MESA LABORATORIES INC /CO/ 10-Q

Item 4. Controls and Procedures We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Evaluation of Disclosure Controls and Procedures As of December 31, 2024, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report, due to a material weakness identified in the fourth quarter of fiscal year 2024 that has not yet been remediated. Two of the material weaknesses identified in the fourth quarter of fiscal year 2024 were remediated in the first quarter of fiscal year 2025. The material weaknesses are described further below. Prior Year Material Weaknesses A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in Part II Item 9A. "Controls and Procedures" in our annual report on Form 10-K for the year ended March 31, 2024, during fiscal year 2024 we identified three material weaknesses in our internal controls: ● Controls over technical accounting for complex and non-routine transactions - We did not have adequate supervision and review controls over complex technical accounting related to non-routine goodwill impairment transactions and related analyses. ● Controls over determining the useful lives of our recently acquired intangibles - During the GKE acquisition's measurement period, we selected a useful life over which to amortize acquired customer relationships, but there was evidence that a longer useful life may be appropriate. ● Certain controls related to change management and logical access controls related to our enterprise resource planning tool, part of our information technology general controls set, were not operating effectively for a portion of the year ended March 31, 2024. The failure of these information technology general controls extended to automated application controls across portions of financial reporting and business transaction cycles which rely upon the affected information technology application controls. Remediation Status for Material Weaknesses in Internal Control Over Financial Reporting Beginning during the three months ended June 30, 2024, and continuing into the three months ended December 31, 2024, we implemented our previously disclosed remediation plans: ● Technical accounting for complex and non-routine transactions - We executed two transactions during the first quarter of our fiscal year 2025, partial repurchases of the Notes and the amendment and modification of our Credit Facility, which met our definition of complex technical accounting matters for which we should obtain technical accounting support from an outside expert. We identified and selected qualified third-party advisors, including validation that that the advisors possessed adequate knowledge to address the complexities of the applicable technical accounting matters, and we ensured analyses were appropriately reviewed, ensuring consensus on accounting conclusions. Following the execution of our remediation plan for these transactions, management has concluded that the material weakness has been remediated. ● Assessment of useful lives of recently acquired intangibles - We modified the useful life of our customer relationship intangible and recorded an immaterial cumulative effect true-up to release amortization expense during the three months ended June 30, 2024. Following the execution of our remediation plan related to the useful lives of recently acquired intangible assets, management has concluded that the material weakness has been remediated. ● Information technology general controls ("ITGCs") - We have not yet remediated the material weakness related to ITGCs. In fiscal year 2024, our risk assessment process was insufficient, and as a result, we did not design user access controls covering our ERP that operate at an adequate level of precision to appropriately identify the user groups tested in certain of our other logical access and change management controls. Therefore, we have designed a new user access control regarding users of our ERP that will operate at a higher degree of precision compared with our existing user access control and will enhance our review of roles, particularly roles with the ability to add, edit or delete transactions. Management has modified the reports used as source data to test change management and logical access controls in our enterprise resource planning tool, which we expect will allow us to conclude that the related controls are operating effectively by the end of fiscal year 2025. We have engaged a third party specialist to assist in the remediation of the material weakness associated with our ITGCs. Changes in Internal Control Over Financial Reporting We acquired GKE during the third quarter of our fiscal year ended March 31, 2024. As such, GKE's control environment and processes are included in the scope of our assessment of our internal controls over financial reporting beginning in the third quarter of our fiscal year 2025. Other than as discussed above, during the three months ended December 31, 2024 there were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. Page 24 Table of Contents Part II. Other Information Item 1. Legal Proceedings See Note 11. “Commitments and Contingencies” within Item 1. Financial Statements for information regarding any legal proceedings in which we may be involved.