NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except share, per share, and unit amounts)
(unaudited)
NOTE
1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS
Lazydays
Holdings, Inc. (the “Company” or “Holdings”), a Delaware corporation, 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
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission
(“SEC”). Accordingly, they do not include all the information and footnotes required by generally accepted accounting
principles for complete financial statements. For additional information, these condensed consolidated financial statements should
be read in conjunction with Lazydays Holdings, Inc.’s and Lazy Days’ R.V. Center, Inc.’s consolidated financial
statements and notes as of December 31, 2019 and 2018 and for the years then ended, included in the Annual Report on Form 10-K
filed with the SEC on March 20, 2020. In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Principles
of Consolidation
The
condensed consolidated financial statements 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, LDRV of Tennessee LLC, Lazydays of Minneapolis LLC, Lazydays of Central Florida, 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.
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. 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, allowance for
doubtful accounts and stock-based compensation.
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”) which superseded existing accounting guidance for revenue recognition. 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
condensed consolidated statements of income. The following table represents the Company’s disaggregation of revenue:
|
|
For the three
months ended
March 31, 2020
|
|
|
For the three
months ended
March 31, 2019
|
|
New vehicle revenue
|
|
$
|
102,444
|
|
|
$
|
97,812
|
|
Preowned vehicle revenue
|
|
|
64,744
|
|
|
|
54,822
|
|
Parts, accessories, and related services
|
|
|
10,765
|
|
|
|
8,775
|
|
Finance and insurance revenue
|
|
|
11,272
|
|
|
|
9,715
|
|
Campground, rental, and other revenue
|
|
|
1,629
|
|
|
|
1,933
|
|
|
|
$
|
190,854
|
|
|
$
|
173,057
|
|
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 condensed consolidated statements of income.
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 condensed consolidated statements
of income. 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 additions to the charge-back allowance,
which is included in other revenue as follows (unaudited):
|
|
For the three months ended March 31, 2020
|
|
|
For the three months ended March 31, 2019
|
|
|
|
|
|
|
|
|
Gross finance and insurance revenues
|
|
$
|
12,583
|
|
|
$
|
10,678
|
|
Additions to charge-back allowance
|
|
|
(1,311
|
)
|
|
|
(963
|
)
|
Net Finance Revenue
|
|
$
|
11,272
|
|
|
$
|
9,715
|
|
The
Company has an accrual for charge-backs which totaled $4,694 and $4,221 at March 31, 2020 and December 31, 2019, respectively,
and is included in “Accounts payable, accrued expenses, and other current liabilities” in the accompanying condensed
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 5 – Accounts Payable, Accrued Expenses, and Other Current Liabilities
as customer deposits. During the three months ended March 31, 2020, $1,374 of contract liabilities as of December 31, 2019 were
recognized in revenue.
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 $3,910 and $3,719 as of March 31, 2020 and December 31, 2019, respectively.
Cumulative
Redeemable Convertible Preferred Stock
The
Company’s Series A Preferred Stock (See Note 10 – 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 income
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 condensed consolidated statements of income.
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 income attributable to common stockholders used in the calculation of basic and diluted income
per common share:
(Dollars in thousands - except share and per share amounts)
|
|
For the three months ended March 31, 2020
|
|
|
For the three months ended March 31, 2019
|
|
Distributed earnings allocated to common stock
|
|
$
|
-
|
|
|
$
|
-
|
|
Undistributed earnings allocated to common stock
|
|
|
799
|
|
|
|
409
|
|
Net earnings allocated to common stock
|
|
|
799
|
|
|
|
409
|
|
Net earnings allocated to participating securities
|
|
|
544
|
|
|
|
251
|
|
Net earnings allocated to common stock and participating securities
|
|
$
|
1,343
|
|
|
$
|
660
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings per common share
|
|
|
9,757,036
|
|
|
|
9,695,234
|
|
Dilutive effect of warrants and options
|
|
|
-
|
|
|
|
-
|
|
Weighted average shares outstanding for diluted earnings per share computation
|
|
|
9,757,036
|
|
|
|
9,695,234
|
|
|
|
|
|
|
|
|
|
|
Basic income per
common share
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
Diluted income
per common share
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
For
the three months ended March 31, 2020 and March 31, 2019, the denominator of the basic and dilutive EPS was calculated as follows:
|
|
For the three months ended March 31, 2020
|
|
|
For the three months ended March 31, 2019
|
|
Weighted average outstanding common shares
|
|
|
8,417,537
|
|
|
|
8,355,735
|
|
Weighted average shares held in escrow
|
|
|
-
|
|
|
|
-
|
|
Weighted average prefunded warrants
|
|
|
1,339,499
|
|
|
|
1,339,499
|
|
Weighted shares outstanding - basic and diluted
|
|
|
9,757,036
|
|
|
|
9,695,234
|
|
For
the three months ended March 31, 2020 and March 31, 2019, the following common stock equivalent shares were excluded from the
computation of the diluted income per share, since their inclusion would have been anti-dilutive:
|
|
For the three months ended March 31, 2020
|
|
|
For the three months ended March 31, 2019
|
|
Shares underlying Series A Convertible Preferred Stock
|
|
|
-
|
|
|
|
-
|
|
Shares underlying warrants
|
|
|
4,677,458
|
|
|
|
4,677,458
|
|
Stock options
|
|
|
3,798,818
|
|
|
|
3,823,421
|
|
Share equivalents excluded from EPS
|
|
|
8,476,276
|
|
|
|
8,500,879
|
|
As
of March 31, 2020, the Company did not declare and pay the dividend. As a result, the Series A Convertible Preferred Stock was
convertible into 6,713,367 shares of common stock. Upon conversion the Company has the option to pay accrued dividends in cash
or allow conversion into common stock.
Advertising
Costs
Advertising
and promotion costs are charged to operations in the period incurred. Advertising and promotion costs totaled approximately $4,359
and $3,920 for the three months ended March 31, 2020 and March 31, 2019, respectively.
Income
Taxes
The
Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between
the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. The Company estimates the degree to which tax assets and credit carry forwards will result in a benefit
based on expected profitability by tax jurisdiction.
In
its interim financial statements, the Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income
Taxes”, whereby the Company utilizes the expected annual effective tax rate in determining its income tax provisions for
the interim periods.
Seasonality
The
Company’s combined 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 three months ended
March 31, 2020, four major manufacturers accounted for 28.8%, 23.7%, 18.4% and 17.1% of RV purchases.
During
the three months ended March 31, 2019, four major manufacturers accounted for 43.6%, 19.0%, 16.4% and 11.0% 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
The
percent of revenues generated by the Florida locations and the Colorado locations, which generate greater than 10% of revenues,
were as follows (unaudited):
|
|
For the three
months ended
March 31, 2020
|
|
|
For the three
months ended
March 31, 2019
|
|
Florida
|
|
|
75
|
%
|
|
|
75
|
%
|
Colorado
|
|
|
11
|
%
|
|
|
10
|
%
|
These
geographic concentrations increase the exposure to adverse developments related to competition, as well as economic, demographic,
weather and other changes in these regions.
Subsequent
Events
Management
of the Company has analyzed the activities and transactions subsequent to March 31, 2020 through the date these condensed consolidated
financial statements were issued to determine the need for any adjustments to or disclosures within the financial statements.
The Company did not identify any recognized or non-recognized subsequent events that would require disclosure in the condensed
consolidated financial statements other than disclosed below.
In
March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues
to spread throughout the United States and globally. The Company is monitoring the outbreak of COVID-19 and the related
business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on operations, financial
position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition
to the impact on its employees. Due to the rapid development and fluidity of this situation, the magnitude and duration of the
pandemic and its impact on the Company’s operations and liquidity is uncertain as of the date of this report. While there
could ultimately be a material impact on operations and liquidity of the Company, at the time of issuance of this quarterly
report on Form 10-Q, the impact could not be determined.
Due
to the COVID-19 pandemic, the Company took a number of actions effective April 6, 2020 to adjust resources and costs to
align with reduced demand caused by the pandemic. These actions include:
|
●
|
Reduction
of its workforce by 25%;
|
|
|
|
|
●
|
Senior
management will forgo 25% of their salary;
|
|
|
|
|
●
|
Suspend
2020 annual pay increases;
|
|
|
|
|
●
|
Suspend
401k match;
|
|
|
|
|
●
|
Delay
non-critical capital projects;
|
|
|
|
|
●
|
Focus
resources on core sales and service operations
|
In
order to further mitigate the effects of the COVID-19 pandemic, the Company entered into the Fourth Amendment to the M&T credit
agreement on April 16, 2020. Pursuant to the Fourth Amendment, the parties agreed to a suspension of scheduled principal payments
on the term loans and mortgage loans (to the extent the permanent loan period has begun for the mortgage loans) for the period
from April 15, 2020 through June 15, 2020. Interest on the outstanding principal balances of the term loans and mortgage loans
will continue to accrue and be paid at the applicable interest rate during the deferment period. At the end of the deferment period,
the borrowers will resume making all required payments of principal on the term loans and mortgage loans. All principal payments
of the term loans and mortgage loans deferred during the deferment period will be due and payable on the term loan maturity date
or the mortgage loan maturity date, as applicable. Additionally, all principal payments deferred during the deferment period will
be due and payable (a) as described above or (b) if earlier, the date all outstanding amounts are otherwise due and payable under
the terms of the credit documents (including, without limitation, upon maturity, acceleration or, to the extent applicable under
the credit documents, demand for payment). In addition, the amendment includes a temporary suspension of scheduled curtailment
payments required by the credit agreement for the period from April 1, 2020 through June 15, 2020. Amounts related to floor plan
unused commitment fees and interest on the outstanding principal balance of the M&T Floor Plan Line of Credit (as
defined below) will continue to accrue and be paid at the applicable rate and on the terms set forth in the credit agreement
during the suspension period.
In
response to continued economic uncertainty caused by the COVID-19 pandemic, subsidiaries of Lazydays Holdings, Inc. took the
additional step of applying for loans (“PPP Loans”) under the Paycheck Protection Program of the Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act”) with M&T Bank (the “Lender”). On April 28, 2020,
certain of the Company’s subsidiaries executed promissory notes (the “Notes”) in favor of the Lender for
PPP Loans in an aggregate amount of $6,831,250. Pursuant to the Notes, such PPP Loans will bear interest at a rate of 1.0%
per year and will mature on April 28, 2022. Commencing on November 28, 2020, monthly payments of principal and interest will
be required in amounts necessary to fully amortize the principal amount by the maturity date. The PPP Loans are unsecured and
are non-recourse obligations. The Notes provide for customary events of default, and the PPP Loans may be accelerated upon
the occurrence of an event of default. All or a portion of the PPP Loans may be forgiven upon application to the Lender for
payroll and certain other costs incurred during the 8-week period beginning on the date each PPP Loan is disbursed, in
accordance with the requirements and limitations under the CARES Act. The amount of the PPP Loan eligible for forgiveness
will be reduced if the Company terminates employees or reduces salaries during the 8-week period. While the Company’s
subsidiaries intend to use the entire amount of the PPP Loans for qualifying expenses, no assurance can be provided that
forgiveness of any portion of the PPP Loans will be obtained. Applications were submitted by other subsidiaries of the
Company, which resulted in the execution of a promissory note on April 30, 2020 for $1,236,040 and on May 4, 2020 for
$636,665. The interest rate on the notes is 1.0% per year and the notes mature on April 30, 2022 and May 4, 2022,
respectively. Commencing on November 30, 2020 and December 4, 2020, respectively, monthly payments of principal and interest
will be required in amounts necessary to fully amortize the principal amount by the maturity date.
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 income.
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.
Leases
Adoption
of new lease standard
In
February 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the
accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from
leases on the balance sheet, including leases classified as operating leases, and disclose qualitative and quantitative information
about leasing arrangements. The FASB subsequently issued additional amendments to address issues arising from the implementation
of the new lease standard. We adopted this standard as of January 1, 2020, using the modified-retrospective method. This approach
provides a method for recording existing leases at adoption. We used the adoption date as our date of initial application, and
thus comparative-period financial information is not presented for periods prior to the adoption date. In addition, we elected
the package of practical expedients permitted under the transition guidance within the new standard, which, among other things,
allowed the Company to carry forward the historical lease classification.
Adoption
of the new standard resulted in total operating lease liabilities of $17,800 and operating lease assets of $17,800
as of January 1, 2020. The standard did not materially impact our Condensed Consolidated Statements of Income and had no impact
on our Condensed Consolidated Statements of Cash Flows. Our accounting policies under the new standard are described below. See
Note 6, Leases.
Lease
recognition
At
inception of a contract, we determine whether an arrangement is or contains a lease. For all leases, we determine the classification
as either operating or financing.
Operating
lease assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation
to make lease payments under the lease. Lease recognition occurs at the commencement date and lease liability amounts are based
on the present value of lease payments over the lease term. Our lease terms may include options to extend or terminate the lease
when it is reasonably certain that we will exercise that option. Because most of our leases do not provide information to determine
an implicit interest rate, we use our incremental borrowing rate in determining the present value of lease payments. Operating
lease assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating
lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with both lease and non-lease
components, which are generally accounted for together as a single lease component.
NOTE
3 – BUSINESS COMBINATION
Acquisitions
of Dealerships
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 (as defined below).
The
Company accounted for the asset purchase agreement as a business combination using the purchase method of accounting as it was
determined that Alliance constituted a business. As a result, the Company determined its preliminary allocation of the fair value
of the assets acquired and the liabilities assumed for Alliance as follows:
|
|
2019
|
|
|
|
|
|
Inventories
|
|
$
|
12,171
|
|
Accounts receivable and prepaid expenses
|
|
|
53
|
|
Property and equipment
|
|
|
77
|
|
Intangible assets
|
|
|
2,630
|
|
Total assets acquired
|
|
|
14,931
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
243
|
|
Floor plan notes payable
|
|
|
11,434
|
|
Total liabilities assumed
|
|
|
11,677
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
3,254
|
|
|
|
|
2019
|
|
Purchase Price:
|
|
$
|
2,568
|
|
Cash consideration paid
|
|
|
(107
|
)
|
Amounts due (from) to former owners
|
|
|
|
|
Note payable issued to former owners
|
|
|
3,045
|
|
|
|
$
|
5,506
|
|
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 Alliance. Goodwill associated with the transaction is detailed below:
|
|
2019
|
|
Total consideration
|
|
$
|
5,506
|
|
Less net assets acquired
|
|
|
3,254
|
|
Goodwill
|
|
$
|
2,252
|
|
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 in 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 $14.0 million in revenue and $0.7 million in net income prior to income taxes during the period
from January 1, 2020 to March 31, 2020 related to this acquisitions.
Pro
Forma Information
The
following unaudited pro forma financial information summarizes the combined results of operations for the Company as though the
purchase of Alliance had been consummated on January 1, 2019.
|
|
For the three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
190,854
|
|
|
$
|
186,076
|
|
Income before income taxes
|
|
$
|
4,287
|
|
|
$
|
3,729
|
|
Net income
|
|
$
|
2,987
|
|
|
$
|
2,397
|
|
The
Company adjusted the combined income of Lazydays RV with Alliance and adjusted net income to eliminate business combination expenses
as well as the incremental depreciation and amortization associated with the preliminary purchase price allocation to determine
pro forma net income.
NOTE
4 – INVENTORIES
Inventories
consist of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
New recreational vehicles
|
|
$
|
121,357
|
|
|
$
|
124,096
|
|
Pre-owned recreational vehicles
|
|
|
31,828
|
|
|
|
36,639
|
|
Parts, accessories and other
|
|
|
4,009
|
|
|
|
3,848
|
|
|
|
|
157,194
|
|
|
|
164,583
|
|
Less: excess of current cost over LIFO
|
|
|
(3,910
|
)
|
|
|
(3,719
|
)
|
|
|
$
|
153,284
|
|
|
$
|
160,864
|
|
NOTE
5 – ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts
payable, accrued expenses and other current liabilities consist of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Accounts payable
|
|
$
|
10,024
|
|
|
$
|
11,231
|
|
Other accrued expenses
|
|
|
3,838
|
|
|
|
3,392
|
|
Customer deposits
|
|
|
3,161
|
|
|
|
2,267
|
|
Accrued compensation
|
|
|
3,640
|
|
|
|
2,388
|
|
Accrued charge-backs
|
|
|
4,694
|
|
|
|
4,221
|
|
Accrued interest
|
|
|
292
|
|
|
|
356
|
|
Total
|
|
$
|
25,649
|
|
|
$
|
23,855
|
|
NOTE
6 – LEASES
On
January 1, 2019, we adopted a new accounting standard that amends the guidance for the accounting and reporting of leases. Certain
required disclosures have been made on a prospective basis in accordance with the guidance of the standard. See Note 2, Significant
Accounting Policies.
The
Company leases property and equipment throughout the United States primarily under operating leases. Leases with lease terms of
12 months or less are expensed on a straight-line basis over the lease term and are not recorded in the Condensed Consolidated
Balance Sheets.
Most
leases include one or more options to renew, with renewal terms that can extend the lease term up to 20 years (some leases
include multiple renewal periods). The exercise of lease renewal options is at our sole discretion. In addition, some of our lease
agreements include rental payments adjusted periodically for inflation. Our lease agreements neither contain any residual value
guarantees nor impose any significant restrictions or covenants.
The
Company leases properties for its RV retail locations through nine operating leases. The Company also leases billboards and certain
of its equipment through operating leases. The related right-of-use (“ROU”) assets for these operating leases are
included in operating lease assets.
As
of March 31, 2020, the weighted-average remaining lease term and weighted-average discount rate of operating leases was 5.8 years
and 5.0%, respectively.
Operating lease costs
for the three month period ending March 31, 2020 was $0.9 million including variable lease costs, at March 31, 2020. There were
no short term leases for the three months ended March 31, 2020.
Maturities
of lease liabilities as of March 31, 2020 were as follows:
Maturity Date
|
|
Operating Leases
|
|
Remaining nine month ending December 31, 2020
|
|
$
|
3,081
|
|
2021
|
|
|
3,820
|
|
2022
|
|
|
3,450
|
|
2023
|
|
|
3,312
|
|
2024
|
|
|
2,557
|
|
Thereafter
|
|
|
4,116
|
|
Total lease payments
|
|
|
20,336
|
|
Less: Imputed Interest
|
|
|
2,767
|
|
Present value of lease liabilities
|
|
$
|
17,569
|
|
The
following presents supplemental cash flow information related to leases during 2020:
|
|
For the three months ended March 31, 2020
|
|
Cash paid for amounts included in the measurement of lease liability:
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
878
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease liabilities:
|
|
|
|
|
Operating leases
|
|
$
|
633
|
|
On March 10, 2020,
the Company entered into an agreement for the sale of land to LD Murfreesboro TN Landlord, LLC for $4.921 million. The
Company has entered into a lease agreement with the buyer with lease payments to commence upon granting of a certificate of
occupancy and completion of planned construction, the cost of which will be
paid for by LD Murfreesboro TN Landlord, LLC. The commencement date of the lease will occur at the completion of construction.
NOTE
7 – 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 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.
On March 6, 2020, the
Company entered into the Third Amendment and Joinder to Credit Agreement (“Third Amendment”) on the M&T Facility.
Pursuant to the Third Amendment, Lone Star Land of Houston, LLC (the "Mortgage Loan Borrower") and Lone Star Diversified,
LLC (“Diversified"), wholly owned subsidiaries of LDRV, became parties to the Credit Agreement and were identified
as Additional Loan Parties. The existing borrowers and guarantors also requested that the lenders provide a mortgage loan credit
facility in the aggregate principal amount of acquisition, construction, and permanent mortgage financing for a property acquired
by the Mortgage Loan Borrower. The mortgage loans maximum borrowing amount is $6,136. 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 accrued interest payments become due.
As of March 31, 2020, the mortgage balance was $5,006 and the interest rate was 3.312%.
As
of March 31, 2020, 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 March 31, 2020 and taking into account the effect of the Third Amendment to the Credit Agreement entered into on
March 6, 2020, the maximum amount of cash dividends that the Company could make from legally available funds to its stockholders
was limited to an aggregate of $9,886 pursuant to a trailing twelve month calculation as defined in the M&T Facility.
Floor
Plan Line of Credit
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 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%. As of March 31, 2020, the interest rate on the M&T Floor Plan Line of Credit was approximately 2.989%.
The
M&T Floor Plan Line of Credit consists of the following:
|
|
As of March 31, 2020
|
|
|
As
of December 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Floor plan notes payable, gross
|
|
$
|
133,577
|
|
|
$
|
144,133
|
|
Debt discount
|
|
|
(152
|
)
|
|
|
(184
|
)
|
Floor plan notes payable, net of debt discount
|
|
$
|
133,425
|
|
|
$
|
143,949
|
|
Term
Loan
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. 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). As of March 31, 2020, there was $14,200 outstanding under the
M&T Term Loan. As of March 31, 2020, the interest rate on the M&T Term Loan was approximately 3.25%.
Revolver
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 three month period ended March 31, 2020, there were no outstanding borrowings under
the M&T Revolver.
NOTE
8 – INCOME TAXES
The
Company recorded a provision for federal and state income taxes of $1,300 for the three months ended March 31, 2020 and
$1,185 for the three months ended March 31, 2019 which represent effective tax rates of approximately 30% and 39%, respectively.
The
Company’s effective tax rates differ from the federal statutory rate of 21% primarily due to local and state income tax
rates, net of the federal tax effect as well as the non-deductibility of stock-based compensation expense and certain transaction
costs.
NOTE
9 - COMMITMENTS AND CONTINGENCIES
Employment
Agreements
The
Company entered into an employment agreement with the Chief Executive Officer (“CEO”) of the Company effective as
of the consummation of the Mergers. The employment agreement with the CEO provides for an initial base salary of $540 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 CEO’s target bonus is 100% of his base salary. The employment agreement also provides that the executive is to be granted
an option to purchase shares of common stock of the Company (See Note 11 – Stockholders’ Equity).
The
employment agreement provides that if the executive 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 two times the base salary and average bonus for the CEO.
During
May 2018, the Company entered into an offer letter with the Chief Financial Officer (the “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 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). He was also provided with a relocation allowance
of $100 which the 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 11- Stockholders’ Equity).
Note
that due to the COVID-19 pandemic, as of April 6, 2020, senior management has opted to forgo 25% of their salary in order
to reduce costs to align with decreased demand in sales and services. See discussion in Subsequent Event section above.
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.
NOTE
10 – PREFERRED STOCK
On
March 15,2018, 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 condensed 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 condensed 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 condensed
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 wasn’t accreted during the three months ended March 31, 2020 because redemption was not currently deemed to be probable.
The
Company’s board of directors did not declare a dividend payment on the Series A Preferred Stock of $1,644 for the period
from January 1, 2020 to March 31, 2020. The dividends were $2.74 per share of Series A Preferred Stock. As a result, the amount
was added to the carrying amount of the Series A Preferred Stock and the dividend rate is currently at 10% until such dividends
are paid.
NOTE
11 – STOCKHOLDERS’ EQUITY
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
of directors. See Note 10 – 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
March 31, 2020, 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. The initial offering and purchase period under
the ESPP commenced on July 7, 2019 with the first purchase date to be December 2, 2019. During the three months ended March 31,
2020, the Company recorded $38 of stock based compensation related to the ESPP.
Warrants
The
Company had the following activity related to shares of common stock underlying warrants:
|
|
Shares Underlying
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Warrants outstanding January 1, 2020
|
|
|
4,677,458
|
|
|
$
|
11.50
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled or Expired
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Warrants outstanding March 31, 2020
|
|
|
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, 2020
|
|
|
3,798,818
|
|
|
$
|
10.63
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
225,000
|
|
|
$
|
8.50
|
|
|
|
|
|
|
|
|
|
Cancelled or terminated
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2020
|
|
|
4,023,818
|
|
|
$
|
10.51
|
|
|
|
3.3
|
|
|
$
|
-
|
|
Options vested at March 31, 2020
|
|
|
97,554
|
|
|
$
|
8.08
|
|
|
|
3.6
|
|
|
$
|
-
|
|
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 of common stock underlying the CEO’s
stock options and 583,366 shares of common stock 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 the VWAP exceeding
$13.125 per share; an additional 30% of the options shall vest upon the VWAP exceeding $17.50 per share; an additional 30% of
the options shall vest upon the VWAP 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
a stock option award exercisable into 583,366 shares of common stock underlying options 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 $554 during the three month period ended March 31, 2020 and $1,470
during the three month period ended March 31, 2019, which is included in operating expenses in the condensed consolidated
statements of income.
Awards
with Service Conditions
On
March 16, 2018, the Company granted five-year stock options to purchase an aggregate of 99,526 shares of common stock 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, a 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 a 3.75 year expected life, a risk free
rate of 1.70%-2.51%, an annual dividend yield of 0% and an annual volatility of 52%-55%.
During
the three months ended March 31, 2020, stock options to purchase 225,000 shares of common stock were issued to employees. The
options have an exercise price of $8.50. The options had a five year life and a four year vesting period. The fair value of the
awards of $145 was determined using the Black-Scholes option pricing model based on the following range of assumptions:
|
|
For the three
months ended
March 31, 2020
|
|
Risk free interest rate
|
|
|
0.43
|
%
|
Expected term (years)
|
|
|
3.75
|
|
Expected volatility
|
|
|
55
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
The
expected life was determined using the simplified method as the awards were determined to be plain-vanilla options.
The
expense recorded for awards with service conditions was $88 from the three month period ended March 31, 2020
and $44 during the three month period ended March 31, 2019, which is included in operating expenses in the condensed consolidated
statements of income.
As
of March 31, 2020, total unrecorded compensation cost related to all non-vested awards was $1,682 which is expected to be amortized
over a weighted average service period of approximately 2.09 years. The weighted average grant date fair value of awards issued
during to the three months ended March 31, 2020 was $0.65 per share.