AMSC American Superconductor Corp

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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)

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

(a)	Financial Statements of Businesses Acquired

(b)	Pro Forma Financial Information

(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.

		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

 

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.

 

Horsham, Pennsylvania

March 26, 2024

 

 

Combined Balance Sheets

December 31, 2023 and 2022

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		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.

 

 

Combined Statements of Operations and Comprehensive Income

For the Years Ended December 31, 2023 and 2022

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		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.

 

 

Combined Statements of Changes in Stockholders' Equity

Years Ended December 31, 2023 and 2022

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		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.

 

 

Combined Statements of Cash Flows

Years Ended December 31, 2023 and 2022

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		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.

 

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(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.

 

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(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.

 

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(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.

 

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(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.

 

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(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.

 

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(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.

 

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(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

 

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(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.

 

---

 

(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.

 

---

(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.

 

 

 

 

 

 

 

 

 

 

 

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.

 

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.

 

Megatran Industries, Subsidiaries and Affiliate

 

Supplementary Information

Combined Schedules of Other, Net

Years Ended December 31, 2023 and 2022

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						% 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.

 

Exhibit 99.2

 

 

Combined Balance Sheets

June 30, 2024 and 2024

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		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.

 

 

Combined Statements of Operations and Comprehensive Income

For the Six Months Ended June 30, 2024 and 2023

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		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.

 

 

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.

 

 

Combined Statements of Cash Flows

For the Six Months Ended June 30, 2024 and 2023

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		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.

 

 

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(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.

 

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(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.

 

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(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.

 

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(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.

 

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(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.

 

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(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.

 

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(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