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Note 2 - Acquisition
 12 Months Ended
Mar. 31, 2025
Notes to Financial Statements  
Business Combination [Text Block]

2. Acquisition

 

Acquisition of NWL

 

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.

 

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 Acquisition Date. 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 $1.1 million were included in selling, general and administrative ("SG&A") for the fiscal year ended  March 31, 2025.

 

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 as of the Acquisition Date and reflective of measurement period adjustments (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

  (5.6)

Net tangible assets/(liabilities)

  54.7 
     

Backlog

  0.7 

Customer relationships

  1.3 

Net identifiable intangible assets

  2.0 
     

Goodwill

  4.7 
     

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 $0.7 million for the fiscal year ended  March 31, 2025 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 business 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 deferred tax liability initially valued at $6.4 million is primarily related to basis difference of property, plant, and equipment. As of March 31, 2025 based on basis differences identified through the finalization of NWL’s pre-acquisition tax returns as well as a true up of state tax rates, a reduction in the deferred tax liability of $0.8 million was recorded in the three months ended March 31, 2025. This decreased the balance to $5.6 million, and the offsetting reduction was recorded to Goodwill, decreasing the balance to $4.7 million.

 

Pro forma Operating Results (Unaudited)

 

The pro forma consolidated statement of operations for the fiscal years ended March 31, 2025 and 2024 presented as if the Acquisition had occurred on April 1, 2023, is unaudited and is as follows:

 

 

  

Fiscal year ended March 31,

 
  

2025

  

2024

 

Net Revenue

 $246,089  $220,102 

Operating income (loss)

  1,413   (5,696)

Net income

 $4,153  $1,245 
         

Net income per common share

        

Basic

 $0.11  $0.04 

Diluted

 $0.11  $0.04 

Shares - basic

  37,426   31,122 

Shares - diluted

  38,155   31,586 

 

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 consolidated results for the fiscal year ended  March 31, 2025, Megatran’s operations are included in the Company’s consolidated results from the Acquisition Date of August 1, 2024. Megatran contributed $50.5 million of revenue and $6.0 million in net income for the Company for the fiscal year ended  March 31, 2025. Amortization expense of $0.8 million is included for the fiscal year ended  March 31, 2025, as a result of the Megatran acquired intangible assets. In addition, $0.7 million for the step-up basis assigned to acquired inventory was charged to cost of revenues for the fiscal year ended  March 31, 2025.