Holley : Amendment to Current Report (SEC Filing - 8-K/A)

Exhibit 99.1

HOLLEY INTERMEDIATE HOLDINGS, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

		As of June 27, 2021			As of December 31, 2020
ASSETS
Cash and cash equivalents		$	55,665			$	71,674
Accounts receivable, less allowance for credit losses of $ 1,570 and $ 1,240 , respectively			62,873				47,341
Inventory			134,833				133,928
Prepaids and other current assets			7,836				5,037
Total current assets			261,207				257,980
Property, plant, and equipment, net			49,692				43,729
Goodwill			377,368				359,099
Other intangibles assets, net			425,423				404,522
Total assets		$	1,113,690			$	1,065,330
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable		$	42,744			$	34,601
Accrued interest			5,687				6,588
Accrued liabilities			29,096				26,092
Acquisition contingent consideration payable			24,373				9,200
Current portion of long-term debt			5,528				5,528
Total current liabilities			107,428				82,009
Long-term debt, net of current portion			649,874				649,458
Long-term debt due to related party			20,000				20,000
Deferred taxes			72,538				71,336
Other noncurrent liabilities			2,146				2,146
Total liabilities			851,986				824,949
Commitments and contingencies (Refer to Note 13 - Commitments and Contingencies)
Common stock, $1.00 par value, 100 shares authorized, issued and outstanding			-				-
Additional paid-in capital			239,152				238,890
Accumulated other comprehensive loss			(655	)			(674	)
Retained earnings			23,207				2,165
Total stockholder's equity			261,704				240,381
Total liabilities and stockholder's equity		$	1,113,690			$	1,065,330

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

1

HOLLEY INTERMEDIATE HOLDINGS, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

		For the thirteen weeks ended			For the twenty-six weeks ended
		June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
Net sales		$	193,041			$	125,296			$	353,373			$	232,453
Cost of goods sold			111,841				70,468				206,494				134,292
Gross profit			81,200				54,828				146,879				98,161
Selling, general, and administrative			26,190				16,294				50,202				31,487
Research and development costs			7,065				5,595				13,034				11,216
Amortization of intangibles			3,502				2,701				6,838				5,400
Acquisition and restructuring costs			2,676				3,118				21,509				4,532
Related party acquisition and management fee costs			1,658				880				2,539				1,771
Other expense (income)			47				(109	)			(86	)			(268	)
Total operating expenses			41,138				28,479				94,036				54,138
Operating income			40,062				26,349				52,843				44,023
Interest expense			11,174				11,013				21,245				22,518
Income before income taxes			28,888				15,336				31,598				21,505
Income tax expense			5,790				2,827				10,556				4,144
Net income		$	23,098			$	12,509			$	21,042			$	17,361
Comprehensive income:
Foreign currency translation adjustment			35				-				19				-
Total comprehensive income		$	23,133			$	12,509			$	21,061			$	17,361

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

2

HOLLEY INTERMEDIATE HOLDINGS, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY

(in thousands, except share data)

(unaudited)

		Common Stock
		Shares			Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Total
Balance at December 31, 2019			100			$	-			$	236,503			$	(397	)		$	(30,692	)		$	205,414
Net income			-				-				-				-				4,852				4,852
Equity compensation			-				-				121				-				-				121
Balance at March 29, 2020			100				-				236,624				(397	)			(25,840	)			210,387
Net income			-				-				-				-				12,509				12,509
Equity compensation			-				-				114				-				-				114
Capital distributions			-				-				(100	)			-				-				(100	)
Balance at June 28, 2020			100			$	-			$	236,638			$	(397	)		$	(13,331	)		$	222,910
Balance at December 31, 2020			100			$	-			$	238,890			$	(674	)		$	2,165			$	240,381
Net loss			-				-				-				-				(2,056	)			(2,056	)
Equity compensation			-				-				131				-				-				131
Foreign currency translation			-				-				-				(16	)			-				(16	)
Balance at March 28, 2021			100				-				239,021				(690	)			109				238,440
Net income			-				-				-				-				23,098				23,098
Equity compensation			-				-				131				-				-				131
Foreign currency translation			-				-				-				35				-				35
Balance at June 27, 2021			100			$	-			$	239,152			$	(655	)		$	23,207			$	261,704

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

3

HOLLEY INTERMEDIATE HOLDINGS, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

		For the twenty-six weeks ended
		June 27, 2021			June 28, 2020
OPERATING ACTIVITIES
Net income		$	21,042			$	17,361
Adjustments to reconcile net income to net cash from operating activities:
Depreciation			4,453				4,013
Amortization of intangible assets			6,838				5,400
Amortization of deferred loan costs			1,955				1,472
Increase in acquisition earn out liability			17,173				-
Equity compensation			262				235
Change in deferred taxes			1,188				451
Loss (gain) on disposal of property, plant and equipment			(282	)			28
Allowance for credit losses			410				176
Change in operating assets and liabilities:
Accounts receivable			(12,457	)			(16,707	)
Inventories			2,465				25,044
Prepaids and other current assets			(2,295	)			593
Accounts payable			6,038				818
Accrued interest			(901	)			(417	)
Accrued liabilities			508				4,982
Net cash from operating activities			46,397				43,449
INVESTING ACTIVITIES
Capital expenditures			(7,141	)			(3,435	)
Proceeds from the disposal of fixed assets			285				-
Cash paid for acquisitions, net			(54,011	)			-
Trademark acquisition			-				(50	)
Net cash used in investing activities			(60,867	)			(3,485	)
FINANCING ACTIVITIES
Net change under revolving credit agreement			-				27,500
Principal payments on long-term debt			(1,539	)			(950	)
Capital distributions			-				(100	)
Net cash (used in) from financing activities			(1,539	)			26,450
Net change in cash and cash equivalents			(16,009	)			66,414
Cash and cash equivalents:
Beginning of period			71,674				8,335
End of period		$	55,665			$	74,749
Supplemental disclosures of cash flow information:
Cash paid for interest		$	20,191			$	21,464
Cash paid for income taxes		$	7,182			$	-

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

4

HOLLEY INTERMEDIATE HOLDINGS, INC. and SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

1. Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies

Holley Intermediate Holdings, Inc. and Subsidiaries ('Holdings' or the 'Company'), a Delaware corporation, was incorporated on October 25, 2018 to effect the merger of Driven Performance Brands, Inc. ('Driven') and the purchase of High Performance Industries, Inc. ('HPI'). The Company is a 100% owned subsidiary of Holley Parent Holdings, LLC ('Parent'). Investment funds managed by Sentinel Capital Partners hold a controlling interest in Parent. The Company designs, manufactures and distributes performance automotive products to customers primarily in the United States, Canada and Europe. The Company is a leading manufacturer of a diversified line of performance automotive products, including carburetors, fuel pumps, fuel injection systems, nitrous oxide injection systems, superchargers, exhaust headers, mufflers, distributors, ignition components, engine tuners and automotive performance plumbing products that are produced through its two major subsidiaries, Holley Performance Products Inc. ('Holley') and Hot Rod Brands Holdings LLC. ('Hot Rod Brands'). The Company is also a leading manufacturer of exhaust products as well as shifters, converters, transmission kits, transmissions, tuners and automotive software. The Company's products are designed to enhance street,

off-road,

recreational and competitive vehicle performance through increased horsepower, torque and drivability. The Company has locations in North America, Canada, Italy and China.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted ('GAAP') in the United States of America ('U.S.' or 'United States') and applicable rules and regulations of the U.S. Securities and Exchange Commission ('SEC') regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020. In management's opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.

The Company operates on a calendar year that ends on December 31, 2021 and 2020. The three and six month periods ended June 27, 2021 and June 28, 2020 each included 13 weeks and 26 weeks, respectively.

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Summary of Significant Accounting Policies

There have been no changes to our significant accounting policies described in our audited consolidated financial statements as of and for the year ended December 31, 2020 that have had a material impact on our condensed consolidated financial statements and related notes.

5

REVENUE RECOGNITION

The Company recognizes revenue with customers when control of the promised goods transfers to the customer. This generally occurs when the product is delivered to the customer. Revenue is recorded at the amount of consideration the Company expects to be entitled to in exchange for the delivered goods, which includes an estimate of variable consideration, expected returns, or refunds when applicable. The Company estimates variable consideration, such as sales incentives, by using the most likely amount approach, which considers the single most likely amount from a range of possible consideration amounts. Estimates of variable consideration result in an adjustment to the transaction price such that it is probable that a significant reversal of cumulative revenue would not occur in the future. Sales incentives and allowances are recognized as a reduction to revenue at the time of the related sale. Revenue is recorded net of sales tax. Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in cost of sales.

FAIR VALUE

The Company has accounts receivable, accounts payable and accrued expenses for which the carrying value approximates fair value due to the short-term nature of these instruments. The carrying value of the Company's long-term debt approximates fair value as the rates used approximate the market rates currently available to the Company at June 27, 2021 and December 31, 2020. Fair value measurements used in the impairment reviews of goodwill and intangible assets are Level 3 measurements.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Estimates are used when accounting for items such as warranties, allowance for credit losses, estimated lives of property, plant and equipment, reserve for excess and obsolete inventories, recoverability of goodwill, intangible assets and other long-lived assets, customer

co-operative

advertising, sales returns and allowances, tax positions, deferred tax assets, pension obligations and employee medical and prescription drug benefits self-insurance accrual.

6

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU

2016-02,

Leases (Topic 842). The ASU is effective for private companies for annual reporting periods beginning after December 15, 2021 and early adoption is permitted. The ASU will require lessees to report most leases as assets and liabilities on the balance sheet. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

In August 2018, the FASB issued ASU

2018-14,

Compensation - Retirements Benefits - Defined Benefit Plans - General (Subtopic

715-20).

The Company expects to adopt this ASU for annual reporting periods beginning after December 15, 2021 and early adoption is permitted. The ASU will update disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

In December 2019, the FASB issued ASU

2019-12,

Simplifying the Accounting for Income Taxes (Topic 740) which is intended to simplify various aspects related to accounting for income taxes. The Company expects to adopt this ASU for annual reporting periods beginning after December 15, 2021 and early adoption is permitted. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

In March 2020, the FASB issued ASU

2020-04,

Reference Rate Reform (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Adoption of the provisions of ASU

2020-04

are optional and are effective from March 12, 2020 through December 31, 2022. As of June 27, 2021, the Company did not adopt any expedients or exceptions under ASU

2020-04.

The Company will continue to evaluate the impact of ASU

2020-04

and whether it will apply the optional expedients and exceptions

.

SEGMENTS

The Company's operations are managed and reported to its Chief Executive Officer ('CEO'), the Company's chief operating decision maker, on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. Under this organizational and reporting structure, the Company has one reportable segment.

RISKS AND UNCERTAINTIES

COVID-19 has adversely impacted global supply chain and general economic conditions. The Company has experienced disruptions and higher costs in manufacturing, supply chain, logistical operations, and shortages of certain Company products in distribution channels. The full extent of the impact of the COVID-19 pandemic on the Company's business and operational and financial performance and condition is currently uncertain and will depend on many factors outside the Company's control, including but not limited to the timing, extent, duration and effects of the virus and any of its mutations, the utilization and effectiveness of treatments and vaccines, the imposition of effective public safety and other protective measures, the further impact of COVID-19 on the global economy and demand for the Company's products and services. Should the COVID-19 pandemic, including variants such as Delta, not improve or worsen, or if the Company's attempt to mitigate its impact on its operations and costs is not successful, the Company's business, results of operations, financial condition and prospects may be adversely affected.

7

2.	ACQUISITIONS

On November 11, 2020, the Company acquired Drake Automotive Group LLC ('Drake'). The purchase price was $49,104. The Company acquired 100% of the outstanding member units of Drake. The Company purchased Drake in order to acquire strong brands in the automotive aftermarket. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. Consideration for the assets acquired consisted of cash payments of $47,104 plus an earn out value of $2,000. The acquisition resulted in both amortizable and

non-amortizable

intangibles and goodwill, totaling $32,441. The goodwill arising from the acquisition is primarily due to Drake's strong market position. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded from the proceeds of debt and cash on hand.

The purchase agreement included a potential contingent payment based on 2020 performance. The seller could earn up to an additional $2,000. The fair value of this contingent payment was determined to be $2,000 based on the likelihood of achieving the required financial performance at the time of the valuation. The earn out payment of $2,000 was paid in March 2021.

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

Cash		$	205
Accounts receivable			3,947
Inventory			14,198
Property, plant and equipment			1,296
Other assets			189
Tradenames			7,715
Customer relationships			17,175
Goodwill			7,551
Accounts payable			(2,524	)
Accrued liabilities			(648	)
		$	49,104

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

The contractual value of the accounts receivable acquired was $4,155.

On November 16, 2020, the Company acquired Simpson Performance Products, Inc. ('Simpson'). The purchase price was $117,409. The Company acquired 100% of the outstanding common stock of Simpson. The Company purchased Simpson in order to acquire strong brands in the automotive safety solutions market. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. Consideration for the assets acquired consisted of cash payments of $110,209 and an earn out initially valued at $7,200. The acquisition resulted in both amortizable and

non-amortizable

intangibles and goodwill, totaling $107,618. The goodwill arising from the acquisition is primarily due to Simpson's strong market position. The goodwill and intangibles generated as a result of this acquisition are not deductible for income tax purposes. The purchase price was funded from the proceeds of debt and cash on hand. The determination of the final purchase price allocation to specific assets acquired and liabilities assumed may change in future periods as the fair value estimate of

work-in-process

and raw materials inventory is completed.

8

The purchase agreement included a potential contingent payment based on the performance for the twelve months ended October 3, 2021. The seller could earn up to an additional $25,000. The fair value of this contingent payment was initially determined to be $7,200 using the 'Bull Call' option strategy utilizing the option values from the Black-Scholes Option Pricing Model. Based on actual performance and updated projections of Simpson's performance for the earnout period, the fair value of the contingent payment was determined to be $24,373 as of March 28, 2021. Therefore, during the thirteen weeks ended March 28, 2021, an adjustment of $17,173 was recorded as expense which is recognized in acquisition and restructuring costs in the condensed consolidated statement of comprehensive income for the

twenty-six

weeks ended June 27, 2021.

The determination of the final purchase price allocation to specific assets acquired and liabilities assumed was adjusted to reflect the final fair value estimate of finished goods inventory, as noted below. The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:​​​​​​​

		November 16, 2020 (as initially reported)			Measurement Period Adjustments			November 16, 2020 (as adjusted)
Cash		$	7,715			$	-			$	7,715
Accounts receivable			3,894				-				3,894
Inventory			19,265				(770	)			18,495
Property, plant and equipment			5,952				-				5,952
Other assets			1,613				-				1,613
Tradenames			23,980				-				23,980
Customer relationships			28,770				-				28,770
Patents			2,720				-				2,720
Goodwill			51,305				843				52,148
Accounts payable			(2,483	)			-				(2,483	)
Accrued liabilities			(7,787	)			-				(7,787	)
Deferred tax liability			(12,993	)			-				(12,993	)
Debt			(4,615	)			-				(4,615	)
	$	117,336			$	73			$	117,409

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames and patents intangible assets were estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life. The patents are being amortized over 10 years based on the weighted average remaining life of the patent portfolio.

The contractual value of the accounts receivable acquired was $3,894.

On December 18, 2020, the Company acquired Detroit Speed, Inc. ('Detroit Speed'). The purchase price was $11,297. The Company acquired substantially all of the assets and liabilities of Detroit Speed. The Company purchased Detroit Speed in order to acquire strong brands in the automotive aftermarket. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. Consideration for the assets acquired includes cash payments of $9,297 and Class A Units of Parent of $2,000. The acquisition resulted in both amortizable and

non-amortizable

intangibles and goodwill, totaling $4,323. The goodwill arising from the acquisition is primarily due to Detroit Speed's strong market position. The goodwill and intangibles generated as a result of this acquisition are partially deductible for income tax purposes. The purchase price was funded from cash on hand and distribution of Class A Units of Parent.

9

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

Cash		$	1,784
Accounts receivable			418
Inventory			3,478
Property, plant and equipment			3,040
Other assets			215
Tradenames			1,127
Customer relationships			560
Goodwill			2,636
Accounts payable			(668	)
Accrued liabilities			(1,019	)
Deferred tax liability			(274	)
	$	11,297

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 10 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

The contractual value of the accounts receivable acquired was $418.

On April 14, 2021, the Company acquired Advance Engine Management Inc. doing business as AEM Performance Electronics ('AEM'). The purchase price was cash consideration of $51,566. The Company acquired substantially all of the assets and liabilities of AEM. The Company purchased AEM in order to acquire strong brands in the automotive aftermarket. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the preliminary fair value of the assets acquired and liabilities assumed. The acquisition resulted in both amortizable and

non-amortizable

intangibles and goodwill, totaling $44,906. The goodwill arising from the acquisition is primarily due to AEM's strong market position. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded from cash on hand.

The determination of the purchase price allocation to specific assets acquired and liabilities assumed is incomplete for AEM. The purchase price allocation may change in future periods as the fair value estimates of assets and liabilities (including, but not limited to, accounts receivable, inventory, property, plant, and equipment, other assets, intangibles, accounts payable, and accrued liabilities). The allocation of the purchase price to the assets acquired and liabilities assumed was based on preliminary estimates of the fair value of the net assets as follows:​​​​​​​

Accounts receivable		$	3,454
Inventory			3,892
Property, plant and equipment			1,342
Other assets			493
Tradenames			10,760
Customer relationships			14,640
Patents			1,970
Technology intangibles			110
Goodwill			17,426
Accounts payable			(2,032	)
Accrued liabilities			(489	)
	$	51,566

10

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames and patents intangible assets were estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life. The patents are being amortized over 13 years based on the weighted average remaining life of the patent portfolio.

The contractual value of the accounts receivable acquired was $3,454.

The Company's results for the thirteen weeks and

twenty-six

weeks ended June 27, 2021 include $5,437 of net sales and $687 of net income from AEM since the date of acquisition. The Company incurred transaction costs in the amount of $2,205 which are reflected in operating expenses in the thirteen weeks and

twenty-six

weeks ended June 27, 2021.

The following table provides the unaudited consolidated pro forma results for the periods presented as if AEM had been acquired as of January 1, 2020.

		For the thirteen weeks ended			For the twenty-six weeks ended
		June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
Pro forma net sales		$	201,831			$	131,825			$	362,163			$	244,042
Pro forma net income			25,345				13,574				23,168				18,150

The pro forma results include the effects of the amortization of purchased intangible assets and acquired inventory

step-up.

The pro forma results are based upon unaudited financial information of the acquired entity and are presented for informational purposes only and are not necessarily indicative of the results of future operations or the results that would have occurred had the acquisitions taken place in the periods noted.

On May 24, 2021, the Company acquired Finspeed LLC ('Finspeed'). The purchase price was cash consideration of $2,505. The Company acquired substantially all of the assets and liabilities of Finspeed. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. The acquisition resulted in

non-amortizable

intangibles of $268. The purchase price was funded from cash on hand.

3.

INVENTORY

Inventories of the Company consisted of the following:

		June 27, 2021			December 31, 2020
Raw materials		$	41,875			$	44,474
Work-in-process			16,921				12,946
Finished goods			76,037				76,508
	$	134,833			$	133,928

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4.	PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment of the Company consisted of the following:

		June 27, 2021			December 31, 2020
Land		$	1,330			$	1,330
Buildings and improvements			10,036				8,594
Machinery and equipment			46,829				44,690
Construction in process			14,861				8,088
Total property, plant and equipment			73,056				62,702
Less: accumulated depreciation			23,364				18,973
Property, plant and equipment, net		$	49,692			$	43,729

The Company's long-lived assets by geographic locations are as follows:

		June 27, 2021			December 31, 2020
United States		$	47,552			$	42,264
International			2,140				1,465
Total property, plant and equipment			49,692				43,729

5.	INTANGIBLE ASSETS

Intangible assets consisted of the following:

		June 27, 2021
		Gross Carrying Amount			Accumulated Amortization			Net Carrying Value
Finite-lived intangible assets:
Customer relationships		$	259,907			$	(27,116	)		$	232,791
Tradenames			13,775				(3,726	)			10,049
Technology			26,673				(7,858	)			18,815
Total finite-lived intangible assets		$	300,355			$	(38,700	)		$	261,655
Indefinite-lived intangible assets:
Tradenames		$	163,768			$	-			$	163,768

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		December 31, 2020
		Gross Carrying Amount			Accumulated Amortization			Net Carrying Value
Finite-lived intangible assets:
Customer relationships		$	245,274			$	(21,819	)		$	223,455
Tradenames			13,775				(3,369	)			10,406
Technology			24,595				(6,674	)			17,921
Total finite-lived intangible assets		$	283,644			$	(31,862	)		$	251,782
Indefinite-lived intangible assets:
Tradenames		$	152,740			$	-			$	152,740

Amortization expense over the next five years is estimated to be:

2021 (excluding the twenty-six weeks ended June 27, 2021)		$	7,131
2022			14,028
2023			13,866
2024			13,052
2025			13,016

6.

DEBT

Debt of the Company consisted of the following:

		June 27, 2021			December 31, 2020
First lien note		$	540,587			$	541,969
Second lien note			145,000				145,000
Other			4,544				4,701
Less unamortized debt issuance costs			(14,729	)			(16,684	)
		675,402				674,986
Less current portion of long-term debt			(5,528	)			(5,528	)
	$	669,874			$	669,458

The first lien note totals $600,000, comprising of two parts: a revolving component with maximum borrowings of $50,000, and a $550,000 term loan. Interest is based on LIBOR or the prime rate at the Company's option, plus the applicable margin rate. Interest is due monthly for the prime rate loans and every one to three months for the LIBOR rate loans. The interest rate for the first lien note LIBOR rate loans was 5.2% at June 27, 2021 and December 31, 2020. There were no prime rate loans as of June 27, 2021 or December 31, 2020. Principal payments of $1,382 are due on a

quarterly

basis. The note is secured by the assets of the Company and the revolving credit facility matures in

October2023

, while the term loan matures in

October2025

. The note requires that the Company maintain a certain fixed charge coverage ratio. At June 27, 2021, the Company was in compliance with all financial covenants. In addition, the Company had outstanding letters of credit under the note, which totaled $1.2 million at June 27, 2021 and December 31, 2020.

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The second lien note totals $145,000. Interest is based on LIBOR or the prime rate at the Company's option, plus the applicable margin rate. Interest is due monthly for the prime rate loans and every one to three months for the LIBOR rate loans. The interest rate for the second lien note LIBOR rate loan was 8.6% and 8.7% at June 27, 2021 and December 31, 2020, respectively. The note is secured by a second lien on the assets of the Company and matures in October2026. The note requires that the Company maintain a certain fixed charge coverage ratio. At June 27, 2021, the Company was in compliance with all financial covenants. Sentinel Capital Partners Junior Fund I, a related party, holds a portion of the second lien note and the outstanding balance at June 27, 2021 and December 31, 2020 was $20,000.

Future maturities of long-term debt and amortization of debt issuance costs as of June 27, 2021 are as follows:

		Debt			Debt Issuance Costs
2021 (remaining six months)		$	4,148			$	1,955
2022			5,528				3,618
2023			5,528				3,344
2024			5,528				3,090
2025			519,855				2,450
Thereafter			149,544				272
	$	690,131			$	14,729

7.

REVENUE

The principal activity from which the Company generates its revenue is the manufacturing and distribution of after-market automotive parts for its customers, comprised of resellers and end users. The Company recognizes revenue at a point in time, rather than over time, as the performance obligation is satisfied when customer obtains control of the product upon title transfer and not as the product is manufactured or developed. The amount of revenue recognized is based on the purchase order price and adjusted for revenue allocated to variable consideration (i.e. estimated rebates,

co-op

advertising, etc.).

The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs incurred after control of the product is transferred to our customers are treated as fulfillment costs and not a separate performance obligation.

The Company allows customers to return products when certain Company-established criteria are met. These sales returns are recorded as a charge against gross sales in the period in which the related sales are recognized, net of returns to stock. Returned products, which are recorded as inventories, are valued at the lower of cost or net realizable value. The physical condition and marketability of the returned products are the major factors considered in estimating realizable value. The Company also estimates expected sales returns and records the necessary adjustment as a charge against gross sales.

The Company's payment terms with customers are customary and vary by customer and geography but typically range from 30 to 365 days. The Company elected the practical expedient to disregard the possible existence of a significant financing component related to payment on contracts, as the Company expects that customers will pay for the products within one year. The Company has evaluated the terms of our arrangements and determined that they do not contain significant financing components. Additionally, as all contracts with customers have an expected duration of one year or less, the Company has elected the practical expedient to exclude disclosure of information regarding the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period. The Company provides limited warranties on most of its products against certain manufacturing and other defects. Provisions for estimated expenses related to product warranty are made at the time products are sold. Refer to Note 13 for more information.

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The following table summarizes total revenue by product category:

		For the thirteen weeks ended			For the twenty-six weeks ended
		June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
Electronic systems		$	90,724			$	69,852			$	164,275			$	127,122
Mechanical systems			42,565				29,819				81,269				55,835
Exhaust			22,790				18,971				42,616				34,157
Accessories			17,992				6,654				31,019				15,339
Safety			18,970				-				34,194				-
Total sales		$	193,041			$	125,296			$	353,373			$	232,453

The following table summarizes total revenue based on geographic location from which the product is shipped:

		For the thirteen weeks ended			For the twenty-six weeks ended
		June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
United States		$	187,993			$	125,296			$	345,570			$	232,453
Italy			5,048				-				7,803				-
Total sales		$	193,041			$	125,296			$	353,373			$	232,453

8.	INCOME TAXES

The Company's effective income tax rate is based on expected income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual

year-to-date

financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the

year-to-date

provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

		For the thirteen weeks ended			For the the twenty-six weeks ended
		June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
Provision for income taxes		$	5,790			$	2,827			$	10,556			$	4,144
Effective tax rates			20.1	%			18.4	%			33.4	%			19.3	%

For the thirteen weeks ended June 27, 2021 and June 28, 2020, the Company's effective tax rates of 20.1% and 18.4%, respectively differed from the 21% federal statutory rate primarily due to permanent differences.

For the

twenty-six

weeks ended June 27, 2021, the difference between the Company's effective tax rate of 33.4% and the 21% federal statutory rate resulted primarily from the permanent difference related to the increase in the Simpson earnout liability recognized during the thirteen weeks ended March 28, 2021. For the

twenty-six

weeks ended June 27, 2020, the difference between the Company's effective tax rate of 19.3% and the 21% federal statutory rate resulted primarily from permanent differences.

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9. BENEFIT PLANS

The following summarizes the components of net periodic benefit cost for the defined benefit pension plan:

		For the thirteen weeks ended			For the twenty-six weeks ended
		June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
Components of Expense
Service cost		$	36			$	40			$	72			$	80
Interest cost			38				48				76				96
Expected return on plan assets			(61	)			(64	)			(122	)			(128	)
Amortization of net loss			5				-				10				-
Net periodic benefit cost		$	18			$	24			$	36			$	48

We made matching contributions totaling $526 and $411 to our 401(k) plan during the second quarter of 2021 and 2020, respectively. We made matching contributions totaling $1,000 and $802 to our 401(k) plan during the

twenty-six

weeks ending June 27, 2021 and June 28, 2020, respectively.

We made contributions of $98 and $111 to our defined contribution pension plan during the second quarter of 2021 and 2020, respectively. We made contributions of $117 and $183 to our defined contribution pension plan during the

twenty-six

weeks ending June 27, 2021 and June 28, 2020, respectively.

10.	EQUITY-BASED COMPENSATION PLANS

As of June 27, 2021, the amount of unvested profit interest units ('PIUs') was 31,481, with a weighted average grant date fair value of $.27.

During the

twenty-six

weeks ended June 27, 2021 and June 28, 2020, 903 and 798 PIUs were fully vested, respectively, with a total grant-date fair value of $262 and $235 in 2021 and 2020, respectively. As of June 27, 2021, the total compensation cost related to nonvested PIUs, which vest related to service-based criteria, not yet recognized and the weighted-average period over which it's expected to be recognized is $1,475 and 2.9 years, respectively.

During the

twenty-six

weeks ended June 27, 2021, no PIUs were issued, expired or forfeited.

11.	LEASE COMMITMENTS

The Company is obligated under various operating leases for manufacturing facilities, equipment and automobiles. Leases have a remaining term of one to ten years some of which have an option to renew. The aggregate future minimum fixed lease obligations under operating leases for the Company as of June 27, 2021, are as follows:

2021 (excluding the twenty-six weeks ended June 27, 2021)		$	3,636
2022			5,743
2023			4,445
2024			3,200
2025			2,560
Thereafter			10,615

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For the thirteen weeks ended June 27, 2021 and June 28, 2020, total rent expense under operating leases approximated $1,979 and $1,062, respectively. For the

twenty-six

weeks ended June 27, 2021 and June 28, 2020, total rent expense under operating leases approximated $3,672 and $2,369, respectively. Taxes, insurance and maintenance expenses relating to all leases are obligations of the Company.

12.	ACQUISITION, RESTRUCTURING AND MANAGEMENT FEE COSTS

During the thirteen weeks ended June 27, 2021 the Company incurred $4,334 of acquisition, restructuring and management fee costs comprised of the following: (1) $2,172 of professional fees for legal, accounting, consulting, administrative, and other professional services directly attributable to potential acquisitions; (2) $504 incurred as part of the restructuring of operations including professional and consulting services; and (3) $1,658 of acquisition costs and management fees paid to Sentinel Capital Partners, a related party.

During the

twenty-six

weeks ended June 27, 2021 the Company incurred $24,048 of acquisition, restructuring and management fee costs comprised of the following: (1) $17,173 reflecting a fair value adjustment to the contingent consideration payable from the Simpson acquisition (2) $3,211 of professional fees for legal, accounting, consulting, administrative, and other professional services directly attributable to potential acquisitions; (3) $1,125 incurred as part of the restructuring of operations including professional and consulting services; and (4) $2,539 of acquisition costs and management fees paid to Sentinel Capital Partners, a related party.

During the thirteen weeks ended June 28, 2020 the Company incurred $3,998 of acquisition, restructuring and management fee costs comprised of the following: (1) $145 of professional fees for legal, accounting, consulting, administrative, and other professional services directly attributable to potential acquisitions; (2) $2,973 incurred as part of the restructuring of operations including professional and consulting services; and (3) $880 of acquisition costs and management fees paid to Sentinel Capital Partners, a related party.

During the

twenty-six

weeks ended June 28, 2020 the Company incurred $6,303 of acquisition, restructuring and management fee costs comprised of the following: (1) $1,163 of professional fees for legal, accounting, consulting, administrative, and other professional services directly attributable to potential acquisitions; (2) $3,369 incurred as part of the restructuring of operations including professional and consulting services; and (3) $1,771 of acquisition costs and management fees paid to Sentinel Capital Partners, a related party.

13.	COMMITMENTS AND CONTINGENCIES

The Company is a party to various lawsuits and claims in the normal course of business. While the lawsuits and claims against the Company cannot be predicted with certainty, management believes that the ultimate resolution of the matters will not have a material effect on the consolidated financial position or results of operations of the Company.

The Company generally warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. The accrued product warranty costs are based primarily on historical experience of actual warranty claims and are recorded at the time of the sale.

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The following table provides the changes in the Company's accrual for product warranties which is classified as a component of accrued liabilities in the condensed consolidated balance sheets.

		For the thirteen weeks ended			For the twenty-six weeks ended
		June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
Beginning balance		$	2,868			$	3,211			$	3,989			$	3,454
Accrued for current year warranty claims			2,479				2,060				3,436				3,927
Settlement of warranty claims			(2,419	)			(2,309	)			(4,497	)			(4,419	)
Ending balance		$	2,928			$	2,962			$	2,928			$	2,962

14.	SUBSEQUENT EVENTS

On July 16, 2021 we consummated a business combination ('Business Combination') pursuant to that certain Agreement and Plan of Merger dated March 11, 2021 (the 'Merger Agreement'), by and among Empower Ltd. ('Empower'), Empower Merger Sub I Inc., a direct wholly owned subsidiary of Empower ('Merger Sub I'), Empower Merger Sub II LLC, a direct wholly owned subsidiary of Empower ('Merger Sub II'), and Holdings.

The Merger Agreement provided for, among other things, the following transactions: (i) Merger Sub I merged with and into Holdings, the separate corporate existence of Merger Sub I ceased and Holdings became the surviving corporation and a wholly owned subsidiary of Empower, and (ii) Holdings merged with and into Merger Sub II, the separate corporate existence of Holdings ceased and Merger Sub II became the surviving limited liability company and a wholly owned subsidiary of Empower. Upon closing, Empower changed its name to Holley Inc. and its trading symbol on the New York Stock Exchange from 'EMPW' to 'HLLY.'

The Business Combination will be accounted for as a reverse recapitalization. Holdings was deemed the accounting acquirer with Holley Inc. as the successor registrant. As such, Empower will be treated as the acquired company for financial reporting purposes, and financial statements for periods prior to the Business Combination will be those of Holdings.

In connection with the Business Combination, 24,000,000 shares of common stock in Holley Inc. were purchased in a private placement for a total aggregate purchase price of $240,000. Per the Merger Agreement, $100,000 of these proceeds were used to partially pay off Holdings' second-lien note.

18