THMS HOLDINGS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
Nine months ended September 30, 2021 (Unaudited)
1. ORGANIZATION
THMS Holdings, LLC and Subsidiaries (collectively, the “Company”), is a Delaware limited liability company established on April 30, 2019. The Company is in the business of manufacturing, designing, assembling, packaging and shipping boating equipment and accessories. The Company sells to retail wholesalers in addition to operating a physical storefront. The Company also manufacturers metal and plastic moldings which are used in further production of marine supply equipment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its financial statements as of and for the year ended December 31, 2020. These unaudited condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2020.
Principles of Consolidation
The accompanying condensed consolidated interim financial statements include the accounts of THMS Holdings, LLC and its wholly-owned subsidiary, T-H Marine Supplies, LLC, and its wholly-owned subsidiaries, Innovative Plastics, LLC, and CMC Marine, LLC. All intercompany transactions have been eliminated upon consolidation.
Basis of Presentation
These condensed consolidated interim financial statements are presented on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”).
Use of Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported revenues and expenses during the reporting period. The Company believes the estimates and assumptions utilized are reasonable; however, actual results could differ from these estimates.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The standard increases transparency and comparability among organizations by recognizing lease assets and lease liabilities in the consolidated balance sheets and disclosing key information about lease agreements. In June 2020, the FASB issued ASU 2020-05 delaying the effective date for Topic 842 to years beginning after December 15, 2021 and interim reporting periods beginning after December 15, 2022. The Company is currently evaluating the effect the provisions of this ASU will have on the condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU No. 2017-04 (as amended) is effective for interim or annual goodwill impairment tests in fiscal years beginning after December 15, 2022. Early adoption is permitted for interim or annual impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the effect that ASU No. 2017-04 (as amended) will have on its condensed consolidated financial statements.
THMS HOLDINGS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
Nine months ended September 30, 2021 (Unaudited)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company beginning January 1, 2023 and is required to be applied prospectively. The Company is currently assessing the effect that ASU 2016-13 will have on its condensed consolidated financial statements.
3. ACQUISITIONS
Heartland Global Services, LLC
Effective August 31, 2021, the Company purchased a majority of the assets of Heartland Global Services, LLC (“Heartland”). The total purchase consideration was $11,277,746 paid with cash. In connection with the acquisition, the Company incurred $70,043 of acquisition costs that were expensed as incurred. These acquisition costs are included in the accompanying condensed consolidated interim statement of operations for the nine months ended September 30, 2021.
The acquisition was accounted for using the acquisition method of accounting and, accordingly, the accompanying condensed consolidated interim statement of operations for the nine months ended September 30, 2021 includes the results of operations of Heartland beginning September 1, 2021. The acquisition of Heartland was recorded by allocating the total purchase consideration to the fair value of the net assets acquired, including intangible assets. The purchase consideration exceeded the fair value of the assets resulting in goodwill of $1,665,800. The goodwill recorded as part of the acquisition primarily reflects the expectation of opportunities from the market that have potential for growth. The Company does expect to deduct goodwill for tax purposes in future years.
The purchase consideration for Heartland was allocated to the net assets acquired as follows:
| Assets: | | | |
| Accounts receivable | | $ | 939,611 | |
| Inventory | | | 1,646,281 | |
| Property and equipment | | | 39,056 | |
| Other assets | | | 19,200 | |
| Trademark | | | 1,500,000 | |
| Customer relations | | | 5,100,000 | |
| Noncompete | | | 400,000 | |
| Goodwill | | | 1,665,800 | |
| Total assets acquired | | | 11,309,948 | |
| | | | | |
| Liabilities: | | | | |
| Accounts payable | | | 32,202 | |
| Total liabilities assumed | | | 32,202 | |
| | | | | |
| Net assets acquired | | $ | 11,277,746 | |
THMS HOLDINGS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
Nine months ended September 30, 2021 (Unaudited)
Gator Guards
On September 3, 2021, the Company entered into an Asset Purchase agreement to acquire substantially all of the assets of Gator Guards. Total consideration was $3,968,202 paid with cash. The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recorded as part of the acquisition primarily reflects the expectation of opportunities from the market that have potential for growth. The Company does not expect to deduct goodwill for tax purposes in future years.
| Assets: | | | |
| Accounts receivable | | $ | 129,714 | |
| Inventory | | | 201,880 | |
| Property and equipment | | | 51,500 | |
| Other assets | | | - | |
| Trademark | | | 400,000 | |
| Customer relations | | | 1,690,000 | |
| Noncompete | | | 390,000 | |
| Goodwill | | | 1,148,257 | |
| Total assets acquired | | | 4,011,351 | |
| | | | | |
| Liabilities: | | | | |
| Accounts payable | | | 43,149 | |
| Total liabilities assumed | | | 43,149 | |
| | | | | |
| Net assets acquired | | $ | 3,968,202 | |
The Company incurred transaction related expenses of $73,224 that were expensed as incurred. These acquisition costs are included in the accompanying consolidated statement of operations for the nine month ended September 30, 2021.
4. NOTES PAYABLE
Credit Agreement
In August, 2021 the Company’s credit agreement with Cadence Bank (the “Credit Agreement”) was amend to extend a delayed draw term note to the Company with availability of $21,000,000. The Company drew down $15,800,000. Payment of all accrued and unpaid interest is due quarterly. Principal payments are due quarterly and are 2.5% of the outstanding principal until March,2023 and then 3.75% until maturity at which unpaid principal and interest is due.
5. SUBSEQUENT EVENTS
On October 20, 2021, the Company entered into a definitive agreement to be acquired by One Water Assets & Operations, LLC. The transaction closed on November 30, 2021.
