Form 8-K/A Megatran ProForma true 0000880807 0000880807 2024-08-01 2024-08-01


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K/A
(Amendment No. 1)
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
 
The Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):
August 1, 2024
 
American Superconductor Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
000-19672
 
04-2959321
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of incorporation)
 
File Number)
 
Identification No.)
 
114 East Main Street
Ayer, Massachusetts
 
01432
(Address of principal executive offices)
 
(Zip Code)
 
Registrants telephone number, including area code (978)842-3000
 
Not Applicable
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
AMSC
 
Nasdaq Global Select Market
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
 

 
 
Explanatory Note
 
On August 5, 2024, American Superconductor Corporation (the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting that on August 1, 2024, the Company had acquired all of the issued and outstanding shares of capital stock of Megatran Industries, Inc, a New Jersey corporation, a New Jersey corporation (“Megatran”), pursuant to a Stock Purchase Agreement (the “Purchase Agreement”) dated as of August 1, 2024.
 
This Current Report on Form 8-K/A amends Item 9.01 of the Original Form 8-K to include the financial statements and unaudited pro forma financial information required by Items 9.01(a) and (b) of Form 8-K, respectively, which were not included in the Original Form 8-K pursuant to Items 9.01(a)(4) and (b)(2) of Form 8-K.
 
Item 9.01 Financial Statements and Exhibits
 
(a)
Financial Statements of Businesses Acquired
 
Megatran Industries, Subsidiaries and Affiliate audited combined balance sheets as of December 31, 2023 and December 31, 2022 and Combined Statements of Operations and Comprehensive Income, Combined Statements of Changes in Stockholders’ Equity, and Combined Statements of Cash Flows for the years ended December 31, 2023 and December 31, 2022, and the related notes, as well as Megatran Industries, Subsidiaries and Affiliate unaudited Combined Balance Sheets as of June 30, 2024 and June 30, 2023 and Combined Statements of Operations and Comprehensive Income, Combined Statements of Changes in Stockholders’ Equity, and Combined Statements of Cash Flows for the six months ended June 30, 2024 and June 30, 2023, and the related notes, are filed as Exhibit 99.1 and Exhibit 99.2, respectively, to this Current Report on Form 8-K and incorporated herein by reference.
 
(b)
Pro Forma Financial Information
 
The unaudited pro forma condensed consolidated financial statements of the Company as of and for the three months ended June 30, 2024, and for the year ended March 31, 2024, and the related notes, are attached as Exhibit 99.3 to this Current Report on Form 8-K and incorporated herein by reference.
 
(d)
Exhibits:
 
23.1 Consent of Kreischer Miller, Independent Auditors.
99.1 Megatran Industries, Subsidiaries and Affiliate audited combined financial statements as of and for the years ended December 31, 2023 and 2022.
99.2 Megatran Industries, Subsidiaries and Affiliate unaudited combined financial statements as of and for the six months ended June 30, 2024.
99.3 Unaudited pro forma condensed consolidated financial statements of American Superconductor Corporation as of and for the three months ended June 30, 2024 and for the year ended March 31, 2024.
104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
 
 

 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
   
AMERICAN SUPERCONDUCTOR CORPORATION
     
Date:
August 6, 2024
By:
/S/ JOHN W. KOSIBA, JR.
     
John W. Kosiba, Jr.
     
Senior Vice President and Chief Financial Officer
 
 

Exhibit 23.1

 

CONSENT OF INDEPENDENT AUDITORS

 

We consent to the incorporation by reference in Registration Statements on Form S-3 (No. 333-276766) and Form S-8 (No. 333-145685, 333- 170286, 333-183075, 333-197971, 333-213850, 333-233531, 333-266727 and 333-266728) of American Superconductor Corporation of our report dated March 26, 2024, relating to the combined balance sheets of Megatran Industries, Subsidiaries and Affiliate as of December 31, 2023 and 2022, the combined statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2023 and 2022, and the related notes to the combined financial statements, which report appears in the Current Report on Form 8-K/A of American Superconductor Corporation dated August 6, 2024.

 

 

/s/ Kreischer Miller

100 Witmer Road, Suite 350

Horsham, PA 19044-2369

 

August 6, 2024

 

 

Exhibit 99.1

 

millerlogo.jpg
Advisory | Audit & Accounting | Tax

 

 

 

 

Independent Auditors' Report

 

 

The Stockholders and

The Board of Directors of

Megatran Industries, Subsidiaries and Affiliate

Bordentown, New Jersey

 

Opinion

 

We have audited the combined financial statements of Megatran Industries, Subsidiaries and Affiliate, which comprise the combined balance sheets as of December 31, 2023 and 2022, and the related combined statements of operations and comprehensive income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the combined financial statements.

 

In our opinion, the accompanying combined financial statements present fairly, in all material respects, the financial position of Megatran Industries, Subsidiaries and Affiliate as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Megatran Industries, Subsidiaries and Affiliate, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Responsibilities of Management for the Financial Statements

 

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Megatran Industries, Subsidiaries and Affiliate's ability to continue as a going concern for one year after the date that the combined financial statements are issued.

 

 

 

100 Witmer Road, Suite 350, Horsham, PA 19044-2369

215-441-4600 | fax: 215-672-8224 | www.kmco.com

 

 

 

Auditors' Responsibilities for the Audit of the Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined financial statements.

 

In performing an audit in accordance with GAAS, we:

 

 

Exercise professional judgment and maintain professional skepticism throughout the audit.

 

 

Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements.

 

 

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Megatran Industries, Subsidiaries and Affiliate's internal control. Accordingly, no such opinion is expressed.

 

 

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined financial statements.

 

 

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Megatran Industries, Subsidiaries and Affiliate's ability to continue as a going concern for a reasonable period of time.

 

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

 

 

 

Supplementary Information

 

Our audits were conducted for the purpose of forming an opinion on the combined financial statements taken as a whole. The supplementary information in Schedules I, II, and III is presented for purposes of additional analysis and is not a required part of the combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The information has been subjected to the auditing procedures applied in the audits of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the combined financial statements taken as a whole.

 

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Horsham, Pennsylvania

March 26, 2024

 

 

Megatran Industries, Subsidiaries and Affiliate

 

Combined Balance Sheets

December 31, 2023 and 2022


 

 

   

2023

   

2022

 

ASSETS

               
Current assets:                
Cash   $ 1,800,846     $ 2,693,741  

Accounts receivable, net of allowance for credit losses of $41,582 and $19,136 in 2023 and 2022, respectively

    21,383,043       16,925,825  

Inventories, net

    18,606,140       17,500,927  

Prepaid expenses and other current assets

    1,242,251       1,406,558  

Total current assets

    43,032,280       38,527,051  
                 

Property, plant and equipment, net

    3,872,454       3,597,718  

Investment in joint venture

    2,118,612       2,059,581  

Goodwill, net

    170,060       191,390  

Advances to stockholders

    6,000       6,000  

Investment in insurance captive

    36,000       36,000  
    $ 49,235,406     $ 44,417,740  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
Current liabilities:                
Line of credit   $ 2,000,000     $ 2,500,000  

Current portion of long-term debt

    -       67,543  

Accounts payable

    2,021,873       2,013,535  

Accrued expenses

    3,261,723       2,129,215  

Retirement plan payable

    120,080       250,000  

Accrued distributions

    1,600,291       1,633,475  

Deferred revenue

    4,212,662       5,587,693  

Total current liabilities

    13,216,629       14,181,461  
                 
Stockholders' equity:                

Common stock, no par value, 500,000 shares authorized, 226,790 issued and outstanding

    45,358       45,358  

Retained earnings

    36,345,083       30,513,588  

Accumulated other comprehensive loss

    (377,622 )     (328,625 )
      36,012,819       30,230,321  

Equity in NWL International Sales Inc.

    5,958       5,958  

Total stockholders' equity

    36,018,777       30,236,279  
    $ 49,235,406     $ 44,417,740  
 

 

See accompanying notes to combined financial statements.

   

 

- 1 -

Megatran Industries, Subsidiaries and Affiliate

 

Combined Statements of Operations and Comprehensive Income

For the Years Ended December 31, 2023 and 2022


 

 

   

2023

 

%

 

2022

 

%

Net sales

  $ 72,315,328       100.0 %   $ 56,164,113       100.0 %
                                 

Cost of goods sold (Schedule I)

    55,065,130       76.1       47,453,621       84.5  
                                 

Gross profit

    17,250,198       23.9       8,710,492       15.5  
                                 

Selling, general and administrative expenses (Schedule II)

    11,507,395       15.9       9,329,960       16.6  
                                 

Income (loss) from operations

    5,742,803       8.0       (619,468 )     (1.1 )
                                 

Other, net (Schedule III)

    2,388,692       3.3       1,231,026       2.2  
                                 

Income from continuing operations

    8,131,495       11.3       611,558       1.1  
                                 

Other comprehensive income (loss): Foreign currency translation adjustment

    (48,997 )     (0.1 )     (198,152 )     (0.4 )
                                 

Comprehensive income

  $ 8,082,498       11.2 %   $ 413,406       0.7 %

 

 

See accompanying notes to combined financial statements.

 

- 2 -

Megatran Industries, Subsidiaries and Affiliate

 

Combined Statements of Changes in Stockholders' Equity

Years Ended December 31, 2023 and 2022


 

 

   

Common

Stock

   

Retained

Earnings

   

Accumulated

Other

Comprehensive

Income (Loss)

   

Equity in

NWL International

Sales Inc.

   

Total

 

Balance, January 1, 2022

  $ 45,358     $ 30,595,471     $ (130,473 )   $ 5,956     $ 30,516,312  
                                         

Net income (loss)

    -       (81,883 )     -       693,441       611,558  
                                         

Distributions to stockholders

    -       -       -       (693,439 )     (693,439 )
                                         

Foreign currency translation adjustment

    -       -       (198,152 )     -       (198,152 )
                                         

Balance, December 31, 2022

    45,358       30,513,588       (328,625 )     5,958       30,236,279  
                                         

Net income

    -       6,856,495       -       1,275,000       8,131,495  
                                         

Distributions to stockholders

    -       (1,025,000 )     -       (1,275,000 )     (2,300,000 )
                                         

Foreign currency translation adjustment

    -       -       (48,997 )     -       (48,997 )
                                         

Balance, December 31, 2023

  $ 45,358     $ 36,345,083     $ (377,622 )   $ 5,958     $ 36,018,777  

 

 

See accompanying notes to combined financial statements.

 

- 3 -

Megatran Industries, Subsidiaries and Affiliate

 

Combined Statements of Cash Flows

Years Ended December 31, 2023 and 2022


 

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net income

  $ 8,131,495     $ 611,558  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Depreciation

    392,675       457,906  

Amortization

    21,330       132,459  

Allowance for credit losses

    45,334       150,000  

Reserve for obsolete inventory

    472,187       (307,442 )

Net income from joint venture

    (430,607 )     (479,440 )

Gain on sale of property, plant, and equipment

    -       (471,999 )

(Increase) decrease in assets:

               

Accounts receivable

    (4,502,552 )     (6,579,009 )

Inventories

    (1,577,400 )     (170,324 )

Prepaid expenses and other current assets

    164,307       (783,405 )
Increase (decrease) in liabilities:                

Accounts payable

    8,338       (773,887 )

Accrued expenses

    1,132,508       442,421  

Retirement plan payable

    (129,920 )     250,000  

Deferred revenue

    (1,375,031 )     5,198,581  

Net cash provided by (used in) operating activities

    2,352,664       (2,322,581 )
                 

Cash flows from investing activities:

               

Purchase of property, plant and equipment

    (667,411 )     (213,149 )

Proceeds from sale of property, plant, and equipment

    -       1,242,597  

Cash paid in connection with acquisitions, net

    -       (48,425 )

Dividend received from investment in joint venture

    274,077       138,802  

Net cash provided by (used in) investing activities

    (393,334 )     1,119,825  
                 

Cash flows from financing activities:

               

Borrowings (repayments) on line of credit

    (500,000 )     2,500,000  

Repayments of long-term debt

    (67,543 )     (62,516 )

Distributions to stockholders

    (2,333,184 )     (567,999 )

Net cash provided by (used in) financing activities

    (2,900,727 )     1,869,485  

Foreign exchange impact on cash and cash equivalents

    48,502       (53,455 )
                 

Net increase (decrease) in cash

    (892,895 )     613,274  

Cash, beginning of year

    2,693,741       2,080,467  

Cash, end of year

  $ 1,800,846     $ 2,693,741  
                 

Supplemental disclosure of cash flow information:

               

Cash paid during the year for:

               

Interest

  $ 151,137     $ 81,004  
                 
Supplemental disclosure of noncash investing and financing activities:                
Change in accrued shareholder distributions   $ (33,184 )   $ 125,440  
Dividend receivable from investment in joint venture   $ -     $ 158,972  

 

See accompanying notes to combined financial statements.

 

- 4 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(1)

Nature of Operations

 

Megatran Industries, Subsidiaries and Affiliate (the Company) includes Megatran Industries (Megatran), a holding company which owns 100% of the common stock of NWL, Inc. (NWL) Hunter Industries, Inc. (Hunter) and BUED (NWL Europe). NWL is a manufacturer of power supplies and transformers for sale to a variety of industries in the United States and internationally. Hunter holds real estate which is leased to NWL. The Company has manufacturing facilities in Bordentown and Florence, New Jersey. NWL Europe is a manufacturer of transformers for sale to a variety of industries in Europe.

 

In January 2016, NWL International Sales Inc. (NWLIS) was incorporated. NWLIS is an Interest Charge Domestic International Sales Corporation (IC-DISC) that transacts certain international sales on behalf of NWL and receives commissions from NWL. The financial statements of the Company and NWLIS are combined because they are commonly-owned and controlled. The combined financial statements include the accounts of NWLIS despite Megatran having no direct ownership in NWLIS. The carrying amount of the assets included in the Company's combined balance sheets for NWLIS is $5,958 for December 31, 2023 and 2022.

 

 

(2)

Summary of Significant Accounting Policies

 

Principles of Combination

 

The combined financial statements include the accounts of Megatran, NWL, Hunter, NWLIS and NWL Europe. All significant intercompany transactions and balances have been eliminated in combination.

 

Accounts Receivable and Allowance for Credit Loses

 

On January 1, 2023, the Company adopted Financial Standards Board (FASB) Accounting Standards Update (ASU) 2016-13, Financial Instruments Credit Losses (Topic 326). The standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology (the CECL Model). The CECL Model requires an estimate of credit losses for the remaining estimated list of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost. The primary objective of the CECL Model is to provide financial statement users with an estimate of the net amount the entity expects to collect on its financial assets by using an allowance for credit losses.

 

The Company adopted FASB Accounting Standards Codification (ASC) 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost. The Company's adoption of the CECEL Model did not result in a cumulative effect adjustment being recorded to opening retained earnings as of January 1, 2023, and did not have a material impact on the Company's statements of operations and comprehensive income or cash flows.

 

Continued…
- 5 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(2)

Summary of Significant Accounting Policies, Continued

 

Accounts Receivable and Allowance for Credit Losses, Continued

 

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for credit losses for estimated losses resulting from the inability of its customers to make required payments. Management evaluates its historical loss experience and applies this historical loss ratio to financial assets with similar characteristics. The Company's historical loss ratio or its determination of risk pools may be adjusted for changes in customer, economic, market or other circumstances. Significant past due balances over 90 days and other higher risk amounts are reviewed individually for collectability based on the following customer specific factors: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management's assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Accounts receivable, net of allowance for doubtful accounts was $10,337,844 as of January 1, 2022.

 

Concentrations of Risk

 

Financial instruments that potentially subject the Company to concentrations of risk consist primarily of cash and accounts receivable. The Company maintains its cash with national financial institutions, and, at times, such balances may exceed the FDIC insurance limit. At December 31, 2023, the Company had $2,207,136 of cash in excess of FDIC insured limits.

 

One customer accounts for approximately 45% of the Company's accounts receivable at December 31, 2023 and one customer accounted for approximately 39% of sales for the year ended December 31, 2023.

 

Inventories

 

Inventories are valued at the lower of cost (first in, first out basis) or net realizable value.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost. Depreciation is calculated based on estimated useful lives of the assets using the straight line method. Maintenance, repairs and betterments are charged to operations as incurred. Renewals and betterments that extend the estimated useful lives of the assets are capitalized.

 

Continued…
- 6 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(2)

Summary of Significant Accounting Policies, Continued

 

Revenue Recognition

 

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Revenue from performance obligations satisfied at a point in time consists of sales of power supplies, transformers and capacitors. These goods and services are sold primarily to governmental entities and manufacturers. Deferred revenue includes amounts that customers pay prior to the shipment of products. Deferred revenue was $389,112 as of January 1, 2022.

 

The Company's principal terms of sale are FOB shipping point and FOB destination and the Company transfers control and records revenue for product sales either upon shipment or delivery to the customer, respectively. The payment terms and conditions in customer contracts vary from 30-90 days from transfer of control. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Variable consideration, including return and warranty activity, is immaterial to revenue and results of operations.

 

Investment in Joint Venture

 

The Company accounts for its investment in joint venture using the equity method (see Note 7).

 

Goodwill

 

Goodwill represents the excess of costs over fair value of net assets of businesses acquired. The Company applies the guidance in FASB ASU 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination, which allows entities who meet the definition of a private company to subsume many of the types of customer-related intangible assets that they would otherwise recognize separately into goodwill. This accounting alternative will be applied to any future business combination transactions. As a result of the application of ASU 2014-18, the Company is also required to apply the guidance in FASB ASU 2014-02, Intangibles - Goodwill and Other, which allows the amortization of all existing and new goodwill. Under ASU 2014-02, goodwill is amortized on a straight-line basis over ten years, or less than ten years, if the entity demonstrates that a shorter useful life is more appropriate. In addition, entities are required to test goodwill for impairment only upon the occurrence of a triggering event and, upon adoption of the accounting alternative, an entity must make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Management has elected to amortize goodwill over ten years and test for impairment at the reporting unit level, should triggering events occur. No triggering events were identified during the years ended December 31, 2023 and 2022.

 

Continued…
- 7 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(2)

Summary of Significant Accounting Policies, Continued

 

Investment in Insurance Captive

 

The Company participates in a group captive insurance program (Captive) for workers' compensation and general liability insurance. Members pay annual premiums, of which an amount may be refunded to a member depending on the member's individual claims, as well as the Captive's overall claims.

 

Warranty Reserve

 

The Company offers warranties on its products ranging from twelve to forty months depending on the product line. Warranty reserves are determined based on management's past experience for returns and warranty claims and are included in accrued expenses.

 

Research and Development

 

Research and development costs are expensed as incurred. Research and development expense from continuing operations was $271,218 and $257,557 for the years ended December 31, 2023 and 2022, respectively.

 

Variable Interest Entities

 

FASB ASC 810, Consolidation, provides guidance in determining when variable interest entities (VIE)s should be consolidated in the financial statements of the primary beneficiary. If the Company is deemed to have a controlling financial interest as a result of having the power to direct the activities that most significantly impact the entity's economic performance, and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, the VIE is to be consolidated within the financial statements of the Company. NWLIS has been determined to be a VIE of the Company as NWLIS is dependent on the commission revenue from NWL. Since all rights, obligations and the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are held by the owners of NWLIS and not by the Company, the Company has determined that it is not the primary beneficiary of NWLIS and therefore, NWLIS will be combined and not consolidated into the financial statements. The Company does not believe there is any exposure to loss as a result of transactions with NWLIS.

 

Income Taxes

 

Effective January 1, 2015, Megatran, NWL and Hunter elected to be taxed as S corporations under the provisions of the Internal Revenue Code. Under those provisions, the Company does not pay federal or state corporate income taxes because the Company's taxable income is passed through to the tax returns of the stockholders. Accordingly, no provision is made for federal or state income taxes. However, it is common for the Company to make distributions to the stockholders to pay the income taxes relating to the Company's income that is passed through to the stockholders' tax returns.

 

Continued…
- 8 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(2)

Summary of Significant Accounting Policies, Continued

 

Income Taxes, Continued

 

The stockholders of NWLIS have elected to treat NWLIS as an IC-DISC for federal income tax purposes. NWLIS does not pay federal or state corporate income taxes because NWLIS' taxable income is passed through to the tax returns of the stockholders. Accordingly, no provision is made for federal or state income taxes.

 

FASB ASC 740, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. FASB ASC 740 prescribes a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken. In addition, FASB ASC 740 provides guidance on derecognition, classification and disclosure. In addition to its federal returns, the Company files income tax returns in New Jersey and North Carolina. The Company is no longer subject to federal, state or local tax examinations by tax authorities for years before 2020. It is difficult to predict the timing and resolution of any particular uncertain tax position. Based on the Company's assessment of many factors, including past experience and complex judgments about future events, the Company does not currently anticipate significant changes in its tax positions over the next twelve months.

 

Foreign Currency Translation

 

Foreign currency translation adjustments are included in other comprehensive income and are reflected in accumulated other comprehensive income (loss) in the accompanying balance sheets.

 

Use of Estimates

 

The preparation of the combined financial statements in accordance 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 disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Subsequent Events

 

Management has evaluated subsequent events through March 26, 2024, the date on which the combined financial statements were available to be issued.

 

Continued…
- 9 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(3)

Inventories, net

 

Inventories, net comprise the following at December 31:

 

   

2023

   

2022

 

Raw material

  $ 13,890,596     $ 12,116,196  

Work-in-process

    4,083,698       3,771,841  

Finished goods

    1,954,998       2,463,855  
      19,929,292       18,351,892  

Reserve for obsolescence

    (1,323,152 )     (850,965 )
    $ 18,606,140     $ 17,500,927  

 

 

(4)

Advances to Stockholders

 

Advances to stockholders are unsecured, noninterest bearing advances. These advances do not have set repayment dates.

 

 

(5)

Property, Plant and Equipment, net

 

Property, plant and equipment, net comprise the following at December 31:

 

 

                     Estimated  
   

2023

   

2022

   

Useful Lives (Years)

 

Land

  $ 303,348     $ 303,348              

Buildings and building improvements

    6,370,079       6,192,207       7 - 39  

Machinery and equipment

    7,869,499       7,476,510       7 - 10  

Solar equipment

    5,667,333       5,667,333       7 - 15  

Automobiles and trucks

    299,842       226,094         5    

Office equipment

    551,554       551,554       5 - 7  

Computer hardware and software

    585,606       573,811       3 - 5  
      21,647,261       20,990,857              

Accumulated depreciation

    (17,774,807 )     (17,393,139 )            
    $ 3,872,454     $ 3,597,718              

 

Depreciation expense for the years ended December 31, 2023 and 2022 was $392,675 and $457,906, respectively.

 

Continued…
- 10 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(6)

Goodwill, net

 

Goodwill, net comprises the following at December 31:

 

   

2023

   

2022

 

CE Power Solutions

  $ 1,109,989     $ 1,109,989  

BUED

    213,305       213,305  
      1,323,294       1,323,294  

Accumulated amortization

    (1,153,234 )     (1,131,904 )
    $ 170,060     $ 191,390  

 

Amortization expense was $21,330 and $132,459 for the years ended December 31, 2023 and 2022, respectively.

 

 

(7)

Investment in Joint Venture

 

NWL owns 50% of NWL Pacific Inc. Co., LTD. (NWL Pacific) which is a joint venture in South Korea. The joint venture was established on May 12, 1998. The Company's reporting currency is the US dollar while the functional currency of the joint venture is the South Koren Won. The assets, liabilities and equity of the joint venture have been measured at the respective exchange rate as of December 31, 2023 and 2022 and income and expense accounts were remeasured at the average rates in effect during the years ended December 31, 2023 and 2022. Remeasurement adjustments are recognized in the year of occurrence and are included as a component of stockholder's equity. In addition, The Company's share of the joint venture's net income or loss is recognized in the year of occurrence.

 

The Company's investment in the foreign operation is summarized as follows:

 

   

2023

   

2022

 

Investment, January 1

  $ 2,059,581     $ 2,022,612  

Company's share of net income

    430,607       479,440  

Company's share of dividends

    (274,077 )     (297,774 )

Foreign currency translation adjustment

    (97,499 )     (144,697 )

Investment, December 31

  $ 2,118,612     $ 2,059,581  

 

Continued…
- 11 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(7)

Investment in Joint Venture, Continued

 

Presented below are the summary balance sheets and summary of operations of the foreign operation based on the audited financial statements of NWL Pacific:

 

    2023     2022  
Assets:                

Current assets

  $ 5,255,791     $ 6,668,330  

Noncurrent assets

    493,865       540,698  

Total assets

  $ 5,749,656     $ 7,209,028  
                 
Liabilities and stockholders' equity:                

Current liabilities

  $ 1,512,433     $ 3,089,865  

Equity

    4,237,223       4,119,163  

Total liabilities and equity

  $ 5,749,656     $ 7,209,028  
                 
Operations:                

Sales

  $ 8,299,324     $ 9,195,244  

Cost of sales

    (5,540,671 )     (6,201,536 )

Selling, general and administrative expenses

    (1,813,830 )     (1,853,003 )

Other expense

    (83,609 )     (181,825 )

Net income

  $ 861,214     $ 958,880  

 

 

(8)

Related Party Transactions

 

During the years ended December 31, 2023 and 2022, the Company sold $1,735,486 and $2,891,665, respectively, of product to NWL Pacific. The Company has $876,230 and $1,704,513, respectively, included in accounts receivable from NWL Pacific at December 31, 2023 and 2022.

 

 

(9)

Line of Credit

 

The Company has a $5,000,000 working line of credit with a commercial bank that expires in August 2024. The balance on the line of credit was $2,000,000 and $2,500,000 as of December 31, 2023 and 2022, respectively. Borrowings on the line of credit bear interest at the daily LIBOR rate plus 1.80% (7.11% at December 31, 2023). Up to $5,000,000 of the working line of credit may be used towards letters of credit. At December 31, 2023, $2,000,000 letters of credit are outstanding. The line is collateralized by the assets of the Company.

 

Continued…
- 12 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(10)

Long-Term Debt

 

Long-term debt comprises the following at December 31, 2022:

 

Equipment loan, payable in monthly installments of$5,868 including interest at 5.63%. The loan is collateralized by the equipment and matures in November 2023.   $ 67,543  
Current portion     (67,543 )
    $ -  

 

 

(11)

Retirement Plan

 

NWL maintains a 401(k) plan to provide retirement benefits to its employees. Employee contributions are limited by Internal Revenue Service regulations. There were no matching contributions and profit sharing contributions made for the year ended December 31, 2022, respectively. Total Company matching contributions and profit sharing contributions were $490,499 and $250,000 made for the years ended December 31, 2023 and 2022, respectively.

 

 

(12)

Self-Insurance

 

The Company maintains a self-insured program for all of its employees' health care costs. The Company is liable for paid claims up to $175,000 per participant, annually, unlimited for a covered person's lifetime, and aggregate claims up to $3,501,236 annually. The program has an insurance stop loss policy for claims in excess of $175,000 per participant and aggregate claims in excess of $3,501,236. The maximum reimbursement under the insurance stop loss policy is $1,000,000. Self- insurance costs are accrued based on the aggregate liability for reported claims and an estimated liability for claims incurred but not reported. The accrued liability under the self-insurance program for the years ended December 31, 2023 and 2022 was approximately $396,000 and $599,000, respectively, and is included in accrued expenses on the accompanying combined balance sheets.

 

 

(13)

Employee Retention Tax Credit

 

During the year ended December 31, 2023, the Company applied for the Employee Retention Credit (ERC), which is a provision of the CARES Act, enacted March 27, 2020. The ERC under the CARES Act was later amended and extended under the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act), enacted December 27, 2020. The ERC is a refundable tax credit against employer taxes equal to a percentage of the qualified wages an eligible employer pays to employees.

 

Continued…
- 13 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
December 31, 2023 and 2022

 

(13)

Employee Retention Tax Credit, Continued

 

The Company filed for each eligible quarter and recognized employee retention tax credits in the amount of $1,577,608 as other income in the accompanying consolidated statement of operations for the year ended December 31, 2023. The Company has accounted for the ERC under International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, government assistance is not recognized until there is a reasonable assurance that (1) any conditions attached to the assistance will be met and (2) the assistance will be received. The Company met these conditions and recorded the ERC over the periods in which the associated expenses were incurred.

 

- 14 -

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTARY INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Megatran Industries, Subsidiaries and Affiliate

 

Supplementary Information

Combined Schedules of Cost of Goods Sold

Years Ended December 31, 2023 and 2022


 

 

           

% of Net

           

% of Net

 
    2023    

Sales

   

2022

   

Sales

 

Direct costs:

                               

Direct materials

  $ 35,189,294       48.6 %   $ 29,084,387       51.7 %

Direct labor

    8,663,238       12.0       7,876,795       14.0  
      43,852,532       60.6       36,961,182       65.7  
                                 

Indirect costs:

                               

Personnel:

                               

Wages

    3,517,755       4.9       3,367,875       6.0  

Employee benefits

    1,948,259       2.7       1,722,183       3.1  

Payroll taxes

    1,472,348       2.0       1,314,593       2.3  

Recruitment

    109,301       0.2       32,942       0.1  
      7,047,663       9.8       6,437,593       11.5  
                                 

Manufacturing:

                               

Production supplies

    554,353       0.8       487,582       0.9  

Sub-contract services

    389,944       0.5       425,434       0.8  

Manufacturing - development

    238,951       0.3       207,537       0.4  

Manufacturing - miscellaneous

    667,573       0.9       746,257       1.3  

Small tools

    113,983       0.2       63,690       0.1  

Quality control

    21,129       -       20,111       -  

Overhead allocation, net

    155,644       0.2       92,093       0.2  
      2,141,577       2.9       2,042,704       3.7  
                                 

Facilities:

                               

Repairs and maintenance

    554,437       0.8       602,270       1.1  

Depreciation

    323,423       0.4       407,546       0.7  

Utilities

    288,198       0.4       373,296       0.7  

Insurance

    583,346       0.8       360,607       0.6  

Property and sales taxes

    273,954       0.4       268,423       0.5  
      2,023,358       2.8       2,012,142       3.6  
                                 

Total indirect costs

    11,212,598       15.5       10,492,439       18.8  
                                 

Cost of goods sold

  $ 55,065,130       76.1 %   $ 47,453,621       84.3 %
 

 

See accompanying notes to combined financial statements.

 

- 15 -

Megatran Industries, Subsidiaries and Affiliate

 

Supplementary Information

Combined Schedules of Selling, General and Administrative Expenses

Years Ended December 31, 2023 and 2022


 

 

           

% of Net

           

% of Net

 
    2023    

Sales

   

2022

   

Sales

 
                                 

Selling

  $ 96,407       0.1 %   $ 39,488       0.1 %

Service calls

    306,279       0.4       334,242       0.6  

Travel

    65,988       0.1       79,977       0.1  

Commissions

    131,468       0.2       171,198       0.3  

Advertising and marketing

    29,575       -       1,535       -  

Automobile

    8,748       -       3,576       -  

Wages

    7,122,402       9.8       5,563,852       9.9  

Employee benefits

    1,079,994       1.5       870,147       1.5  

Employee welfare

    52,299       0.1       59,334       0.1  

Employee education

    44,276       0.1       40,230       0.1  

Retirement plan

    490,449       0.7       250,000       0.4  

Depreciation

    69,252       0.1       50,360       0.1  

Amortization

    21,330       -       132,459       0.2  

Professional fees

    638,634       0.9       497,154       0.9  

Engineering

    408,909       0.6       236,124       0.4  

Lease expense

    57,644       0.1       70,074       0.1  

Bad debt expense

    45,334       0.1       150,000       0.3  

Miscellaneous

    209,383       0.3       144,216       0.3  

Computer expenses

    282,736       0.4       287,640       0.5  

Telephone

    66,720       0.1       66,627       0.1  

Office expense

    67,409       0.1       93,002       0.2  

Payroll service

    172,299       0.2       139,939       0.2  

Taxes

    744       -       947       -  

Bank charges

    38,135       0.1       46,864       0.1  

Computer consulting

    875       -       935       -  

Dues and subscriptions

    106       -       40       -  
    $ 11,507,395       15.9 %   $ 9,329,960       16.6 %

 

 

See accompanying notes to combined financial statements.

 

- 16 -

Megatran Industries, Subsidiaries and Affiliate

 

Supplementary Information

Combined Schedules of Other, Net

Years Ended December 31, 2023 and 2022


 

 

           

% of Net

           

% of Net

 
   

2023

   

Sales

   

2022

   

Sales

 
                                 

Net income from joint venture

  $ 430,607       0.5 %   $ 479,440       0.8 %

Gain on sale of property, plant and equipment

    -       -       471,999       0.8  

Employee Retention Credit

    1,577,608       2.2       -       -  

Rental income

    -       -       31,250       0.1  

State income taxes

    (3,086 )     -       (4,200 )     -  

Interest income (expense), net

    4,645       -       (81,004 )     (0.1 )

License fee income

    87,722       0.1       71,243       0.1  

Miscellaneous income

    53,736       0.1       43,945       0.1  

Solar renewable energy certificates income

    237,460       0.3       218,353       0.4  
    $ 2,388,692       3.3 %   $ 1,231,026       2.2 %

 

 

See accompanying notes to combined financial statements.

 

- 17 -

Exhibit 99.2

 

Megatran Industries, Subsidiaries and Affiliate

 

Combined Balance Sheets

June 30, 2024 and 2024


 

 

   

2024

   

2023

 

ASSETS

               

Current assets:

               

Cash

  $ 2,545,453     $ 1,635,144  

Accounts receivable, net of allowance for credit losses of $37,000 and $6,554 in 2024 and 2023, respectively

    20,036,139       18,860,927  

Inventories, net

    21,206,800       19,605,842  

Prepaid expenses and other current assets

    1,457,162       1,033,586  

Total current assets

    45,245,554       41,135,499  
                 

Property, plant and equipment, net

    4,685,523       3,794,944  

Investment in joint venture

    1,979,421       1,921,318  

Goodwill, net

    159,395       180,725  

Advances to stockholders

    6,000       6,000  

Investment in insurance captive

    36,000       36,000  
    $ 52,111,893     $ 47,074,486  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Line of credit

  $ 3,000,000     $ 2,000,000  

Current portion of long-term debt

    -       34,425  

Accounts payable

    2,903,862       2,845,775  

Accrued expenses

    1,892,514       2,627,183  

Retirement plan payable

    120,000       118,333  

Accrued distributions

    975,288       1,605,726  

Deferred revenue

    4,217,048       5,124,508  

Total current liabilities

    13,108,712       14,355,950  
                 

Stockholders' equity:

               

Common stock, no par value, 500,000 shares authorized, 226,790 issued and outstanding

    45,358       45,358  

Retained earnings

    39,286,016       33,004,968  

Accumulated other comprehensive loss

    (334,151 )     (337,748 )
      38,997,223       32,712,578  

Equity in NWL International Sales Inc.

    5,958       5,958  

Total stockholders' equity

    39,003,181       32,718,536  
    $ 52,111,893     $ 47,074,486  

See accompanying notes to combined financial statements.

 

- 1 -

Megatran Industries, Subsidiaries and Affiliate

 

Combined Statements of Operations and Comprehensive Income

For the Six Months Ended June 30, 2024 and 2023


 

 

   

2024

 

%

 

2023

 

%

Net sales

  $ 38,304,328       100.0 %   $ 35,802,393       100.0 %
                                 

Cost of goods sold (Schedule I)

    26,998,594       70.5       27,825,793       77.7  
                                 

Gross profit

    11,305,734       29.5       7,976,600       22.3  
                                 

Selling, general and administrative expenses (Schedule II)

    6,341,373       16.6       4,984,763       13.9  
                                 

Income from operations

    4,964,361       12.9       2,991,837       8.4  
                                 

Other, net (Schedule III)

    (48,430 )     (0.1 )     86,543       0.2  
                                 

Net income

    4,915,931       12.8       3,078,380       8.6  
                                 

Other comprehensive income (loss): Foreign currency translation adjustment

    43,471       0.1       (9,123 )     -  
                                 

Comprehensive income

  $ 4,959,402       12.9 %   $ 3,069,257       8.6 %

 

 

See accompanying notes to combined financial statements.

 

- 2 -

Megatran Industries, Subsidiaries and Affiliate

 

Combined Statements of Changes in Stockholders' Equity

For the Six Months Ended June 30, 2024 and 2023


 

 

   

Common

Stock

   

Retained

Earnings

   

Accumulated

Other

Comprehensive

Loss

   

Equity in

NWL International

Sales Inc.

   

Total

 
                                         
Balance, January 1, 2023   $ 45,358     $ 30,513,588     $ (328,625 )   $ 5,958     $ 30,236,279  
                                         

Net income

    -       2,491,380       -       587,000       3,078,380  
                                         
Distributions to stockholders     -       -       -       (587,000 )     (587,000 )
                                         
Foreign currency translation adjustment     -       -       (9,123 )     -       (9,123 )
                                         

Balance, June 30, 2023

  $ 45,358     $ 33,004,968     $ (337,748 )   $ 5,958     $ 32,718,536  
                                         

Balance, January 1, 2024

  $ 45,358     $ 36,345,083     $ (377,622 )   $ 5,958     $ 36,018,777  
                                         

Net income

    -       4,265,931       -       650,000       4,915,931  
                                         

Distributions to stockholders

    -       (1,324,998 )     -       (650,000 )     (1,974,998 )
                                         

Foreign currency translation adjustment

    -       -       43,471       -       43,471  
                                         

Balance, June 30, 2024

  $ 45,358     $ 39,286,016     $ (334,151 )   $ 5,958     $ 39,003,181  

 

 

See accompanying notes to combined financial statements.

 

- 3 -

Megatran Industries, Subsidiaries and Affiliate

 

Combined Statements of Cash Flows

For the Six Months Ended June 30, 2024 and 2023


 

 

   

2024

   

2023

 

Cash flows from operating activities:

               

Net income

  $ 4,915,931     $ 3,078,380  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    223,290       209,277  

Amortization

    10,665       10,665  

(Increase) decrease in assets:

               

Accounts receivable

    1,346,904       (1,935,102 )

Inventories

    (2,600,660 )     (2,104,915 )

Prepaid expenses and other current assets

    (214,911 )     372,972  
Increase (decrease) in liabilities:                

Accounts payable

    881,989       832,240  

Accrued expenses

    (1,369,209 )     497,968  

Retirement plan payable

    (80 )     (131,667 )

Deferred revenue

    4,386       (463,185 )

Net cash provided by operating activities

    3,198,305       366,633  
                 

Cash flows from investing activities:

               

Purchase of property, plant and equipment

    (1,036,359 )     (406,503 )

Dividend received from investment in joint venture

    139,191       138,263  

Net cash used in investing activities

    (897,168 )     (268,240 )
                 

Cash flows from financing activities:

               

Borrowings (repayments) on line of credit

    1,000,000       (500,000 )

Repayments of long-term debt

    -       (33,118 )

Distributions to stockholders

    (2,600,001 )     (614,749 )

Net cash used in financing activities

    (1,600,001 )     (1,147,867 )

Foreign exchange impact on cash and cash equivalents

    43,471       (9,123 )
                 

Net increase (decrease) in cash

    744,607       (1,058,597 )

Cash, beginning of period

    1,800,846       2,693,741  

Cash, end of period

  $ 2,545,453     $ 1,635,144  
                 

Supplemental disclosure of cash flow information:

               

Cash paid during the period for:

               

Interest

  $ 90,488     $ 76,884  
                 

Supplemental disclosure of noncash investing and financing activities:

               

Change in accrued shareholder distributions

  $ (625,003 )   $ (27,749 )

 

See accompanying notes to combined financial statements.

 

 

 

- 4 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
June 30, 2024 and 2023

 

(1)

Nature of Operations

 

Megatran Industries, Subsidiaries and Affiliate (the Company) includes Megatran Industries (Megatran), a holding company which owns 100% of the common stock of NWL, Inc. (NWL) Hunter Industries, Inc. (Hunter) and BUED (NWL Europe). NWL is a manufacturer of power supplies and transformers for sale to a variety of industries in the United States and internationally. Hunter holds real estate which is leased to NWL. The Company has manufacturing facilities in Bordentown and Florence, New Jersey. NWL Europe is a manufacturer of transformers for sale to a variety of industries in Europe.

 

In January 2016, NWL International Sales Inc. (NWLIS) was incorporated. NWLIS is an Interest Charge Domestic International Sales Corporation (IC-DISC) that transacts certain international sales on behalf of NWL and receives commissions from NWL. The financial statements of the Company and NWLIS are combined because they are commonly-owned and controlled. The combined financial statements include the accounts of NWLIS despite Megatran having no direct ownership in NWLIS. The carrying amount of the assets included in the Company's combined balance sheets for NWLIS is

$5,958 for June 30, 2024 and 2023.

 

 

(2)

Summary of Significant Accounting Policies

 

Principles of Combination

 

The combined financial statements include the accounts of Megatran, NWL, Hunter, NWLIS and NWL Europe. All significant intercompany transactions and balances have been eliminated in combination.

 

Accounts Receivable and Allowance for Credit Losses

 

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for credit losses for estimated losses resulting from the inability of its customers to make required payments. Management evaluates its historical loss experience and applies this historical loss ratio to financial assets with similar characteristics. The Company's historical loss ratio or its determination of risk pools may be adjusted for changes in customer, economic, market or other circumstances. Significant past due balances over 90 days and other higher risk amounts are reviewed individually for collectability based on the following customer specific factors: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management's assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Accounts receivable, net of allowance for credit losses was $21,383,043 and

$16,925,825 as of January 1, 2024 and 2023, respectively.

 

Continued…
- 5 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
June 30, 2024 and 2023

 

(2)

Summary of Significant Accounting Policies, Continued

 

Concentrations of Risk

 

Financial instruments that potentially subject the Company to concentrations of risk consist primarily of cash and accounts receivable. The Company maintains its cash with national financial institutions, and, at times, such balances may exceed the FDIC insurance limit. At June 30, 2024, the Company had $3,264,118 of cash in excess of FDIC insured limits.

 

One customer accounts for approximately 47% of the Company's accounts receivable at June 30, 2024 and one customer accounted for approximately 35% of sales for the six months ended June 30, 2024.

 

Inventories

 

Inventories are valued at the lower of cost (first in, first out basis) or net realizable value.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost. Depreciation is calculated based on estimated useful lives of the assets using the straight line method. Maintenance, repairs and betterments are charged to operations as incurred. Renewals and betterments that extend the estimated useful lives of the assets are capitalized.

 

Revenue Recognition

 

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Revenue from performance obligations satisfied at a point in time consists of sales of power supplies, transformers, and capacitors. These goods and services are sold primarily to governmental entities and manufacturers. Deferred revenue includes amounts that customers pay prior to the shipment of products. Deferred revenue was $4,212,662 and $5,587,693 as of January 1, 2024 and 2023, respectively.

 

Continued…
- 6 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
June 30, 2024 and 2023

 

(2)

Summary of Significant Accounting Policies, Continued

 

Revenue Recognition, Continued

 

The Company's principal terms of sale are FOB shipping point and FOB destination and the Company transfers control and records revenue for product sales either upon shipment or delivery to the customer, respectively. The payment terms and conditions in customer contracts vary from 30-90 days from transfer of control. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Variable consideration, including return and warranty activity, is immaterial to revenue and results of operations.

 

Investment in Joint Venture

 

The Company accounts for its investment in joint venture using the equity method (see Note 7).

 

Goodwill

 

Goodwill represents the excess of costs over fair value of net assets of businesses acquired. The Company applies the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination, which allows entities who meet the definition of a private company to subsume many of the types of customer-related intangible assets that they would otherwise recognize separately into goodwill. This accounting alternative will be applied to any future business combination transactions. As a result of the application of ASU 2014-18, the Company is also required to apply the guidance in FASB ASU 2014-02, Intangibles - Goodwill and Other, which allows the amortization of all existing and new goodwill. Under ASU 2014-02, goodwill is amortized on a straight-line basis over ten years, or less than ten years, if the entity demonstrates that a shorter useful life is more appropriate. In addition, entities are required to test goodwill for impairment only upon the occurrence of a triggering event and, upon adoption of the accounting alternative, an entity must make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Management has elected to amortize goodwill over ten years and test for impairment at the reporting unit level, should triggering events occur. No triggering events were identified during the six months ended June 30, 2024 and 2023.

 

Investment in Insurance Captive

 

The Company participates in a group captive insurance program (Captive) for workers' compensation and general liability insurance. Members pay annual premiums, of which an amount may be refunded to a member depending on the member's individual claims, as well as the Captive's overall claims.

 

Continued…
- 7 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
June 30, 2024 and 2023

 

(2)

Summary of Significant Accounting Policies, Continued

 

Warranty Reserve

 

The Company offers warranties on its products ranging from twelve to forty months depending on the product line. Warranty reserves are determined based on management's past experience for returns and warranty claims and are included in accrued expenses.

 

Research and Development

 

Research and development costs are expensed as incurred. Research and development expense from continuing operations was approximately $150,000 and $176,000 for the six months ended June 30, 2024 and 2023, respectively.

 

Variable Interest Entities

 

FASB Accounting Standards Codification (ASC) 810, Consolidation, provides guidance in determining when variable interest entities (VIE) should be consolidated in the financial statements of the primary beneficiary. If the Company is deemed to have a controlling financial interest as a result of having the power to direct the activities that most significantly impact the entity's economic performance, and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, the VIE is to be consolidated within the financial statements of the Company. NWLIS has been determined to be a VIE of the Company as NWLIS is dependent on the commission revenue from NWL. Since all rights, obligations and the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are held by the owners of NWLIS and not by the Company, the Company has determined that it is not the primary beneficiary of NWLIS and therefore, NWLIS will be combined and not consolidated into the financial statements. The Company does not believe there is any exposure to loss as a result of transactions with NWLIS.

 

Income Taxes

 

Effective January 1, 2015, Megatran, NWL and Hunter elected to be taxed as S corporations under the provisions of the Internal Revenue Code. Under those provisions, the Company does not pay federal or state corporate income taxes because the Company's taxable income is passed through to the tax returns of the stockholders. Accordingly, no provision is made for federal or state income taxes. However, it is common for the Company to make distributions to the stockholders to pay the income taxes relating to the Company's income that is passed through to the stockholders' tax returns. Effective January 1, 2023, Megatran Industries, Inc. & Subsidiaries elected into the New Jersey Pass-Through Business Alternative Income Tax which will subject the Company to New Jersey state tax on New Jersey allocated income. The tax provision for New Jersey income tax for the six months ended June 30, 2024 and 2023 were deemed insignificant to the consolidated financial statements. Accordingly, no provision is made for federal or state income taxes.

 

Continued…
- 8 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
June 30, 2024 and 2023

 

(2)

Summary of Significant Accounting Policies, Continued

 

Income Taxes, Continued

 

The stockholders of NWLIS have elected to treat NWLIS as an IC-DISC for federal income tax purposes. NWLIS does not pay federal or state corporate income taxes because NWLIS' taxable income is passed through to the tax returns of the stockholders. Accordingly, no provision is made for federal or state income taxes.

 

FASB ASC 740, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. FASB ASC 740 prescribes a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken. In addition, FASB ASC 740 provides guidance on derecognition, classification and disclosure. In addition to its federal returns, the Company files income tax returns in New Jersey and North Carolina. The Company is no longer subject to federal, state, or local tax examinations by tax authorities for years before 2020. It is difficult to predict the timing and resolution of any particular uncertain tax position. Based on the Company's assessment of many factors, including past experience and complex judgments about future events, the Company does not currently anticipate significant changes in its tax positions over the next twelve months.

 

Foreign Currency Translation

 

Foreign currency translation adjustments are included in other comprehensive income and are reflected in accumulated other comprehensive loss in the accompanying combined balance sheets.

 

Use of Estimates

 

The preparation of the combined financial statements in accordance 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 disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Subsequent Events

 

Management has evaluated subsequent events through July 30, 2024, the date on which the combined financial statements were available to be issued.

 

Continued…
- 9 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
June 30, 2024 and 2023

 

(3)

Inventories, net

 

Inventories, net comprise the following at June 30:

 

    2024    

2023

 

Raw material

  $ 15,870,464     $ 13,167,500  

Work-in-process

    4,408,826       4,929,349  

Finished goods

    2,250,662       2,359,958  
      22,529,952       20,456,807  

Reserve for obsolescence

    (1,323,152 )     (850,965 )
    $ 21,206,800     $ 19,605,842  

 

 

(4)

Advances to Stockholders

 

Advances to stockholders are unsecured, noninterest bearing advances. These advances do not have set repayment dates.

 

 

(5)

Property, Plant and Equipment, net

 

Property, plant and equipment, net comprise the following at June 30:

 

    2024     2023    

Estimated

Useful Lives Years

 

Land

  $ 303,348     $ 303,348              

Buildings and building improvements

    6,379,579       6,192,207       7 - 39  

Machinery and equipment

    8,562,164       7,793,479       7 - 10  

Solar equipment

    5,667,333       5,667,333       7 - 15  

Automobiles and trucks

    299,842       306,332         5    

Office equipment

    551,554       551,554       5 - 7  

Computer hardware and software

    585,606       573,811       3 - 5  
Construction-in-progress     330,625       -              
      22,680,051       21,388,064              
Accumulated depreciation     (17,994,528 )     (17,593,120 )            
    $ 4,685,523     $ 3,794,944              

 

Depreciation expense for the six months ended June 30, 2024 and 2023 was $223,290 and $209,277, respectively.

 

Continued…
- 10 -

Megatran Industries, Subsidiaries and Affiliate
 
Notes to Combined Financial Statements
June 30, 2024 and 2023

 

(6)

Goodwill, net

 

Goodwill, net comprises the following at June 30:

 

    2024    

2023

 

CE Power Solutions

  $ 1,109,989     $ 1,109,989  

BUED

    213,305       213,305  
      1,323,294       1,323,294  

Accumulated amortization

    (1,163,899 )     (1,142,569 )
    $ 159,395     $ 180,725  

 

Amortization expense was $10,665 for the six months ended June 30, 2024 and 2023.

 

 

(7)

Investment in Joint Venture

 

NWL owns 50% of NWL Pacific Inc. Co., LTD. (NWL Pacific) which is a joint venture in South Korea. The joint venture was established on May 12, 1998. The Company's reporting currency is the US dollar while the functional currency of the joint venture is the South Korean Won. The assets, liabilities and equity of the joint venture have been measured at the respective exchange rate as of December 31, 2023 and 2022. The income and expense accounts were remeasured at the average rates in effect during the six months ended June 30, 2024 and 2023 and were determined to be insignificant to the combined financial statements. Remeasurement adjustments are recognized in the year of occurrence and are included as a component of stockholder's equity. In addition, the Company's share of the joint venture's net income or loss is recognized in the year of occurrence.

 

The Company's investment in the foreign operation is summarized as follows:

 

    2024     2023  
Investment, January 1   $ 2,118,612     $ 2,059,581  
Company's share of dividends