UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2018~~2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number: 001-38089

ASV HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	82-1501649
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
840 Lily Lane Grand Rapids, MN	55744
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (218) 327-3434

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ☐

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐☒ Smaller reporting company ☒ Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

AsIndicate ofby ~~October~~check ~~29,~~mark ~~2018,~~whether the registrant ~~had~~has 9filed all documents and reports required to be filed by Sections 12,~~835,512~~ ~~shares~~13 or 15(d) of ~~common~~the ~~stock,~~Securities ~~$0.001~~Exchange ~~par~~Act ~~value~~of ~~per~~1934 ~~share,~~subsequent ~~outstanding~~to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

iSecurities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ASV

NASDAQ Capital Market

As of April 29, 2019, the registrant had 9,897,208 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	13
	Condensed Balance Sheets	13
	Condensed Statements of Operations	24
	Condensed Statements of Cash Flows	3
	Statement of Stockholders’ Equity	5
	Notes to Unaudited Condensed Financial Statements	4
	Condensed Statements of Cash Flows	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	21
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults upon Senior Securities	22
Item 4.	Mine Safety Procedures	22
Item 5.	Other Information	22
Item 6.	Exhibits	2223
Signatures		24

EXPLANATORY NOTE: REFERENCES TO ASV

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires:

• References to the “Company,” “ASV,” “we,” “us” and “our” following the date of Corporate Conversion (May 11, 2017) refer to ASV Holdings, Inc. and its consolidated subsidiaries;

• References to the “Company,” “ASV,” “we,” “us” and “our” prior to the date of Corporate Conversion refer to A.S.V., LLC and its consolidated subsidiaries; and

• References to the “Corporate Conversion” or “corporate conversion” refer to all of the transactions related to the conversion of A.S.V., LLC, a Minnesota limited liability company, into ASV Holdings, Inc., a Delaware corporation, including the conversion of all of the outstanding membership units of A.S.V., LLC into shares of common stock of ASV Holdings, Inc., effected on May 11, 2017.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ASV Holdings, Inc.

Condensed Balance Sheets

(In thousands, except par value)

	September 30,			December 31,
	March 31,			December 31,
	2018			2017
	2019			2018
	Unaudited
ASSETS
CURRENT ASSETS
Cash	$	51,232		$	32
Trade receivables, net		17,625			18,276
Accounts receivable, net		18,044			18,462
Receivables from affiliates		2523			767
Inventory, net		33,441			26,691
Income tax receivable		840			840
Prepaid income tax		818			896
Inventory, net		37,969			34,055
Prepaid expenses and other		585			591
Prepaid income tax		43			43
Total current assets		52,499			46,533
Prepaid expenses and other		437			593
NON-CURRENT ASSETS
Total current assets		58,588			54,002
Property, plant and equipment, net		1312,~~039~~298			1312,~~797~~662
Intangible assets, net		21,367			23,277
Operating lease assets, net		977			—
Goodwill		30,579			30,579
Intangible assets, net		20,094			20,730
Other long-term assets		~~255~~339			~~311~~237
Deferred tax asset		771			624
Total assets	$	92,296		$	87,631
Total assets	$	118,510		$	115,121
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - current portion	$	2,012		$	2,000
CURRENT LIABILITIES
Trade accounts payable		16,922			15,174
Notes payable - current portion	$	2,991		$	2,991
Payables to affiliates		737			1,063
Trade accounts payable		17,825			18,834
Accrued compensation and benefits		1,096			1,483
Payables to affiliates		416			480
Accrued warranties		1,600			1,869
Accrued compensation and benefits		903			1,394
Accrued product liability- short term		82			778
Accrued warranties		1,489			1,584
Accrued other		1,280			1,039
Operating lease liability- current portion		238			—
Total current liabilities		23,729			23,406
Accrued other current liabilities		1,163			1,405
NON-CURRENT LIABILITIES
Total current liabilities		25,025			26,688
Revolving loan facility		1522,~~740~~707			1216,~~511~~026
Notes payable - long term, net		119,~~625~~621			1210,~~664~~159
Other long-term liabilities		720			739
Operating lease liability- long term		796			—
Total liabilities		51,814			49,320
Other long-term liabilities		644			727
Total liabilities		58,793			53,600
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000 authorized, none outstanding at September 30, 2018 and December 31, 2017, respectively		—			—
Preferred stock, $0.001 par value, 5,000 authorized, none outstanding at March 31, 2019 and December 31, 2018, respectively		—			—
Common stock, $0.001 par value, 50,000 authorized, 9,834 and 9,806 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		10			10
Common stock, $0.001 par value, 50,000 authorized, 9,897 and 9,851 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		10			10
Additional paid-in capital		6566,~~719~~003			65,~~434~~794
Retained earnings		967			357
Accumulated deficit		(32,510	)		(31,773	)
Total Stockholders' Equity		6633,~~696~~503			6534,~~801~~031
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	~~118~~92,~~510~~296		$	~~115~~87,~~121~~631

The accompanying notes are an integral part of these condensed financial statements.

ASV Holdings, Inc.

Condensed Statements of Operations

(In thousands, except par value and per share data)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	For the Three Months Ended March 31,
	2018			2017			2018			2017
	2019			2018
	Unaudited			Unaudited			~~Unaudited~~			~~Unaudited~~
Net sales	$	3227,~~776~~338		$	3029,~~635~~870		$	~~94,506~~		$	~~92,885~~
Cost of goods sold		2823,~~576~~903			25,~~798~~928			~~82,107~~			~~78,389~~
Gross profit		43,~~200~~435			43,~~837~~942			~~12,399~~			~~14,496~~
Research and development costs		~~485~~493			~~503~~471			~~1,407~~			~~1,561~~
Selling, general and administrative expense		23,~~662~~136			23,~~857~~407			~~9,004~~			~~8,340~~
Operating income		1,053			1,477			1,988			4,595
Operating (loss) income		(194	)		64
Other income (expense)
Interest expense		(~~491~~551	)		(~~698~~458	)		~~(1,413~~	)		~~(2,463~~	)
Other income (expense)		28			—6			8			1
Total other expense		(~~489~~543	)		(~~698~~452	)		~~(1,405~~	)		~~(2,462~~	)
Income before taxes		564			779			583			2,133
Loss before income taxes		(737	)		(388	)
Income tax expense (benefit)		~~(35~~—	)		~~257~~(81	)		~~(28~~	)		~~(372~~	)
Net income	$	599		$	522		$	611		$	2,505
Net loss	$	(737	)	$	(307	)
Earnings per share:
Basic net income per share		0.06		$	0.05		$	0.06		$	0.28
Basic net loss per share of common stock	$	(0.07	)	$	(0.03	)
Diluted net income per share		0.06		$	0.05		$	0.06		$	0.28
Diluted net loss per share of common stock	$	(0.07	)	$	(0.03	)
Weighted average common shares outstanding:
Basic weighted average common shares outstanding		9,~~834~~863			9,~~800~~816			~~9,824~~			~~8,897~~
Diluted weighted average common shares outstanding		9,~~834~~863			9,~~800~~816			~~9,824~~			~~8,897~~
Pro forma (C corporation basis):
Pro forma tax expense	N/A			N/A			N/A			$	768
Pro forma net income	N/A			N/A			N/A			$	1,365
Pro forma earnings per share:
Basic net income per share	N/A			N/A			N/A			$	0.15
Diluted net income per share	N/A			N/A			N/A			$	0.15

The accompanying notes are an integral part of these condensed financial statements.

ASV Holdings, Inc.

Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except per share data)

	Common Stock					Additional Paid-in						Total Stockholders'
	Shares			Amounts		Capital			Retained Earnings			Equity
Balances, December 31, 2017		9,806			10		65,434			357			65,801
Stock-based compensation expense		-			-		196			-			196
Incentive plan grant		18			-		-			-			-
Repurchase to satisfy withholding and cancelled		(6	)		-		(52	)		-			(52	)
Net loss		-			-		-			(307	)		(307	)
Balances, March 31, 2018		9,818			10		65,578			50			65,638


	Common Stock					Additional Paid-in						Total Stockholders'
	Shares			Amounts		Capital			Accumulated Deficit			Equity
Balances, December 31, 2018		9,851			10		65,794			(31,773	)		34,031
Stock-based compensation expense		-			-		218			-			218
Incentive plan grant		49			-		-			-			-
Repurchase to satisfy withholding and cancelled		(3	)		-		(9	)		-			(9	)
Net loss		-			-		-			(737	)		(737	)
Balances, March 31, 2019		9,897			10		66,003			(32,510	)		33,503

The accompanying notes are an integral part of these condensed financial statements.

ASV Holdings, Inc.

Condensed Statements of Cash Flows

(In thousands)

	For the Nine Months Ended September 30,
	For the Three Months Ended March 31,
	2018			2017
	2019			2018
	Unaudited			Unaudited
OPERATING ACTIVITIES
Net income	$	611		$	2,505
Net loss	$	(737	)	$	(307	)
Adjustments to reconcile to net income to net cash
provided by operating activities:
Depreciation		~~1,717~~579			~~1,716~~547
Amortization		~~1,910~~637			~~1,910~~637
Share-based compensation		~~374~~136			~~231~~149
Deferred income tax (benefit)		(147	)		(947	)
Loss on sale of fixed assets		1			35
Loss on sale of fixed assets		6			46
Amortization of deferred finance cost		42			—
Amortization of deferred finance cost		107			163
Bad debt expense		3			37
Loss on debt extinguishment		—			83
Inventory Reserves		—			93
Bad debt expense		29			17
Changes in operating assets and liabilities
Trade receivables		622			(3,509	)
Accounts receivable		415			1,195
Net trade receivables/payables from affiliates		(275	)		194
Net accounts receivable/payable from affiliates		(79	)		180
Inventory		(63,~~887~~943	)		5(1,~~635~~464	)
Prepaid income tax		—			—
Prepaid expenses		78156			~~(144~~165	)
Trade accounts payable		1,749			2,233
Operating lease asset and liabilities		56			—
Accrued expenses		(1,111	)		(1,444	)
Trade accounts payable		(1,009	)		(574	)
Tax payable		—			31
Accrued expenses		(747	)		(844	)
Other long-term liabilities		(35	)		39
Tax payable		—			—
Net cash (used in) provided by operating activities		(1,252	)		8,759
Other long-term liabilities		(85	)		(50	)
Net cash used in operating activities		(4,575	)		(201	)
INVESTING ACTIVITIES
Decrease in restricted cash		—			535
Purchase of property and equipment		(185	)		(330	)
Purchase of property and equipment		(828	)		(474	)
Net cash used in investing activities		(185	)		(330	)
Net cash (used in) provided by investing activities		(828	)		61
FINANCING ACTIVITIES
Principal payments on long-term debt		(1,497	)		(1,826	)
Principal payments on term debt		(502	)		(500	)
Proceeds from long-term note		425			—
Debt issuance costs incurred		(180	)		—
Debt issuance costs incurred		—			(9	)
Shares repurchased for income tax withholding on share-based compensation		(9	)		(51	)
Proceeds from issuance of common stock, net of offering costs		—			10,405
Net borrowings (payments) on revolving credit facilities		6,681			1,083
Net payments on debt		—			(10,405	)
Net cash provided by financing activities		5,990			532
Shares repurchased for income tax withholding on share-based compensation		(76	)		—
NET CHANGE IN CASH		1,230			1
Net borrowings (payments) on revolving credit facilities		3,230			(7,549	)
Cash at beginning of period		2			3
Net cash provided by (used in) financing activities		2,082			(9,384	)
Cash at end of period	$	1,232		$	4
NET CHANGE IN CASH		2			(564	)
Cash at beginning of period		3			572
Cash at end of period	$	5		$	8

The accompanying notes are an integral part of these condensed financial statements.

ASV Holdings, Inc.

Notes to Unaudited Condensed Financial Statements

(In thousands, except par value and per share data)

Note 1. ~~Basis~~Business ~~of Presentation~~Description

Nature of Operations

ASV Holdings, Inc. (the “Company” or “ASV”) primarily designs, manufactures and markets compact track loaders and skid steer loaders as well as related parts for use primarily in the construction, landscaping, and agricultural industries. The Company’s headquarters and manufacturing facility is located in Grand Rapids, Minnesota. Products are marketed and sold in North America, Australia, New Zealand and Latin America.

Corporate Conversion and Initial Public Offering

On May 11, 2017, pursuant to a Plan of Conversion adopted by the Members and Board of Managers of A.S.V., LLC as of April 25, 2017, the Company converted from a Minnesota limited liability company into a Delaware corporation and changed its name from A.S.V., LLC to ASV Holdings, Inc. In conjunction with this corporate conversion, the Company filed a certificate of incorporation (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware and the bylaws of the Company (the “Bylaws”) became effective. Both the Certificate of Incorporation and the Bylaws were approved by the Board of Managers and Members of A.S.V., LLC prior to corporate conversion. Pursuant to the Company’s Certificate of Incorporation, the Company is authorized to issue up to 50,000 shares of common stock $0.001 par value per share and 5,000 shares of preferred stock $0.001 par value per share. All references in the unaudited interim condensed financial statements to the number of shares and per-share amounts of common stock have been retroactively restated to reflect the corporate conversion.

On May 17, 2017, the Company completed its underwritten initial public offering (“IPO”) of 3,800 shares of the Company’s common stock, including 1,800 shares sold by the Company and 2,000 shares sold by Manitex International, Inc. (“Manitex”), at a price to the public of $7.00 per share. After underwriting discounts and commissions and offering expenses payable by the Company, the Company received net proceeds of $10,405 from the offering. The Company did not receive any proceeds from the sale of shares by Manitex.

On May 23, 2017, the underwriters exercised their over-allotment option in full by purchasing an additional 570 shares of the Company’s common stock from A.S.V. Holding, LLC, a selling stockholder in the IPO and subsidiary of Terex Corporation (“Terex”), at the IPO price of $7.00 per share, less underwriting discounts and commissions. The Company did not receive any proceeds from the sale of the shares by A.S.V. Holding, LLC.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited financial statements, included herein, have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and have been consistently applied. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018.

The unaudited financial statements include all adjustments of a normal, recurring nature considered necessary for a fair presentation of our financial position as of ~~September~~March 3031, ~~2018~~2019 and the results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018. Results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2018~~2019.

Critical Accounting Policies and Estimates

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require the Company to make estimates, judgments and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures and contingencies. The Company evaluates estimates used in preparation of the accompanying financial statements on a continual basis. We describe our significant accounting policies in Note 2, “Summary of Significant Accounting Policies,” of the audited financial statements for the year ended December 31, 2018 included in the Annual Report on Form 10-K.

Significant Accounting Policies,” of the audited financial statements for the year ended December 31, 2017 included in the Annual Report on Form 10-K.

Recent Accounting Pronouncements

Recent accounting pronouncements are described in Note 611, “Recent Accounting Pronouncements.”

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on individual customer review and current economic conditions. The Company reviews its allowance for doubtful accounts at least quarterly. Individual balances exceeding a threshold amount that are over 90 days past due are reviewed individually for collectability. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance when the Company determines it is probable the receivable will not be recovered.

The balance of the allowance for doubtful accounts was $~~111~~112 and $82109 at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, respectively.

Revenue Recognition

The Company’s revenues result from the sale of goods or services and reflect the consideration to which the Company expects to be entitled. The Company records revenue based on a five-step model in accordance with ~~Accounting Standards Codification ("~~ASC") 606, Revenue from Contracts with Customers ("ASC 606"). For its customer contracts, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is satisfied. A good or service is transferred when the customer obtains control of that good or service. The Company principally generates revenue from the sale of equipment and parts to dealers, distributors and OEM customers and recognizes revenue at a point in time when control transfers. Transfer of control is generally determined based on the shipping terms of the contract. The Company recognizes revenue for delivered goods or services when the delivered good or service is distinct, control of the good or service has transferred to the customer, and only customary refund or return rights related to the goods or services exist. Generally, there is no-post shipment obligation on product sold other than standard warranty obligations in the normal and ordinary course of business.

Provisions for sales program incentives (such as wholesale subsidies, retail subsidies and customer cash), product returns, and discounts and allowances are variable consideration and are accounted for as a reduction of revenue and establishment of a liability (or contra asset receivable as appropriate) using the expected value method. The Company considers historical data in determining its best estimates of variable consideration. These estimates are reviewed regularly for appropriateness, considering also whether the estimates should be constrained in order to avoid a significant reversal of revenue recognition in a future period. If updated information or actual amounts are different from previous estimates of variable consideration, the revisions are included in the results for the period in which they become known through a cumulative effect adjustment to revenue. In addition, the Company’s contracts with customers generally do not include significant financing components or noncash consideration. The Company expenses incremental costs of obtaining a contract (primarily sales commissions) as selling, general and administrative expense in the Condensed Statements of Operations, because the amortization period would be less than one year.7

Customers ("ASC 606"). For its customer contracts, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is satisfied. A good or service is transferred when the customer obtains control of that good or service. The Company principally generates revenue from the sale of equipment and parts to dealers, distributors and Original Equipment Manufacturer (“OEM”) customers and recognizes revenue at a point in time when control transfers. The Company recognizes revenue for each distinct good or service when control of the good or service has transferred to the customer. Transfer of control is generally determined based on the shipping terms of the contract, with most of our sales recognized F.O.B. shipping point, as that is the time we have a present right to payment, the customer takes possession of the goods, and the customer has the risks and reward of ownership. For most of our contracts, the customer takes legal title upon shipment; however, under the terms of our contract with certain international distributors, title does not transfer until we are paid for the goods. We retain title solely to maintain a security interest in the assets and have concluded that such right is protective in nature and that control transfers at the time of shipment based on the other control indicators. Generally, there is no-post shipment obligation on product sold other than standard assurance-type warranty obligations in the normal and ordinary course of business, typically a twelve to eighteen-month warranty period. Payment terms range from 0-60 days for domestic sales and 0-180 days for international sales.

Provisions for sales program incentives (such as wholesale subsidies, retail subsidies and customer cash), product returns, and discounts and allowances are variable consideration and are accounted for as a reduction of revenue and establishment of a liability (or contra asset receivable as appropriate) using the expected value method. The Company considers historical data in determining its best estimates of variable consideration. These estimates are reviewed regularly for appropriateness, considering also whether the estimates should be constrained in order to avoid a significant reversal of revenue recognition in a future period. Typically, all qualifying machine sales to distributors or dealers provide for program incentives that are accrued at the time of sales. If updated information or actual amounts are different from previous estimates of variable consideration, the revisions are included in the results for the period in which they become known through a cumulative effect adjustment to revenue. In addition, the Company’s contracts with customers generally do not include significant financing components or noncash consideration. The Company expenses incremental costs of obtaining a contract (primarily sales commissions) as selling, general and administrative expense in the Condensed Statements of Operations, because the amortization period would be less than one year.

The Company disaggregates revenue from contracts with customers by geographic location and major customer (see Concentrations of Business and Credit Risk) as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Accrued Warranties

The Company records accruals for potential warranty claims based on its claim experience. The Company’s products are typically sold with a standard warranty covering defects that arise during a fixed period.

A liability for estimated warranty claims is accrued at the time of sale. The liability is established using historical warranty claim experience for each product sold. Historical claim experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Warranty reserves are reviewed quarterly to ensure critical assumptions are updated for known events that may affect the potential warranty liability.

Litigation Claims

In determining whether liabilities should be recorded for pending litigation claims, the Company must assess the allegations and the likelihood that it will successfully defend itself. When the Company believes it is probable that it will not prevail in a particular matter, it will then record an estimate of the amount of liability based, in part, on advice of outside legal counsel.

Defined Benefit Plan

The Company sponsors a nonqualified Supplemental Executive Retirement Plan (“SERP”) for a former senior executive. The SERP is unfunded. The Company accounts for this plan pursuant to the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 710, “Compensation – General.” This guidance requires balance sheet recognition of the overfunded or underfunded status of the defined benefit plan. Actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting guidance must be recognized in the Statement of Operations. The defined benefit obligation for this plan as of September 30, 2018 is $760, of which, $64 and $696 is reflected in “Accrued Other” and “Other Long-Term Liabilities,” respectively, on the balance sheet. The balance at December 31, 2017 was $803, of which, $64 and $739 was reflected in the “Accrued Other” and “Other Long-Term Liabilities,” respectively. The Company expects to make annual benefit payments of $64 per year over the next five years.

Research and Development Costs

Research and development costs are expensed as incurred. Such costs are incurred in the development of new products or significant improvements to existing products.

Income Taxes

The Company’s provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary.

~~For~~The ~~the three months ended September 30, 2018, the~~ Company ~~recorded~~is estimating an ~~income~~annual ~~tax~~effective ~~benefit of $(35), which consists of federal and state taxes of $108 on pre-~~tax ~~income~~rate of ~~$564~~18.3% ~~offset~~(excluding ~~by a~~ discrete ~~income tax benefit of $(143~~items) ~~related~~for to the ~~finalization~~year ofending ~~the~~December ~~Company’s~~31, ~~2017 tax returns~~2019. ~~The~~Our ~~Company’s~~ effective tax rate is affected by recurring items such as state and local taxes, a reduced federal tax rate for foreign derived intangible income, and federal research and development credits.

For the three months ended ~~September~~March 3031, ~~2017~~2019, the Company ~~recorded~~did not record an income tax ~~expense~~benefit ~~of $257~~ on its pre-tax ~~income~~loss of $~~779~~(737) pursuant to the authoritative accounting literature prescribed in ASC 740-27-30-30 through 33.

For the nine months ended September 30, 2018, the Company recorded an income tax benefit of $(28), which consists of federal and state income tax on it pre-tax income of $583 offset by a discrete income tax benefit of $(147) related primarily to the finalization of the Company’s 2017 tax returns.8

For the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, the Company recorded an income tax benefit of $(~~372~~81), which consists of a federal and state income tax ~~provision~~benefit ofon ~~$575~~its ~~offset by a discrete income~~ pre-tax ~~benefit~~loss of $(~~947~~388) ~~related primarily to the recognition of a deferred tax asset related to a change in status with the conversion from a Minnesota limited liability company to a Delaware corporation on May 11, 2017~~.

At ~~September~~March 3031, ~~2018~~2019, the Company did not have any uncertain tax positions. The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the accompanying Statement of Income.

Concentrations of Business and Credit Risk

Caterpillar Inc., an OEM customer, and CEG Distributions PTY Ltd., the Company’s Australian master distributor, accounted for 3424% and 3726% of the Company’s Net Sales for the three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017 respectively, as well as 64% of the Company’s Accounts Receivable at September 30,~~ 2018. ~~Caterpillar Inc. and CEG Distributions PTY Ltd accounted for 29% and 32% of the Company’s Net Sales for the nine months ended September 30, 2018 and 2017~~ respectively, as well as 6356% of the Company’s Accounts Receivable at ~~December~~ March 31, ~~2017~~2019.

6Sales by major customer consisted of the following for the three months ended March 31, 2019 and 2018:

Sales by major customer consisted of the following for the three and nine months ended September 30, 2018 and 2017:

	For the Three Months Ended March 31,			For the Three Months Ended March 31,
	2019			2018
	Percent			Percent
	of Total	Amount		of Total	Amount
Caterpillar	17%	$	4,665	16%	$	4,822
CEG Distributions PTY Ltd.	7%		1,836	10%		2,895
Other	76%		20,837	74%		22,153

Total	100%	$	27,338	100%	$	29,870

	For the Three Months Ended September 30,			For the Three Months Ended September 30,
	2018			2017
	Percent			Percent
	of Total	Amount		of Total	Amount
Caterpillar	16%	$	5,145	19%	$	5,884
CEG Distributions PTY Ltd.	18%		5,890	18%		5,515
Other	66%		21,741	63%		19,236
Total	100%	$	32,776	100%	$	30,635
	For the Nine Months Ended September 30,			For the Nine Months Ended September 30,
	2018			2017
	Percent			Percent
	of Total	Amount		of Total	Amount
Caterpillar	15%	$	13,952	19%	$	17,420
CEG Distributions PTY Ltd.	14%		12,876	13%		12,225
Other	71%		67,678	68%		63,240
Total	100%	$	94,506	100%	$	92,885

Any disruptions to these two customer relationships could have adverse effects on the Company’s financial results. The Company manages dealer and OEM concentration risk by evaluating in advance the financial condition and creditworthiness of its dealers and OEM customers. The Company establishes an allowance for doubtful accounts receivable, if needed, based upon expected collectability. Any reserves established for doubtful accounts is re-evaluated on a case-by-case basis when it is believed the payment of specific amounts owed to us is unlikely to occur. The Company has secured a credit insurance policy for certain accounts with a policy limit of liability of not more than $8,600.

~~Any~~Revenue ~~disruptions to these two customer relationships could have adverse effects on the Company’s financial results. The Company manages dealer and OEM concentration risk~~ by ~~evaluating~~geographic inarea ~~advance~~consisted ~~the financial condition and creditworthiness~~ of ~~its~~the ~~dealers~~following ~~and OEM customers. The Company establishes an allowance~~ for ~~doubtful accounts receivable, if needed, based upon expected collectability. Any reserves established for doubtful accounts is determined on a case-by-case basis when it is believed~~ the ~~payment~~three ofmonths ~~specific~~ended ~~amounts owed to us is unlikely to occur. Although the Company has encountered isolated credit concerns related to its dealer base~~March 31, ~~management~~2019 ~~is not aware of any significant credit risks related to the Company’s dealer base~~ and generally does not require collateral or other security to support account receivables, other than UCC related sales. The Company has secured a credit insurance policy for certain accounts with a policy limit of liability of not more than $8,600.2018:

Revenue by geographic area consisted of the following for the three and nine months ended September 30, 2018 and 2017:

	For the Three Months Ended March 31,
	2019			2018
	Percent			Percent
	of Total	Amount		of Total	Amount
United States	84%	$	22,950	79%	$	23,627
Australia	10%		2,633	11%		3,361
Other	6%		1,755	10%		2,882

Total	100%	$	27,338	100%	$	29,870

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	Percent			Percent			Percent			Percent
	of Total	Amount		of Total	Amount		of Total	Amount		of Total	Amount
United States	71%	$	23,058	66%	$	20,112	72%	$	68,449	70%	$	65,171
Australia	20%		6,612	26%		7,875	16%		15,035	20%		18,452
Other	9%		3,106	9%		2,648	12%		11,022	10%		9,262
Total	100%	$	32,776	100%	$	30,635	100%	$	94,506	100%	$	92,885

Note 3. Inventory

Inventory isconsisted ~~stated~~of at the ~~lower~~following as of ~~cost (first-in~~March 31, ~~first-out)~~2019 ~~or net realizable value. The Company records excess~~ and ~~obsolete~~December ~~inventory~~31, ~~reserves. The estimated reserve is based on specific identification of excess or obsolete inventories.~~ 2018:

Inventory consisted of the following as of September 30, 2018 and December 31, 2017:

	September 30, 2018		December 31, 2017
Raw materials and supplies	$	18,128	$	16,749
Work in process		81		98
Finished equipment and replacement parts		15,232		9,844
	$	33,441	$	26,691

Note 4. Goodwill and Other Intangible Assets

Intangible Assets

Intangible assets include patented and unpatented technology, trade names, customer relationships and other specifically identifiable assets and are amortized on a straight-line basis over their respective estimated useful lives, which range from ten to twenty-five years. Intangible assets are reviewed for impairment when facts and circumstances indicate a potential impairment has occurred.

There are three fundamental methods applied to value intangible assets outlined in FASB ASC 820, “Fair Value Measurement.” These methods include the Cost Approach, the Market Approach, and the Income Approach. Each of these valuation approaches were considered in the Company’s estimation of value.

Trade names and trademarks, patented and unpatented technology: Valued using the Relief from Royalty method, a form of both the Market Approach and the Income Approach. Because the Company has established trade names and trademarks and has developed patented and unpatented technology, the Company estimated that the benefit of ownership as the relief from the royalty expense that would need to be incurred in absence of ownership.

Customer relationships: Because there is a specific earnings stream that can be associated with customer relationships, the Company determined the fair value of these relationships based on the excess earnings method, a form of the Income Approach.

Technology: The Company holds a number of U.S. patents covering its undercarriage technology. The key patent related to the Company’s Posi-Track undercarriage and suspension expires in 2023. The average estimated useful life for the Company’s patents is ten years, but useful life is determined in part by any legal, regulatory or contractual provisions that limit useful life. The Company has and will continue to dedicate technical resources toward the further development of our products and processes in order to maintain its competitive position.

Intangible assets, net comprised the following as of September 30, 2018:

	Weighted		Gross					Net
	Average Life		Carrying		Accumulated			Carrying
	(In Years)		Amount		Amortization			Amount
Patents and unpatented technology		10	$	8,000	$	(3,027	)	$	4,973
Tradename and trademarks		25		7,000		(1,058	)		5,942
Customer relationships		11		16,000		(5,548	)		10,452
		12	$	31,000	$	(9,633	)	$	21,367

Intangible assets, net comprised the following as of December 31, 2017:

	Weighted		Gross					Net
	Average Life		Carrying		Accumulated			Carrying
.	(In Years)		Amount		Amortization			Amount
Patents and unpatented technology		10	$	8,000	$	(2,427	)	$	5,573
Tradename and trademarks		25		7,000		(848	)		6,152
Customer relationships		11		16,000		(4,448	)		11,552
		12	$	31,000	$	(7,723	)	$	23,277

Amortization of other intangible assets for the nine months ended September 30, 2018 and 2017 was $1,910 and $1,910, respectively.

Goodwill

Goodwill, representing the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition, is reviewed for impairment annually, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceed their fair value. Annual impairment tests are performed by the Company in the fourth quarter of each year using information available as of fiscal September month end.

Note 5. Related Party Transactions

Effective December 19, 2014, the Company entered into a Distribution and Cross Marketing Agreement with Terex and Manitex (the “Terex Cross Marketing Agreement”) that set forth the terms under which the Company would manufacture and sell ASV products, certain services Terex would provide in assisting in the sales and marketing of ASV products and the costs to be paid by the Company in exchange for such services. The Terex Cross Marketing Agreement defines dealers and customers to which, and territories for which, Terex would have the exclusive right on behalf of the Company to market and sell Terex-branded ASV products. The Terex Cross Marketing Agreement defines the compensation to Terex for its machine sales selling expense, part sales selling expense and general and administrative costs associated with such sales. In addition, for the provision of marketing services by Terex, the Company would pay an annual fee of $250, subject to annual escalation of 3% plus 0.2% of net incremental sales. Unless terminated, the term of the Terex Cross Marketing Agreement is five years, and the parties may agree to renew for additional one-year terms. The Company expensed $0 and $296 for services for the three months and $320 and $888 for the nine months ended September 30, 2018 and 2017, respectively, under the Terex Cross Marketing Agreement.

Effective December 19, 2014, the Company entered into a Services Agreement with Terex (the “Terex Services Agreement”) that set forth the terms under which Terex would provide certain services to the Company and the Company will retain access to certain services provided by Terex and the compensation related thereto. The scope of the Terex Services Agreement covers amongst other items, temporary transition services arising from the transfer of majority ownership to Manitex, third party logistics services for parts fulfillment, warranty and field service and information technology (“IT”) services for both transitional and ongoing services. Unless terminated, the term of the Terex Services Agreement is specific to each service provided, and the parties may agree to renew for additional one-year terms. The Company expensed $0 and $320 for services provided for the three months and $175 and $1,010 for the nine months ended September 30, 2018 and 2017, respectively.

Effective March 27, 2017, the Company entered into a Winddown and Termination of Distribution and Cross Marketing Agreement and Services Agreement with Terex and Manitex (the “Winddown Agreement”). Pursuant to the Winddown Agreement, Terex will continue to provide certain services to the Company following the completion of the IPO under the Terex Cross Marketing Agreement and the Terex Services Agreement, including parts sales, shipment and purchases and parts planning, customer parts phone support, and administrative services, including IT support and accounting input information for parts cost and pricing. Pursuant to the Winddown Agreement, these services will continue on a transitional basis. Terex no longer markets ASV machines under the Terex Cross Marketing Agreement and the Company is responsible for marketing all ASV machines to all distribution channels, but Terex will continue to market ASV parts under the Terex Cross Marketing Agreement during transition period. Pursuant to the Winddown Agreement, the Company will be permitted to produce and sell Terex-branded ASV products to existing Terex dealers and continue to use applicable Terex trademarks during the transition period and for one year after termination of the Winddown Agreement. The Company has the right to terminate any service related to parts sales and distribution upon six months’ notice to Terex, and the Company also has the right to terminate all services upon six months’ notice to Terex. After one year from the date of the Winddown Agreement, Terex will also have the right to terminate services upon six months’ notice. In no event will the services continue beyond December 19, 2019. The Winddown Agreement does not immediately terminate the Terex Cross Marketing Agreement or the Terex Services Agreement, each of which will remain in effect until terminated in accordance with the Winddown Agreement. By notice dated October 5, 2017, the Company provided notice to Terex and Manitex of the termination, effective as of April 5, 2018, of all services provided by Terex thereunder. Such notice also indicated that, also effective as of April 5, 2018, the Terex Cross Marketing Agreement and Terex Services Agreement shall also be deemed terminated.

Included in the Company’s Condensed Statements of Operations are sales to Terex of $39 and $50 for the three months and $98 and $229 for the nine months ended September 30, 2018 and 2017, respectively. Also included are sales to Manitex of $1 and $1 for the three months ended September 30, 2018 and 2017, respectively and sales of $1 and $24 for the nine months ended September 30, 2018 and 2017, respectively. The Company recorded purchases from Terex of $1,453 and $1,127 for the three months and $5,437 and $4,832 for the nine months ended September 30, 2018 and 2017, respectively. The Company also recorded charges for insurance and employee benefit costs from Manitex of $567 for the three months ended September 30, 2017 and $2,153 for the nine months ended September 30, 2017.

Receivables from affiliates include $24 due from Terex and $1 due from Manitex (total $25) at September 30, 2018, and $67 due from Terex and $9 due from Manitex (total $76) at December 31, 2017.

	March 31, 2019		December 31, 2018
Raw materials and supplies	$	22,348	$	20,897
Work in process		54		36
Finished equipment and replacement parts		15,567		13,122

	$	37,969	$	34,055

~~Payables~~Note to4. ~~affiliates~~Intangible ~~includes $737 due to Terex and $0 due to Manitex (total $737) at September 30, 2018, and $1,037 due to Terex and $26 due to Manitex (total $1,063) at December 31, 2017.~~Assets

~~Note~~Intangible 6.assets, ~~Recent~~net ~~Accounting~~comprised ~~Pronouncements~~the following as of March 31, 2019:

Recently Adopted Accounting Pronouncements

	Weighted		Gross					Net
	Average Life		Carrying		Accumulated			Carrying
	(In Years)		Amount		Amortization			Amount

Patents and unpatented technology		10	$	8,000	$	(3,593	)	$	4,407
Tradename and trademarks		25		7,000		(1,198	)		5,802
Customer relationships		11		16,000		(6,115	)		9,885

		12	$	31,000	$	(10,906	)	$	20,094

~~Effective~~Intangible January 1, 2018, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), and ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets ~~recognized from costs incurred to obtain or fulfill a contract. The adoption of ASU 2014-09~~, ~~using~~net ~~the~~comprised modified retrospective approach, had no significant impact on our results of operations, cash flows, or financial position. Revenue continues to be recognized at a point in time for our product sales when products are delivered to or picked up by the ~~customer~~following ~~and~~as ~~revenue for shipping and handling charges continues to be recognized when products are delivered to or picked up by the customer. We continue to reduce revenue for estimates~~ of ~~sales~~December ~~incentives based on probability estimates and for product returns based on historical return rates. Additional information and disclosures required by this new standard are contained in Note 2~~31, ~~“Revenue Recognition”.~~2018:

Recent Accounting Pronouncements – Not Yet Adopted

	Weighted		Gross					Net
	Average Life		Carrying		Accumulated			Carrying
.	(In Years)		Amount		Amortization			Amount

Patents and unpatented technology		10	$	8,000	$	(3,227	)	$	4,773
Tradename and trademarks		25		7,000		(1,128	)		5,872
Customer relationships		11		16,000		(5,915	)		10,085

		12	$	31,000	$	(10,270	)	$	20,730

InAmortization ~~January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement~~ of Financial Assets and Financial Liabilities," (“ASU 2016-01”), subsequently clarified in February 2018 by ASU No. 2018-03, “Technical Corrections and Improvements to ASU 2018-01” (“ASU 2018-03). The amendments in ASU 2016-01, and the clarification in ASU 2018-03, among other ~~things,~~intangible ~~require~~assets ~~equity investments (except those accounted~~ for ~~under~~ the ~~equity~~three ~~method~~months ofended ~~accounting~~March 31, or2019 those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; require public business entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes; require separate presentation of financial assets and ~~financial~~2018 ~~liabilities~~was ~~by measurement category and form of financial asset (i~~$637.e., securities or loans and receivables); and eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost. The effective date will be the first quarter of fiscal year 2019, for emerging growth companies. The Company is evaluating the impact that adoption of this new standard will have on its financial statements.

InNote ~~February 2016, the FASB issued ASU No~~5. ~~2016-02,~~Accrued “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize on the balance sheet the assets and liabilities associated with the rights and obligations created by those leases. The guidance for lessors is largely unchanged from current U.S. GAAP. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The effective date will be the first quarter of fiscal 2020, for emerging growth companies, with early adoption permitted. The Company plans to early adopt and anticipates the adoption of this standard will have a material impact on our financial statements. While we are continuing to assess all the potential impacts of the standard, we currently believe the most significant impact relates to our accounting for our distribution center lease. Under the new guidance, the net present value of the obligation for our lease will appear on the balance sheet. Currently, it is classified as an operating lease and payments are expensed in the period incurred. The adoption of this standard is not expected to have an impact on the Company’s cash flow.Warranties

InThe ~~August~~following ~~2016,~~table ~~the~~provides FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230): Statement of Cash Flows” (“ASU 2016-15”), which clarifies how entities should classify certain cash receipts and cash payments on the ~~statement~~changes ofin ~~cash flows. ASU 2016-15 also clarifies how~~ the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal years and interim periods beginning after December 15, 2018, for emerging growth companies. The Company’s isproduct ~~currently~~warranties: ~~evaluating the impact that this standard will have on its financial statements.~~

	Three Months Ended March 31,			Three Months Ended December 31,
	2019			2018
Product warranty accrual balance, beginning of period	$	1,584		$	1,600
Liabilities accrued for warranties during the period		254			292
Warranty claims paid during the period		(381	)		(355	)
Changes in estimates		32			47
Product warranty accrual balance, end of period	$	1,489		$	1,584

InNote ~~January 2017, the FASB issued ASU No~~6. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies the measurement of goodwill impairment by eliminating the requirement of performing a hypothetical purchase price allocation. Instead, impairment will be measured using the difference between the carrying amount and fair value of the reporting unit. The amended guidance also eliminates the requirement for any reporting unit with a zero or a negative carrying amount to perform a qualitative assessment and will require disclosure of the amount of goodwill allocated to each reporting unit with a zero or a negative carrying amount of net assets. This standard will be effective beginning in the first quarter of fiscal year 2022, for emerging growth companies. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard is to be applied prospectively. The Company is evaluating the impact that adoption of this new standard will have on its financial statements.Debt

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation: Scope of Modification Accounting.” This ASU is intended to provide guidance about which changes to the terms or conditions on a share-based payment award require an entity to apply modification accounting. This new standard is effective for reporting periods beginning after December 15, 2018, and interim periods within that reporting period, for emerging growth companies, with early adoption permitted. The Company does not expect these amendments to have a material effect on its financial statements.

Except as noted above, the guidance issued by the FASB during the current period is not expected to have a material effect on the Company’s financial statements.

Note 7. Litigation and Contingencies

The Company is involved in various legal proceedings, including product liability, general liability, workers’ compensation liability, and employment litigation, which have arisen in the normal course of operations. The Company is insured for product liability, general liability, workers’ compensation, employer’s liability, property damage and other insurable risk required by law or contract, with retained liability or deductibles. The Company has recorded and maintains an estimated liability in the amount of management’s estimate of the Company’s aggregate exposure for such retained liabilities and deductibles. For such retained liabilities and deductibles, the Company determines its exposure based on probable loss estimations, which requires such losses to be both probable and the amount or range of probable loss to be estimable. The Company believes it has made appropriate and adequate reserves and accruals for its current contingencies.

Note 8. Supplemental Cash Flow Information

Interest and income taxes paid during the nine months ended September 30, 2018 and 2017 are as follows:

	For the Nine Months Ended September 30,
	2018		2017
Interest paid in cash	$	1,252	$	2,255
Income tax payments in cash	$	42	$	545

Note 9. Debt

Loan Facilities

On ~~December~~March 2328, ~~2016~~2019, the Company ~~completed~~entered into a ~~unitranche~~Second ~~credit~~Amendment ~~agreement with PNC Bank, National Association~~ (~~“PNC”),~~the ~~and White Oak Global Advisors, LLC (~~“~~White~~Second ~~Oak~~Amendment”) to ~~provide a $65,000, 5-year credit facility (~~the ~~“Credit~~Amended ~~Agreement’). The facility consisted of a $35,000 revolving credit facility (subject to availability based primarily on eligible accounts receivable~~ and ~~eligible~~Restated ~~inventory), a Term Loan A facility of $8,500 and a Term Loan B facility of $21,500. A total of $46,700 was drawn by the Company at closing of the~~ Credit ~~Agreement.~~

OnAgreement ~~December 27, 2017 the Company entered into an amended and restated credit agreement~~ with PNC Bank, ~~and~~National ~~another lender (the “Lenders”) to provide a $50~~Association,~~000,~~ ~~5-year~~as ~~credit~~administrative ~~facility~~agent (~~the~~ “~~Amended and Restated Credit Agreement~~PNC”). The ~~facility~~principal ~~consists~~modification ~~of a $35,000 revolving credit facility (which is subject~~ to ~~availability based primarily on eligible accounts receivable and eligible inventory), and a term loan facility of $15,000. At~~ the ~~closing of the~~ Amended and ~~Restated Credit Agreement, the Company had~~

1110

~~outstanding~~Restated ~~borrowings~~Credit ~~under~~Agreement itresulting offrom ~~approximately~~the ~~$28,400,~~Second ~~consisting~~Amendment replaces the maximum leverage ratio requirements for 2019 with a minimum EBITDA covenant and beginning in March of ~~$18~~2020,~~700~~ inremoves ~~new~~the ~~borrowings~~minimum EBITDA covenant and ~~approximately~~reverts $9to a leverage ratio requirement of 2.75 to 1.00,~~700~~ which shall step down to 2.25 to 1.00 by September 30, 2020. In addition, the applicable margin for each advance under the credit agreement was ~~carried~~increased ~~over~~by 50 basis points for the period from March 28, 2019 until the first business day following receipt by PNC of the Company’s ~~previously~~certificate ~~outstanding~~of ~~revolving~~compliance ~~credit~~with ~~facility~~the applicable leverage ratio for the quarter ended March 31, 2020 and the inventory sub-limit was increased to $18 million.

Revolving Loan Facility with PNC

The Company’s $35,000 revolving loan facility with PNC includes two sub-facilities: (i) a $2,000 letter of credit sub-facility, and (ii) a $3,500 swing loan sub-facility, each of which is fully reserved against availability under the revolving loan facility. The facility matures on December 27, 2022.

The $35,000 revolving loan facility is a secured financing facility under which borrowing availability is limited to existing collateral as defined in the agreement. The maximum amount available is limited to (i) the sum of (a) up to 85% of Eligible Receivables, plus (b) 90% of Eligible Insured Foreign Receivables, plus (c) the lesser of (I) 95% of Eligible CAT Receivables, or $8,600 plus (ii) the lesser of (A) the sum of (I) up to 65% of the value of the Eligible Inventory (other than Eligible Inventory consisting of finished goods machines and service parts that are current), plus (II) 80% of the value of Eligible inventory consisting of finished goods machines, plus (III) 75% of the value of Eligible Inventory consisting of service parts that are current) or, (B) up to 90% of the appraised net orderly liquidation value of Eligible Inventory. Inventory collateral is capped at $1518,000 less outstanding letters of credit and any reasonable reserves as established by the bank. At ~~September~~March 3031, ~~2018~~2019, the maximum the Company could borrow based on available collateral was capped at $2226,~~475~~640.

At ~~September~~March 3031, ~~2018~~2019, the Company had drawn $1522,~~740~~707 under the $35,000 revolving loan facility. The Company can opt to pay interest on the revolving credit facility at either a domestic rate plus a spread, or a LIBOR rate plus a spread. The domestic rate spread is initially fixed at 1.00% for revolving loan advances until delivery of certain reporting documents with respect to fiscal quarter ending March 31, 2018, at which point it ranges from 1.00% to 1.5% depending on the Average Undrawn Availability (as defined in the Amended and Restated Credit Agreement). The LIBOR spread is initially fixed at 2.00% for revolving loan advances until delivery of the same reporting documents, at which point it ranges from 2.00% to 2.5% depending on the Average Undrawn Availability. Funds borrowed under the LIBOR options can beset ~~borrowed~~the borrowing rate for periods of one, two, or three months. The weighted average interest rate for the period ended ~~September~~March 3031, ~~2018~~2019 was 45.75%. Additionally, the bank assesses a 0.25% unused line fee that is payable quarterly.

Term Loan A with PNC

On December 23, 2016, the Company entered into an $8,500 term loan (“Term Loan A”) facility with PNC as the administrative agent.

The Company repaid this facility on May 18, 2017.

Term Loan B with White Oak

On December 23, 2016, the Company entered into a $21,500 term loan (“Term Loan B”) facility with White Oak as the administrative agent.

The Company repaid this facility on December 27, 2017.

Term Loan C with PNC

On December 27, 2017 the Company entered into a $15,000 term loan (“Term Loan C”) facility, with PNC as the administrative agent.

At ~~September~~March 3031, ~~2018~~2019, the Company had an outstanding balance of $1312,500, less $~~285~~304 debt issuance costs, for net term loan debt of $1312,~~215~~196. The Company can opt to pay interest on the Term Loan C facility at either a domestic rate plus a spread, or a LIBOR rate plus a spread. For term loan advances the domestic rate spread is fixed at 3.75%, and the LIBOR spread is fixed at 4.75%. Funds borrowed under the LIBOR options can beset ~~borrowed~~the borrowing rate for periods of one, two, or three months. The weighted average interest rate for the period ending ~~September~~March 3031, ~~2018~~2019 was 67.97%.

The Company is obligated to make quarterly principal payments of $500, which commenced on January 1, 2018. If the term loan is prepaid in full or in part prior to the maturity date, the Company will be required to pay a prepayment penalty. If paid prior to December 27, 2019 the prepayment penalty will be equal to 2.0% of the prepayment. The prepayment penalty percentage reduces to 1% on or after December 27, 2020, and no penalty if on or after the December 27, 2021. There will be no prepayment obligation in the event that the prepayment of the obligation in full is funded in connection with a refinancing for which PNC is the administrative agent. Any unpaid principal is due on maturity, which is December 27, 2022. Interest is payable monthly beginning on January 1, 2018.

December 27, 2019 the prepayment penalty will be equal to 2.0% of the prepayment. The prepayment penalty percentage reduces to 1% on or after December 27, 2020, and no penalty if on or after the December 27, 2021. There will be no prepayment obligation in the event that the prepayment of the obligation in full is funded in connection with a refinancing for which PNC is the administrative agent. Any unpaid principal is due on maturity, which is December 27, 2022. Interest is payable monthly beginning on January 1, 2018.

Loan Agreements with State Agencies

In October 2017, the Company entered into two loan agreements with the State of Minnesota related to the establishment of a new parts distribution center in Grand Rapids, Minnesota. The first loan agreement is a $300 loan with a ten-year term at an interest rate of 3%, with loan forgiveness if certain criteria is met. The lender will forgive $150 of principal and all accrued interest should the Company attain and maintain agreed upon employment levels on the fifth anniversary date of the loan (and not otherwise be in default) and will forgive the remaining $150 of principal and all accrued interest should the Company attain and maintain employment levels at the tenth anniversary of the loan. Should the Company not attain or maintain the agreed upon levels of employment, $150 in principal plus accrued interest will be due on the fifth anniversary of the closing date with the remaining balance being due and payable on the due date of the loan. The second loan agreement is a $125 no interest loan with a seventy-five-month term that includes partial forgiveness if certain criteria are met. The lender will forgive up to $50 of the $125 loan should ASV attain and maintain job creation goals and wage level commitments. The zero-interest loan is to be paid back through monthly payments over the term of the loan.

default) and will forgive the remaining $150 of principal and all accrued interest should the Company attain and maintain employment levels at the tenth anniversary of the loan. Should the Company not attain or maintain the agreed upon levels of employment, $150 in principal plus accrued interest will be due on the fifth anniversary of the closing date with the remaining balance being due and payable on the due date of the loan. The second loan agreement is a $125 no interest loan with a seventy-five-month term that includes partial forgiveness if certain criteria are met. The lender will forgive up to $50 of the $125 loan should ASV attain and maintain job creation goals and wage level commitments. The zero-interest loan is to be paid back through monthly payments over the term of the loan. The establishment of the parts distribution center was completed, and loan proceeds disbursed during 2018.

Covenants

The Company’s indebtedness is collateralized by substantially all of the Company’s assets. The facilities contain customary limitations including, but not limited to, limitations on additional indebtedness, acquisitions, and payment of dividends. The Company is also required to comply with certain financial covenants as defined in the Amended and Restated Credit Agreement. The Company is limited to capital expenditures not to exceed $2,000 in any fiscal year. The revolving credit facility and the term loans require the Company to maintain a Minimum Fixed Charge Coverage ratio of not less than 1.20 to 1.0. Additionally, the term loans require, as per the ~~amended~~Second ~~credit agreement~~Amendment, as described ~~in Note 12~~above, ~~“Subsequent Events”,~~ the Company ~~cannot~~attains ~~exceed~~ a ~~Leverage~~minimum ~~Ratio~~EBITDA ~~of 4~~covenant.00 ~~to 1.00 which shall step down to 2.25 to 1.00 by September 30, 2020.~~ The Company was in compliance with all covenants ~~for~~when required to be measured during the ~~period~~quarter ended ~~September~~March 3031, ~~2018~~2019.

Note 107. Equity

2017 Equity Incentive Plan

On May 11, 2017, the Company adopted the ASV Holdings, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The maximum number of shares of common stock reserved for issuance under the 2017 Plan is 1,250 shares. The total number of shares reserved for issuance however, can be adjusted to reflect certain corporate transactions or changes in the Company’s capital structure. The Company’s employees and members of the board of directors who are not the Company’s employees or employees of the Company’s affliliates are eligible to participate in the 2017 Plan. The 2017 Plan is administered by the compensation committee of the Company’s board of directors. The 2017 Plan provides that the committee has the authority to, among other things, select plan participants, determine the type and amount of rewards, determine the award terms, fix all other conditions of any awards, interpret the plan and any plan awards. Under the 2017 Plan, the committee can grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units. The 2017 Plan requires that the exercise price for stock options and stock appreciation rights be not less then fair market value of the Company’s common stock on date of grant.

The Company awarded a total of 10100 restricted stock units to directors and ~~non-~~employees under the 2017 Plan onduring the quarter ended March 1531, ~~2018~~2019. The restricted stock units are subject to the same conditions as the restricted stock awards except the restricted stock units will not have voting rights and the common stock will not be issued until the vesting criteria are satisfied.

The following table contains information regarding restricted stock units:

	September 30, 2018
	March 31, 2019
Outstanding on December 31, 2017		163
Outstanding on December 31, 2018		77
Units granted during the period		10100
Vested and issued		(37	)
Vested and issued, net of repurchase for income tax withholding		(46	)
Forfeited		(33	)
Outstanding on March 31, 2019		131
Outstanding on September 30, 2018		103

On January 10, 2019, the Company granted an aggregate of 60 restricted stock units to employees pursuant to the 2017 Plan. Restricted stock units of 20, 20, and 20 vest in 2020, 2021 and 2022, respectively.

On March 11, 2019, the Company granted 39 restricted stock units to directors pursuant to the 2017 Plan. These stock units immediately vested.

On March 11, 2019, the Company granted an aggregate of 1 restricted stock unit to employees pursuant to the 2017 Plan. This stock unit immediately vested.

The value of the restricted stock is being charged to compensation expense over the vesting period and the Company has elected to account for foreitures as they occur. Compensation expense includes expense related to restricted stock units of $136 and $149 for the quarter ended March 31, 2019 and 2018, respectively. Unrecognized compensation expense related to non-vested restricted stock units will be recognized as follows: $274, $238, and $62 for the remainder of 2019, 2020, and 2021, respectively.

Note 8. Commitments and Contingencies

Note 9. Leases

The Company has operating leases for its distribution center, research and development facilities, automobiles, and certain equipment. The leases have remaining lease terms of 1 year to 16 years, some of which include options to extend the leases for up to 6 years. The distribution center lease agreement includes both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which can be accounted for as a single lease component. The Company has not elected the practical expedient to group lease and non-lease components for applicable leases.

Leases may include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion. Renewals to extend the lease terms for the distribution center are included in our Right of Use (“ROU”) operating lease assets and lease liabilities as they are reasonably certain of exercise. The renewal options are evaluated with each lease and when they are reasonably certain of exercise, the renewal period is included in our lease term.

As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

Certain operating leases for vehicles contain residual value guarantee provisions which would generally become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. The aggregate residual value guarantee related to these leases was approximately $29. We believe the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remote. To the extent our fleet contains vehicles we estimate will settle at a gain, such gains on these vehicles will be recognized when we sell the vehicle.

The components of lease expense were as follows for the quarter ended March 31, 2019:


	Total Operating Lease Cost
Operating lease cost	$	62.2

Maturities for all operating lease liabilities are as follows as of March 31, 2019:



	Total

2019	$	176
2020	237
2021	222
2022	214
2023	163
2024 and thereafter	160
Total lease payments	$	1,172
Less: Interest		(138	)
Present value of lease liabilities	$	1,034

The weighted average remaining lease terms and discount rates for all operating lease were as follows as of March 31, 2019:

On March 15, 2018, the Company granted an aggregate of 9 restricted stock units to directors pursuant to the 2017 Plan. These restricted stock units were immediately vested.

Remaining lease term and discount rate:
Weighted average remaining lease term (years)
Leased facilities, equipment and vehicles	3.64

Weighted average discount rate
Leased facilities, equipment and vehicles	5.18%

OnSupplemental ~~March~~cash ~~15,~~flow ~~2018,~~information related to the Company’s ~~granted~~operating 1leases ~~restricted~~was ~~stock~~as ~~unit~~follows tofor ~~a non-employee pursuant to~~ the ~~2017~~quarter ~~Plan.~~ended ~~These restricted stock units vest on~~ March 1531, ~~2018,~~ 2019 ~~and 2020, respectively.~~ :

The value of the restricted stock is being charged to compensation expense over the vesting period and the Company has elected to account for foreitures as they occur. Compensation expense includes expense related to restricted stock units of $124 and $96 for the three months and $375 and $231 for the nine months ended September 30, 2018 and 2017, respectively. Additional compensation expense related to restricted stock units will be $124, $412, and $283 for the remainder of 2018, 2019, and 2020, respectively.

	Three Month Period
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	59

Note 1110. ~~Warranties~~Related Party Transactions

~~The~~Included ~~following~~in ~~table~~the ~~provides~~Company’s Condensed Statements of Operations are sales to Terex of $28 and $31 for the ~~changes~~three inmonths ended March 31, 2019 and 2018, respectively. Also included are sales to Manitex of $1 and $0 for the three months ended March 31, 2019 and 2018, respectively. The Company’s ~~product~~recorded ~~warranties:~~purchases from Terex of $1,542 and $2,182 for the three months ended March 31, 2019 and 2018, respectively, which are primarily for shared freight services. The Company also expensed $300 and $242 under a Terex Cross Marketing Agreement and Terex Services Agreement respectively, for the three-month period ended March 31, 2018.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
($ in thousands)	2018			2017			2018			2017
Product warranty accrual balance, beginning of period	$	1,654		$	1,866		$	1,869		$	1,870
Liabilities accrued for warranties during the period		258			282			745			973
Warranty claims paid during the period		(239	)		(296	)		(879	)		(805	)
Changes in estimates		(73	)		27			(135	)		(159	)
Product warranty accrual balance, end of period	$	1,600		$	1,879		$	1,600		$	1,879

Receivables from affiliates include $22 due from Terex March 31, 2019, and $30 due from Terex and $3 due from Manitex (total $33) at December 31, 2018.

~~Note~~Payables ~~12.~~to ~~Subsequent~~affiliates ~~Events~~includes $416 due to Terex March 31, 2019, and $1,200 due to Terex at December 31, 2018.

~~On October 29, 2018, the Company entered into a First Amendment (the “First Amendment”) to the Amended and Restated Credit Agreement described in~~ Note ~~9, “Debt~~11.~~” The~~ ~~principal~~Recent ~~modifications~~Accounting to the Amended and Restated Credit Agreement resulting from the First Amendment are as follows: (i) a revision to one of the components of the “EBITDA” definition permitting extraordinary gains and losses in an amount not to exceed $1,000 for any trailing twelve month period, (ii) a revision allowing for an increase in ineligible insured foreign receivables for a specific customer, (iii) a revision to the term loan requiring the Company not to exceed a leverage ratio of 4.00 to 1.00, which shall step down to 2.25 to 1.00 by September 30, 2020, as well as certain other immaterial changes consistent with provisions in similar agreements. A further description of the First Amendment is included in Part II, Item 5 of this Quarterly Report on Form 10-Q.Pronouncements

Effective January 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition, which we elected. As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease right-of-use (“ROU”) assets of $1.0 million and lease liabilities of $1.0 million. The adoption of ASC 842 had an immaterial impact on our Condensed Statements of Operations and Condensed Statements of Cash Flows for the three-month period ended March 31, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which allowed us to carry forward the historical lease classification.

Additional information and disclosures required by the new standard are contained in Note 9, Leases.

January 1, 2019, the Company adopted the FASB ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230): Statement of Cash Flows” (“ASU 2016-15”), which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. ASU 2016-15 also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal years and interim periods beginning after December 15, 2018, for emerging growth companies. This had no effect on the Company’s financial statements.

January 1, 2019, the Company adopted the FASB ASU No. 2017-09, “Compensation – Stock Compensation: Scope of Modification Accounting.” This ASU is intended to provide guidance about which changes to the terms or conditions on a share-based payment

award require an entity to apply modification accounting. This new standard is effective for reporting periods beginning after December 15, 2018, and interim periods within that reporting period, for emerging growth companies, with early adoption permitted. This had no effect on the Company’s financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes to those statements included in this Quarterly Report on Form 10-Q. This discussion and analysis may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth under the caption “Risk Factors,” in our ~~2017~~2018 Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018, in the section entitled “Item 1A. Risk Factors”.

Cautionary Statement Regarding Non-GAAP Measures

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contains references to “EBITDA”. EBITDA is defined for the purposes of this Quarterly Report on Form 10-Q as net income or loss before interest, income taxes, depreciation and amortization. Management believes that EBITDA is a useful supplemental measure of our operating performance and provides meaningful measures of overall corporate performance exclusive of our capital structure and the method and timing of expenditures associated with building and placing our products. EBITDA is also presented because management believes that it is frequently used by investment analysts, investors and other interested parties as a measure of financial performance.

and timing of expenditures associated with building and placing our products. EBITDA is also presented because management believes that it is frequently used by investment analysts, investors and other interested parties as a measure of financial performance.

However, EBITDA is not a recognized earnings measure under generally accepted accounting principles of the United States (“U.S. GAAP”) and does not have a standardized meaning prescribed by U.S. GAAP. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that EBITDA should not be construed as an alternative to net income or loss or other income statement data (which are determined in accordance with U.S. GAAP) as an indicator of our performance or as a measure of liquidity and cash flows. Management’s method of calculating EBITDA may differ materially from the method used by other companies and accordingly, may not be comparable to similarly titled measures used by other companies.

Overview

ASV Holdings, Inc. (~~formerly A.S.V., LLC) (~~“ASV” the “Company,” “we,” “our” and/or “us”) designs and manufactures a broad range of high -quality compact track loader (“CTL”) and skid steer loader (“SSL”) equipment, marketed through a distribution network in North America, Australia and New Zealand under the ASV brand. We also serve as a private label original equipment manufacturer (“OEM”) for several manufacturers. Our products are used principally in the construction, agricultural and forestry industries. As a full-service manufacturer, we provide pre- and post-sale dealer support, after-sale technical support and replacement parts supplied from our dedicated logistics center. We also supply a limited version of our assembled undercarriage sets that exclude the suspension to Caterpillar for three versions of Caterpillar’s multi-terrain CTL machines marketed under the CAT brand under a supply contract with Caterpillar.

Business Outlook

A number of economic indicators that we believe are relevant to our industry and products have largely been trending favorably ~~year to date in 2018~~, although housing starts ~~have~~ slowed ~~sequentially~~ over the last ~~two~~three quarters raising concerns over the effect of higher interest rates and higher prices. A primary driver of demand for our CTL and SSL products is the United States housing market, where the level of new housing starts continues to be below pre-2007 levels. Since 2009, according to the U.S. Census Bureau, new housing starts have incrementally increased to a seasonally adjusted annual rate of 1.21 million units in ~~September~~March ~~2018~~2019 from approximately 0.5 million in October 2009. The preliminary ~~September~~March ~~2018~~2019 rate of 1.21 million was 314.72% ~~above~~below the ~~August~~March ~~2017~~2018 rate.

Construction spending in the United States is also experiencing growth. The U.S. Census Bureau reported on ~~October~~April 1, ~~2018~~2019 that total construction spending during ~~August~~February ~~2018~~2019 was estimated at a seasonally adjusted annual rate of $1.3 trillion, 61.51% above the ~~August~~February ~~2017~~2018 estimate. For the first two months of 2019, construction spending was 1.4% above the same period in 2018.

The rental sector is another important market for our products and is recording positive growth that is expected to continue. The five-year forecast from the ARA Rental Market Monitor, updated in February ~~2018~~2019, predicted total rental revenue in the U.S. is expected to grow by 4.5.0% in ~~2018~~2019 to reach $5143.5 billion, 54.65% in ~~2019~~2020, 54.7% in ~~2020~~2021 and 4.4% in ~~2021~~2022. This is a sector of the economy that we are actively targeting with our products.

Outside North America, our largest market is Australia, which is recording good levels of growth. The OECD Economic Outlook in May 2018 estimated GDP growth of 2.9% in 2018, influenced by improved terms of trade, strong global economic growth and additional resource exports that are supporting the economy. Resource sector investment is bottoming out, while other business investment is picking up.

The economies of the markets to which we sell our products have for the past few years operated with interest rates at historically low levels. Interest rate changes affect overall economic growth, which affects demand for residential and nonresidential structures which in turn affects sales of our products that serve these activities. Interest rate changes also affect the ability of dealers to finance machine purchases, can change the optimal time to keep machines in a fleet and can impact the ability of our suppliers to finance the production of parts and components necessary to manufacture and support our products. In the United States, during 2017 and early 2018, the Federal Reserve continued increasing interest rates from their historically low levels. So far in 2018, the Federal Reserve has increased its benchmark rate three times, in March, June and September. The rate is now at a range of 2.0% to 2.25%, with one additional incremental increase anticipated in 2018. Increases in interest rates could negatively impact our sales and create supply chain inefficiencies.

The prices the Company paid for raw materials used in manufacturing products have been impacted by tariffs. See “Commodities Risk” for the impact of tariffs on the Company.

Outside North America, our largest market is Australia. The Australian Bureau of Statistics in March 2019 reported GDP growth of 2.3% in 2018, which however, reflected a slowing to 0.2% in the December 2018 quarter. The lower rate of growth in the final quarter was influenced by soft household spending and a decline in dwelling investment.

The economies of the markets to which we sell our products have for the past few years operated with interest rates at historically low levels. Interest rate changes affect overall economic growth, which affects demand for residential and nonresidential structures which in turn affects sales of our products that serve these activities. Interest rate changes also affect the ability of dealers to finance machine purchases, can change the optimal time to keep machines in a fleet and can impact the ability of our suppliers to finance the production of parts and components necessary to manufacture and support our products. In the United States, during 2017 and 2018, the Federal Reserve continued increasing interest rates from their historically low levels. In 2018, the Federal Reserve increased its benchmark rate four times, in March, June, September and December. The rate is now at a range of 2.25% to 2.5%. Increases in interest rates could negatively impact our sales and create supply chain inefficiencies.

The prices the Company paid for raw materials used in manufacturing products have been impacted by tariffs. See “Commodities Risk” for the impact of tariffs on the Company.

Factors Affecting Revenues and Gross Profit

We derive most of our revenue from purchase orders from dealers and distributors. The demand for our products depends upon the general economic conditions of the markets in which we compete, residential housing starts, general construction activity and upon dealer and end-user replacement or repair cycles. Adverse economic conditions may cause dealers or end-users to forego or postpone new purchases in favor of repairing existing machinery. In addition to the United States, we sell to dealers in Canada, Australia and New Zealand. All of our sales are denominated in U.S. dollars. The strengthening of the U.S. dollar against these other currencies may have a negative impact on sales volume and sales prices to dealers outside of the United States.

Factors that affect gross profit include product mix – variations between sales of larger and smaller machines and between machine sale and sales of parts and OEM undercarriages, production levels and cost of raw materials. Margins tend to increase when sales are skewed towards larger, tracked machines and replacement parts. As a consequence, gross profit margins can vary from period to period. Replacement parts generally command higher margins than product sales.

Results of Operations

Three Months Ended ~~September~~March 3031, ~~2018~~2019 Compared to Three Months Ended ~~September~~March 3031, ~~2017~~2018

For the three months ended ~~September~~March 3031, ~~2018~~2019, the Company had a net ~~income~~loss of $(0.67) million compared to a net ~~income~~loss of $(0.53) million for the three months ended ~~September~~March 3031, ~~2017~~2018.

For the three months ended ~~September~~March 3031, ~~2018~~2019, the net ~~income~~loss of $(0.67) million consisted of revenue of $3227.83 million, cost of sales of $2823.69 million, research and development costs of $0.5 million, selling, general and administrative (“SG&A”) expenses of $23.71 million, and interest expense of $0.56 million.

For the three months ended ~~September~~March 3031, ~~2017~~2018, the net ~~income~~loss of $(0.53) million consisted of revenue of $3029.69 million, cost of sales of $25.89 million, research and development costs of $0.5 million, SG&A expenses of $23.94 million, interest expense of $0.75 million, and an income tax ~~expense~~benefit of $0.31 million.

Net Sales: For the three months ended ~~September~~March 3031, ~~2018~~2019, net sales were $3227.83 million, ana ~~increase~~decrease of approximately $2.25 million or 78.25% ~~from~~of net sales of $3029.69 million for the same period in ~~2017~~2018. The ~~increase~~decrease in net sales is attributable to ana ~~increase~~decrease in sales of machines of $3.2.5 million, ~~offset~~and by a decrease in sales of undercarriages to Caterpillar of $0.46 million, ~~and~~offset aby ~~decrease~~an increase in aftermarket parts and other sales of $0.6 million.

~~Increased~~Total machine ~~volume~~sales ~~and an improved machine mix of larger higher revenue models in the three months ended September 30, 2018, resulted in an increase in machine~~ revenues ofdeclined ~~16.4~~12% ~~or $3.2 million~~ from the ~~same~~prior period ~~in 2017. The increase in volume was primarily due to increased sales into our North American distribution channels~~, ~~offset~~a incombination ~~part~~of bylower ~~fewer~~unit ~~units~~volumes ~~shipped into Australia~~ and ~~New~~higher ~~Zealand~~price. Adverse ~~Growth~~weather inconditions ~~revenues~~across ~~from~~the ~~sales~~United ofStates ~~machines~~and ~~through~~continued ~~our~~engine ~~North~~supply ~~American~~constraints, ~~distribution~~which ~~channels~~limited ~~was~~production ~~an increase~~ of ~~40%~~certain ~~compared to the three months ended September 30~~models, ~~2017.~~impacted Asour ofshipments ~~September 30,~~into ~~2018, we had 163~~ North ~~American~~America. Sales ~~dealer and rental accounts with 270 locations as compared~~ to ~~124 North American dealer and rental accounts with 189 locations as of September 30~~Australia, ~~2017.~~where ~~For~~economic ~~orders~~growth ~~placed~~has ~~after~~recently ~~May 1~~slowed, ~~2018,~~were ~~steel~~also ~~surcharge~~down ~~pricing~~for ~~was~~the ~~implemented~~period, ~~which~~accounting ~~accounted~~ for $0approximately 32.48% ~~million~~ of ~~machine~~the ~~revenue~~year inover ~~the~~year ~~period~~volume reduction.

~~Parts~~We ~~and~~benefited ~~other~~from ~~sales~~favorable ~~for~~pricing ~~the~~and ~~three~~product ~~months~~mix ~~ended~~in ~~September 30~~the period, ~~2018~~which ~~decreased~~partially ~~$1.0~~offset ~~million compared to~~ the ~~same~~volume ~~period in 2017~~decline. ~~This~~Price ~~comprised~~increases aeffective ~~decrease~~January of1, ~~Caterpillar~~2019, ~~undercarriage~~combined ~~and~~with ~~parts~~the ~~shipments~~continued ofsteel ~~$0.7~~surcharge ~~million~~pricing ~~for~~implemented ~~the~~in ~~period~~May ~~and~~of a2018, ~~decrease~~provided ina ~~aftermarket~~pricing ~~parts~~benefit ~~and other sales~~ of approximately $01.34 million ~~for~~in the period. ~~Parts~~Favorable ~~sales~~product asmix provided a ~~percentage~~benefit of ~~total~~approximately ~~sales was 24~~$1.3%6 ~~and~~million ~~28.1%,~~in ~~for~~ the ~~three months ended September 30, 2018 and 2017, respectively~~period.

Gross Profit: For the three months ended September 30, 2018, our gross profit was $4.2 million or 12.8% of net sales compared to $4.8 million or 15.7% of net sales for the same period in 2017. Gross profit was down $0.6 million. Gross profit as a percent of net sales decreased primarily as a result of (i) increased input costs primarily associated with steel and tariffs, and (ii) in-house distribution center costs previously paid to Terex under the Terex Cross Marketing Agreement, as referenced in Note 5, “Related Party Transactions”.

Research and Development: Research and development expense was $0.5 million or 1.5% of net sales for the three months ended September 30, 2018, compared to $0.5 million or 1.6% of net sales for the same period in 2017.

~~Selling,~~We ~~general~~added ~~and~~a ~~administrative~~net ~~expense:~~seven ~~SG&A~~North ~~expense~~America ~~for~~dealer ~~the~~and ~~three~~rental ~~months~~locations ~~ended~~during ~~September 30~~the period, ~~2018~~bringing ~~was~~the ~~$2.7~~overall ~~million~~number orto ~~8.2% of net sales~~293, compared to ~~$2.9~~248 ~~million,~~locations orat ~~9.5%~~the end of ~~net sales, for~~ the ~~comparable~~same period in ~~2017, a decrease of approximately $0~~2018.2 ~~million~~Same orstore ~~6.9%,~~sales ~~respectively. The~~for ~~main contributing factors to~~ the ~~decrease~~quarter were adown $09.~~3 million decrease in selling expense associated with aftermarket parts, offset by increases to $0~~6%.~~1 million in selling expenses advertising and marketing costs.~~

~~Operating~~Parts ~~Income:~~and ~~For~~other sales for the three months ended ~~September~~March 3031, ~~2018,~~2019 ~~our~~increased ~~operating income was~~ $10.16 million orcompared ~~3.4%~~to ofthe ~~net~~same ~~sales,~~period ~~compared~~in ~~to $1~~2018.5 ~~million~~Parts oras ~~4.9%~~a percentage of ~~net~~total sales ~~for~~was ~~the~~24.7% ~~same~~and ~~period~~20.3%, infor ~~2017.~~the ~~Operating~~three ~~income~~months ~~decreased~~ended ~~due~~March 31, to2019 ~~the~~and ~~explanations~~2018, ~~above~~respectively.

~~Interest~~Gross ~~expense~~Profit: ~~Interest~~For ~~expense, including amortization of debt issuance costs, for~~ the three months ended ~~September~~March 3031, ~~2018~~2019, our gross profit was $03.54 million or 12.6% of net sales compared to $03.79 million or 13.2% of net sales for the same period in ~~2017~~2018. Under absorption of costs and plant inefficiencies, ~~principally~~primarily ~~due~~as toa result of lower ~~borrowings~~volume onand ~~our~~continued ~~debt~~engine ~~facilities~~supply ~~and~~constraints ~~improved~~combined ~~rates~~with asfavorable abenefits ~~result~~realized during first quarter 2018 negatively impacted gross profit in the period. Favorable machine pricing of ~~refinancing~~$1.4 ~~our~~million, ~~debt~~combined with both the positive and negative volume impacts of parts, undercarriages and machine sales offset the estimated $1.0 million in ~~December~~year over year increased input costs during the period. Cost reduction projects implemented in quarter one of ~~2017~~2019 contributed approximately $0.3 million in margin benefit for the period as well as the 2018 period being adversely impacted by $0.6 million of costs associated with the re-location of our aftermarket parts distribution center.

~~Tax:~~Research ~~For~~and ~~the~~Development: ~~three~~Research ~~months~~and ~~ended~~development ~~September 30,~~expense ~~2018,~~was ~~the~~$0.5 ~~Company~~million ~~recorded~~or an1.8% ~~income tax benefit~~ of ~~$0.04~~net ~~million.~~sales ~~For~~for the three months ended ~~September~~March 3031, ~~2017~~2019, acompared ~~tax~~to ~~expense of~~ $0.35 million ~~was~~or ~~recorded~~1. 7% of net sales for the same period in 2018.

~~Net~~Selling, ~~income~~general and administrative expense: ~~For~~SG&A expense for the three months ended ~~September~~March 3031, ~~2018,~~2019 ~~our~~was ~~net~~$3.1 ~~income~~million ~~was~~or $011.5% ~~million~~of net sales, compared to a$3.4 million, or 11.4% of net ~~income~~sales, for the comparable period in 2018, a decrease of approximately $0.527 million or 8.0%, respectively. The primary contributing factor to the decrease was the elimination of selling expenses for aftermarket parts paid to Terex during the same period in ~~2017~~2018 following the relocation of that activity to our own facility. This benefit was partially offset by increases in marketing and advertising, including the introduction from the start of 2019 of a co-op advertising program for our dealer network to promote the brand.

~~EBITDA~~Operating Income: ~~EBITDA~~For ~~totaled~~the three months ended March 31, 2019, our operating loss was $2(0.32) million or 7.(0.7)% of net sales ~~for the three months ended September 30~~, ~~2018~~ compared to operating income of $20.71 million or 80.73% of net sales for the same period in ~~2017~~2018. ~~The~~Operating ~~decrease~~income indecreased ~~EBITDA~~due ~~for the three months ended September 30, 2018 compared~~ to the ~~three~~explanations ~~months ended September 30, 2017 resulted from reduced interest charges of $0~~above.~~2 million, and a reduced tax expense of $0.2 million.~~

~~EBITDA~~Interest ~~totaled~~expense: ~~$5.6~~Interest ~~million~~expense, orincluding ~~6.0%~~amortization of ~~net~~debt ~~sales~~issuance costs, for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, ~~compared~~was to $80.26 million orcompared 8to $0.9%5 ofmillion ~~net sales~~ for the same period in ~~2017. The decrease in EBITDA for the nine months ended September 30,~~ 2018 ~~compared to the nine months ended September 30, 2017 resulted from decreased net income of $2~~.0 ~~million, which included the effects of reduced interest charges of $1.0 million, and a reduced tax benefit of $0.5 million.~~

Tax: For the three months ended March 31, 2019, the Company recorded no tax. For the three months ended March 31, 2018, a tax benefit of $0.1 million was recorded.

Net loss: For the three months ended March 31, 2019, our net loss was $(0.7) million compared to a net loss of $(0.3) million for the same period in 2018.

EBITDA: EBITDA totaled $1.0 million or 3.7% of net sales for the three months ended March 31, 2019 compared to $1.2 million or 4.2% of net sales for the same period in 2018.

The decrease in EBITDA for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 resulted from an increased net loss of $0.4 million, which included the effects of increased interest charges of $0.1 million and a reduced tax benefit of $0.1 million.

The table below sets forth a reconciliation of net income to EBITDA (in thousands of dollars) :

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	For the Three Months Ended March 31,
	2018			2017			2018			2017
	2019			2018
Net income	$	~~599~~(738	)	$	~~522~~(307	)	$	~~611~~		$	~~2,505~~
Interest expense		~~491~~551			~~698~~458			~~1,413~~			~~2,463~~
Depreciation & amortization		1,~~225~~216			1,~~192~~184			~~3,627~~			~~3,626~~
Other (income) expense		(28	)		—(6	)		(8	)		—
Income tax (benefit) expense		~~(35~~-	)		~~257~~(81	)		~~(28~~	)		~~(372~~	)
EBITDA (1)	$	21,~~278~~021		$	21,~~669~~248		$	~~5,615~~		$	~~8,222~~
% of Sales		63.97	%		84.72	%		~~5.9~~	%		~~8.9~~	%

(1)

EBITDA is defined as income or loss before interest, income taxes, depreciation and amortization. EBITDA is not a recognized measure under U.S. GAAP and does not have a standardized meaning prescribed by U.S. GAAP. Therefore, EBITDA may not be comparable to similar measures presented by other companies. The table above reconciles net income to EBITDA. See “—Cautionary Statements Regarding Non-GAAP Measures” for further information regarding EBITDA.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

For the nine months ended September 30, 2018, the Company had a net income of $0.6 million compared to a net income of $2.5 million for the same period ended September 30, 2017.

For the nine months ended September 30, 2018, net income of $0.6 million consisted of revenue of $94.5 million, cost of sales of $82.1 million, research and development costs of $1.4 million, SG&A expenses of $9.0 million, and interest expense of $1.4 million.

For the nine months ended September 30, 2017, the net income of $2.5 million consisted of revenue of $92.9 million, cost of sales of $78.4 million, research and development costs of $1.6 million, SG&A expenses of $8.3 million, interest expense of $2.5 million, and an income tax benefit of $0.4 million.

Net Sales: For the nine months ended September 30, 2018, net sales were $94.5 million, an increase of approximately $1.6 million or 1.7% from net sales of $92.9 million for the same period in 2017. The increase in net sales is a result of increased machine sales of $6.8 million, offset by decreased sales of undercarriages to Caterpillar of $2.6 million and decreased sales of aftermarket parts and other of $2.6 million.

Increased machine volume and an improved machine mix of larger higher revenue machines in the nine months ended September 30, 2018, resulted in an increase in machine revenues of 11.3% or $6.8 million from the same period in 2017. The increase in volume was primarily due to increased sales into our North American distribution channels, offset in part by fewer units shipped into Australia and New Zealand for the period. Growth in revenues from sales of machines through the ASV North American distribution channels was 24.8% compared to the nine months ended September 30, 2017. For orders placed after May 1, 2018, steel surcharge pricing was implemented, which accounted for $0.5 million of machine revenue in the period.

Parts and other sales for the nine months ended September 30, 2018 decreased $5.2 million compared to the same period in 2017. This comprised a decrease in Caterpillar undercarriage and parts shipments of $3.4 million for the period, a result of lower demand, and a decrease in aftermarket parts and other sales of $1.8 million. Parts sales as a percentage of total sales was 22.7% and 25.6%, for the nine months ended September 30, 2018 and 2017, respectively.

Gross Profit: For the nine months ended September 30, 2018, our gross profit was $12.4 million or 13.1% of net sales compared to $14.5 million or 15.6% of net sales for the same period in 2017. Gross profit as a percent of net sales decreased primarily as a result of (i) a decrease in aftermarket parts as a percentage of total sales, (ii) start-up costs of $0.6 million associated with moving our parts distribution to Grand Rapids, (iii) increased input costs primarily associated with steel and tariffs, and (iv) in-house distribution center costs previously paid to Terex under the Terex Cross Marketing Agreement, as referenced in Note 5, “Related Party Transactions”.

Research and Development: Research and development expense was $1.4 million or 1.5% of net sales for the nine months ended September 30, 2018, compared to $1.6 million or 1.7% of net sales for the same period in 2017. The decrease of $0.2 million is attributable to fewer expenditures related to the launch of new product designs for the ASV brand in connection with the implementation of Tier 4 emissions standards during the period.

Selling, general and administrative expense: SG&A expense for the nine months ended September 30, 2018 was $9.0 million or 9.5% of net sales, compared to $8.3 million, or 8.9% of net sales, for the comparable period in 2017, an increase of approximately $0.7 million or 8.4%, respectively. The main contributing factors to the increase were (i) a $0.1 million increase from costs associated with stock compensation, (ii) a $0.4 million increase resulting from costs associated with operating as a public company, (iii) a $0.1 million increase in general administrative costs relating to adding key management positions, (iv) a $0.4 million increase in advertising and marketing costs, offset by (v) a $0.6 million decrease in selling expense associated with aftermarket parts.

Operating Income: For the nine months ended September 30, 2018, our operating income was $2.0 million or 2.1% of net sales, compared to $4.6 million or 5.0% of net sales for the same period in 2017. Operating income as a percent of net sales decreased due to the explanations above.

Interest expense: Interest expense, including amortization of debt issuance costs, for the nine months ended September 30, 2018, was $1.4 million compared to $2.5 million for the same period in 2017, principally due to lower borrowings on our debt facilities, pay down of debt from IPO proceeds in 2017, and improved rates as a result of refinancing our debt in December of 2017.

Tax: For the nine months ended September 30, 2018 income tax benefit of $0.03 million was recorded compared to income tax benefit of $0.4 million for the nine months ended September 30, 2017. The tax benefit consisted of federal and state taxes on pre-tax income offset by a discrete income tax benefit related to the finalization of the Company’s 2017 tax returns.

Net income: For the nine months ended September 30, 2018, our net income was $0.6 million compared to a net income of $2.5 million for the same period in 2017, a decrease of $1.9 million and is attributable to the items discussed above.

Liquidity and Capital Resources

We fund our business activities by utilizing a revolving credit facility, a term loan for financing, and cash generated from operations. In connection with our revolving credit facility, in October 2018 the Company ~~recently~~ entered into an amendment which included revisions to the definition of EBITDA, an increase in the allowance of certain foreign receivables and a change to the required leverage ratio. ~~For~~On March 28, 2019, the Company entered into a Second Amendment (the “Second Amendment”) to the Amended and Restated Credit Agreement with PNC Bank, National Association, as administrative agent (“PNC”), described in Note 6, “Debt”. The principal modification to the Amended and Restated Credit Agreement resulting from the Second Amendment replaces the maximum leverage ratio requirements for 2019 with a minimum EBITDA covenant and beginning in March of 2020, removes the minimum EBITDA covenant and reverts to a leverage ratio requirement of 2.75 to 1.00, which shall step down to 2.25 to 1.00 by September 30, 2020. In addition, the applicable margin for each advance under the credit agreement was increased by 50 basis points for the period from March 28, 2019 until the first business day following receipt by PNC of the Company’s certificate of compliance with the applicable leverage ratio for the quarter ended March 31, 2020 and the inventory sub-limit was increased to $18 million.

more information, see Note 9, “Debt” and Note 12, “Subsequent Events” to the unaudited condensed financial statements included elsewhere in the Quarterly Report on Form 10-Q and “Item 3. Quantitative and Qualitative Disclosure About Market Risk” and “Item 5. Other Information” of Part II below.

We use our capital resources to:

•

fund operating costs;

•

fund capital requirements, including capital expenditures;

•

make debt and interest payments; and

•

invest in new ventures.

We need cash to meet our working capital needs as the business grows, to acquire capital equipment, and to fund acquisitions and debt repayment. We intend to use cash flows from operations and existing availability under the current revolving credit ~~facilities~~facility to fund anticipated levels of operations for the next twelve months. As our availability under our credit lines is limited, it is important that we manage our working capital. We may need to raise additional capital through debt or equity financings to support our growth strategy, which may include additional acquisitions. There is no assurance that such financing will be available or, if available, on acceptable terms.

Cash Flows

~~Nine~~Three Months Ended ~~September~~March 3031, ~~2018~~2019

Operating activities consumed $14.36 million of cash for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, comprised of net ~~income~~loss of $(0.67) million, non-cash items that totaled $41.04 million and changes in assets and liabilities, which consumed $5.92 million. The principal non-cash items are depreciation and amortization of $31.62 million and share-based compensation of $0.41 million.

The changes in assets and liabilities consumed $5.92 million. The changes in assets and liabilities had the following impact on cash flows: Accounts receivable generated $0.64 million, trade receivables/payables from affiliates consumed $0.~~3 million, inventory consumed $6.9 million, prepaid expenses generated $0.~~1 million, trade accounts payable generated $1.7 million, and accrued expenses consumed $1.1 million. The decrease in accounts receivable is principally due to customer mix on increased sales. Days sales outstanding at September 30, 2018 were 54 days, compared to 58 days at December 31, 2017. Inventory has increased as input costs rise, we continue to secure long lead time production components for future builds, and we maintain a larger finished goods machine inventory ~~to satisfy demand. The fluctuation in the remaining assets and liabilities are within a range that would normally be expected to occur.~~

Investing activities for the nine months ended September 30, 2018 consumed $0.8 million of cash. We consumed $0.8 million of cash to purchase machinery and equipment, tooling for Tier IV product launches, information technology systems up-grades and building improvements. 18

~~Financing~~consumed ~~activities~~$3.9 ~~generated~~million, trade accounts payable consumed $21.0 million, accrued expenses consumed $0.7 million and other long-term liabilities consumed $0.1 million. The increase in ~~cash~~accounts ~~for~~receivable ~~the~~is ~~nine~~principally ~~months~~due ~~ended~~to ~~September 30,~~customer ~~2018~~mix. ~~Cash~~Days ~~was~~sales ~~generated~~outstanding byat ~~increased~~March 31, ~~borrowing~~2019 ~~under~~were ~~the~~42 ~~revolving~~days, ~~credit~~compared ~~facilities~~to of44 ~~$3.2~~days ~~million~~at December 31, 2018. Inventory has increased ~~borrowing~~as oninput ~~new~~costs rise, we continue to secure long~~-term~~ ~~loans~~lead oftime ~~$0.4~~production ~~million~~components ~~associated~~for ~~with~~future ~~relocating~~builds, ~~our~~and ~~parts~~we ~~distribution~~maintain ~~facility~~a larger finished goods machine inventory to ~~Minnesota,~~satisfy ~~offset~~demand. The byfluctuation in the ~~use~~remaining ofassets ~~$1.5~~and ~~million~~liabilities ofare ~~cash~~within ~~for~~a ~~principal~~range ~~payments~~that onwould ~~debt.~~normally be expected to occur.

~~Nine~~Investing ~~Months~~activities ~~Ended~~for ~~September~~the three months ended March 3031, ~~2017~~2019 consumed $0.2 million of cash. We consumed $0.2 million of cash to purchase machinery and equipment and tooling for Tier IV product launches.

~~Operating~~Financing activities generated $86.80 million ofin cash for the ~~nine~~three months ended ~~September~~March 3031, ~~2017 comprised of a net income of $2~~2019.5 ~~million,~~Cash ~~non-cash~~was ~~items that totaled $3.2 million and changes in assets and liabilities, which~~ generated ~~$3.0~~by ~~million.~~increased ~~The~~borrowing ~~principal~~under ~~non-cash~~the ~~items~~revolving ~~are~~credit ~~depreciation~~facilities ~~and amortization~~ of $3.6 ~~million, share-based compensation of $0~~.27 million, ~~deferred~~offset ~~income~~by ~~tax~~the ~~benefit~~use of $(0.9)5 million, ~~amortization~~ of ~~deferred~~cash ~~finance~~for ~~cost~~principal ofpayments ~~$0.2 million, and loss~~ on debt ~~extinguishment of $0~~.1 ~~million.~~

~~The~~Three ~~changes~~Months inEnded assets and liabilities generated $3.0 million. The changes in assets and liabilities had the following impact on cash flows: Accounts receivable consumed $4.2 million, trade receivables/payables from affiliates generated $0.5 million, inventory generated $6.0 million, prepaid expenses consumed $0.3 million, trade accounts payable generated $0.9 million, accrued expenses consumed $1.4 million, income tax payable generated $0.3 million and other long-term liabilities generated $0.3 million. The increase in accounts receivable is principally due to increased sales. Days sales outstanding at June 30, 2017 were 44 days, compared to 63 days at December March 31, ~~2016. The decrease in inventory relates primarily to the consumption of material on hand at the end of the~~ 2018

19Operating activities consumed $0.2 million of cash for the three months ended March 31, 2018 comprised of a net loss of $(0.3) million, non-cash items that totaled $1.4 million and changes in assets and liabilities, which consumed $1.4 million. The principal non-cash items are depreciation and amortization of $1.2 million, share-based compensation of $0.1 million, and an increase of inventory reserves of $0.1 million.

~~period~~The ofchanges ~~December~~in ~~31,~~assets ~~2016~~and ~~that~~liabilities ~~was~~consumed ~~used~~$1.4 ~~for~~million. ~~product~~The ~~manufactured~~changes ~~for~~in ~~international~~assets ~~shipments~~and inliabilities had the ~~first~~following ~~quarter~~impact ofon ~~2017,~~cash ~~along~~flows: ~~with~~Accounts ~~enhancements~~receivable togenerated ~~our~~$1.2 ~~material~~million, ~~planning~~trade toreceivables/payables ~~more~~from ~~closely~~affiliates ~~align~~generated ~~with~~$0.2 ~~our~~million, ~~production~~inventory ~~plan~~consumed $1. ~~This~~5 ~~has~~million, ~~resulted~~prepaid inexpenses ~~reduced~~generated ~~component~~$0.2 ~~inventory~~million, ~~which~~trade inaccounts ~~turn~~payable ~~has~~consumed ~~significantly~~$0.6 ~~improved~~million, ~~our~~and ~~days~~accrued inexpenses ~~inventory~~consumed ~~metric. The~~ $10.48 million. The ~~reduction~~increase in ~~accrued~~accounts ~~expenses~~receivable ~~related~~is principally due to $1increased sales.2 Days ~~million~~sales ~~for~~outstanding ~~product~~at ~~liability~~March ~~and~~31, ~~$0.1~~2018 ~~million~~were ~~for~~49 ~~reduced~~days, ~~legal~~compared ~~accrual~~to ~~and~~58 $0days at December 31, 2017.1 The ~~million~~increase in inventory relates primarily to increased stock of ~~accrued~~long ~~interest~~lead items to support future production schedules as well as safety stock used to supplement aftermarket parts distribution during the transition period of moving of the parts to our new facility in Grand Rapids. The fluctuation in the remaining assets and liabilities are within a range that would normally be expected to occur.

Investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 ~~generated~~consumed $0.13 million of cash. We consumed $0.53 million of cash to purchase machinery and equipment, principally related to tooling for Tier IV, ~~and~~ information technology system upgrades~~. We~~ ~~generated~~and ~~$0.5~~building ~~million of cash collateral held in escrow under our credit facility~~improvements.

Financing activities ~~consumed~~generated $90.45 million in cash for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018. WeCash ~~used~~was generated by increased borrowing under the revolving credit facilities of $1.80 million, offset by the use of $0.5 million of cash for principal payments on debt and ~~repaid~~ $70.52 million onof ~~our~~debt ~~existing~~issuance ~~revolving~~costs ~~credit facility~~incurred.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require us to make estimates, judgments and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures and contingencies. We evaluate estimates used in preparation of our financial statements on a continual basis. The Company adopted ASC ~~606~~2016-02 ~~during~~Leases ~~the~~(Topic ~~period;~~842) ~~however,~~during itthe ~~had no significant impact on estimates~~period. There have been no other significant changes to our critical accounting policies that are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018.

Off-Balance Sheet Arrangements

At ~~September~~March 3031, ~~2018~~2019 we had $0.2 million of standby letters of credit outstanding. PNC Bank has issued a $0.2 million standby letter of credit in favor of an insurance carrier to secure obligations which may arise in connection with future deductible payments that may be incurred under our workers’ compensation insurance policies.

Inflation

Inflation affects us in two principal ways. First, our revolving credit facility is generally tied to the price and LIBOR interest rates so that increases in those interest rates would be translated into additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, we attempt to cover increased costs of production and capital by adjusting the price of our products. However, we generally do not have inflation-based price adjustment provisions in our contracts. The markets we serve are competitive in nature, and competition may limit our ability to pass through cost increases. Overall, we strive to manage the effect of inflation through sales price adjustments, cost reductions and improved productivity.

serve are competitive in nature, and competition may limit our ability to pass through cost increases. Overall, we strive to manage the effect of inflation through sales price adjustments, cost reductions and improved productivity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to certain market risks that exist as part of our ongoing business operations.

Interest Rate Risk

We are exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in the PNC prime rate and LIBOR. At ~~September~~March 3031, ~~2018~~2019, we had approximately $2935.2 million of variable rate debt with a weighted average interest rate of approximately 56.73%. An increase of 1% in our average floating interest rates at ~~September~~March 3031, ~~2018~~2019 would increase interest expense by approximately $0.34 million.

Commodities Risk

We purchase a majority of our components as partially and fully finished assemblies, rather than raw materials for conversion. However, steel is a major part of the chassis, cabs and wheel rims of our product and as such availability and pricing from our suppliers is subject to the global steel market. Extreme movements in the cost and availability of steel and other materials and components may affect our financial performance. The prices we pay for raw materials used in our products may be impacted by tariffs. On March 8, 2018, the Trump ~~Administration~~administration signed an order that imposed a tariff of 25% on steel that went into effect on March 23, 2018. As a result of this tariff, if we are unable to obtain raw materials, including steel, at historical prices or unable to pass any material price increases on to dealers, our margins could be adversely affected and it could have a material adverse effect on our business. Changes in input costs did not have a significant effect on our operating performance in 2017 or the first three months of 2018. However, beginning in second quarter of 2018, input prices, and steel components in particular, have increased significantly,

any material prices on to dealers, our margins could be adversely affected, and it could have a material adverse effect on our business. Changes in input costs had a significant effect on our operating performance in 2018, as input prices, and steel components in particular, increased significantly, driven by the above-mentioned tariffs and higher levels of market demand driving increased prices. During 2018 and continuing into 2019, we have implemented re-engineering and re-sourcing actions to help avoid these increases and have also implemented surcharge price increases to recover steel increases. In the first quarter of 2019 these activities benefited gross margin by $0.3 million.

ability to meet our requirements and standards. We actively manage our material supply sourcing, and may employ various methods to limit risk associated with commodity cost fluctuations and availability. The inability of suppliers to deliver materials and components promptly could result in production delays and increased costs to manufacture our products. To mitigate the impact of these risks we continue to search for acceptable alternative supply sources and less expensive supply options on a regular basis.

Raw Materials and Component Products

The Company’s operating philosophy is to design, source, integrate, quantitatively assess, assemble, ship and integrate product from parts and systems available from third parties and our key suppliers include Kubota, Perkins, Cummins and Deutz. Consequently, we purchase a majority of our components as partially and fully finished assemblies, rather than raw materials for conversion. However, steel is a major component of the chassis, cabs and wheel rims of our product and as such availability and pricing from our suppliers is subject to the global steel market. Extreme movements in the cost and availability of steel and other materials and components may affect our financial performance. The prices we pay for raw materials used in our products may be impacted by tariffs. On March 8, 2018, the Trump administration signed an order that imposed a tariff of 25% on steel (Section 232 Tariff) that went into effect on March 23, 2018, and in September 2018 a further 10% on many other products imported from China (Section 301 Tariff). An additional 15% increase to the Section 301 Tariff proposed to be effective March 1, 2019, has currently been indefinitely delayed. As a result of these tariffs, if we are unable to obtain raw materials, including steel, at historical prices or unable to pass any material prices on to dealers, our margins could be adversely affected, and it could have a material adverse effect on our business. Changes in input costs had a significant effect on our operating performance in 2018, as input prices, and steel components in particular, increased significantly, driven by the above-mentioned tariffs and higher levels of market demand driving increased prices. During the year we have implemented re-engineering and re-sourcing actions to help avoid these increases and have also implemented surcharge price increases to recover steel increases. In the first quarter of 2019, the Company implemented price increases on machines and aftermarket parts targeted to offset the significant cost increases incurred during 2018.

driven by the above-mentioned tariffs and higher levels of market demand driving increased prices. We have implemented re-engineering and re-sourcing actions to help avoid these increases and have also implemented surcharge price increases to recover steel increases, although they may not be complete or successful. The net increase in our material costs adversely impacted our gross profit percentage by approximately 2.7% in the third quarter of 2018.

In the absence of labor strikes or other unusual circumstances, the materials and components used in our products are normally available from multiple suppliers. However, some of the components may not be easily interchanged with components from alternative suppliers and have been designed into our products. We evaluate current and potential suppliers on a regular basis on their ability to meet our requirements and standards. We actively manage our material supply sourcing and may employ various methods to limit risk associated with commodity cost fluctuations and availability. The inability of suppliers to deliver materials and components promptly could result in production delays and increased costs to manufacture our products. To mitigate the impact of these risks we continue to search for acceptable alternative supply sources and less expensive supply options on a regular basis. With the high level of market demand for components, there has been an increase in shortages for several critical components, and in particular engines. This will result in longer lead times for these components which will in turn impact the lead times of our machines for our customers. We have initiated a number of actions to alleviate these issues, including identifying additional suppliers for these types of components. The implementation of these changes, however, does take time to validate and implement and cannot be guaranteed to fully alleviate the supply constraints or ultimately be as attractive to our customers. During 2017 and during the nine months ended September 30, 2018, raw materials and components were generally available to meet our production schedules and had no significant impact on our revenues.

Item 4. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of ~~September~~March 3031, ~~2018~~2019, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of ~~September~~March 3031, ~~2018~~2019, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

Beginning January 1, ~~2018~~2019, wethe Company implemented ASU ~~2014~~2016-0902, ~~Revenue~~Leases. ~~from~~Although ~~Contracts~~the ~~with~~adoption ~~Customers~~of ~~(Topic~~the ~~606)~~new ~~and~~accounting ~~ASU~~standard ~~2015-14,~~did ~~Revenue~~not ~~from~~have ~~Contracts~~a ~~with~~material ~~Customers~~impact ~~(Topic~~on ~~606):~~our ~~Deferral~~Condensed Statement of ~~Effective~~Operations ~~Date.~~or ~~Although~~Condensed ~~the~~Statements ~~adoption~~ of ~~the~~Cash ~~new~~Flows ~~revenue~~for ~~standard~~the ~~had~~three-month noperiod ~~significant~~ended ~~impact~~March ~~on our results of operations~~31, ~~cash flows~~2019, ~~or financial position,~~ we did implement changes to our internal controls related to ~~revenue~~the asimplementation of ~~January~~the 1,lease ~~2018~~accounting standard. These changes included ~~the~~performing ~~development~~a ofcomprehensive ~~new~~lease ~~policies~~scoping ~~based~~analysis onto ~~the~~identify, ~~five-step~~disaggregate ~~model~~and ~~provided~~evaluate ineach ~~the~~of ~~new~~our ~~revenue~~lease ~~standard,~~categories ~~enhanced contract review requirements,~~ and ~~other~~implementing ~~ongoing~~a ~~monitoring~~standard ~~activities.~~procedure ~~These controls were designed~~ to ~~provide~~calculate ~~assurance~~operating atlease aassets ~~reasonable~~and ~~level~~lease ofliabilities ~~the~~values ~~fair~~for ~~presentation of~~ our ~~condensed consolidated financial statements and related disclosures~~leases. There ~~was~~were no ~~change~~other changes in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are involved in various legal proceedings, including the proceeding before the National Labor Relations Board described in “Risk Factors–Risks Related to Our Business” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 and as further described below.

The International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers brought a proceeding against us before the National Labor Relations Board (the “NLR Board”) in May 2014 regarding alleged unfair labor practices at our Grand Rapids, Minnesota facility. The union alleged, among other things, that we unlawfully violated the prohibition against interference, restraint and coercion of employees under Section 8(a)(1) of the National Labor Relations Act (“NLRA”) with respect to the employees’ right to engage in concerted activities and collective bargaining under the NLRA and that we unlawfully violated the prohibition in Section 8(a)(3) of the NLRA against retaliatory termination related to union activities.

Rapids, Minnesota facility. The union alleged, among other things, that we unlawfully violated the prohibition against interference, restraint and coercion of employees under Section 8(a)(1) of the National Labor Relations Act (“NLRA”) with respect to the employees’ right to engage in concerted activities and collective bargaining under the NLRA and that we unlawfully violated the prohibition in Section 8(a)(3) of the NLRA against retaliatory termination related to union activities.

In June 2015, a federal administrative judge found that we violated Section 8(a)(1) in connection with speeches and statements made by management in connection with a union election and Section 8(a)(3) in connection with terminations that followed the same election. The administrative judge entered an order in favor of the union that required, among other things, that we offer reinstatement to 13 terminated employees and make such employees whole for loss of earnings and benefits (including a gross up for adverse tax consequences for lump-sum back pay). Under this order, we were also required to bargain with the union as a representative of the assembly employees at our Grand Rapids, Minnesota facility and post informational notices at our facility. We appealed the June 2015 decision.

On August 21, 2018, the NLR Board affirmed the administrative law judge’s rulings, findings and conclusions, although it amended the judge’s tax compensation and Social Security reporting remedy and adopted a modified order which, among other things, retains the requirements set forth above with regard to the reinstatement of employment and back pay, as well as the requirement to bargain with the union as a representative of the assembly employees. On September 13, 2018, we filed a request for reconsideration of the NLR Board’s decision regarding the recognition of the assembly union, as the legal standard on which the NLR Board relied was overruled and was not considered in the decision.

Item 1A. Risk Factors.

As of the date of this filing, there have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On October 29, 2018, the Company entered into a First Amendment (the “First Amendment”) to the Amended and Restated Credit Agreement described in Note 9, “Debt” to the unaudited condensed financial statements included elsewhere on this Quarterly Report on Form 10-Q and filed as Exhibit 10None.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2017. The principal modifications to the Amended and Restated Credit Agreement resulting from the First Amendment are as follows: (i) a revision to one of the components of the “EBITDA” definition permitting extraordinary gains and losses in an amount not to exceed $1 million for any trailing twelve month period, (ii) a revision allowing for an increase in ineligible insured foreign receivables for a specific customer, (iii) a revision to the term loan requiring the Company not to exceed a leverage ratio of 4.00 to 1.00, which shall step down to 2.25 to 1.00 by September 30, 2020, as well as certain other immaterial changes consistent with provisions in similar agreements. This summary of the material terms of the First Amendment is qualified in its entirety by reference to the full text of the First Amendment, a copy of which is filed as Exhibit 10.1 hereto and incorporated herein by reference.

Item 6. Exhibits.

See the Exhibit Index set forth below for a list of exhibits included with this Quarterly Report on Form 10-Q.

Exhibit Number		Description
2.1		Plan of Conversion of A.S.V. LLC, dated as of April 25, 2017 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 18, 2017).
3.1		Certificate of Incorporation of ASV Holdings, Inc., dated as of May 11, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 18, 2017).
3.2		Bylaws of ASV Holdings, Inc., dated as of May 11, 2017 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 18, 2017).
10.2		Second Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of March 28, 2019 by and among ASV Holdings, Inc., the Loan Parties thereto, the Lenders and PNC Bank, National Association, as agent for the Lenders (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed on March 29, 2019).
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

3.1		Certificate of Incorporation of ASV Holdings, Inc., dated as of May 11, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 18, 2017).
3.2		Bylaws of ASV Holdings, Inc., dated as of May 11, 2017 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 18, 2017).
10.1*		First Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of October 29, 2018 by and among ASV Holdings, Inc., the Loan Parties thereto, the Lenders and PNC Bank, National Association, as agent for the Lenders.
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ASV Holdings, Inc.
Date: November 1, 2018	By:	/s/ Andrew M. Rooke
Date: May 2, 2019	By:	/s/ Andrew M. Rooke
		Andrew M. Rooke
		Chief Executive Officer (Principal Executive Officer)
Date: November 1, 2018	By:	/s/ Melissa K. How
Date: May 2, 2019	By:	/s/ Melissa K. How
		Melissa K. How
		CFO and Secretary (Principal Financial and Accounting Officer)

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