# Techprecision Corp: Form 10-Q for the period ended Sep 30, 2019

- Company: [Techprecision Corp](/companies/tpcs.md) (CIK 1328792)
- Form: 10-Q
- Filed: 2019-11-13
- Accepted by EDGAR: Nov 13, 2019, 16:17 ET
- Period: 2019-09-30
- Accession: 0001104659-19-063329
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1328792/000110465919063329/tm1919618d1_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1328792/000110465919063329/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $3.1m | us-gaap:Revenues |
| Revenue | 6 months, 2019-04-01 to 2019-09-30 | $7.4m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2019-07-01 to 2019-09-30 | $2.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2019-04-01 to 2019-09-30 | $5.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2019-07-01 to 2019-09-30 | $413.5k | us-gaap:GrossProfit |
| Gross profit | 6 months, 2019-04-01 to 2019-09-30 | $1.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2019-07-01 to 2019-09-30 | $741.0k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2019-04-01 to 2019-09-30 | $1.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | −$327.4k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2019-04-01 to 2019-09-30 | $40.6k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-07-01 to 2019-09-30 | $72.6k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2019-04-01 to 2019-09-30 | $149.1k | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-07-01 to 2019-09-30 | −$107.6k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2019-04-01 to 2019-09-30 | −$17.4k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | −$291.0k | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Net income | 6 months, 2019-04-01 to 2019-09-30 | −$70.2k | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months, 2019-07-01 to 2019-09-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2019-04-01 to 2019-09-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-07-01 to 2019-09-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2019-04-01 to 2019-09-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-07-01 to 2019-09-30 | 29,254,594 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2019-04-01 to 2019-09-30 | 29,254,048 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2019-04-01 to 2019-09-30 | $937.8k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2019-04-01 to 2019-09-30 | $11.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-09-30 | $2.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $9.5m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $16.0m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $3.3m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2019-09-30 | $9.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,614 characters.

### Statement Regarding Forward Looking Disclosure

The following discussion of the results of our operations and financial condition should be read in conjunction with our condensed consolidated financial statements and the related notes, which appear elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may contain predictive or “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of current or historical fact contained in this quarterly report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “should,” “would” and similar expressions, as they relate to us, are intended to identify forward-looking statements.

These statements are based on current expectations, estimates and projections made by management about our business, our industry and other conditions affecting our financial condition, results of operations or business prospects. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, the forward-looking statements due to numerous risks and uncertainties. Factors that could cause such outcomes and results to differ include, but are not limited to, risks and uncertainties arising from:

- our reliance on individual purchase orders, rather than long-term contracts, to generate revenue;
- our ability to balance the composition of our revenues and effectively control operating expenses;
- the availability of appropriate financing facilities impacting our operations, financial condition and/or liquidity;
- our ability to receive contract awards through competitive bidding processes;
- our ability to maintain standards to enable us to manufacture products to exacting specifications;
- our ability to enter new markets for our services;
- our reliance on a small number of customers for a significant percentage of our business;
- competitive pressures in the markets we serve;
- changes in the availability or cost of raw materials and energy for our production facilities;
- operating in a single geographic location;
- restrictions in our ability to operate our business due to our outstanding indebtedness;
- government regulations and requirements;
- pricing and business development difficulties;
- changes in government spending on national defense;
- our ability to make acquisitions and successfully integrate those acquisitions with our business;
- general industry and market conditions and growth rates;
- general economic conditions; and
- those risks discussed in “*Item 1A. Risk Factors”* and elsewhere in our 2019 Annual Report on Form 10-K, as well as those described in any other filings which we make with the SEC.

Any forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. Investors should evaluate any statements made by us in light of these important factors.

### Overview

We offer a full range of services required to transform raw materials into precision finished products. Our manufacturing capabilities include: fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, blasting and painting) and machining operations including CNC (computer numerical controlled) horizontal and vertical milling centers. We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management and expediting) and final assembly.

All manufacturing is done in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications. Ranor holds several certificates of authorization issued by the American Society of Mechanical Engineers and the National Board of Boiler and Pressure Vessel Inspectors. The standards used are specific to the customers’ needs, and our manufacturing operations are conducted in accordance with these standards.

Because our revenues are derived from the sale of goods manufactured pursuant to a contract, and we do not sell from inventory, it is necessary for us to constantly seek new contracts. There may be a time lag between our completion of one contract and commencement of work on another contract. During such periods, we may continue to incur overhead expense but with lower revenue resulting in lower operating margins. Furthermore, changes in either the scope of an existing contract or related delivery schedules may impact the revenue we receive under the contract and the allocation of manpower. Although we provide manufacturing services for large governmental programs, we usually do not work directly for the government or its agencies. Rather, we perform our services for large governmental contractors. Our business is dependent in part on the continuation of governmental programs which require our services and products.

Our contracts are generated both through negotiation with the customer and from bids made pursuant to a request for proposal. Our ability to receive contract awards is dependent upon the contracting party’s perception of such factors as our ability to perform on time, our history of performance, including quality, our financial condition and our ability to price our services competitively. Although some of our contracts contemplate the manufacture of one or a limited number of units, we continue to seek more long-term projects with predictable cost structures.

All of our sales recorded for the six months ended September 30, 2019 were generated in the U.S. We have experienced, and continue to experience, customer concentration. For the six months ended September 30, 2019 and 2018, our largest customer accounted for approximately 19% and 40% of reported net sales, respectively. For the six months ended September 30, 2019, we had five customers which accounted for approximately 76% of our revenue, in the aggregate. Our sales order backlog at September 30, 2019 and March 31, 2019 was approximately $16.4 million and $12.6 million, respectively.

For the six months ended September 30, 2019, our net sales were $7.4 million compared with net sales of $7.7 million for the six months ended September 30, 2018. Our gross margin for the six months ended September 30, 2019 and 2018 was 20.6% and 27.8%, respectively. Our gross margin for the six months ended September 30, 2019 was impacted by higher cost of sales due to under- absorbed factory overhead, project startup activity, and a loss provision for certain customer projects. We generated $0.9 million of cash from operating activities in the six months ended September 30, 2019 and had a cash balance of $2.6 million at September 30, 2019.

### Critical Accounting Policies

The preparation of the condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We continually evaluate our estimates, including those related to revenue recognition, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. These estimates and assumptions require management's most difficult, subjective or complex judgments. Actual results may differ under different assumptions or conditions.

Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2019 Annual Report on Form 10-K. We consider the policies relating to revenue recognition to be a critical accounting policy. There have been no significant changes to our critical accounting policies during the six months ended September 30, 2019.

### Accounting Pronouncements

#### New Accounting Standards

See Note 3, Accounting Standards Update, in the Notes to the condensed consolidated financial statements in “*Item 1. Financial Statements”* for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adopted.

### Results of Operations

Our results of operations are affected by a number of external factors including the availability of raw materials, commodity prices (particularly steel), macroeconomic factors, including the availability of capital that may be needed by our customers, and political, regulatory and legal conditions in the United States and in foreign markets. Generally, our product mix is made up of short-term contracts with a production timeline of less than twelve months. Units manufactured under the majority of our customer contracts are delivered on time and with a positive gross margin. Our results of operations are also affected by our success in booking new contracts, the timing of revenue recognition, delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress fulfilling obligations under our contracts. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog.

### Key Performance Indicators

While we prepare our financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, we also utilize and present certain financial measures that are not based on or included in U.S. GAAP. We refer to these as Non-GAAP financial measures. Please see the section “*EBITDA Non-GAAP financial measure”* below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the nearest U.S. GAAP financial measures.

### Three Months Ended September 30, 2019 and 2018

The following table sets forth information from our condensed consolidated statements of operations and comprehensive (loss) income, in dollars and as a percentage of revenue:

*(dollars in thousands)*

|  | 2019 Amount | Percent | 2018 Amount | Percent | Changes Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $3,074 | 100% | $3,621 | 100% | $(547) | (15)% |
| Cost of sales | 2,660 | 87% | 2,526 | 70% | 134 | 5% |
| Gross profit | 414 | 13% | 1,095 | 30% | (681) | (62)% |
| Selling, general and administrative | 741 | 24% | 751 | 21% | (10) | (1)% |
| (Loss) income from operations | (327) | (11)% | 344 | 9% | (671) | (195)% |
| Other expense, net | (71) | (2)% | (86) | (2)% | 15 | 17% |
| (Loss) income before taxes | (398) | (13)% | 258 | 7% | (656) | (254)% |
| Income tax (benefit) expense | (107) | (4)% | 77 | 2% | (184) | (238)% |
| Net (loss) income | $(291) | (9)% | $181 | 5% | $(472) | (261)% |

### Net Sales

Net sales were $3.1 million for the three months ended September 30, 2019, or 15% lower when compared to net sales for the three months ended September 30, 2018 of $3.6 million. Changes in net sales generally reflect a different product mix and project volume when comparing the current and prior periods. Our second quarter was marked by more project startup activity, which can dampen revenue recognition because of a higher number of projects in early production.

Net sales to defense customers decreased by $0.5 million when compared to the three months ended September 30, 2018. Defense market revenue was lower during the quarterly period due to the timing of closed projects and new project startup activity. Our defense backlog remains strong as new orders for components continue to flow from prime defense contractors.

### Cost of Sales and Gross Margin

Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales were $2.7 million for the three months ended September 30, 2019, compared to $2.5 million for the three months ended September 30, 2018. Gross profit was $0.4 million, a $0.7 million decrease when compared to the three months ended September 30, 2018. An increase in the loss provision for certain customer projects and under-absorbed factory overhead impacted our gross profit and gross margin for the three months ended September 30, 2019. As a result, gross margin was 13.5% for the three months ended September 30, 2019, compared to 30.2% for the three months ended September 30, 2018.

### Selling, General and Administrative Expenses

Total selling, general and administrative expenses for the three months ended September 30, 2019 decreased by $10,000 when compared to the three months ended September 30, 2018, due primarily to a decrease in salary expense and share-based compensation, offset in part by an increase in professional fees.

### Other Expense, net

Interest expense and debt cost amortization was lower for the three months ended September 30, 2019 when compared to the three months ended September 30, 2018, and, absent any changes to outstanding indebtedness, will continue to decrease as we amortize debt principal to maturity. The following table reflects other income, interest expense and amortization of debt issue costs for the three months ended:

|  | September 30, 2019 | September 30, 2018 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other income, net | $1,448 | $4,275 | $(2,827) | (66)% |
| Interest expense | $(64,515) | $(75,634) | $11,119 | 15% |
| Amortization of debt issue costs | $(8,081) | $(14,615) | $6,534 | 45% |

### Income Taxes

As a result of the foregoing, the Company reported a pretax loss and recorded a tax benefit of $107,576 for the three months ended September 30, 2019. For the three months ended September 30, 2018 we recorded tax expense of $77,374.

### Net (Loss) Income

As a result of the foregoing, for the three months ended September 30, 2019, we recorded net loss of $0.3 million compared with net income of $0.2 million for the three months ended September 30, 2018.

### Six Months Ended September 30, 2019 and 2018

The following table sets forth information from our condensed consolidated statements of operations and comprehensive (loss) income, in dollars and as a percentage of revenue:

*(dollars in thousands)*

|  | 2019 Amount | Percent | 2018 Amount | Percent | Changes Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $7,408 | 100% | $7,720 | 100% | $(312) | (4)% |
| Cost of sales | 5,885 | 79% | 5,572 | 72% | 313 | 6% |
| Gross profit | 1,523 | 21% | 2,148 | 28% | (625) | (29)% |
| Selling, general and administrative | 1,482 | 20% | 1,482 | 19% | - | -% |
| Income from operations | 41 | 1% | 666 | 9% | (625) | (94)% |
| Other expense, net | (128) | (2)% | (179) | (2)% | 51 | 28% |
| (Loss) Income before taxes | (87) | (1)% | 487 | 6% | (574) | (118)% |
| Income tax (benefit) expense | (17) | -% | 142 | 2% | (159) | (112)% |
| Net (loss) income | $(70) | (1)% | $345 | 4% | $(415) | (120)% |

### Net Sales

Net sales were $7.4 million for the six months ended September 30, 2019, or 4% lower when compared to net sales for the six months ended September 30, 2018 of $7.7 million. Changes in net sales generally reflect a different product mix and project volume when comparing the current and prior periods.

For the six months ended September 30, 2019, net sales in defense markets decreased by $0.8 million when compared to the six months ended September 30, 2018. Defense market revenue was lower during the six month period due to the timing of related project closing and startup activities. Our defense backlog remains strong as new orders for components continue to flow from prime defense contractors. Revenue from precision industrial markets increased by $0.6 million and revenue from the energy market decreased by $0.1 million.

The Company records a significant amount of its revenue over time as it completes performance obligations. Remaining performance obligations reflect future revenue which will be recorded in subsequent periods as projects in progress are completed. At September 30, 2019, the Company had $16.4 of remaining performance obligations, an increase of $3.8 million when compared with March 31, 2019. This increase should lead to sequential revenue improvement in the second half of fiscal 2020.

### Cost of Sales and Gross Margin

Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the six months ended September 30, 2019 were $5.9 million compared to $5.6 million for the six months ended September 30, 2018. Gross profit decreased by $0.6 million to $1.5 million. Gross margin was lower at 20.6% for the six months ended September 30, 2019 compared to 27.8% for the six months ended September 30, 2018.

The fiscal 2020 six month period was marked by a higher number of new project startup activities. There was an increase in costs of sales due primarily to an increase in the loss provision for certain customer projects and under absorbed factory overhead. The same six month period in fiscal 2019 included a higher number of closed projects.

### Selling, General and Administrative Expenses

Total selling, general and administrative expenses for the six months ended September 30, 2019 were unchanged at $1.5 million, due primarily to an increase in professional fees almost entirely offset by a decrease in salary expense when compared to the six months ended September 30, 2018.

### Other Expense, net

Interest expense and debt cost amortization was lower for the six months ended September 30, 2019 when compared to the six months ended September 30, 2018, and, absent any changes to our outstanding indebtedness, will continue to decrease as we amortize debt principal to maturity. Other income, net for the six months ended September 30, 2019 includes proceeds from the sale of machinery and equipment for $16,000. The following table reflects other income, interest expense and amortization of debt issue costs for the six months ended:

|  | September 30, 2019 | September 30, 2018 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other income, net | $20,878 | $7,015 | $13,863 | 198% |
| Interest expense | $(128,349) | $(155,787) | $27,438 | 18% |
| Amortization of debt issue costs | $(20,770) | $(29,847) | $9,077 | 30% |

### Income Taxes

For the six months ended September 30, 2019 we recorded a tax benefit of $17,358 compared to tax expense of $142,403 for the six months ended September 30, 2018. The tax benefit for the six months ended September 30, 2019 was primarily the result of a pretax loss recorded for the period in all tax jurisdictions. Our effective tax rate for the first six months of fiscal 2020 was 19.8%.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The valuation allowance on deferred tax assets at September 30, 2019 was approximately $1.7 million. We believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.

### Net (Loss) Income

As a result of the foregoing, for the six months ended September 30, 2019, we recorded net loss of $70,245 compared with net income of $345,100 for the six months ended September 30, 2018.

### Liquidity and Capital Resources

At September 30, 2019, we had cash and cash equivalents of $2.6 million and working capital of $6.2 million. We believe our available cash plus cash provided from operations will be sufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the 12 months from the issuance date of our financial statements. We also have a revolving line of credit with Berkshire Bank available as a resource, if necessary. The table below presents selected liquidity and capital measures for the periods ended:

*(dollars in thousands)*

|  | September 30, 2019 | March 31, 2019 | Change Amount |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $2,555 | $2,037 | $518 |
| Working capital | $6,180 | $6,250 | $(70) |
| Total debt | $3,894 | $4,297 | $(403) |
| Total stockholders’ equity | $9,709 | $9,711 | $(2) |

The following table summarizes the primary components of cash flows for the six months ended:

*(dollars in thousands)*

| Cash flows provided by (used in): | September 30, 2019 | September 30, 2018 | Change Amount |
| --- | ---: | ---: | ---: |
| Operating activities | $938 | $(683) | $1,621 |
| Investing activities | (11) | (228) | 217 |
| Financing activities | (409) | (377) | (32) |
| Net increase (decrease) in cash | $518 | $(1,288) | $1,806 |

#### Operating activities

Our primary sources of cash are from accounts receivable collections, customer advance payments and project progress payments. Our customers make advance payments and progress payments under the terms of each manufacturing contract. Our cash flows can fluctuate significantly from period to period as the composition of our receivables collections mix changes between advance payments and customer payments made after shipment of finished goods. We use cash to pay suppliers, employee wages and benefits, and interest and taxes.

Cash provided by operations for the six months ended September 30, 2019 was $0.9 million compared with cash used in operations of $0.7 million for fiscal 2018, reflecting a change of $1.6 million. Favorable timing with customer advance payments and progress payments resulted in higher amounts of cash generated for the six months ended September 30, 2019. The six months ended September 30, 2019 was marked by an increase in project startup activity which resulted in more cash collected from customer advances and progress payments. At September 30, 2018, the Company had fewer sales orders in production, which led to a slow cash build at the beginning of fiscal 2019.

#### Investing activities

We anticipate that we will continue to make small investments in new factory machinery and equipment over the next six months. Net cash used in investing activities totaled $11,544 for the six months ended September 30, 2019. We expended $228,148 for new factory machinery and equipment for the six months ended September 30, 2018.

#### Financing activities

We used $0.4 million of cash in financing activities for the six months ended September 30, 2019 and 2018 for monthly principal payments in connection with our debt obligations.

All of the above activity resulted in a net increase in cash of $0.5 million for the six months ended September 30, 2019 compared with a decrease in cash of $1.3 million for the six months ended September 30, 2018.

### Off-Balance Sheet Arrangements

We do not currently have, and have not had any off-balance sheet assets, liabilities or arrangements at September 30, 2019.

### EBITDA Non-GAAP Financial Measure

To complement our condensed consolidated statements of operations and comprehensive (loss) income and condensed consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net income is the financial measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to EBITDA. We believe EBITDA provides our board of directors, management and investors with a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We also believe that EBITDA is a measure frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, and is a measure contained in our debt covenants. However, while we consider EBITDA to be an important measure of operating performance, EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

We define EBITDA as net (loss) income plus interest, income taxes, depreciation and amortization. The following table provides a reconciliation of EBITDA to net income, the most directly comparable GAAP measure reported in our condensed consolidated financial statements for the three and six months ended:

*(dollars in thousands)*

|  | Three Months ended September 30, 2019 | 2018 | change | Six Months ended September 30, 2019 | 2018 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net (loss) income | $(291) | $181 | $(472) | $(70) | $345 | $(415) |
| Income tax (benefit) expense | (107) | 77 | (184) | (17) | 142 | (159) |
| Interest expense (1) | 73 | 90 | (17) | 149 | 186 | (37) |
| Depreciation | 190 | 186 | 4 | 380 | 372 | 8 |
| EBITDA | $(135) | $534 | $(669) | $442 | $1,045 | $(603) |

#### (1) Includes amortization of debt issue costs.

## Controls and procedures

As filed, 3,696 characters.

#### Evaluation of Disclosure Controls and Procedures.

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are controls and procedures that are designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and includes controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, an evaluation was carried out, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, our disclosure controls and procedures were effective at a reasonable assurance level.

#### Inherent Limitations Over Internal Controls

The Company’s internal control over financial reporting is designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

#### Changes in Internal Control over Financial Reporting

For the quarter ended September 30, 2019, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 13, 2019.
Source: SEC EDGAR, the filing index for accession 0001104659-19-063329. Last ingested by Listed: Nov 10, 2026, 04:27 ET. No prices; not investment advice.