owner of Lazydays Land Holdings, LLC, Lazydays Tampa Land Holdings, LLC, Lazydays RV America, LLC, Lazydays RV Discount,
LLC, Lazydays Mile Hi RV, LLC, Lazydays of Minneapolis LLC, LDRV of Tennessee LLC, Lone Star Acquisition LLC, Lone Star Diversified
LLC, LDRV Acquisition Corp of Nashville LLC, and LDRV of Nashville LLC (collectively, the “Company”, “Lazydays”
or “Successor”). All significant inter-company accounts and transactions have been eliminated in consolidation.
Predecessor
The
consolidated financial statements for the period from January 1, 2018 to March 14, 2018 include the accounts of Lazydays
RV and its wholly owned subsidiary LDRV Holdings Corp. LDRV Holdings Corp is the sole owner of Lazydays Arizona, LLC, Lazydays
Land Holdings, LLC, Lazydays Tampa Land Holdings, LLC, Lazydays RV America, LLC, Lazydays RV Discount, LLC, and Lazydays Mile
Hi RV, LLC (collectively, the “Predecessor”). All significant inter-company accounts and transactions have been eliminated
in consolidation.
Predecessor
and Successor Periods
As
a result of the Mergers, Holdings is the acquirer for accounting purposes and Lazydays RV is the acquiree and the accounting predecessor.
The financial statement presentation distinguishes the results into two distinct periods, the period up to March 14, 2018,
the day before the mergers were consummated (the “Acquisition Date”) (“Predecessor Periods”) and the
period including and after that date (the “Successor Period”). The Mergers were accounted for as a business combination
using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting that is based
on the fair value of the net assets acquired.
As
a result of the application of the acquisition method of accounting as of the effective time of the Transaction Merger, the accompanying
consolidated financial statements include a black line division which indicates that the Predecessor and Successor reporting entities
shown are presented on a different basis and are, therefore, not directly comparable.
The
historical financial information of Andina, which was a special purpose acquisition company prior to the business combination,
has not been reflected in the Predecessor financial statements as these historical amounts have been considered immaterial. Accordingly,
no other activity in the Company was reported in the Predecessor Period other than the activity of Lazydays RV.
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States of America
(“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 consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates
include the assumptions used in the valuation of the net assets acquired in business combinations, goodwill and other intangible
assets, provision for charge-backs, inventory write-downs, the allowance for doubtful accounts and stock-based compensation.
Cash
and Cash Equivalents
The
Company considers all short-term, highly liquid investments purchased with a maturity date of three months or less to be cash
equivalents. The carrying amount approximates fair value because of the short-term maturity of these instruments. Cash consists
of business checking accounts with its banks, the first $250 of which is insured by the Federal Deposit Insurance Corporation.
There are no cash equivalents as of December 31, 2019 and 2018.
Revenue
Recognition
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standard updates which clarified principles
for recognizing revenue arising from contracts with customers (Accounting Standards Codification (“ASC”) 606 (“ASC
606”). The core principle of the revenue standard is that an entity recognizes revenue to depict the transfer of promised
goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. The new guidance applies a five-step model for revenue measurement and recognition and also requires
increased disclosures including the nature, amount, timing, and uncertainty of revenue and cash flows related to contracts with
clients.
The
Company adopted the new revenue recognition standard at the beginning of the first quarter of fiscal 2019 using the modified retrospective
method of adoption and applied the guidance to those contracts that were not completed as of December 31, 2018. Based on the evaluation,
the Company did not identify customer contracts which will require different recognition under the new guidance.
Revenues
are recognized when control of the promised goods or services is transferred to the customers at the expected amount the Company
is entitled to for such goods and services. Taxes collected on revenue producing transactions are excluded from revenue in the
consolidated statements of operations. The following table represents the Company’s disaggregation of revenue:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year
ended
December 31, 2019
|
|
|
March
15, 2018 to
December 31, 2018
|
|
|
January
1, 2018 to
March 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
New vehicles
revenue
|
|
$
|
353,228
|
|
|
$
|
259,730
|
|
|
$
|
73,831
|
|
Preowned vehicle revenue
|
|
|
213,830
|
|
|
|
159,288
|
|
|
|
45,280
|
|
Parts, accessories,
and related services
|
|
|
35,607
|
|
|
|
24,791
|
|
|
|
6,121
|
|
Finance and insurance
revenue
|
|
|
36,698
|
|
|
|
25,588
|
|
|
|
6,861
|
|
Campground,
rental, and other revenue
|
|
|
5,549
|
|
|
|
4,858
|
|
|
|
1,846
|
|
|
|
$
|
644,912
|
|
|
$
|
474,255
|
|
|
$
|
133,939
|
|
Revenue
from the sale of vehicle contracts is recognized at a point in time on delivery, transfer of title and completion of financing
arrangements.
Revenue
from the sale of parts, accessories, and related service is recognized as services and parts are delivered or as a customer approves
elements of the completion of service. Revenue from the sale of parts, accessories, and related service is recognized in other
revenue in the accompanying consolidated statements of operations.
Revenue
from the rental of vehicles is recognized pro rata over the period of the rental agreement. The rental agreements are generally
short-term in nature. Revenue from rentals is included in other revenue in the accompanying consolidated statements of operations.
Campground revenue is also recognized over the time period of use of the campground.
The
Company receives commissions from the sale of insurance and vehicle service contracts to customers. In addition, the Company arranges
financing for customers through various financial institutions and receives commissions. The Company may be charged back (“charge-backs”)
for financing fees, insurance or vehicle service contract commissions in the event of early termination of the contracts by the
customers. The revenues from financing fees and commissions are recorded at the time of the sale of the vehicles and an allowance
for future charge-backs is established based on historical operating results and the termination provision of the applicable contracts.
The estimates for future chargebacks require judgment by management, and as a result, there is an element of risk associated with
these revenue streams. The Company recognized finance and insurance revenues, less the addition to the charge-back allowance,
which is included in other revenue as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year
ended December 31, 2019
|
|
|
March
15, 2018 to
December 31, 2018
|
|
|
January
1, 2018 to
March 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Gross finance
and insurance revenues
|
|
$
|
41,169
|
|
|
$
|
27,926
|
|
|
$
|
7,483
|
|
Additions
to charge-back allowance
|
|
|
(4,471
|
)
|
|
|
(2,338
|
)
|
|
|
(622
|
)
|
Net Finance Revenue
|
|
$
|
36,698
|
|
|
$
|
25,588
|
|
|
$
|
6,861
|
|
The
Company has an accrual for charge-backs which totaled $4,221 and $3,252 at December 31, 2019 and December 31, 2018, respectively,
and is included in “Accounts payable, accrued expenses, and other current liabilities” in the accompanying consolidated
balance sheets.
Deposits
on vehicles received in advance are accounted for as a liability and recognized into revenue upon completion of each respective
transaction. These contract liabilities are included in Note 9 – Accounts Payable, Accrued Expenses, and Other Current Liabilities
as customer deposits. During the year ended December 31, 2019, substantially all of the contract liabilities as of December
31, 2018 were recognized in revenue.
Occupancy
Costs
As
a retail merchandising organization, the Company has elected to classify occupancy costs as selling, general and administrative
expense in the consolidated statements of operations.
Shipping
and Handling Fees and Costs
The
Company reports shipping and handling costs billed to customers as a component of revenues, and related costs are reported as
a component of costs applicable to revenues. For the year ended December 31, 2019, shipping and handling included as a component
of revenue were $2,284. For the period from March 15, 2018 to December 31, 2018, shipping and handling included as a component
of revenue were $1,896. For the period from January 1, 2018 to March 14, 2018 shipping and handling costs included as a component
of revenue were $603.
Receivables
The
Company sells to customers and arranges third-party financing, as is customary in the industry. Interest is not normally charged
on receivables. Management establishes an allowance for doubtful accounts based on its historic loss experience and current economic
conditions. Losses are charged to the allowance when management deems further collection efforts will not produce additional recoveries.
Inventories
Vehicle
and parts inventories are recorded at the lower of cost or net realizable value, with cost determined by the last-in, first-out
(“LIFO”) method. Cost includes purchase costs, reconditioning costs, dealer-installed accessories, and freight. For
vehicles accepted in trades, the cost is the fair value of such used vehicles at the time of the trade-in. Retail parts, accessories,
and other inventories primarily consist of retail travel and leisure specialty merchandise. The current replacement costs of LIFO
inventories exceeded their recorded values by $3,719 and $1,275 as of December 31, 2019 and 2018, respectively.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. Expenditures for maintenance and repairs are
charged to expense in the period incurred. Improvements and additions are capitalized. Depreciation of property and equipment
is provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the lesser of the useful life of the asset or the term of the lease.
Successor
Useful
lives range from 2 to 39 years for buildings and improvements and from 2 to 12 years for vehicles and equipment.
Predecessor
Useful
lives range from 15 to 20 years for buildings and improvements and from 2 to 7 years for vehicles and equipment.
Goodwill
and Intangible Assets
The
Company’s goodwill, trade names and trademarks are deemed to have indefinite lives, and accordingly are not amortized, but
are evaluated at least annually for impairment and more often whenever changes in facts and circumstances may indicate that the
carrying value may not be recoverable. Application of the goodwill impairment test requires judgment, including the identification
of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining
fair value. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash
flows, determining appropriate discount rates, consideration of the Company’s aggregate fair value, and other assumptions.
Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.
When
testing goodwill for impairment, the Company may assess qualitative factors for some or all of our reporting units to determine
whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is
less than the carrying amount, including goodwill. Alternatively, the Company may bypass this qualitative assessment for some
or all our reporting units and perform a detailed quantitative test of impairment (Step 1). If the Company performs the detailed
quantitative impairment test and the carrying amount of the reporting unit exceeds its fair value, the Company would perform an
analysis, (Step 2) to measure such impairment. At December 31, 2019, the Company performed a qualitative assessment to
identify and evaluate events and circumstances to conclude whether it is more likely than not that the fair value of the Company’s
reporting units is less than their carrying amounts. Based on the Company’s qualitative assessments, the Company concluded
that a positive assertion can be made that it is more likely than not that the fair value of the reporting units exceeded their
carrying values and no impairments were identified at December 31, 2019.
The
Company’s manufacturer and customer relationships are amortized over their estimated useful lives on a straight-line basis.
Successor
The
estimated useful lives are 7 to 12 years for both the manufacturer and customer relationships.
Predecessor
The
estimated useful lives were 13 to 18 years for the manufacturer relationships.
Vendor
Allowances
As
a component of the Company’s consolidated procurement program, the Company frequently enters into contracts with vendors
that provide for payments of rebates. These vendor payments are reflected in the carrying value of the inventory when earned or
as progress is made toward earning the rebates and as a component of costs of sales as the inventory is sold. Certain of these
vendor contracts provide for rebates that are contingent upon the Company meeting specified performance measures such as a cumulative
level of purchases over a specified period of time. Such contingent rebates are given accounting recognition at the point at which
achievement of the specified performance measures is deemed to be probable and reasonably estimable.
Financing
Costs
Debt
financing costs are recorded as a debt discount and are amortized over the term of the related debt. Amortization of debt discount
included in interest expense was $220 for the year ended December 31, 2019 and $377 for the period from March 15, 2018 to December
31, 2018. Amortization of debt discount included in interest expense was $136 for the period from January 1, 2018 to March 14,
2018.
Impairment
of Long-Lived Assets
The
Company evaluates the carrying value of long-lived assets whenever events or changes in circumstances indicate that intangible
asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant
decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used,
or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The
Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should
the sum of the expected future net cash flows be less than the carrying amount of the asset being evaluated, an impairment loss
would be recognized for the amount by which the carrying value of the asset exceeds its fair value. The evaluation of asset impairment
requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions
require significant judgment and actual results may differ from assumed and estimated amounts. Management believes no impairment
of long-lived assets existed as of December 31, 2019 and 2018.
Fair
Value of Financial Instruments
The
carrying amounts of financial instruments approximate fair value as of December 31, 2019 and 2018 because of the relatively short
maturities of these instruments. The carrying amount of the Company’s bank debt approximates fair value as of December 31,
2019 and 2018 because the debt bears interest at a rate that approximates the current market rate at which the Company could borrow
funds with similar maturities.
Cumulative
Redeemable Convertible Preferred Stock
The
Company’s Series A Preferred Stock (See Note 15 – Preferred Stock) is cumulative redeemable convertible preferred
stock. Accordingly, it is classified as temporary equity and is shown net of issuance costs and the relative fair value of warrants
issued in conjunction with the issuance of the Series A Preferred Stock. Unpaid preferred dividends are accumulated, compounded
at each quarterly dividend date and presented within the carrying value of the Series A Preferred Stock until a dividend is declared
by the Board of Directors.
Stock
Based Compensation
The
Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation. ASC 718 requires
all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations
based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based
on the fair value of the award, and are recognized as expense over the employee’s requisite or derived service period. In
accordance with ASC 718, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from
operating activities. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment
awards) are recognized as income tax expense or benefit in the consolidated statements of operations.
Earnings
Per Share
The
Company computes basic and diluted earnings/(loss) per share (“EPS”) by dividing net earnings/(loss) by the weighted
average number of shares of common stock outstanding during the period.
The
Company is required, in periods in which it has net income, to calculate EPS using the two-class method. The two-class method
is required because the Company’s Series A Preferred Stock have the right to receive dividends or dividend equivalents should
the Company declare dividends on its common stock. Under the two-class method, earnings for the period are allocated on a pro-rata
basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during
the period is then used to calculate basic EPS for each class of shares.
In
periods in which the Company has a net loss, basic loss per share is calculated by dividing the loss attributable to common stockholders
by the weighted-average number of common shares outstanding during the period. The two-class method is not used, because the preferred
stock does not participate in losses.
The
following table summarizes net loss attributable to common stockholders used in the calculation of basic and diluted loss per
common share:
|
|
Successor
|
|
|
|
Year ended
December
31, 2019
|
|
|
March 15, 2018 to
December 31, 2018
|
|
|
|
|
|
|
|
|
(Dollars in thousands - except per share and per share amounts)
|
|
|
|
|
|
|
|
|
Distributed earnings allocated to common stock
|
|
$
|
-
|
|
|
$
|
-
|
|
Undistributed loss allocated to common stock
|
|
|
(5,196
|
)
|
|
|
(9,857
|
)
|
Net loss allocated to common stock
|
|
|
(5,196
|
)
|
|
|
(9,857
|
)
|
Net earnings allocated to participating securities
|
|
|
-
|
|
|
|
-
|
|
Net loss allocated to common stock and participating securities
|
|
$
|
(5,196
|
)
|
|
$
|
(9,857
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings per common share
|
|
|
9,781,870
|
|
|
|
9,668,250
|
|
Dilutive effect of warrants and options
|
|
|
-
|
|
|
|
-
|
|
Weighted average shares outstanding for diluted earnings per common share
|
|
|
9,781,870
|
|
|
|
9,668,250
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(0.53
|
)
|
|
$
|
(1.02
|
)
|
Diluted loss per common share
|
|
$
|
(0.53
|
)
|
|
$
|
(1.02
|
)
|
During
the Successor Period for the year ended December 31, 2019 and the period from March 15, 2018 to December 31, 2018, the denominator
of the basic and dilutive EPS was calculated as follows:
|
|
Year
ended
December 31, 2019
|
|
|
March
15, 2018 to December 31, 2018
|
|
|
|
|
|
|
|
|
Weighted
average outstanding common shares
|
|
|
8,442,371
|
|
|
|
8,471,608
|
|
Weighted
average shares held in escrow
|
|
|
-
|
|
|
|
(142,857
|
)
|
Weighted
average prefunded warrants
|
|
|
1,339,499
|
|
|
|
1,339,499
|
|
Weighted
shares outstanding - basic and diluted
|
|
|
9,781,870
|
|
|
|
9,668,250
|
|
For
the Successor Period for the year ended December 31, 2019 and the period from March 15, 2018 to December 31, 2018, the following
common stock equivalent shares were excluded from the computation of the diluted loss per share, since their inclusion would have
been anti-dilutive:
|
|
Year
ended
December 31, 2019
|
|
|
March
15, 2018 to December 31, 2018
|
|
Shares
underlying Series A Convertible Preferred Stock
|
|
|
5,962,733
|
|
|
|
5,962,733
|
|
Shares underlying warrants
|
|
|
4,677,458
|
|
|
|
4,677,458
|
|
Stock options
|
|
|
3,798,818
|
|
|
|
3,658,421
|
|
Shares issuable under
the Employee Stock Purchase Plan
|
|
|
49,300
|
|
|
|
-
|
|
Shares
underlying unit purchase options
|
|
|
-
|
|
|
|
657,142
|
|
Share
equivalents excluded from EPS
|
|
|
14,488,309
|
|
|
|
14,955,754
|
|
Advertising
Costs
Advertising
and promotion costs are charged to operations in the period incurred. Advertising and promotion costs totaled $12,083 for the
year ended December 31, 2019 and $8,663 for the period from March 15, 2018 to December 31, 2018 (Successor Period). Advertising
and promotion charges were $2,624 for the Predecessor period from January 1, 2018 to March 14, 2018.
Income
Taxes
The
Company accounts for income taxes under ASC 740 Income Taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset
deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the
deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss
in the period that includes the enactment date.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and
prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return.
Tax
benefits claimed or expected to be claimed on a tax return are recorded in the Company’s financial statements. A tax benefit
from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized
upon ultimate resolution. Uncertain tax positions have had no impact on the Company’s financial condition, results of operations
or cash flows. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the
reporting date.
The
Company’s policy is to classify assessments, if any, for tax related interest and penalties as income tax expense in the
consolidated statements of operations.
Seasonality
The
Company’s operations generally experience modestly higher vehicle sales in the first half of each year during the winter
months at the Company’s largest location in Tampa, Florida.
Vendor
Concentrations
The
Company purchases its new recreational vehicles and replacement parts from various manufacturers. During the year ended December
31, 2019, four major manufacturers accounted for 33.9%, 20.5%, 20.2% and 14.7% of RV purchases. During the Successor period
from March 15, 2018 to December 31, 2018, four major manufacturers accounted for 30.5%, 27.4%, 17.3% and 16.8% of RV purchases.
During the Predecessor Period from January 1, 2018 to March 14, 2018, four major manufacturers accounted for 36.1%, 21.4%, 18.2%,
and 16.1% of RV purchases.
The
Company is subject to dealer agreements with each manufacturer. The manufacturer is entitled to terminate the dealer agreement
if the Company is in material breach of the agreement terms.
Geographic
Concentrations
Revenues
generated by customers of the Florida locations and the Colorado locations, which generate greater than 10% of revenues,
were as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year
ended
December 31, 2019
|
|
|
March
15, 2018 to
December 31, 2018
|
|
|
January
1, 2018 to
March 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
|
68
|
%
|
|
|
71
|
%
|
|
|
81
|
%
|
Colorado
|
|
|
14
|
%
|
|
|
19
|
%
|
|
|
11
|
%
|
These
geographic concentrations increase the exposure to adverse developments related to competition, as well as economic, demographic,
weather and other changes in these regions.
Reclassifications
Certain
amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no
effect on the previously reported net (loss) income.
Leases
For
operating leases, rent is recognized on a straight-line basis over the expected lease term, including cancellable option periods
where the Company is reasonably assured to exercise the options. Differences between amounts paid and amounts expensed are recorded
as deferred rent. Capital leases are recorded as an asset and an obligation at an amount equal to the present value of the future
minimum lease payments during the lease term. Sale-leasebacks are transactions through which assets are sold at fair value and
subsequently leased back from the buyer. Failed sale-leaseback transactions result in retention of the “sold”
assets within property and equipment, with a financing lease obligation equal to the amount of proceeds received recorded as a
financing liability, on the accompanying consolidated balance sheets.
Subsequent
Events
Management
of the Company has analyzed the activities and transactions subsequent to December 31, 2019 through the date these consolidated
financial statements were issued to determine the need for any adjustments to or disclosures within the financial statements.
On
March 6, 2020, the Company amended its existing debt agreement with Manufacturers and Traders Trust Company (“M&T
Bank”) to finance the previously incurred development expenditures with the addition of a $6.1 million mortgage. The
mortgage shall bear interest at (a) LIBOR plus an applicable margin of 2.25% or (b) the Base Rate plus a margin of 1.25. The mortgage
requires monthly payments of principal of $0.03 million and matures on March 15, 2021 when all remaining principal and interest
payments become due.
On March 10, 2020, the Company entered into an agreement for the
sale of land to LD Murfreesboro TN Landlord, LLC for approximately $5 million. The Company has entered a lease agreement with the
buyer with lease payments to commence upon completion of planned construction expected to total $17 million including land, the
cost of which will be paid for by LD Murfreesboro TN Landlord, LLC.
Recently
Issued Accounting Standards
The
Company qualifies as an emerging growth company pursuant to the provision of the Jumpstart Our Business Startups (“JOBS”)
Act. Section 107 of the JOBS Act provides that an emerging growth company can delay the adoption of certain new accounting standards
until those standards would otherwise apply to private companies. The Company has elected to take advantage of the extended transition
period provided by the JOBS Act for complying with new or revised accounting standards.
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU
2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and
operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial
statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard requires
a modified-retrospective approach to adoption and is effective for interim and annual periods beginning after December 15, 2020
for emerging growth companies. In July 2018, the FASB further amended this standard to allow for a new transition method that
offers the option to use the effective date as the date of initial application. We intend to elect this alternative transition
method and therefore will not adjust comparative-period financial information. In addition, we intend to elect the package of
practical expedients permitted under the transition guidance of the new standard to not reassess prior conclusions related to
contracts that are or that contain leases, lease classification and initial direct costs. We do not expect that this standard
will have a material impact on our Consolidated Statements of Operations. The primary effect of adoption will be the requirement
to record the present value of lease liabilities for current operating leases and corresponding right-of-use (ROU) assets. Upon
early adoption on January 1, 2020, we estimate we will have additional liabilities ranging from $15 million to $20 million with
corresponding ROU assets of a similar amount for lease agreements in effect as of December 31, 2019. The actual impact will depend
on our lease portfolio at the time of adoption. We are currently documenting processes and establishing internal controls to properly
track, record and account for our lease portfolio. The new standard also provides practical expedients for the ongoing accounting.
We also currently expect to elect the practical expedient to not separate lease and non-lease components for most of our asset
classes.
In
January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”).
ASU 2017-04 eliminates Step 2 from the goodwill impairment test. Under the amendments in ASU 2017-04, an entity should recognize
an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will be effective for
fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact the
adoption of this guidance will have on its consolidated financial statements and disclosures.
NOTE
3 – BUSINESS COMBINATIONS
Lazy
Days’ R.V. Center, Inc.
On
March 15, 2018, the Company consummated the Mergers. Under the Merger Agreement, upon consummation of the Redomestication Merger,
(i) each ordinary share of Andina was exchanged for one share of common stock of Holdings (“Holdings Shares”), except
that holders of ordinary shares of Andina sold in its initial public offering (“public shares”) were entitled to elect
instead to receive a pro rata portion of Andina’s trust account, as provided in Andina’s charter documents, (ii) each
Andina IPO right (4,310,000 at March 15, 2018 prior to the Mergers) entitled the holder to receive one-seventh of a Holdings Share
and (iii) each Andina warrant (4,310,000 at March 15, 2018) entitled the holder to purchase one-half of one Holdings Share at
a price of $11.50 per whole share. Upon consummation of the Transaction Merger, the Lazydays RV’s stockholders received
their pro rata portion of: (i) 2,857,189 Holdings Shares; and (ii) $86,741 in cash, subject to adjustments based on the Predecessor’s
finalization of working capital and debt as of closing and also subject to any such Holdings Shares and cash that was issued and
paid to the Predecessor’s option holders and participants under the transaction incentive plan (the “Transaction Incentive
Plan”). During the Successor period, the Company received $563 as a result of the settlement of the working capital adjustment
and the amount was reflected as an adjustment to goodwill.
Cash
|
|
$
|
9,188
|
|
Receivables
|
|
|
14,768
|
|
Inventories
|
|
|
124,354
|
|
Prepaid expenses and
other
|
|
|
4,754
|
|
Property and equipment
|
|
|
73,642
|
|
Intangible assets
|
|
|
68,200
|
|
Other
assets
|
|
|
200
|
|
Total
assets acquired
|
|
|
295,106
|
|
|
|
|
|
|
Accounts payable, accrued
expenses and other current liabilities
|
|
|
26,988
|
|
Floor plan notes payable
|
|
|
95,663
|
|
Financing liability
|
|
|
56,000
|
|
Deferred tax liability
|
|
|
20,491
|
|
Long-term
debt
|
|
|
8,781
|
|
Total
liabilities assumed
|
|
|
207,923
|
|
|
|
|
|
|
Net
assets acquired
|
|
$
|
87,183
|
|
The
fair value of the consideration paid was as follows:
Purchase Price:
|
|
|
|
Cash consideration
paid
|
|
$
|
86,178
|
|
|
|
|
|
|
Common
stock issued to former stockholders, option holders, and bonus recipients of Lazy Days’ R.V. Center, Inc.
|
|
|
29,400
|
|
|
|
$
|
115,578
|
|
The
common stock was valued at $10.29 per share, the closing price of Andina’s common stock on the date of the Mergers.
Goodwill
represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets
acquired and liabilities assumed from the Predecessor. Goodwill associated with the Mergers is detailed below:
|
|
As
of
March 15, 2018
|
|
Total consideration
|
|
$
|
115,578
|
|
Less
net assets acquired
|
|
|
87,183
|
|
Goodwill
|
|
$
|
28,395
|
|
The
following table summarizes the Company’s allocation of the purchase price to the identifiable intangible assets acquired
as of the date of the closing of the Mergers.
|
|
Gross
Asset Amount at
Acquisition Date
|
|
|
Weighted
Average Amortization Period in Years
|
|
Trade Names,
Service Marks and Domain Names
|
|
$
|
30,100
|
|
|
|
Indefinite
|
|
Customer Lists
|
|
$
|
9,100
|
|
|
|
12
years
|
|
Dealer
Agreements
|
|
$
|
29,000
|
|
|
|
12
Years
|
|
Total
intangible assets
|
|
$
|
68,200
|
|
|
|
|
|
Trade
names and trademarks are indefinite-lived assets and are not subject to amortization. The value of trade names, trademarks, and
customer relationships was determined utilizing the relief from royalty method. The Company determined the fair value of the manufacturer
relationships utilizing a discounted cash flow model.
Direct
transaction related costs consist of costs incurred in connection with the Mergers. These costs totaled $2,730 for the period
from March 15, 2018 to December 31, 2018 which primarily consisted of the business combination expenses of Andina that were contingent
upon the completion of the Mergers. These costs total $381 for the period from January 1, 2018 to March 14, 2018.
Acquisitions
of Dealerships
On
August 7, 2018, the Company consummated its asset purchase agreement with Shorewood RV Center (“Shorewood”). The Company
simultaneously entered into a real estate purchase agreement with the owners of Shorewood for the land and building at the Shorewood
location. The purchase price consisted of cash and a note payable to the seller of Shorewood, subject to a final working capital
adjustment. The note payable is a three year note which matures on August 7, 2021, which requires monthly payments of $52 in principal
and interest. The note bears interest at 4.75% per year. As part of the acquisition, the Company acquired the inventory of Shorewood
and has added the inventory to the M&T Floor Plan Line of Credit (as defined in Note 10). The Company entered into
a sales arrangement with a third party for the assets purchased in the real estate purchase agreement and simultaneously leased
the property back from the third party.
On
December 6, 2018, the Company consummated its asset purchase agreement with Tennessee Sales and Service, LLC (“Tennessee
RV”). The purchase price consisted of cash and a note payable to the seller of Tennessee RV. The note payable is a four
year note which matures on December 6, 2022, which requires monthly payments of $94 in principal and interest. The note bears
interest at 5.0% per year. As part of the acquisition, the Company acquired the inventory of Tennessee RV and has added the inventory
to the M&T Floor Plan Line of Credit.
On
August 1, 2019, the Company consummated its asset purchase agreement with Alliance Coach Inc. (“Alliance”). The purchase
price consisted of cash and a note payable to the seller of Alliance. The note payable is a two year note which matures on August
1, 2021, which requires monthly payments of $134 in principal and interest. The note bears interest at 5.0% per year. As part
of the acquisition, the Company acquired the inventory of Alliance and has added the inventory to the M&T Floor Plan Line
of Credit.
The
Company accounted for the asset purchase agreements as business combinations using the purchase method of accounting as it was
determined that Shorewood RV Center, Tennessee RV and Alliance constituted a business. As a result, the Company determined its
allocation of the fair value of the assets acquired and the liabilities assumed for Shorewood RV Center, Tennessee RV and its
preliminary allocation for Alliance as follows:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
12,171
|
|
|
$
|
23,530
|
|
Accounts receivable
and prepaid expenses
|
|
|
53
|
|
|
|
378
|
|
Property and equipment
|
|
|
77
|
|
|
|
6,175
|
|
Intangible
assets
|
|
|
2,630
|
|
|
|
4,610
|
|
Total
assets acquired
|
|
|
14,931
|
|
|
|
34,693
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued
expenses and other current liabilities
|
|
|
243
|
|
|
|
719
|
|
Floor
plan notes payable
|
|
|
11,434
|
|
|
|
21,163
|
|
Total
liabilities assumed
|
|
|
11,677
|
|
|
|
21,882
|
|
|
|
|
|
|
|
|
|
|
Net
assets acquired
|
|
$
|
3,254
|
|
|
$
|
12,811
|
|
The
fair value of consideration paid was as follows:
Purchase
Price:
|
|
2019
|
|
|
2018
|
|
Cash consideration
paid
|
|
$
|
2,568
|
|
|
$
|
15,300
|
|
Amounts due (from)
to former owners
|
|
|
(107
|
)
|
|
|
24
|
|
Note
payable issued to former owners
|
|
|
3,045
|
|
|
|
5,820
|
|
|
|
$
|
5,506
|
|
|
$
|
21,144
|
|
Goodwill
represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets
acquired and liabilities assumed from the Shorewood RV Center, Tennessee RV and Alliance. Goodwill associated with the transaction
is detailed below:
|
|
2019
|
|
|
2018
|
|
Total consideration
|
|
$
|
5,506
|
|
|
$
|
21,144
|
|
Less
net assets acquired
|
|
|
3,254
|
|
|
|
12,811
|
|
Goodwill
|
|
$
|
2,252
|
|
|
$
|
8,333
|
|
The
following table summarizes the Company’s allocation of the purchase price to the identifiable intangible assets acquired
as of the date of the closings during 2018.
|
|
Gross
Asset Amount at
Acquisition Date
|
|
|
Weighted
Average Amortization Period in Years
|
|
Customer
Lists
|
|
$
|
210
|
|
|
|
7-8
years
|
|
Dealer Agreements
|
|
$
|
4,400
|
|
|
|
7-8
years
|
|
The
following table summarizes the Company’s preliminary allocation of the purchase price to the identifiable intangible assets
acquired as of the date of the closing during 2019.
|
|
Gross Asset Amount at
Acquisition Date
|
|
|
Weighted Average Amortization Period in Years
|
|
Customer Lists
|
|
$
|
230
|
|
|
|
7
years
|
|
Dealer Agreements
|
|
$
|
2,400
|
|
|
|
7 years
|
|
The
Company recorded approximately $91.2 million in revenue and $3.9 million in net income prior to income taxes during the
year ended December 31, 2019 related to these acquisitions. The Company recorded approximately $9.0 million in revenue and
($0.1 million) in net loss prior to income taxes during the period from March 15, 2018 to December 31, 2018 related to these
acquisitions.
Pro
Forma Information
The
following unaudited pro forma financial information summarizes the combined results of operations for the Company as though the
Mergers and the purchase of Shorewood RV Center, Tennessee RV and Alliance had been consummated on January 1, 2018.
|
|
For
the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
676,900
|
|
|
$
|
715,965
|
|
Income before income
taxes
|
|
$
|
1,960
|
|
|
$
|
8,234
|
|
Net (loss) income
|
|
$
|
832
|
|
|
$
|
3,776
|
|
The
Company adjusted the combined (loss) income of Lazydays RV with Andina, Shorewood, Tennessee RV and Alliance and adjusted net
(loss) income to eliminate business combination expenses as well as the incremental depreciation and amortization associated with
the purchase price allocation for Andina, Shorewood, and Tennessee RV and the preliminary purchase price allocation for Alliance
to determine pro forma net (loss) income.
Goodwill
that is deductible for tax purposes was determined to be $15,406.
NOTE
4 – RECEIVABLES, NET
Receivables
consist of the following:
|
|
Successor
|
|
|
|
As
of
|
|
|
As
of
|
|
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Contracts
in transit and vehicle receivables
|
|
$
|
11,544
|
|
|
$
|
12,291
|
|
Manufacturer receivables
|
|
|
3,539
|
|
|
|
3,823
|
|
Finance
and other receivables
|
|
|
1,324
|
|
|
|
1,540
|
|
|
|
|
16,407
|
|
|
|
17,654
|
|
Less:
Allowance for doubtful accounts
|
|
|
(382
|
)
|
|
|
(687
|
)
|
|
|
$
|
16,025
|
|
|
$
|
16,967
|
|
Contracts
in transit represent receivables from financial institutions for the portion of the vehicle and other products sales price financed
by the Company’s customers through financing sources arranged by the Company. Manufacturer receivables are due from the
manufacturers for incentives, rebates, and other programs. These incentives and rebates are treated as a reduction of cost of
revenues.
NOTE
5 – INVENTORIES
Inventories
consist of the following:
|
|
Successor
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
New recreational vehicles
|
|
$
|
124,096
|
|
|
$
|
129,361
|
|
Pre-owned recreational vehicles
|
|
|
36,639
|
|
|
|
34,905
|
|
Parts, accessories and other
|
|
|
3,848
|
|
|
|
4,387
|
|
|
|
|
164,583
|
|
|
|
168,653
|
|
Less: excess of current cost over LIFO
|
|
|
(3,719
|
)
|
|
|
(1,275
|
)
|
|
|
$
|
160,864
|
|
|
$
|
167,378
|
|
During
2019, the Company retired the RV rental units and moved the rental units to used inventory for sale. Upon transfer to used inventory,
the carrying value of these units was adjusted to market value for similar units acquired by the Company for resale.
NOTE
6 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consist of the following:
|
|
Successor
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
22,496
|
|
|
$
|
15,555
|
|
Building and improvements including leasehold improvements
|
|
|
62,206
|
|
|
|
55,761
|
|
Furniture and equipment
|
|
|
6,747
|
|
|
|
5,044
|
|
Company vehicles and rental units
|
|
|
747
|
|
|
|
4,856
|
|
Construction in progress
|
|
|
5,603
|
|
|
|
2,359
|
|
|
|
|
97,799
|
|
|
|
83,575
|
|
Less: Accumulated depreciation and amortization
|
|
|
(10,923
|
)
|
|
|
(5,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86,876
|
|
|
$
|
78,043
|
|
Depreciation
and amortization expense is set forth in the table below:
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
Year
ended
December
31, 2019
|
|
|
March 15, 2018 to
December
31, 2018
|
|
|
January 1, 2018 to
March 14,
2018
|
|
Depreciation
|
|
|
$
|
6,848
|
|
|
$
|
5,583
|
|
|
$
|
1,058
|
|
NOTE
7 – INTANGIBLE ASSETS
Intangible
assets and the related accumulated amortization are summarized as follows:
|
|
As
of December 31, 2019
|
|
|
As
of December 31, 2018
|
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Asset
Value
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Asset
Value
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer relationships
|
|
$
|
35,800
|
|
|
$
|
5,180
|
|
|
$
|
30,620
|
|
|
$
|
33,400
|
|
|
$
|
2,015
|
|
|
$
|
31,385
|
|
Customer relationships
|
|
|
9,540
|
|
|
|
1,406
|
|
|
|
8,134
|
|
|
|
9,310
|
|
|
|
606
|
|
|
|
8,704
|
|
|
|
|
45,340
|
|
|
|
6,586
|
|
|
|
38,754
|
|
|
|
42,710
|
|
|
|
2,621
|
|
|
|
40,089
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks
|
|
|
30,100
|
|
|
|
-
|
|
|
|
30,100
|
|
|
|
30,100
|
|
|
|
-
|
|
|
|
30,100
|
|
|
|
$
|
75,440
|
|
|
$
|
6,586
|
|
|
$
|
68,854
|
|
|
$
|
72,810
|
|
|
$
|
2,621
|
|
|
$
|
70,189
|
|
Amortization
expense is set forth in the table below:
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
January
1, 2019 to
December 31, 2019
|
|
|
March 15, 2018 to
December
31, 2018
|
|
|
January
1, 2018 to
March 14, 2018
|
|
Amortization
|
|
|
$
|
3,965
|
|
|
$
|
2,621
|
|
|
$
|
154
|
|
Estimated
future amortization expense is as follows:
Years ending
|
|
|
2020
|
|
$
|
4,187
|
2021
|
|
|
4,187
|
2022
|
|
|
4,187
|
2023
|
|
|
4,187
|
2024
|
|
|
4,187
|
Thereafter
|
|
|
17,819
|
|
|
$
|
38,754
|
As
of December 31, 2019, the weighted average remaining amortization period was 9.6 years.
NOTE
8 – FINANCING LIABILITY
On
December 23, 2015, the Predecessor sold certain land, building and improvements for $56,000 and is leasing back the property from
the purchaser over a non-cancellable period of 20 years. The lease contains renewal options at lease termination, with three options
to renew for 10 additional years each and contains a right of first offer in the event the property owner intends to sell any
portion or all of the property to a third party. These rights and obligations constitute continuing involvement, which resulted
in failed sale-leaseback (financing) accounting. The financing liability has an implied interest rate of 7.3%. At the conclusion
of the 20-year lease period, the financing liability residual will be $11,000, which will correspond to the carrying value of
the land.
On
August 7, 2018, the Successor sold certain land, building and improvements for $5,350 and is leasing back the property from the
purchaser over a non-cancellable period of 20 years (See Note 3 – Business Combinations). The lease contains renewal options
at lease termination, with three options to renew for 10 additional years each and contains a right of first offer in the event
the property owner intends to sell any portion or all of the property to a third party. These rights and obligations constitute
continuing involvement, which resulted in failed sale-leaseback (financing) accounting. The financing liability has an implied
interest rate of 7.9%. At the conclusion of the 20-year lease period, the financing liability residual will be $1,780, which will
correspond to the carrying value of the land. As part of the lease, the Company could have drawn up to $5,000 from the
lessor through September 30, 2019 to pay for certain improvements on the premises. As of December 31, 2019, the Company
drew $4,206 to make such improvements. Repayments on advances are made over the term of the lease and are factored into the calculation
of the outstanding financing liability. Annual payments are made at a rate of the amount of the outstanding advance multiplied
by an advance rate of 8%.
The
financing liabilities, net of debt discount, is summarized as follows:
|
|
As of
|
|
|
As of
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Financing liability
|
|
$
|
64,568
|
|
|
$
|
61,324
|
|
Debt discount
|
|
|
(75
|
)
|
|
|
(77
|
)
|
Financing liability, net of debt discount
|
|
|
64,493
|
|
|
|
61,247
|
|
Less: current portion
|
|
|
936
|
|
|
|
714
|
|
Financing liability, non-current portion
|
|
$
|
63,557
|
|
|
$
|
60,533
|
|
The
future minimum payments required by the arrangements are as follows:
Years ending
December 31,
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
Payments
|
|
2020
|
|
|
|
936
|
|
|
|
4,700
|
|
|
|
5,636
|
|
2021
|
|
|
|
1,124
|
|
|
|
4,626
|
|
|
|
5,750
|
|
2022
|
|
|
|
1,327
|
|
|
|
4,537
|
|
|
|
5,864
|
|
2023
|
|
|
|
1,549
|
|
|
|
4,433
|
|
|
|
5,982
|
|
2024
|
|
|
|
1,790
|
|
|
|
4,311
|
|
|
|
6,101
|
|
Thereafter
|
|
|
|
45,062
|
|
|
|
33,498
|
|
|
|
78,560
|
|
|
|
|
$
|
51,788
|
|
|
$
|
56,105
|
|
|
$
|
107,893
|
|
For
the year ended December 31, 2019, the Company made interest payments of $4,655 and principal payments of $730. For the period
from March 15, 2018 to December 31, 2018, the Successor made interest payments of $3,236 and principal payments of $430. For the
period from January 1, 2018 to March 14, 2018, the Predecessor made interest payments of $1,020 and principal payments of $144.
NOTE
9 – ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts
payable, accrued expenses and other current liabilities consist of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31 2019
|
|
|
December 31, 2018
|
|
Accounts payable
|
|
$
|
11,231
|
|
|
$
|
10,642
|
|
Other accrued expenses
|
|
|
3,392
|
|
|
|
3,577
|
|
Customer deposits
|
|
|
2,267
|
|
|
|
2,511
|
|
Accrued compensation
|
|
|
2,388
|
|
|
|
2,164
|
|
Accrued charge-backs
|
|
|
4,221
|
|
|
|
3,252
|
|
Accrued interest
|
|
|
356
|
|
|
|
453
|
|
Total
|
|
$
|
23,855
|
|
|
$
|
22,599
|
|
NOTE
10 – DEBT
Successor
Debt
M&T
Financing Agreement
On
March 15, 2018, the Company terminated and replaced the Bank of America (“BOA”) credit facility with a $200,000 Senior
Secured Credit Facility with M&T Bank (the “M&T Facility”). The M&T Facility includes a Floor Plan Facility
(the “M&T Floor Plan Line of Credit”), a Term Loan (the “M&T Term Loan”), and a Revolving Credit
Facility (the “M&T Revolver”). The M&T Facility will mature on March 15, 2021. The M&T Facility requires
the Company to meet certain financial and other covenants and is secured by substantially all of the assets of the Company. The
costs of the M&T Facility were recorded as a debt discount.
On
March 15, 2018, the Company repaid $96,740 outstanding under the BOA floor plan notes payable and $8,820 outstanding under the
BOA term loan with the proceeds of the M&T Facility.
As
of December 31, 2019, the payment of dividends by the Company (other than from proceeds of revolving loans) was permitted under
the M&T Facility, so long as at the time of payment of any such dividend, no event of default existed under the M&T Facility,
or would result from the payment of such dividend, and so long as any such dividend was permitted under the M&T Facility.
As of December 31, 2019, the maximum amount of cash dividends that the Company could make from legally available funds to its
stockholders was limited to an aggregate of $4,446 pursuant to a trailing twelve month calculation as defined in the M&T Facility.
The
$175,000 M&T Floor Plan Line of Credit may be used to finance new vehicle inventory, but only $45,000 may be used to finance
pre-owned vehicle inventory and $4,500 may be used to finance rental units. Principal becomes due upon the sale of the related
vehicle. The M&T Floor Plan Line of Credit shall accrue interest at either (a) the fluctuating 30-day London Interbank Offered
Rate (“LIBOR”) rate plus an applicable margin which ranges from 2.00% to 2.30% based upon the Company’s total
leverage ratio (as defined in the M&T Facility) or (b) the Base Rate plus an applicable margin ranging from 1.00% to 1.30%
based upon the Company’s total leverage ratio (as defined in the M&T Facility). The Base Rate is defined in the M&T
Facility as the highest of M&T’s prime rate, the Federal Funds rate plus 0.50% or one-month LIBOR plus 1.00%. In addition,
the Company will be charged for unused commitments at a rate of 0.15%. The interest rate in effect as of December 31, 2019 was
3.80%. Principal payments become due upon the sale of the vehicle. Additionally, principal payments are required to be
made once the vehicle reaches a certain number of days on the lot. The average outstanding principal balance was $114,008 and
the related floor plan interest expense was $4,412.
The
M&T Floor Plan Line of Credit consists of the following as of December 31, 2019 and 2018:
|
|
As
of
December
31, 2019
|
|
|
As
of
December
31, 2018
|
|
Floor plan notes payable, gross
|
|
$
|
144,133
|
|
|
$
|
143,885
|
|
Debt discount
|
|
|
(184
|
)
|
|
|
(416
|
)
|
Floor plan notes payable, net of debt discount
|
|
$
|
143,949
|
|
|
$
|
143,469
|
|
The
$20,000 M&T Term Loan will be repaid in equal monthly principal installments of $242 plus accrued interest through the maturity
date of March 15, 2021. At the maturity date, the Company will pay a principal balloon payment of $11,300 plus any accrued interest.
The M&T Term Loan shall bear interest at (a) LIBOR plus an applicable margin of 2.25% to 3.00% based on the total leverage
ratio (as defined in the M&T Facility) or (b) the Base Rate plus a margin of 1.25% to 2.00% based on the total leverage ratio
(as defined in the M&T Facility). The interest rate in effect at December 31, 2019 was 4.25%.
Long-term
debt consists of the following as of December 31, 2019 and 2018:
|
|
As of December 31, 2019
|
|
|
As of December 31, 2018
|
|
|
|
Gross Principal Amount
|
|
|
Debt Discount
|
|
|
Total Debt, Net of Debt Discount
|
|
|
Gross Principal Amount
|
|
|
Debt Discount
|
|
|
Total Debt, Net of Debt Discount
|
|
Term loan
|
|
$
|
14,925
|
|
|
$
|
(47
|
)
|
|
$
|
14,878
|
|
|
$
|
17,825
|
|
|
$
|
(42
|
)
|
|
$
|
17,783
|
|
Acquisition notes payable (See Note 3)
|
|
|
6,688
|
|
|
|
-
|
|
|
|
6,688
|
|
|
|
5,638
|
|
|
|
-
|
|
|
|
5,638
|
|
Total long-term debt
|
|
|
21,613
|
|
|
|
(47
|
)
|
|
|
21,566
|
|
|
|
23,463
|
|
|
|
(42
|
)
|
|
|
23,421
|
|
Less: current portion
|
|
|
5,993
|
|
|
|
-
|
|
|
|
5,993
|
|
|
|
4,408
|
|
|
|
-
|
|
|
|
4,408
|
|
Long term debt, non-current
|
|
$
|
15,620
|
|
|
$
|
(47
|
)
|
|
$
|
15,573
|
|
|
$
|
19,055
|
|
|
$
|
(42
|
)
|
|
$
|
19,013
|
|
Future
maturities of long term debt are as follows:
Future
Maturities of Long Term Debt
Years ending December 31,
|
|
|
|
2020
|
|
|
5,993
|
|
2021
|
|
|
14,526
|
|
2022
|
|
|
1,094
|
|
Total
|
|
$
|
21,613
|
|
The
$5,000 M&T Revolver allows the Company to draw up to $5,000. The M&T Revolver shall bear interest at (a) 30-day LIBOR
plus an applicable margin of 2.25% to 3.00% based on the total leverage ratio (as defined in the M&T Facility) or (b) the
Base Rate plus a margin of 1.25% to 2.00% based on the total leverage ratio (as defined in the M&T Facility). The M&T
Revolver is also subject to unused commitment fees at rates varying from 0.25% to 0.50% based on the total leverage ratio (as
defined in the M&T Facility). During the Successor period ended December 31, 2019, there were no outstanding borrowings under
the M&T Revolver. The M&T Revolver also includes a $1,000 Letter of Credit Sublimit which decreases the availability of
the line. As of December 31, 2019, there were $162 outstanding letters of credit. As a result, there was $4,838 available under
the M&T Revolver.
Predecessor
Debt
On
February 27, 2017, the Predecessor and BOA amended the floor plan notes payable asset-based borrowing facility to (a) increase
the aggregate availability from $120 million to $140 million; (b) modify certain financial covenants; (c) decrease the interest
rate applicable to the facility over time until it reaches LIBOR plus 2.25% for the period from November 1, 2017 until the maturity
date (November 18, 2018) of the facility; and (d) amend or modify other terms and conditions.
The
entire facility could be used to finance new vehicle inventory but only up to $40.0 million could be used to finance pre-owned
vehicle inventory, of which a maximum of $5.0 million could be used to finance rental units. Principal was due upon the sale of
the respective vehicle. The BOA floor plan notes payable was repaid with the transition to the M&T Floor Plan Line of Credit
on March 15, 2018.
On
November 18, 2015, the Company entered into a credit agreement with Bank of America for an aggregate commitment amount of $20,000,
which includes two facilities (the “BOA Credit Agreement”). The first of two facilities under the BOA Credit Agreement
was a $13,000 term note payable (“Term Loan”) which was collateralized by accounts receivable, inventory and equipment.
The principal balance on the Term Loan was repaid on March 15, 2018 when the Company switched lenders to M&T Bank.
The
second of the two facilities under the BOA Credit Agreement was a $7,000 revolving line of credit. The revolving line of credit
carried interest at LIBOR plus 3.5% per annum and had no minimum payment requirements. The revolver was no longer available
upon the change to M&T bank on March 15, 2018.
NOTE
11 – INCOME TAXES
The
components of the Company’s income tax expense (benefit) are as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year ended
December 31, 2019
|
|
|
March 15, 2018 to
December
31, 2018
|
|
|
January 1, 2018 to
March 14,
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,699
|
|
|
$
|
3,483
|
|
|
$
|
85
|
|
State
|
|
|
664
|
|
|
|
609
|
|
|
|
3
|
|
|
|
|
3,363
|
|
|
|
4,092
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,746
|
)
|
|
|
(1,738
|
)
|
|
|
460
|
|
State
|
|
|
(520
|
)
|
|
|
(36
|
)
|
|
|
170
|
|
|
|
|
(2,266
|
)
|
|
|
(1,774
|
)
|
|
|
630
|
|
Income tax expense
|
|
$
|
1,097
|
|
|
$
|
2,318
|
|
|
$
|
718
|
|
A
reconciliation of income taxes calculated using the statutory federal income tax rate (21% in 2019 and 2018) to the Company’s
income tax expense is as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year Ended December 31, 2019
|
|
|
March 15, 2018 to December
31, 2018
|
|
|
January 1, 2018 to March 14,
2018
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Income taxes at statutory rate
|
|
$
|
380
|
|
|
|
21.0
|
%
|
|
$
|
(59
|
)
|
|
|
21.0
|
%
|
|
$
|
635
|
|
|
|
21.0
|
%
|
Non-deductible expense
|
|
|
43
|
|
|
|
2.4
|
%
|
|
|
35
|
|
|
|
-12.4
|
%
|
|
|
10
|
|
|
|
0.3
|
%
|
State income taxes, net of federal tax effect
|
|
|
(75
|
)
|
|
|
-4.2
|
%
|
|
|
500
|
|
|
|
-177.4
|
%
|
|
|
110
|
|
|
|
3.6
|
%
|
Transaction costs
|
|
|
(61
|
)
|
|
|
-3.4
|
%
|
|
|
623
|
|
|
|
-221.3
|
%
|
|
|
578
|
|
|
|
18.9
|
%
|
Stock-based compensation and officer compensation
|
|
|
824
|
|
|
|
43.0
|
%
|
|
|
1,248
|
|
|
|
-442.7
|
%
|
|
|
(241
|
)
|
|
|
-7.9
|
%
|
Long-term incentive plan
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
(412
|
)
|
|
|
-13.5
|
%
|
Effect of increase in statutory rate for current year
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Tax rate adjustments
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Other credits and changes in estimate and true ups
|
|
|
(14
|
)
|
|
|
1.8
|
%
|
|
|
(29
|
)
|
|
|
10.6
|
%
|
|
|
38
|
|
|
|
1.3
|
%
|
Income tax expense
|
|
$
|
1,097
|
|
|
|
60.6
|
%
|
|
$
|
2,318
|
|
|
|
-822.2
|
%
|
|
$
|
718
|
|
|
|
23.7
|
%
|
Due
to limitations on the deductibility of compensation under Section 162(m) stock-based compensation expense attributable to certain
employees has been treated as a permanent difference in the calculation of tax expense for the Successor Period. The Company does
not expect that these expenses will be deductible on the estimated exercise date of the awards. As such, no deferred tax asset
has been established related to these amounts.
Deferred
tax assets and liabilities were as follows:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
96
|
|
|
$
|
173
|
|
Accrued charge-backs
|
|
|
1,063
|
|
|
|
821
|
|
Other accrued liabilities
|
|
|
166
|
|
|
|
407
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
Financing liability
|
|
|
16,247
|
|
|
|
15,463
|
|
Transaction costs
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation
|
|
|
894
|
|
|
|
676
|
|
Other, net
|
|
|
262
|
|
|
|
192
|
|
|
|
|
18,728
|
|
|
|
17,732
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(271
|
)
|
|
|
(370
|
)
|
Goodwill
|
|
|
(370
|
)
|
|
|
(115
|
)
|
Inventories
|
|
|
(4,702
|
)
|
|
|
(4,939
|
)
|
Property and equipment
|
|
|
(15,457
|
)
|
|
|
(16,027
|
)
|
Intangible assets
|
|
|
(14,378
|
)
|
|
|
(14,998
|
)
|
|
|
|
(35,178
|
)
|
|
|
(36,449
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liabilities)/assets
|
|
$
|
(16,450
|
)
|
|
$
|
(18,717
|
)
|
No
significant increases or decreases in the amounts of unrecognized tax benefits are expected in the next 12 months.
The
Company is subject to U.S. federal income tax and income tax in the states of Florida, Arizona, Colorado, Minnesota, and Tennessee.
The Company is no longer subject to the examination by Federal and state taxing authorities for years prior to 2016 with the exception
of Florida which has completed its examinations through December 31, 2017 with no additional taxes due. The Company recognizes
interest and penalties related to income tax matters in income tax (benefit) expense. Interest and penalties recorded in the statements
of operations for the periods presented were insignificant.
NOTE
12 – RELATED PARTY TRANSACTIONS
On
March 15, 2018, the non-executive Chairman of the Board of Andina was repaid aggregate outstanding notes payable totaling $661.
In addition, $100 was repaid to other employees of Andina who held notes payable with the Company.
On
March 15, 2018, in connection with the Mergers, the Company paid Hydra Management, LLC, an affiliate of A. Lorne Weil, an initial
shareholder of Andina and the father of B. Luke Weil, a member of the Company’s Board of Directors, $500 as compensation
for advisory services in connection with the Mergers.
On
December 18, 2019, pursuant to the Company’s stock repurchase program, the Company repurchased 75,000 shares of common stock
from B. Luke Weil for $302 including broker fees. (See Note 16-Stockholders’ Equity)
NOTE
13 – EMPLOYEE BENEFIT PLANS
The
Company has a 401(k) plan with profit sharing provisions (the “Plan”). The Plan covers substantially all employees.
The Plan allows employee contributions to be made on a salary reduction basis under Section 401(k) of the Internal Revenue Code.
Under the 401(k) provisions, the Company makes discretionary matching contributions to employees’ 401(k). The Company made
contributions to the Plan of $785 for the year ended December 31, 2019 and $676 during the period from March 15, 2018 to December
31, 2018. The Predecessor made contributions to the Plan of $179 during the period from January 1, 2018 to March 14, 2018.
NOTE
14 - COMMITMENTS AND CONTINGENCIES
Employment
Agreements
The
Company entered into employment agreements with the Chief Executive Officer (“CEO”) and the former Chief Financial
Officer (“CFO”) of the Company effective as of the consummation of the Mergers. The employment agreements with the
CEO and the former CFO provide for initial base salaries of $540 and $325, respectively, subject to annual discretionary
increases. In addition, each executive is eligible to participate in any employee benefit plans adopted by the Company from time
to time and is eligible to receive an annual cash bonus based on the achievement of performance objectives. The CEO’s target
bonus is 100% of his base salary and the former CFO’s target bonus was 75% of her base salary. The employment
agreements also provide that each executive is to be granted an option to purchase shares of common stock of the Company (See
Note 16 – Stockholders’ Equity).
The
employment agreements provide that if the CEO is terminated for any reason, he is entitled to receive any accrued benefits, including
any earned but unpaid portion of base salary through the date of termination, subject to withholding and other appropriate deductions.
In addition, in the event the executive resigns for good reason or is terminated without cause (all as defined in the employment
agreement) prior to January 1, 2022, subject to entering into a release, the Company will pay the executive severance equal to
(i) two times base salary and average bonus for the CEO and (ii) one times base salary and average bonus for the former
CFO.
On
April 30, 2018, the former CFO announced her voluntary resignation from the Company, effective May 11, 2018.
In
May 2018, the Company entered into an offer letter with the new Chief Financial Officer (the “new CFO”) of the Company.
The offer letter provides for an initial base salary of $325 per year subject to annual discretionary increases. In addition,
the executive is eligible to participate in any employee benefit plans adopted by the Company from time to time and is eligible
to receive an annual cash bonus based on the achievement of performance objectives. The new CFO’s target bonus is 75% of
his annual base salary (with a potential to earn a maximum of up to 150% of his target bonus). The offer letter also provides
that the executive is to be granted an option to purchase shares of common stock of the Company. He is also being provided with
a relocation allowance of $100 which the new CFO will be required to repay if he resigns from the Company or is terminated by
the Company for cause within two years of his start date. If he is terminated without cause, he will receive twelve months of
his base salary as severance. If he is terminated following a change in control, he is also eligible to receive a pro-rated bonus,
if the board of directors determines that the performance objectives have been met. He also was granted an option to purchase
shares of common stock of the Company (See Note 16- Stockholders’ Equity).
Director
Compensation
The
Company’s non-employee members of the board of directors will receive annual cash compensation of $50 for serving on the
board of directors, $5 for serving on a committee of the board of directors (other than the Chairman of each of the committees)
and $10 for serving as the Chairman of any of the committees of the board of directors.
Legal
Proceedings
The
Company is a party to multiple legal proceedings that arise in the ordinary course of business. The Company has certain insurance
coverage and rights of indemnification. The Company does not believe that the ultimate resolution of these matters will have a
material adverse effect on the Company’s business, results of operations, financial condition, or cash flows. However, the
results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these matters could
have a material adverse effect on the Company’s business, results of operations, financial condition, and/or cash flows.
The
Company records legal expenses as incurred in its consolidated statements of operations.
Operating
Leases
The
Company leases various land, office and dealership equipment under non-cancellable operating leases. These leases have terms ranging
from 3 years to 10 years and expire through 2028.
Rent
expense associated with operating leases was as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year ended December 31, 2019
|
|
|
March 15, 2018 to December
31, 2018
|
|
|
January 1, 2018 to March 14,
2018
|
|
Rent expense
|
|
$
|
4,232
|
|
|
$
|
2,426
|
|
|
$
|
626
|
|
Future
minimum rent payments under operating leases are as follows:
Years ending December 31,
|
|
|
|
2020
|
|
|
3,757
|
|
2021
|
|
|
2,247
|
|
2022
|
|
|
1,872
|
|
2023
|
|
|
1,717
|
|
2024
|
|
|
1,081
|
|
Thereafter
|
|
|
2,898
|
|
Total
|
|
$
|
13,572
|
|
Transaction
Incentive Plan
On
January 30, 2017, the Company’s Board of Directors approved the Company’s Transaction Incentive Plan, which provided
incentives to eight directors and employees of the Company upon the consummation of a qualifying sale transaction. The Transaction
Incentive Plan expires on October 31, 2020. To the extent the proceeds received in a qualifying sale transaction exceed certain
specified thresholds (the “Excess Amount”), participants in the Transaction Incentive Plan who met the specified service
requirements were entitled to a cash and stock award on the closing date of the qualifying sale transaction equal to their awarded
percentage of the Excess Amount. The cash and stock awards were paid from the consideration of the qualifying sale transaction.
The Mergers (see Note 3 – Business Combination) represented a qualifying sale transaction that resulted in the payment to
plan participants of an aggregate of $1,510 of cash (including amounts held in escrow) and 51,896 shares of Holdings’ common
stock with a value of $534 based on the March 15, 2018 closing price of $10.29 per Andina share. As of the date of the Mergers,
an additional $250 was set to be paid in cash and stock upon the release of amounts held in escrow under the Merger Agreement.
On May 15, 2018, $40 was released from escrow pursuant to the working capital adjustment. As of March 21, 2019, the remaining
amounts were released from escrow.
NOTE
15 – PREFERRED STOCK
Simultaneous
with the closing of the Mergers, the Company consummated a private placement with institutional investors for the sale of convertible
preferred stock, common stock, and warrants for an aggregate purchase price of $94,800 (the “PIPE Investment”). At
the closing, the Company issued an aggregate of 600,000 shares of Series A Preferred Stock for gross proceeds of $60,000. The
investors in the PIPE Investment were granted certain registration rights as set forth in the securities purchase agreements.
The holders of the Series A Preferred Stock include 500,000 shares owned by funds managed by a member of the Company’s Board
of Directors.
The
Series A Preferred Stock ranks senior to all outstanding stock of the Company. Holders of the Series A Preferred Stock are entitled
to vote on an as-converted basis together with the holders of the Common Stock, and not as a separate class, at any annual or
special meeting of stockholders. Each share of Series A Preferred Stock is convertible at the holder’s election at any time,
at an initial conversion price of $10.0625 per share, subject to adjustment (as applicable, the “Conversion Price”).
Upon any conversion of the Series A Preferred Stock, the Company will be required to pay each holder converting shares of Series
A Preferred Stock all accrued and unpaid dividends, in either cash or shares of common stock, at the Company’s option. The
Conversion Price will be subject to adjustment for stock dividends, forward and reverse splits, combinations and similar events,
as well as for certain dilutive issuances.
Dividends
on the Series A Preferred Stock accrue at an initial rate of 8% per annum (the “Dividend Rate”), compounded quarterly,
on each $100 of Series A Preferred Stock (the “Issue Price”) and are payable quarterly in arrears. Accrued and unpaid
dividends, until paid in full in cash, will accrue at the then applicable Dividend Rate plus 2%. The Dividend Rate will be increased
to 11% per annum, compounded quarterly, in the event that the Company’s senior indebtedness less unrestricted cash during
any trailing twelve-month period ending at the end of any fiscal quarter is greater than 2.25 times earnings before interest,
taxes, depreciation and amortization (“EBITDA”). The Dividend Rate will be reset to 8% at the end of the first fiscal
quarter when the Company’s senior indebtedness less unrestricted cash during the trailing twelve-month period ending at
the end of such quarter is less than 2.25 times EBITDA.
If,
at any time following the second anniversary of the issuance of the Series A Preferred Stock, the volume weighted average price
of the Company’s common stock equals or exceeds $25.00 per share (as adjusted for stock dividends, splits, combinations
and similar events) for a period of thirty consecutive trading days, the Company may elect to force the conversion of any or all
of the outstanding Series A Preferred Stock at the Conversion Price then in effect. From and after the eighth anniversary of the
issuance of the Series A Preferred Stock, the Company may elect to redeem all, but not less than all, of the outstanding Series
A Preferred Stock in cash at the Issue Price plus all accrued and unpaid dividends. From and after the ninth anniversary of the
issuance of the Series A Preferred Stock, each holder of Series A Preferred Stock has the right to require the Company to redeem
all of the holder’s outstanding shares of Series A Preferred Stock in cash at the Issue Price plus all accrued and unpaid
dividends.
In
the event of any liquidation, merger, sale, dissolution or winding up of the Company, holders of the Series A Preferred Stock
will have the right to (i) payment in cash of the Issue Price plus all accrued and unpaid dividends, or (ii) convert the shares
of Series A Preferred Stock into common stock and participate on an as-converted basis with the holders of common stock.
So
long as the Series A Preferred Stock is outstanding, the holders thereof, by the vote or written consent of the holders of a majority
in voting power of the outstanding Series A Preferred Stock, shall have the right to designate two members to the board of directors.
In
addition, five-year warrants to purchase 596,273 shares of common stock at an exercise price of $11.50 per share were issued in
conjunction with the issuance of the Series A Preferred Stock. The warrants may be exercised for cash or, at the option of the
holder, on a “cashless basis” pursuant to the exemption provided by Section 3(a)(9) of the Securities Act. The warrants
may be called for redemption in whole and not in part, at a price of $0.01 per share of common stock, if the last reported sales
price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-day trading period
ending on the third business day prior to the notice of redemption to warrant holders, if there is a current registration statement
in effect with respect to the shares underlying the warrants.
The
Series A Preferred Stock, while convertible into common stock, is also redeemable at the holder’s option and, as a result,
is classified as temporary equity in the consolidated balance sheets. An analysis of its features determined that the Series A
Preferred Stock was more akin to equity. While the embedded conversion option (“ECO”) was subject to an anti-dilution
price adjustment, since the ECO was clearly and closely related to the equity host, it was not required to be bifurcated and it
was not accounted for as a derivative liability under ASC 815, Derivatives and Hedging.
After
factoring in the relative fair value of the warrants issued in conjunction with the Series A Preferred Stock, the effective conversion
price is $9.72 per share, compared to the market price of $10.29 per share on the date of issuance. As a result, a $3,392 beneficial
conversion feature was recorded as a deemed dividend in the consolidated statement of income because the Series A Preferred Stock
is immediately convertible, with a credit to additional paid-in capital. The relative fair value of the warrants issued with the
Series A Preferred Stock of $2,035 was recorded as a reduction to the carrying amount of the preferred stock in the consolidated
balance sheet. In addition, aggregate offering costs of $2,981 consisting of cash and the value of five-year warrants to purchase
178,882 shares of common stock at an exercise price of $11.50 per share issued to the placement agent were recorded as a reduction
to the carrying amount of the preferred stock. The $632 value of the warrants was determined utilizing the Black-Scholes option
pricing model using a term of 5 years, a volatility of 39%, a risk-free interest rate of 2.61%, and a 0% rate of dividends.
The
discount associated with the Series A Preferred Stock was not accreted during the Successor period because redemption was
not currently deemed to be probable.
On
June 19, 2018, the Company’s Board of Directors declared a dividend payment on the Series A Preferred Stock of $1,425 for
the period from March 15, 2018 to March 31, 2018 and for the period from April 1, 2018 to June 30, 2018. The dividend was paid
on July 2, 2018 to the holders. On September 20, 2018, the Company’s Board of Directors declared a dividend payment on the
Series A Preferred Stock of $1,210 for the period from July 1, 2018 to September 30, 2018. The dividend was paid to the holders
of Series A Preferred Stock on October 1, 2018. On December 14, 2018, the Company’s Board of Directors declared a dividend
payment on the Series A Preferred Stock of $1,210 for the period from October 1, 2018 to December 31, 2018. The dividend was paid
to the holders of Series A Preferred Stock on January 2, 2019. For the year ended December 31, 2019, the Company did not declare
a dividend payment. As a result, as of December 31, 2019, $5,910 of dividends were accrued and included in the carrying amount
of the Series A Convertible Preferred Stock in the accompanying consolidated balance sheets.
NOTE
16 – STOCKHOLDERS’ EQUITY
Successor
Authorized
Capital
The
Company is authorized to issue 100,000,000 shares of common stock, $0.0001 par value, and 5,000,000 shares of preferred stock,
$0.0001 par value. The holders of the Company’s common stock are entitled to one vote per share. The holders of Series A
Preferred Stock are entitled to the number of votes equal to the number of shares of common stock into which the holder’s
shares are convertible. These holders of Series A Preferred Stock also participate in dividends if they are declared by the Board.
See Note 15 – Preferred Stock for additional information associated with the Series A Preferred Stock.
2018
Long-Term Incentive Equity Plan
On
March 15, 2018, the Company adopted the 2018 Long-Term Incentive Equity Plan (the “2018 Plan”). The 2018 Plan reserves
up to 13% of the shares of common stock outstanding on a fully diluted basis. The 2018 Plan is administered by the Compensation
Committee of the board of directors, and provides for awards of options, stock appreciation rights, restricted stock, restricted
stock units, warrants or other securities which may be convertible, exercisable or exchangeable for or into common stock. Due
to the fact that the fair market value per share immediately following the closing of the Mergers was greater than $8.75 per share,
the number of shares authorized for awards under the 2018 Plan was increased by a formula (as defined in the 2018 Plan) not to
exceed 18% of shares of common stock then outstanding on a fully diluted basis. On May 20, 2019, the Company’s stockholders
approved the adoption of the Lazydays Holdings, Inc. Amended and Restated 2018 Long Term Incentive Plan (the “Incentive
Plan”). The Incentive Plan amends and restates the previously adopted 2018 Plan in order to replenish the pool of shares
of common stock available under the Incentive Plan by adding an additional 600,000 shares of common stock and making certain changes
in light of the Tax Cuts and Jobs Act and its impact on Section 162(m) of the Internal Revenue Code of 1986, as amended. As of
December 31, 2019, there were 625,748 shares of common stock available to be issued under the Incentive Plan.
2019
Employee Stock Purchase Plan
On
May 20, 2019, the Company’s stockholders approved the 2019 Employee Stock Purchase Plan (the “ESPP”). The ESPP
reserved 900,000 shares of common stock for purchase by participants in the ESPP. Participants in the plan may purchase shares
of common stock at a purchase price which will not be less than the lesser of 85% of the fair market value per share of the common
on the first day of the purchase period or the last day of the purchase period. On December 2, 2019, the Company issued 35,058
shares of common stock pursuant to the ESPP. As a result, as of December 31, 2019, there were 864,942 shares available for issuance.
During the year ended December 31, 2019, the Company recorded $65 of stock based compensation expense related to the ESPP.
Stock
Repurchase Program
On
November 6, 2019, the Board of Directors of Lazydays authorized the repurchase of up to $4.0 million of the Company’s common
stock through December 31, 2020.
Repurchases
may be made at management’s discretion from time to time on the open market, through privately negotiated transactions or
a trading plan in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, and pursuant to applicable Securities
and Exchange Commission requirements. The repurchase program may be suspended for periods or discontinued at any time.
During
the year ended December 31, 2019, the Company repurchased 78,000 shares of common stock for $314 which are included in treasury
stock in the consolidated balance sheets.
Common
Stock
On
March 15, 2018, the Company had 1,872,428 shares of common stock outstanding prior to the consummation of the Mergers.
On
March 15, 2018, Andina rights holders converted their existing rights at a ratio of one share of common stock for seven Andina
rights. As a result, 615,436 shares of common stock of the Company were issued to former Andina rights holders.
On
March 15, 2018, holders of 472,571 shares of Andina common stock, which had been subject to redemption prior to the Mergers, were
reclassified from temporary equity to stockholders’ equity at their carrying value of $4,910.
On
March 15, 2018, 2,857,189 shares of common stock at a price per share of $10.29 were issued to the former stockholders of Lazydays
RV in conjunction with the Mergers for a total value of $29,400.
On
December 2, 2019, 35,058 shares of common stock at a price per share of $3.587 were issued to the participants of the ESPP for
a value of $126.
Simultaneous
with the Mergers, in addition to the Series A Preferred Stock and warrants issued in the PIPE Investment, the Company sold 2,653,984
shares of common stock, perpetual non-redeemable pre-funded warrants to purchase 1,339,499 shares of common stock at an exercise
price of $0.01 per share, and five-year warrants to purchase 1,630,927 shares of common stock at an exercise price of $11.50 per
share for gross proceeds of $34,783. The Company incurred offering costs of $2,065 which was recorded as a reduction to additional
paid-in capital in the consolidated balance sheet.
The
five-year warrants may be exercised for cash or, at the option of the holder, on a “cashless basis” pursuant to the
exemption provided by Section 3(a)(9) of the Securities Act by surrendering the warrants for that number of shares of common stock
as determined under the warrants. These warrants may be called for redemption in whole and not in part, at a price of $0.01 per
share if the last reported sales price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading
days within a 30-day trading period ending on the third business day prior to the notice of redemption to warrant holders, if
there is a current registration statement in effect with respect to the common stock underlying the warrants. In addition, five-year
warrants to purchase 116,376 shares of common stock at an exercise price of $11.50 per share were issued to the placement agent.
Unit
Purchase Options
On
November 24, 2015, Andina sold options to purchase an aggregate of 400,000 units (collectively, the “Unit Purchase Options”)
to an investment bank and its designees for $100. The Unit Purchase Options were exercisable at $10.00 per unit as a result of
the Mergers described in Note 3 – Business Combination and they were set to expire on November 24, 2020. The Unit Purchase
Options represented the right to purchase an aggregate of 457,142 shares of common stock (which included 57,142 shares of common
stock issuable for the rights included in the units, as well as warrants to purchase 200,000 shares of common stock for $11.50
per share). The Unit Purchase Options granted to the holders “demand” and “piggy back” registration rights
for periods of five and seven years, respectively, with respect to the securities directly and indirectly issuable upon exercise
of the Unit Purchase Options. The Unit Purchase Options were exercisable for cash or on a “cashless” basis, at the
holder’s option, such that the holder could have used the appreciated value of the Unit Purchase Options (the difference
between the exercise price of the Unit Purchase Option and the market price of the Unit Purchase Options and the underlying shares
of common stock) to exercise the Unit Purchase Options without the payment of any cash. The Company had no obligation to net cash
settle the exercise of the Unit Purchase Options or the underlying rights or warrants. During January 2019, the Company exchanged
$500 for all of the Unit Purchase Options, and as a result, the Unit Purchase Options and any obligation to issue any underlying
securities were cancelled.
Warrants
As
of March 15, 2018, holders of Andina warrants exchanged their existing 4,310,000 warrants with Andina with 4,310,000 warrants
to purchase 2,155,000 shares of Company common stock at an exercise price of $11.50 per share and a contractual life of five years
from the date of the Mergers. If a registration statement covering 2,000,000 of the shares issuable upon exercise of the public
warrants is not effective, warrant holders may, until such time as there is an effective registration statement and during any
period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis.
The warrants may be called for redemption in whole and not in part, at a price of $0.01 per warrant, if the last reported sales
price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-day trading period
ending on the third business day prior to the notice of redemption to warrant holders, if there is a current registration statement
in effect with respect to the shares underlying the warrants. Of the warrants to purchase 2,155,000 shares of common stock originally
issued by Andina, 155,000 are not redeemable and are exercisable on a cashless basis at the holder’s option.
Additionally,
warrants to purchase 2,522,458 shares of common stock were issued with the PIPE Investment, including warrants issued to the investment
bank but excluding prefunded warrants.
The
Company had the following activity related to shares underlying warrants:
|
|
Shares Underlying Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Warrants outstanding January 1, 2019
|
|
|
4,677,458
|
|
|
$
|
11.50
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Cancelled or Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding December 31, 2019
|
|
|
4,677,458
|
|
|
$
|
11.50
|
|
The
table above excludes perpetual non-redeemable prefunded warrants to purchase 1,339,499 shares of common stock with an exercise
price of $0.01 per share.
Stock
Options
Stock
option activity is summarized below:
|
|
Shares Underlying Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic Value
|
|
Options outstanding at January 1, 2019
|
|
|
3,658,421
|
|
|
$
|
11.10
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
505,000
|
|
|
|
7.55
|
|
|
|
|
|
|
|
|
|
Cancelled or terminated
|
|
|
(364,603
|
)
|
|
|
11.10
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2019
|
|
|
3,798,818
|
|
|
$
|
10.63
|
|
|
|
3.4
|
|
|
$
|
-
|
|
Options vested at December 31, 2019
|
|
|
28,152
|
|
|
$
|
11.10
|
|
|
|
3.2
|
|
|
$
|
-
|
|
Awards
with Market Conditions
On
March 16, 2018, the Company granted five-year incentive stock options to purchase 3,573,113 shares of common stock at an exercise
price of $11.10 per share to employees pursuant to the 2018 Plan, including 1,458,414 shares underlying the CEO’s stock
options and 583,366 shares underlying the former CFO’s stock options. A set percentage of the stock options shall vest upon
the volume weighted average price (“VWAP”) of the common stock, as defined in the option agreements, being equal to
or greater than a specified price per share for at least thirty (30) out of thirty-five (35) consecutive trading days, as follows
and are exercisable only to the extent that they are vested: 30% of the options shall vest upon exceeding $13.125 per share; an
additional 30% of the options shall vest upon exceeding $17.50 per share; an additional 30% of the options shall vest upon exceeding
$21.875 per share; and an additional 10% of the options shall vest upon exceeding $35.00 per share; provided that the option holder
remains continuously employed by the Company (and/or any of its subsidiaries) from the grant date through (and including) the
relevant date of vesting. On May 7, 2018, the Company hired a new CFO who received stock options to purchase 583,366 shares
of common stock under the same terms as the former CFO. On June 15, 2018, the former CFO forfeited her existing 583,366
options.
The
fair value of the awards issued on March 16, 2018 of $15,004 was determined using a Monte Carlo simulation based on a 5-year term,
a risk-free rate of 2.62%, an annual dividend yield of 0%, and an annual volatility of 42.8%. The expense is being recognized
over the derived service period of each vesting tranche which was determined to be 0.74 years, 1.64 years, 2.24 years, and 3.13
years.
The
fair value of the awards issued on May 7, 2018 of $2,357 was determined using a Monte Carlo simulation based on a 5- year term,
a risk-free rate of 2.74%, an annual volatility of 54.70%, and an annual dividend yield of 0%. The expense is being recognized
over the derived service period of each vesting tranche which was determined to be 0.97 years, 1.75 years, 2.15 years, and 2.96
years.
The
expense recorded for awards with market conditions was $4,556 for the period from January 1, 2019 to December 31, 2019 and $8,541
during the Successor period from March 15, 2018 to December 31, 2018, which is included in operating expenses in the consolidated
statements of operations.
Awards
with Service Conditions
On
March 16, 2018, the Company granted five-year stock options to purchase an aggregate of 99,526 shares at an exercise price of
$11.10 per share to the non-employee directors of the Company, pursuant to the 2018 Plan. These options vest over three years
with one-third vesting on each of the respective anniversary dates.
On
March 23, 2018, stock options to purchase 14,218 shares of common stock that had been issued to one non-employee director were
canceled, while new five-year options to purchase 15,123 shares of common stock at an exercise price of $10.40 per share were
issued to certain investment funds pursuant to an arrangement between the same non-employee director and the investment adviser
to the funds. The new options vest over three years with one-third vesting on each of the respective anniversary dates. On May
31, 2018, the same non-employee director resigned and options to purchase 15,123 shares of common stock were forfeited.
The
$350 fair value of these awards was determined using the Black-Scholes option pricing model based on a 3.5 year expected life,
a risk-free rate of 2.42%, an annual dividend yield of 0%, and an annual volatility of 39%. The expense is being recognized over
the three-year vesting period. The expected life was determined using the simplified method as the awards were determined to be
plain-vanilla options.
During
the year ended December 31, 2019, stock options to purchase 505,000 shares of common stock were issued to employees. The options
have exercise prices ranging from $4.50 to $8.50. The options had a five year life and a four year vesting period. The fair value
of the awards of $957 was determined using the Black-Scholes option pricing model based on the following range of assumptions:
|
|
Year
ended
December
31, 2019
|
|
Risk free interest rate
|
|
|
1.70%-2.51%
|
|
Expected term (years)
|
|
|
3.75
|
|
Expected volatility
|
|
|
52%-55%
|
|
Expected dividends
|
|
|
0.00
|
%
|
The
expense recorded for these awards was $243 for the year ended December 31, 2019 and $77 during the Successor Period from March
15, 2018 to December 31, 2018, which is included in operating expenses in the consolidated statements of operations.
As
of December 31, 2019, total unrecorded compensation cost related to non-vested awards was $2,178 which is expected to be amortized
over a weighted average service period of approximately 1.8 years. For year ended December 31, 2019, the weighted average grant
date fair value of awards issued during the period was $1.89 per share. The weighted average grant date fair value of awards issued
during the Successor Period from March 15, 2018 to December 31, 2018 was $4.16 per share.
Predecessor
Authorized
Capital
As
of December 31, 2017, the Company was authorized to issue 4,500,000 shares of common stock, $0.001 par value, and 150,000 shares
of preferred stock, $0.001 par value. The holders of the Company’s common stock were entitled to one vote per share. The
preferred stock was designated as follows: 10,000 shares to Senior Preferred Stock; and 140,000 shares undesignated. The holders
of Senior Preferred Stock were entitled to the number of votes equal to the number of shares of common stock into which the holder’s
shares are convertible. On March 2, 2017, the Company issued a notice of redemption to the holders of all of the then designated,
issued and outstanding shares of Senior Preferred Stock, after which the holders surrendered all 10,000 shares of Senior Preferred
Stock for conversion into 2,333,331 shares of common stock.
Stock
Options
The
Company’s 2010 Equity Incentive Plan (“2010 Plan”) provided for the issuance of incentive stock options, non-statutory
stock options, rights to purchase common stock, stock appreciation rights, restricted stock, restricted stock units, performance
shares and performance units to employees, directors, and consultants of the Company and its affiliates. The common stock that
may have been issued pursuant to awards was not to exceed 100,000 shares in the aggregate, provided that, no more than 14,000
shares were to be incentive stock options. On January 30, 2017, the Company cancelled the 2010 Plan.
On
January 30, 2017, the Company’s Board of Directors approved the Company’s 2017 Equity Incentive Plan (“2017
Plan”), which provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common
stock, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units to employees,
directors and consultants of the Company and its affiliates. The common stock that could be issued pursuant to awards was not
to exceed 333,333 shares in the aggregate, provided that, no more than ten percent (10%) of such shares would be incentive stock
options. The 2017 Plan was originally set to terminate on January 30, 2027. The 2017 Plan required the exercise price of stock
options to be greater than or equal to the fair value of the Company’s common stock on the date of grant.
On
January 30, 2017, holders of options to purchase an aggregate of 75,561 shares of common stock under the 2010 Plan with exercise
prices of both $68.80 and $137.60 per share agreed to cancel their option awards in exchange for new awards under the Company’s
Transaction Incentive Plan (see Note 14 – Commitments and Contingencies – Transaction Incentive Plan for details of
the Transaction Incentive Plan awards). As a result of the option cancellation, the Company derecognized aggregate compensation
expense of $14 related to the cancelled options that were unvested at the time of the cancellation.
On
January 30, 2017, the Company granted ten-year, non-statutory stock options to purchase an aggregate of 216,667 shares of common
stock with an aggregate grant date fair value of $1,562 under the 2017 Plan to two Company executives with an exercise price of
$26.00 per share. The options vested in equal installments of 25% on each of the next four anniversary dates from the date of
grant. Upon a change of control, vesting of all then unvested shares would be accelerated. During April 2017, concurrent with
the declaration of the stockholder dividend, the exercise prices of the options were reduced to $21.77 per share, resulting in
a $269 increase in the fair value of the options. The $1,831 fair value of the options, as modified, was being recognized ratably
over the vesting term of the options.
On
June 12, 2017, the Company granted a ten-year, non-statutory stock option to purchase an aggregate of 66,666 shares of common
stock under the 2017 Plan to a Company executive with an exercise price of $26.00 per share. The options vested in equal installments
of 25% on each of the next four anniversary dates from the date of grant. Upon a change of control, vesting of all then unvested
shares was accelerated. The estimated aggregate grant date fair value of $466 was being recognized ratably over the vesting term
of the options.
On
March 15, 2018, as a result of the consummation of the Mergers (see Note 3 – Business Combination), the vesting of the existing
options accelerated, and the option holders of the Predecessor became entitled to receive an aggregate of $2,636, of which $1,500
was distributable in cash and $530 was distributable in the form of 51,529 shares of common stock. An additional amount will be
paid to the option holders in cash and stock upon the release of the amounts held in escrow under the Merger Agreement. These
payments were allocated from the purchase consideration due to the sellers being associated with the business combination. On
May 15, 2018, $109 was released from escrow as part of the working capital adjustment. As of March 21, 2019, the remaining amounts
were released from escrow.