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Note 2 - NEPSI Acquisitions | 9 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | 2. NEPSI Acquisition Acquisition of NEPSI As described in Note 1, Nature of the Business and Operations and Liquidity, on the Acquisition Date, the Company acquired all of the issued and outstanding shares of capital stock of NEPSI and membership interests of Northeast Power Realty, LLC, a New York limited liability company, which holds the real property that serves as NEPSI's headquarters. NEPSI is a U.S.-based global provider of medium-voltage metal-enclosed power capacitor banks and harmonic filter banks for use on electric power systems. Prior to the Acquisition, the Company had purchased $0.4 million of products from NEPSI in fiscal year 2019 for which NEPSI was paid and had recorded revenue. Pursuant to the Stock Purchase Agreement, the Company acquired all of the issued and outstanding shares of NEPSI, and membership interest in the realty entity, for which the Company paid $26.0 million in cash and issued 873,657 restricted shares of the Company's common stock. Additionally, the Company may issue to the selling stockholders up to an additional 1,000,000 shares of common stock upon NEPSI's achievement of specified revenue objectives during varying periods of up to four years following closing of the Acquisition. This contingent consideration is recorded as a derivative liability based on a Monte Carlo simulation to determine fair value at the time of issuance. NEPSI is now a wholly-owned subsidiary of the Company and is operated and reported as a component of its Grid business unit. The Acquisition completed by the Company during the nine months ended December 31, 2020 has been accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations . The Company allocated the purchase price to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition. The excess of the purchase price paid by the Company over the estimated fair value of net assets acquired has been recorded as goodwill. As NEPSI was previously a private company, the adoption of Accounting Standards Codification ("ASC 606" ) was completed as part of the Acquisition. See Note 3 "Revenue Recognition" for further details. There were no leases acquired and the Acquisition had no impact to the Company's reporting under ASC 842. The total purchase price of approximately $42.4 million includes the fair value of shares of the Company's common stock issued at closing, cash paid, and contingent consideration as follows (in millions):
Cash payment |  | $ | 26.0 |
Issuance of 873,657 shares of Company's common stock |  |  | 12.4 |
Contingent consideration |  |  | 4.0 |
Total consideration |  |  | 42.4 |
At the Acquisition Date, in addition to the $26.0 million cash, the Company valued the Company's common stock, using $14.23 per share, which was the closing price on the day that the Company acquired NEPSI and $4.0 million of contingent consideration for the earnout liability valued as of the Acquisition Date. Acquisition costs of $0.3 million were recorded in selling, general and administrative ("SG&A") costs for the three and nine months ended December 31, 2020 . The fair value of the contingent consideration was determined using a Monte Carlo model and is accounted for as a derivative liability which is revalued at the fair value determined at each subsequent balance sheet date until the contingencies are resolved and the shares to be issued are determined, with the change in fair value recorded in the current period operating loss or (income). See Note 13, "Warrants and Derivative Liabilities" for further details and a summary of key assumptions used to determine fair value in each period. The following table summarizes the allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed and related deferred income taxes in connection with the Acquisition (in millions):
Net working capital (excluding inventory and deferred revenue) |  | $ | 0.1 |
Inventory |  |  | 4.2 |
Property, plant and equipment |  |  | 2.3 |
Deferred revenue |  |  | (2.7 | )
Deferred tax liability |  |  | (1.7 | )
Net tangible assets/(liabilities) |  |  | 2.2 |
Backlog |  |  | 0.6 |
Trade names and trademarks |  |  | 0.6 |
Customer relationships |  |  | 6.1 |
Net identifiable intangible assets/(liabilities) |  |  | 7.3 |
Goodwill |  |  | 32.9 |
Total purchase consideration |  | $ | 42.4 |
Inventory includes a $1.0 million adjustment to step up the inventory balance to fair value consistent with the purchase price allocation. The fair value was determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling cost and a normal profit margin on those manufacturing and selling efforts. The $1.0 million step up adjustment increased cost of revenue in the three and nine months periods ended December 31, 2020 as the inventory was sold. This increase is not reflected in the pro forma condensed combined statements of operations because it does not have a continuing impact beyond the first year. Backlog of $0.6 million was evaluated using the multi period excess earnings method under the income approach. The contracts with customers do not provide for any guarantees to source all future requirements from the Company. The amortization method being utilized is economic consumption estimated over a two year period with the expense being allocated to cost of revenues. Customer relationships of $6.1 million relates to customers currently under contract and was determined based on a multi period excess earnings method under the income approach. The method of amortization being utilized is the economic consumption over 7 years with the expense being allocated to SG&A. Trade names and trademarks of $0.6 million were reviewed, using the assumption that the Company would continue to utilize the NEPSI trade name indefinitely. The relief from royalty method was utilized using an 8% royalty rate on revenues with a 13% discount rate over 8 years. Goodwill represents the value associated with the acquired workforce and expected synergies related to the business combination of the two companies. Goodwill resulting from the Acquisition was assigned to the Company's Grid segment. Goodwill recognized in the Acquisition is not deductible for tax purposes. This purchase price allocation is preliminary and has not been finalized as the analysis on the assets and liabilities acquired, primarily the tax related liability may require further adjustments to our purchase accounting that could result in a measurement period adjustment that would impact our reported net assets and goodwill as of October 1, 2020. Material changes, if any, to the preliminary allocation summarized above will be reported once the related uncertainties are resolved, but no later than October 1, 2021. The $1.7 million of deferred tax liability is primarily related to inventory step up and intangibles. Unaudited Pro Forma Operating Results The unaudited pro forma condensed consolidated statement of operations for the three and nine months ended December 31, 2020 and 2019 is presented as if the Acquisition had occurred on April 1, 2019.
|  | Three Months Ended December 31, |  |  | Nine Months Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Revenues |  | $ | 23,632 |  |  | $ | 22,412 |  |  | $ | 78,298 |  |  | $ | 66,135 |
Operating loss |  |  | (8,769 | ) |  |  | (6,988 | ) |  |  | (15,016 | ) |  |  | (15,469 | )
Net loss |  | $ | (9,169 | ) |  | $ | (7,117 | ) |  | $ | (15,775 | ) |  | $ | (7,879 | )
Net loss per common share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.36 | ) |  | $ | (0.32 | ) |  | $ | (0.67 | ) |  | $ | (0.36 | )
Diluted |  | $ | (0.36 | ) |  | $ | (0.35 | ) |  | $ | (0.67 | ) |  | $ | (0.57 | )
Shares - basic |  |  | 25,470 |  |  |  | 22,059 |  |  |  | 23,594 |  |  |  | 21,660 |
Shares - diluted |  |  | 25,470 |  |  |  | 22,077 |  |  |  | 23,594 |  |  |  | 21,768 |
The pro forma amounts include the historical operating results of the Company and NEPSI with appropriate adjustments that give effect to acquisition related costs, income taxes, intangible amortization resulting from the Acquisition and certain conforming accounting policies of the Company. The three and nine month periods ended December 31, 2020 include $2.7 million decrease in operating loss and net loss for the change in fair value on the contingent consideration. The pro forma amounts are not necessarily indicative of the operating results that would have occurred if the Acquisition and related transactions had been completed at the beginning of the applicable periods presented. In addition, the pro forma amounts are not necessarily indicative of operating results in future periods. In the unaudited consolidated results for the three and nine months ended December 31, 2020, NEPSI's operations are included in the Company's consolidated results from the date of Acquisition of October 1, 2020. NEPSI contributed $6.6 million of revenue and $0.1 million in net income for the Company for the three and nine month periods ended December 31, 2020. Amortization expense of $0.5 million is included in the three and nine months ended December 31, 2020 as a result of the NEPSI acquired intangible assets. In addition, $1.0 million for the step-up basis assigned to acquired inventory was charged to cost of revenues in the three and nine months ended December 31, 2020.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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