Notes to Financial Statements

MPI Products, Inc.

1     Summary of Significant Accounting Policies

Description of Business:

The Company, located in Eastlake, Ohio, offers marine hoses & related products to builders in the marine industry.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Adoption of New Accounting Standard:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” or “ASC 606”. ASC 606 and all subsequently issued clarifying ASCs replaced most existing revenue recognition guidance in U.S. GAAP. ASC 606 also required expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the new standard effective January 1, 2019, the first day of the Company’s fiscal year. The effect of this adoption was immaterial to our Financial Statements, and the Company does not expect a material effect to the Financial Statements on an ongoing basis.

The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers”. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company applies the following standards and recognizes revenue when (1) it has a firm contract and the parties are committed to perform their respective obligations, (2) the product has been shipped to and accepted by the customer or the service has been provided, (3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection, including the consideration of the customer’s ability and intention to pay when the amount is due. The Company primarily receives fixed consideration for sales of product. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Shipping and handling amounts paid by customers are included in revenue. Sales tax and other similar taxes are excluded from revenue.

Variable Consideration:

Revenue is recorded net of provisions for discounts, which are typically agreed to upfront with the customer and do not represent variable consideration. The Company estimates these discounts in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. All sales to distributors and customers are generally final. In limited instances the Company may accept returned product due to quality. During 2019, returns have not been material.

Notes to Financial Statements

MPI Products, Inc.

1     Summary of Significant Accounting Policies, Continued

Revenue Recognition, Continued

The Company’s customers generally pay within 60 days from the receipt of a valid invoice. The Company offers discounts of up to 2% to certain customers for payments made within a specified number of days. These early pay discounts are estimated in the period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts receivable balance presented on the balance sheet.

Performance Obligations:

The Company’s performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation.

Cash and Cash Equivalents:

For the purposes of the Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

At times during the year, the Company maintained funds on deposit at its banks in excess of FDIC insurance limits.

Accounts Receivable:

Trade accounts receivable are stated at the amount management expects to collect from the balances outstanding at year end. Based on management's assessment, it has concluded that losses on balances outstanding at year end will be immaterial.

Inventory:

Inventory is valued at the lower of average cost or net realizable value. Management determined a reserve for obsolete inventory was not necessary.

Property, Plant and Equipment:

Property, plant and equipment are carried at cost. Expenditures for maintenance and repairs are charged to income as incurred. Additions and betterments are capitalized. The cost and related accumulated depreciation of properties sold or otherwise disposed of are removed from the accounts and any gain or loss is reflected in the current year’s earnings.

Notes to Financial Statements

MPI Products, Inc.

1     Summary of Significant Accounting Policies, Continued

The Company provides for depreciation of property, plant and equipment generally using straight-line and accelerated methods for both financial reporting and federal income tax purposes over the estimated useful lives of the assets as follows:

The Company assesses the recoverability of its property, plant and equipment by determining whether the depreciation of the assets over their remaining lives can be recovered through projected future cash flows generated by the assets. There were no assets identified for impairment.

Marketing Costs:

The Company participates in various advertising and marketing programs. All costs related to marketing and advertising the Company’s products are expensed in the period incurred. Advertising costs charged to operations was $40,251 for 2019.

Shipping and Handling Costs:

The Company charges its customers shipping and handling fees at the time the products are shipped. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and is included in cost of sales.

Notes to Financial Statements

MPI Products, Inc.

1     Summary of Significant Accounting Policies, Continued

Income Taxes:

The Company is an "S" Corporation for Federal and state income tax purposes. As such, income or losses of the Company are passed through to shareholders and taxed at the individual level. The Company still is required to pay municipal income taxes.

Corporate Distribution Policy:

Management intends to distribute cash to its shareholders to cover the tax effect of taxable income passed through to the individual level. The Company made cash distributions from earnings to its shareholders of $680,000 in 2019.

Accounting for Uncertainty in Income Taxes:

The provisions of "Accounting for Uncertainty in Income Taxes" prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties accrued related to unrecognized tax uncertainties in income tax expense, if any. The Company has determined that there are no material uncertain tax positions.

Subsequent Events:

Management evaluates events occurring subsequent to the date of the financial statements in determining the accounting for and disclosure of transactions and events that affect the financial statements.

Subsequent events have been evaluated through March 3, 2020, which is the date the financial statements were available to be issued.

2     Leases

The Company has two lease agreements involving its offices and warehouses. The lease for the office and main warehouse expires in September 30, 2020. The lease payment due in 2020 is $164,220. The lease for the additional warehouse is on a month to month basis. Total rent expense for 2019 was $254,060.

3     Profit Sharing

The Company has a 401(k)-profit sharing plan for its employees who meet the plan’s service requirements. The contributions to the plan in 2019 were $45,725.

Notes to Financial Statements

MPI Products, Inc.

4     Litigation

In the ordinary course of business, the Company is involved in litigation and other potential legal claims. The Company carries insurance for these types of matters and in management’s opinion the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company.

5     Subsequent Event

The Company was sold to Crawford United Corporation effective January 1, 2020.

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