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Note 2 - Acquisition

6 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Business Combination Disclosure [Text Block]

2. Acquisition

Acquisition of Megatran

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 Megatran. Megatran's wholly-owned subsidiary, NWL, Inc. ("NWL"), is a U.S.-based global provider of engineered power conversion solutions for demanding industrial and military applications.

Pursuant to the Stock Purchase Agreement, the Company acquired all of the issued and outstanding shares of Megatran, for aggregate consideration in an amount equal to $61.4 million, which consideration amount was subject to various adjustments set forth in the Stock Purchase Agreement (including those described below) and consisted of: (a) (i) $25.0 million, minus (ii) the Indebtedness (as defined in the Stock Purchase Agreement) outstanding as of immediately prior to the closing, minus (iii) Company Expenses (as defined in the Stock Purchase Agreement); (b) a number of restricted shares (rounded up or down to the nearest whole share, as applicable) of Common Stock equal to the quotient obtained by dividing (x) $31.4 million by (y) the closing price per share of Common Stock on the Nasdaq Global Select Market on the last trading day immediately preceding the Closing Date; and (c) an additional cash payment equal to $5.0 million, as adjusted pursuant to Sections 5.6(c), (d), and (f) of the Stock Purchase Agreement. Megatran is now a wholly-owned subsidiary of the Company and, together with its wholly-owned subsidiaries and affiliates, is operated and reported as a component of its Grid business unit. On September 23, 2024, the Company paid $3.3 million to the selling stockholders, which was calculated based on the agreed upon formula set forth in the Stock Purchase Agreement. This amount is reflected as the change in fair value of this contingent consideration in the three and six months ended September 30, 2024. As of September 30, 2024, there are no remaining obligations to the selling stockholders of Megatran.

The Acquisition 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.

The total purchase price of approximately $61.4 million includes the fair value of shares of the Company’s common stock issued at closing, and cash paid, as follows (in millions):

Cash payments	$30.0
Issuance of 1,297,600 shares of Company’s Common Stock	$31.4

At the Acquisition Date, in addition to the $30.0 million cash, the Company valued the Company’s common stock, using $24.16 per share, which was the closing price on the day prior to the day that the Company acquired Megatran. Acquisition costs of $0.9 million and $1.1 million were included in selling, general and administrative ("SG&A") for the three and six months ended September 30, 2024, respectively.

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):

Cash and cash equivalents		$	0.4
Equity-method investments			1.2
Prepaid expenses and other current assets			1.7
Accounts receivable			16.1
Inventory			23.1
Property, plant, and equipment			28.4
Accounts payable and accrued expenses			(5.6	)
Deferred revenue			(5.0	)
Deferred tax liability			(6.4	)
Net tangible assets/(liabilities)			53.9

Backlog			0.7
Customer relationships			1.3
Net identifiable intangible assets			2.0

Goodwill			5.5

Total purchase consideration		$	61.4

The fair value of the financial assets acquired includes receivables with a fair value of $16.1 million. The gross amount due is $16.9 million, of which $0.8 million is expected to be uncollectible.

Inventory includes a $0.7 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 inventory step up adjustment increased cost of revenue $0.3 million in the three month period ended September 30, 2024 as the inventory was sold.

Backlog of $0.7 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 an eight-month period with the expense being allocated to cost of revenues.

Customer relationships of $1.3 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 straight line over 10 years, as the results were not materially different from the economic consumption method, with the expense being allocated to SG&A.

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 the Company's reported net assets and goodwill as of August 1, 2024. Material changes, if any, to the preliminary allocation summarized above will be reported once the related uncertainties are resolved, but no later than August 1, 2025. The $6.4 million of deferred tax liability is primarily related to basis difference of property, plant, and equipment.

Unaudited Pro Forma Operating Results

The unaudited pro forma condensed consolidated statement of operations for the three and six months ended September 30, 2024 and 2023 presented as if the Acquisition had occurred on April 1, 2024 and 2023, respectively, is as follows:

		*Three Months Ended September 30,*								*Six Months Ended September 30,*
		*2024*				*2023*				*2024*				*2023*
Net Revenue		$	58,722			$	50,929			$	118,032			$	99,915
Operating income (loss)			81				(1,783	)			(4,079	)			(7,193	)
Net income (loss)		$	635			$	(311	)		$	(2,748	)		$	(633	)

Net income (loss) per common share
Basic		$	0.02			$	(0.01	)		$	(0.07	)		$	(0.02	)
Diluted		$	0.02			$	(0.01	)		$	(0.07	)		$	(0.02	)
Shares - basic			37,404				30,126				37,189				29,843
Shares - diluted			37,950				30,126				37,189				29,843

The pro forma amounts include the historical operating results of the Company and Megatran 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 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 six months ended September 30, 2024, Megatran’s operations are included in the Company’s consolidated results from the date of Acquisition of August 1, 2024. Megatran contributed $14.3 million of revenue and $2.1 million in net income for the Company for the three and six month periods ended September 30, 2024. Amortization expense of $0.2 million is included in the three and six months ended September 30, 2024, as a result of the Megatran acquired intangible assets. In addition, $0.3 million for the step-up basis assigned to acquired inventory was charged to cost of revenues in the three and six months ended September 30, 2024.