Significant Accounting Policies | 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 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, LDRV of Nashville LLC and Lazydays RV of Phoenix, 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. 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: Three months ended Nine months ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 New vehicle revenue $ 130,297 $ 86,814 $ 362,139 $ 278,860 Preowned vehicle revenue 64,255 52,047 191,106 161,681 Parts, accessories, and related services 9,470 8,813 29,400 26,319 Finance and insurance revenue 11,073 9,253 35,108 28,505 Campground, rental, and other revenue 628 1,475 2,785 4,640 Total $ 215,723 $ 158,402 $ 620,538 $ 500,005 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 Company’s rental business was phased out in 2019). 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 some contracts by the customers. The revenues from financing fees and commissions are recorded at the time of the sale of the vehicles and if applicable, 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): Three months ended Nine months ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Gross finance and insurance revenues $ 13,073 $ 10,395 $ 39,573 $ 32,082 Additions to charge-back allowance (2,000 ) (1,142 ) (4,465 ) (3,577 ) Net Finance Revenue $ 11,073 $ 9,253 $ 35,108 $ 28,505 The Company has an accrual for charge-backs which totaled $5,989 and $4,221 at September 30, 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 nine months ended September 30, 2020, $1,898 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 $2,239 and $3,719 as of September 30, 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 (loss) per common share: Three months ended Nine months ended (Dollars in thousands - except share and per share amounts) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Distributed earning allocated to common stock $ - $ - $ - $ - Undistributed earnings allocated to common stock 5,991 (4,067 ) 10,751 (3,074 ) Net earnings allocated to common stock 5,991 (4,067 ) 10,751 (3,074 ) Net earnings allocated to participating securities 3,863 - 6,830 - Net earnings allocated to common stock and participating securities $ 9,854 $ (4,067 ) $ 17,581 $ (3,074 ) Weighted average shares outstanding for basic earnings per common share 9,753,211 9,811,107 9,746,136 9,722,907 Dilutive effect of warrants and options 1,054,157 - 1,001,234 - Weighted average shares outstanding for diluted earnings per share computation 10,807,368 9,811,107 10,747,370 9,722,907 Basic income (loss) per common share $ 0.55 $ (0.41 ) $ 1.00 $ (0.31 ) Diluted income (loss) per common share $ 0.55 $ (0.41 ) $ 1.00 $ (0.31 ) The denominator of the basic and dilutive EPS was calculated as follows: Three months ended Nine months ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Weighted average outstanding common shares 9,452,854 8,471,608 9,445,779 8,433,408 Weighted average prefunded warrants 300,357 1,339,499 300,357 1,339,499 Weighted average warrants 381,071 - 381,071 - Weighted average options 673,086 - 620,163 - Weighted shares outstanding - basic and diluted 10,807,368 9,811,107 10,747,370 9,772,907 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: Three months ended Nine months ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Shares underlying Series A Convertible Preferred Stock - 6,231,950 - 5,962,733 Shares underlying warrants - 4,677,458 - 4,677,458 Stock options 150,000 3,677,580 150,000 3,677,580 Shares issuable under the Employee Stock Purchase Plan 20,529 30,077 20,259 30,077 Share equivalents excluded from EPS 170,529 14,617,065 170,259 14,347,848 As of September 30, 2020, the Company had declared dividends of $10,983 on its Series A Convertible Preferred Stock, which are included in dividends payable on the accompanying Condensed Consolidated Balance Sheets. The dividend was paid on October 7, 2020. As a result, the Series A Convertible Preferred Stock was convertible into 5,962,733 shares of common stock as of September 30, 2020. 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 $2,139 and $2,656 for the three months ended September 30, 2020 and September 30, 2019, respectively, and $9,229 and $9,946 for the nine months ended September 30, 2020 and September 30, 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 Florida and Arizona locations. In addition, the northern locations in Colorado, Tennessee and Minnesota generally experience modestly higher vehicle sales during the spring months. Vendor Concentrations The Company purchases its new recreational vehicles and replacement parts from various manufacturers. During the three months ended September 30, 2020, four major manufacturers accounted for 29.4%, 26.8%, 20.4% and 20.2% of RV purchases. During the nine months ended September 30, 2020, four major manufacturers accounted for 26.8%, 24.1%, 23.3% and 19.4% of RV purchases. During the three months ended September 30, 2019, five major manufacturers accounted for 30.5%, 21.1%, 18.4%, 16.9% and 10.9% of RV purchases. During the nine months ended September 30, 2019, four major manufacturers accounted for 35.7%, 19.4%, 18.7% and 14.8% 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, Colorado locations and Arizona locations, which generate greater than 10% of revenues, were as follows (unaudited): Three months ended Nine months ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Florida 56 % 62 % 64 % 67 % Colorado 17 % 19 % 15 % 15 % Arizona 12 % 6 % 9 % 7 % These geographic concentrations increase the exposure to adverse developments related to competition, as well as economic, demographic, weather and other changes in these regions. Impact of COVID-19 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 progress 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 early impact of 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 included: ● Reduction of its workforce by 25%; ● Temporary reduction of senior management salaries (April 2020 through May 2020); ● Suspension of 2020 annual pay increases; ● Temporary suspension of 401k match (April 2020 through June 2020); ● Delay non-critical capital projects; ● Focus resources on core sales and service operations As described under Note 7 - Debt below, in order to help mitigate the effects of the COVID-19 pandemic, the Company entered into the Fourth Amendment to the M&T credit agreement on April 15, 2020 and applied for and received funds under loans (“PPP Loans”) under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) with M&T Bank. Starting in May 2020, the Company experienced significant improvement in sales of new and pre-owned vehicles. Senior management was able to resume normal salaries in late May 2020, and the Company adjusted its workforce where necessary to meet demand. The Company continued to delay non-critical capital projects and is focusing its resources on core sales and service operations in response to the operational and financial impact of the COVID-19 pandemic. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the COVID-19 pandemic, and further actions that may be taken by individuals, businesses and federal, state and local governments in response. Even after the COVID-19 pandemic has subsided, the Company may experience significant adverse effects to its business as a result of its global economic impact, including any economic recession or downturn and the impact of such a recession or downturn on unemployment levels, consumer confidence, levels of personal discretionary spending and credit availability. 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 (loss). 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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). This standard requires the use of a forward-looking expected loss impairment model for trade and other receivables, held-to-maturity debt securities, loans and other instruments. This standard also requires impairments and recoveries for available-for-sale debt securities to be recorded through an allowance account and revises certain disclosure requirements. In April 2019, the FASB issued ASU 2019-04, Codification Improvements, which provides guidance on accounting for credit losses on accrued interest receivable balances and guidance on including recoveries when estimating the allowance. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, which allows entities with an option to elect fair value for certain instruments upon adoption of Topic 326. The standard is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact that the adoption of the provisions of ASU 2016-03 will have on its condensed consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). This standard, effective for reporting periods through December 31, 2022, provides accounting relief for contract modifications that replace an interest rate impacted by reference rate reform (e.g., London Interbank Offered Rate (“LIBOR”)) with a new alternative reference rate. The guidance is applicable to investment securities, receivables, loans, debt, leases, derivatives and hedge accounting elections and other contractual arrangements. The new standard provides temporary optional expedients and exceptions to current GAAP guidance on contract modifications and hedge accounting. Specifically, a modification to transition to an alternative reference rate is treated as an event that does not require contract remeasurement or reassessment of a previous accounting treatment. The standard is generally effective for all contract modifications made and hedging relationships evaluated through December 31, 2022, as a result of reference rate reform. The Company is currently evaluating the impact that this new standard will have on our condensed consolidated financial statements. Leases Adoption of new lease standard In February 2016, the 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 approximately $17,800 and operating lease assets of approximately $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. Subsequent Events Management of the Company has analyzed the activities and transactions subsequent to September 30, 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 the item below. On October 6, 2020, the Company completed its acquisition of Total Value Recreation Vehicles of Indiana, Inc. (Total RV) located in Elkhart, Indiana. The purchase price for the transaction consists of the following, in each case subject to adjustment in accordance with the terms of the purchase agreement: (a) a cash payment, subject to a working capital adjustment and an inventory adjustment and (b) the assumption of of Total RV’s floorplan debt, which was paid off and added to the Company’s current floorplan. In addition, the Company purchased an adjoining parcel of land from the same seller. |