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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 July 31, 2022

 

or

 

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: 001-13490 

 

 

MIND TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

76-0210849

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2002 Timberloch Place

Suite 550

The Woodlands, Texas 77380

(Address of principal executive offices, including Zip Code)

(281) 353-4475

(Registrants telephone number, including area code) 

 

 

Securities 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 - $0.01 par value per share

MIND

The NASDAQ Stock Market LLC

Series A Preferred Stock - $1.00 par value per share

MINDP

The NASDAQ Stock Market LLC

 

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 such files).       Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 13,786,904 shares of common stock, $0.01 par value, were outstanding as of September 12, 2022.

 



 

 

 

MIND TECHNOLOGY, INC.

Table of Contents

 

 

PART I. FINANCIAL INFORMATION

     

Item 1.

Financial Statements (Unaudited)

 
 

Condensed Consolidated Balance Sheets as of July 31, 2022 and January 31, 2022

1

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2022 and 2021

2

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended July 31, 2022 and 2021

3

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2022 and 2021

4

 

Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended July 31, 2022 and 2021

5

 

Notes to Condensed Consolidated Financial Statements

7

 

Cautionary Statement about Forward-Looking Statements

15

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

     

Item 4.

Controls and Procedures

24

 

PART II. OTHER INFORMATION

     

Item 1.

Legal Proceedings

25

     

Item 1A.

Risk Factors

25

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

     

Item 3.

Defaults Upon Senior Securities

25

     

Item 4.

Mine Safety Disclosures

25

     

Item 5.

Other Information

25

     

Item 6.

Exhibits

26

     
 

Exhibit Index

26

     
 

Signatures

28

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

  

July 31, 2022

  

January 31, 2022

 

ASSETS

 

Current assets:

        

Cash and cash equivalents

 $833  $5,114 

Accounts receivable, net of allowance for doubtful accounts of $484 at each of July 31, 2022 and January 31, 2022

  6,657   8,126 

Inventories, net

  14,422   14,006 

Prepaid expenses and other current assets

  1,785   1,840 

Assets held for sale

  178   159 

Total current assets

  23,875   29,245 

Property and equipment, net

  4,013   4,272 

Operating lease right-of-use assets

  2,001   1,835 

Intangible assets, net

  5,469   6,018 

Other assets

  213   650 

Total assets

 $35,571  $42,020 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

        

Accounts payable

 $2,460  $2,046 

Deferred revenue

  441   232 

Accrued expenses and other current liabilities

  3,641   5,762 

Income taxes payable

  1,073   837 

Operating lease liabilities - current

  502   869 

Liabilities held for sale

  202   953 

Total current liabilities

  8,319   10,699 

Operating lease liabilities - non-current

  1,499   966 

Deferred tax liability

  92   92 

Total liabilities

  9,910   11,757 

Stockholders’ equity:

        

Preferred stock, $1.00 par value; 2,000 shares authorized; 1,683 shares issued and outstanding at each of July 31, 2022 and January 31, 2022

  37,779   37,779 

Common stock, $0.01 par value; 40,000 shares authorized; 15,720 and 15,705 shares issued at July 31, 2022 and January 31, 2022, respectively

  157   157 

Additional paid-in capital

  129,314   128,926 

Treasury stock, at cost (1,933 and 1,931 shares at July 31, 2022 and January 31, 2022, respectively)

  (16,863)  (16,862)

Accumulated deficit

  (123,142)  (117,856)

Accumulated other comprehensive loss

  (1,584)  (1,881)

Total stockholders’ equity

  25,661   30,263 

Total liabilities and stockholders’ equity

 $35,571  $42,020 

 

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

 

 

 

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

   

For the Three Months Ended July 31,

   

For the Six Months Ended July 31,

 
   

2022

   

2021

   

2022

   

2021

 

Revenues:

                               

Sale of marine technology products

  $ 8,713     $ 6,807     $ 17,800     $ 11,001  

Total revenues

    8,713       6,807       17,800       11,001  

Cost of sales:

                               

Sale of marine technology products

    5,175       4,583       10,973       8,234  

Total cost of sales

    5,175       4,583       10,973       8,234  

Gross profit

    3,538       2,224       6,827       2,767  

Operating expenses:

                               

Selling, general and administrative

    3,789       3,378       8,061       7,195  

Research and development

    833       888       1,847       1,741  

Depreciation and amortization

    467       557       946       1,223  

Total operating expenses

    5,089       4,823       10,854       10,159  

Operating loss

    (1,551 )     (2,599 )     (4,027 )     (7,392 )

Other (expense) income:

                               

Other, net

    (76 )     57       (194 )     1,004  

Total other (expense) income

    (76 )     57       (194 )     1,004  

Loss from continuing operations before income taxes

    (1,627 )     (2,542 )     (4,221 )     (6,388 )

Provision for income taxes

    (131 )     (197 )     (342 )     (52 )

Net loss from continuing operations

    (1,758 )     (2,739 )     (4,563 )     (6,440 )

(Loss) income from discontinued operations, net of income taxes

    (162 )     79       224       (204 )

Net loss

  $ (1,920 )   $ (2,660 )   $ (4,339 )   $ (6,644 )

Preferred stock dividends - declared

          (682 )     (947 )     (1,266 )

Preferred stock dividends - undeclared

    (947 )           (947 )      

Net loss attributable to common stockholders

  $ (2,867 )   $ (3,342 )   $ (6,233 )   $ (7,910 )

Net (loss) income per common share - Basic

                               

Continuing operations

  $ (0.20 )   $ (0.25 )   $ (0.47 )   $ (0.56 )

Discontinued operations

  $ (0.01 )   $ 0.01     $ 0.02     $ (0.01 )

Net loss

  $ (0.21 )   $ (0.24 )   $ (0.45 )   $ (0.57 )

Net (loss) income per common share - Diluted

                               

Continuing operations

  $ (0.20 )   $ (0.25 )   $ (0.47 )   $ (0.56 )

Discontinued operations

  $ (0.01 )   $ 0.01     $ 0.02     $ (0.01 )

Net loss

  $ (0.21 )   $ (0.24 )   $ (0.45 )   $ (0.57 )

Shares used in computing net loss per common share:

                               

Basic

    13,782       13,774       13,779       13,767  

Diluted

    13,782       13,774       13,779       13,767  

 

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

 

 

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

   

For the Three Months Ended July 31,

   

For the Six Months Ended July 31,

 
   

2022

   

2021

   

2022

   

2021

 

Net loss

  $ (1,920 )   $ (2,660 )   $ (4,339 )   $ (6,644 )

Change in cumulative translation adjustment for liquidation of entities held for sale

    295             295        

Other changes in cumulative translation adjustment

    5       (23 )     2       34  

Comprehensive loss

  $ (1,620 )   $ (2,683 )     (4,042 )     (6,610 )

 

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

 

 

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

   

For the Six Months Ended July 31,

 
   

2022

   

2021

 

Cash flows from operating activities:

               

Net loss

  $ (4,339 )   $ (6,644 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

PPP loan forgiveness

          (850 )

Depreciation and amortization

    946       1,226  

Stock-based compensation

    388       236  

Recovery of doubtful accounts

          (453 )

Provision for inventory obsolescence

    45       350  

Gross profit from sale of assets held-for-sale

    (358 )      

Loss (gross profit) from sale of other equipment

    113       (155 )

Changes in:

               

Accounts receivable

    1,998       (140 )

Unbilled revenue

    15       21  

Inventories

    (461 )     (542 )

Prepaid expenses and other current and long-term assets

    168       (260 )

Income taxes receivable and payable

    19       (63 )

Accounts payable, accrued expenses and other current liabilities

    (1,126 )     375  

Deferred revenue

    95       (292 )

Net cash used in operating activities

    (2,497 )     (7,191 )

Cash flows from investing activities:

               

Purchases of property and equipment

    (250 )     (14 )

Sale of assets held for sale

    361       484  

Sale of a business, net of cash sold

          761  

Net cash provided by investing activities

    111       1,231  

Cash flows from financing activities:

               

Purchase of treasury stock

    (1 )     (2 )

Net proceeds from preferred stock offering

          4,502  

Net proceeds from common stock offering

          43  

Preferred stock dividends

    (1,894 )     (1,160 )

Net cash (used in) provided by financing activities

    (1,895 )     3,383  

Effect of changes in foreign exchange rates on cash and cash equivalents

          22  

Net decrease in cash and cash equivalents

    (4,281 )     (2,555 )

Cash and cash equivalents, beginning of period

    5,114       4,611  

Cash and cash equivalents, end of period

  $ 833     $ 2,056  

Supplemental cash flow information:

               

Interest paid

  $ 4     $ 18  

Income taxes paid

  $ 277     $ 147  

 

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

 

 

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands)

(unaudited)

 

   

Common Stock

   

Preferred Stock

                           

Accumulated

         
                                   

Additional

                   

Other

         
                                   

Paid-In

   

Treasury

   

Accumulated

   

Comprehensive

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Stock

   

Deficit

   

Loss

   

Total

 

Balances, January 31, 2022

    15,705     $ 157       1,683     $ 37,779     $ 128,926     $ (16,862 )   $ (117,856 )   $ (1,881 )   $ 30,263  

Net loss

                                        (2,419 )           (2,419 )

Foreign currency translation

                                              (3 )     (3 )

Restricted stock issued

    10                                                  

Restricted stock surrendered for tax withholding

                                  (1 )                 (1 )

Preferred stock dividends

                                        (947 )           (947 )

Stock-based compensation

                            236                         236  

Balances, April 30, 2022

    15,715     $ 157       1,683     $ 37,779     $ 129,162     $ (16,863 )   $ (121,222 )   $ (1,884 )   $ 27,129  

Net loss

                                        (1,920 )           (1,920 )

Foreign currency translation

                                              300       300  

Restricted stock issued

    5                                                  

Stock-based compensation

                            152                         152  

Balances, July 31, 2022

    15,720     $ 157       1,683     $ 37,779     $ 129,314     $ (16,863 )   $ (123,142 )   $ (1,584 )   $ 25,661  

 

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands)

(unaudited)

 

   

Common Stock

   

Preferred Stock

                           

Accumulated

         
                                   

Additional

                   

Other

         
                                   

Paid-In

   

Treasury

   

Accumulated

   

Comprehensive

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Stock

   

Deficit

   

Loss

   

Total

 

Balances, January 31, 2021

    15,681     $ 157     $ 1,038     $ 23,104     $ 128,241     $ (16,860 )   $ (99,870 )   $ (4,356 )   $ 30,416  

Net loss

                                        (3,984 )           (3,984 )

Foreign currency translation

                                              57       57  

Restricted stock issued

    5                         11                         11  

Restricted stock surrendered for tax withholding

                                  (2 )                 (2 )

Preferred stock offering

                21       503                               503  

Preferred stock dividends

                                        (584 )           (584 )

Common stock offering

    18                         42                         42  

Stock-based compensation

                            109                         109  

Balances, April 30, 2021

    15,704     $ 157     $ 1,059     $ 23,607     $ 128,403     $ (16,862 )   $ (104,438 )   $ (4,299 )   $ 26,568  

Net loss

                                        (2,660 )           (2,660 )

Foreign currency translation

                                              (23 )     (23 )

Preferred stock offering

                164       3,999                               3,999  

Common stock offering

                            1                         1  

Preferred stock dividends

                                        (682 )           (682 )

Stock-based compensation

                            115                         115  

Balances, July 31, 2021

    15,704     $ 157       1,223     $ 27,606     $ 128,519     $ (16,862 )   $ (107,780 )   $ (4,322 )   $ 27,318  

 

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

 

 

MIND TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. Organization and Liquidity

 

MIND Technology, Inc., a Delaware corporation (the “Company”), formerly Mitcham Industries, Inc., a Texas corporation, was incorporated in 1987. Effective August 3, 2020 the Company effectuated a reincorporation to the state of Delaware. Concurrent with the reincorporation the name of the Company was changed to MIND Technology, Inc. 

 

The Company, through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC (formerly Seamap USA, LLC), Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd (collectively “Seamap”), and its wholly owned subsidiary, Klein Marine Systems, Inc. (“Klein”), designs, manufactures and sells a broad range of proprietary products for the seismic, hydrographic and offshore industries with product sales and support facilities based in Singapore, Malaysia, the United Kingdom and the states of New Hampshire and Texas. Prior to July 31, 2020, the Company, through its wholly owned Canadian subsidiary, Mitcham Canada, ULC (“MCL”), its wholly owned Hungarian subsidiary, Mitcham Europe Ltd. (“MEL”), and its branch operations in Colombia, provided full-service equipment leasing, sales and service to the seismic industry worldwide (the “Leasing Business”). Effective July 31, 2020, the Leasing Business has been classified as held for sale and the financial results reported as discontinued operations (see Note 3 – “Assets Held for Sale and Discontinued Operations” for additional details). All intercompany transactions and balances have been eliminated in consolidation.

 

These condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company has a history of generating losses and negative cash from operating activities and may not have access to sources of capital that were available in prior periods. In addition, the lingering impacts of the global pandemic, emerging supply chain disruptions and recent volatility in oil prices have created significant uncertainty in the global economy which could have a material adverse effect on the Company’s business, financial position, results of operations and liquidity. Accordingly, substantial doubt has arisen regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company not be able to continue as a going concern.

 

Management has identified the following mitigating factors regarding adequate liquidity and capital resources to meet its obligations:

 

 

The Company has no funded debt, or other outstanding obligations, outside of normal trade obligations.

 

 

The Company has no obligations or agreements containing “maintenance type” financial covenants.

 

 

The Company has working capital of approximately $15.6 million as of July 31, 2022, including cash of approximately $833,000.

 

 

Should revenues be less than projected, the Company believes it is able, and has plans in place, to reduce costs proportionately in order to maintain positive cash flow.

 

 

The majority of the Company’s costs are variable in nature, such as raw materials and personnel related costs. The Company has recently eliminated two executive level positions, and additional reductions in operations, sales, and general and administrative headcount could be made, if deemed necessary by management.

 

 

The Company has a backlog of orders of approximately $19.3 million as of July 31, 2022. Production for certain of these orders was in process and included in inventory as of July 31, 2022, thereby reducing the liquidity needed to complete the orders.

 

 

Despite difficulties in world energy markets, the Company has been able to generate cash from the sale of lease pool equipment and collection of accounts receivable related to its discontinued operations. Management expects to generate additional liquidity from the sale of lease pool equipment in fiscal 2023.

 

 The Company declared and paid the quarterly dividend on its Preferred Stock for the first quarter of fiscal 2023, and each quarter in fiscal 2022, but deferred payment of the quarterly dividend for the second quarter of fiscal 2023. The Company also has the option to defer future quarterly dividend payments if deemed necessary. The dividends are a cumulative dividend that accrue for payment in the future. During a deferral period, the Company is prohibited from paying dividends or distributions on its common stock, or redeeming any of those shares. Further, if the Company does not pay dividends on its Series A Preferred Stock for six or more quarters, the holders of Series A Preferred Stock will have the right to appoint two directors to the Company's board.

 

 

In recent years, the Company has raised capital through the sale of Common Stock and Preferred Stock pursuant to the ATM Offering Program (as defined herein) and underwritten offerings on Form S-1. Currently, the Company is not eligible to issue securities pursuant to Form S-3 and accordingly cannot sell securities pursuant to the ATM Offering Program. However, the Company may sell securities pursuant to Form S-1 or in private transactions.  Management expects to be able to raise further capital through these available means should the need arise.

 

Notwithstanding the mitigating factors identified by management, there remains substantial doubt regarding the Company's ability to meet its obligations as they arise over the next twelve months. 

 

 

2. Basis of Presentation and Immaterial Correction of Comprehensive Loss

 

The condensed consolidated balance sheet as of January 31, 2022, for the Company has been derived from audited consolidated financial statements. The unaudited interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2022 (“fiscal 2022”). In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position as of July 31, 2022, the results of operations for the three and six months ended July 31, 2022 and 2021, the cash flows for the six months ended July 31, 2022 and 2021, and the statement of stockholders’ equity for the three and six months ended July 31, 2022 and 2021, have been included in these condensed consolidated financial statements. The foregoing interim results are not necessarily indicative of the results of operations to be expected for the full fiscal year ending January 31, 2023 (“fiscal 2023”).

 

The Company has corrected an immaterial error in the statements of comprehensive loss for the three and six months ended July 31, 2021, which as previously presented, incorrectly included $682,000 and $1.3 million of preferred dividends as a component of comprehensive loss, respectively. Additionally, during the years ended January 31, 2022 and 2021, comprehensive loss incorrectly included preferred dividends of $2.9 million and $2.3 million, respectively. Comprehensive loss will be corrected by revising the amounts included in previously-issued statements of comprehensive loss the next time they are required to be filed for comparative purposes.

 

 

3. Assets Held for Sale and Discontinued Operations

 

On July 27, 2020, the Board determined to exit the Leasing Business. As a result, the assets, excluding cash, and liabilities of the Leasing Business are considered held for sale and its results of operations are reported as discontinued operations as of July 31, 2022 and for all comparative periods presented in these condensed consolidated financial statements. The Company originally anticipated selling the discontinued operations in multiple transactions, potentially involving the sale of legal entities, assets, or a combination of both, within the twelve months ending  July 31, 2021. The Company now believes it will complete the process by January 31, 2023.

 

7

 

The assets reported as held for sale consist of the following:

 

  

July 31, 2022

  

January 31, 2022

 

Current assets of discontinued operations:

  (in thousands) 

Accounts receivable, net

  24   177 

Inventories, net

  1   2 

Prepaid expenses and other current assets

  113   167 

Seismic equipment lease pool and property and equipment, net

  40   738 

Loss recognized on classification as held for sale

     (925)

Total assets of discontinued operations

 $178  $159 

 

The liabilities reported as held for sale consist of the following:

 

  

July 31, 2022

  

January 31, 2022

 

Current liabilities of discontinued operations:

  (in thousands) 

Accounts payable

 $  $132 

Deferred revenue

  56   73 

Accrued expenses and other current liabilities

  122   507 

Income taxes payable

  24   241 

Total liabilities of discontinued operations

  202   953 

 

The results of operations from discontinued operations for the three and six months ended July 31, 2022 and 2021 consist of the following:

 

  

For the Three Months Ended July 31,

  

For the Six Months Ended July 31,

 
  

2022

  

2021

  

2022

  

2021

 

Revenues:

 

(in thousands)

 

Revenue from discontinued operations

 $  $757  $  $787 

Cost of sales:

                

Cost of discontinued operations

  23   332   48   705 

Operating expenses:

                

Selling, general and administrative

  101   378   214   720 

Recovery of doubtful accounts

     (2)     (445)

Depreciation and amortization

     2      3 

Total operating expenses

  101   378   214   278 

Operating (loss) income

  (124)  47   (262)  (196)

Other income (expenses)

  (38)  35   486   (4)

Income (loss) before income taxes from discontinued operations

  (162)  82   224   (200)

Provision for income taxes from discontinued operations

     (3)     (4)

Net Income (loss) from discontinued operations

  (162)  79   224   (204)

 

The significant operating and investing noncash items and capital expenditures related to discontinued operations are summarized below:

 

  

For the Six Months Ended July 31,

 
  

2022

  

2021

 
  (in thousands) 

Gross profit from sale of assets held-for-sale

 $(358) $ 

Recovery of doubtful accounts

 $  $(445)

Sale of assets held for sale

 $361  $1,245 

 

8

 
 

4. New Accounting Pronouncements

 

New accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.

 

 

5. Revenue from Contracts with Customers

 

The following table presents revenue from contracts with customers disaggregated by product line and timing of revenue recognition:

 

  

Three Months Ended July 31,

  

Six Months Ended July 31,

 
  

2022

  

2021

  

2022

  

2021

 

Revenue recognized at a point in time:

 

(in thousands)

 

Seamap

 $4,288  $5,256  $12,281  $8,169 

Klein

  3,688   1,406   4,696   2,556 

Total revenue recognized at a point in time

 $7,976  $6,662  $16,977  $10,725 

Revenue recognized over time:

                

Seamap

 $737  $145  $823  $276 

Klein

 $  $  $  $ 

Total revenue recognized over time

  737   145   823   276 

Total revenue from contracts with customers

 $8,713  $6,807  $17,800  $11,001 

 

The revenue from products manufactured and sold by our Seamap and Klein businesses, is generally recognized at a point in time, or when the customer takes possession of the product, based on the terms and conditions stipulated in our contracts with customers. However, from time to time our Seamap and Klein businesses provide repair and maintenance services, or perform upgrades, on customer owned equipment in which case revenue is recognized over time. In addition, our Seamap business provides annual Software Maintenance Agreements (“SMA”) to customers who have an active license for software embedded in Seamap products. The revenue from SMA is recognized over time, with the total value of the SMA recognized in equal monthly amounts over the life of the contract.

 

The following table presents revenue from contracts with customers disaggregated by geography, based on shipping location of our customers:

 

  

Three Months Ended July 31,

  

Six Months Ended July 31,

 
  

2022

  

2021

  

2022

  

2021

 
  

(in thousands)

 

United States

 $2,333  $219  $4,586  $578 

Europe

  4,082   3,520   8,694   6,102 

Middle East & Africa

  142   675   180   689 

Asia-Pacific

  2,042   2,188   4,226   2,893 

Canada & Latin America

  114   205   114   739 

Total revenue from contracts with customers

 $8,713  $6,807  $17,800  $11,001 

 

9

 

As of July 31, 2022, and January 31, 2022, contract assets and liabilities consisted of the following:

 

  

July 31, 2022

  

January 31, 2022

 

Contract Assets:

 

(in thousands)

 

Unbilled revenue - current

 $43  $28 

Total unbilled revenue

 $43  $28 

Contract Liabilities:

        

Deferred revenue & customer deposits - current

 $2,665  $2,569 

Total deferred revenue & customer deposits

 $2,665  $2,569 

 

Considering the products manufactured and sold by our Seamap and Klein businesses and the Company’s standard contract terms and conditions, we expect our contract assets and liabilities to turn over, on average, within a period of three to nine months.

 

With respect to the disclosures above, sales and transaction-based taxes are excluded from revenue, and we do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Also, we expense costs incurred to obtain contracts because the amortization period would be one year or less. These costs are recorded in selling, general and administrative expenses.

 

 

6. Balance Sheet - Continuing Operations

 

  

As of July 31, 2022

  

As of January 31, 2022

 
  

(in thousands)

 
  

Current

  

Long-term

  

Total

  

Current

  

Long-term

  

Total

 

Accounts receivable

 $7,141  $213  $6,928  $8,610  $650  $9,260 

Less allowance for doubtful accounts

  (484)     (484)  (484)     (484)

Accounts receivable net of allowance for doubtful accounts

 $6,657  $213  $6,444  $8,126  $650  $8,776 

 

  

July 31, 2022

  

January 31, 2022

 
  

(in thousands)

 

Inventories:

        

Raw materials

 $9,198  $8,511 

Finished goods

  3,797   3,806 

Work in progress

  3,324   3,567 

Cost of inventories

  16,319   15,884 

Less allowance for obsolescence

  (1,897)  (1,878)

Total inventories, net

 $14,422  $14,006 

 

  

July 31, 2022

  

January 31, 2022

 
  

(in thousands)

 

Property and equipment:

        

Furniture and fixtures

 $9,913  $9,865 

Autos and trucks

  508   495 

Marine seismic service equipment

     3,880 

Land and buildings

  4,689   4,555 

Cost of property and equipment

  15,110   18,795 

Accumulated depreciation and amortization

  (11,097)  (14,523)

Total property and equipment, net

 $4,013  $4,272 

 

As of January 31, 2022, the Company completed an annual review of long-lived assets noting that the undiscounted future cash flows exceeded their carrying value and no impairment was recorded. Since  January 31, 2022, there have not been changes to the market, economic or legal environment in which the Company operates that would, in the aggregate, indicate additional impairment analysis is necessary as of July 31, 2022.

10

 

 

7. Leases

 

The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in Texas, Hungary, Singapore, Malaysia, and the United Kingdom. We negotiated the termination of our Colombia lease obligation during fiscal 2022 and our lease obligation in Canada was terminated as of March 31, 2022.

 

Lease expense for the three and six months ended July 31, 2022 was approximately $218,000 and $421,000, respectively, and during the three and six months ended July 31, 2021 was approximately $291,000 and $600,000, respectively, and were recorded as a component of operating loss. Included in these costs was short-term lease expense of approximately $9,000 and $18,000 for the three and six months ended July 31, 2022, respectively, and during the three and six months ended July 31, 2021 was approximately $10,000 and  $10,000, respectively.

 

Supplemental balance sheet information related to leases as of July 31, 2022 and January 31, 2022 were as follows:

 

Lease

 

July 31, 2022

  

January 31, 2022

 

Assets

 (in thousands)

Operating lease assets

 $2,001  $1,835 
         

Liabilities

        

Operating lease liabilities

 $2,001  $1,835 
         

Classification of lease liabilities

        

Current liabilities

 $502  $869 

Non-current liabilities

  1,499   966 

Total Operating lease liabilities

 $2,001  $1,835 

 

Lease-term and discount rate details as of July 31, 2022 and January 31, 2022 were as follows:

 

Lease term and discount rate

 

July 31, 2022

  

January 31, 2022

 

Weighted average remaining lease term (years)

        

Operating leases

  2.08   1.82 
         

Weighted average discount rate:

        

Operating leases

  13%  13%

 

The incremental borrowing rate was calculated using the Company's weighted average cost of capital.

 

Supplemental cash flow information related to leases was as follows:

 

Lease

 

Six Months Ended July 31, 2022

  

Six Months Ended July 31, 2021

 

Cash paid for amounts included in the measurement of lease liabilities:

 (in thousands)

Operating cash flows from operating leases

 $(421) $(600)
         

Changes in lease balances resulting from new and modified leases:

        

Operating leases

 $638  $762 

 

11

 

Maturities of lease liabilities at July 31, 2022 were as follows:

 

  

July 31, 2022

 
  (in thousands) 

2023

 $502 

2024

  794 

2025

  541 

2026

  274 

2027

  188 

Thereafter

  204 

Total payments under lease agreements

 $2,503 
     

Less: imputed interest

  (502)

Total lease liabilities

 $2,001 

 

 

8. Goodwill and Other Intangible Assets

 

    

July 31, 2022

  

January 31, 2022

 
  

Weighted

 

Gross

          

Net

  

Gross

          

Net

 
  

Average Life at

 

Carrying

  

Accumulated

     

Carrying

  

Carrying

  

Accumulated

      

Carrying

 
  

7/31/2022

 

Amount

  

Amortization

  

Impairment

  

Amount

  

Amount

  

Amortization

  

Impairment

  

Amount

 
    (in thousands)  (in thousands) 

Goodwill

   $7,060  $  $(7,060) $  $7,060  $  $(7,060) $ 

Proprietary rights

 5.6  8,237   (4,382)     3,855   8,237   (4,150)     4,087 

Customer relationships

 0.3  5,024   (4,845)     179   5,024   (4,797)     227 

Patents

 2.4  2,540   (1,902)     638   2,540   (1,778)     762 

Trade name

 3.8  894   (91)  (760)  43   894   (85)  (760)  49 

Developed technology

 3.4  1,430   (941)     489   1,430   (870)     560 

Other

 1.8  693   (428)     265   694   (361)     333 

Amortizable intangible assets

   $18,818  $(12,589) $(760) $5,469  $18,819  $(12,041) $(760) $6,018 

 

On January 31, 2022, the Company completed an annual review of amortizable intangible assets. Based on a review of qualitative factors it was determined that there were no events or changes in circumstances indicating that the carrying value of amortizable intangible assets was not recoverable. During the six months ended July 31, 2022, there have been no substantive indicators of impairment. 

 

Aggregate amortization expense was $427,000 and $618,000 for the six months ended July 31, 2022 and 2021, respectively. As of July 31, 2022, future estimated amortization expense related to amortizable intangible assets was estimated to be:

 

For fiscal years ending January 31,

  (in thousands) 

2023

 $592 

2024

  1,043 

2025

  818 

2026

  721 

2027

  420 

Thereafter

  1,875 

Total

 $5,469 

 

12

 
 

9. Notes Payable

 

On May 5, 2020, the Company, and its wholly owned subsidiary, Klein (collectively, the “Borrowers”), were granted loans (the “Loans”) from Bank of America, N.A. in the aggregate amount of approximately $1.6 million, pursuant to the Small Business Association's Paycheck Protection Program (the “PPP”), a component of the Coronavirus Aid, Relief, and Economic Security Act which was enacted on March 27, 2020.

 

The Loans, in the form of promissory notes (the “Notes”) dated May 1, 2020 issued by the Borrowers, were set to mature on May 1, 2022 and bore interest at a rate of 1% per annum, payable monthly commencing on November 1, 2020. The Notes stipulated various restrictions customary with this type of transaction including representations, warranties, and covenants, in addition to events of default, breaches of representation and warranties or other provisions of the Notes. In the event of default, the Borrowers would have become obligated to repay all amounts outstanding under the Notes. The Borrowers were permitted to prepay the Notes at any time prior to maturity with no prepayment penalties.

 

Under the terms of the PPP, funds from the Loans could only be used for payroll costs, rent, utilities and interest on other debt obligations incurred prior to February 15, 2020. In addition, certain amounts of the Loans could be forgiven if the funds were used to pay qualifying expenses.

 

In January 2021, the Loan granted to the Company in the amount of approximately $757,000 was forgiven resulting in other income of that amount. In February 2021, the Loan granted to Klein in the amount of approximately $850,000 was also forgiven, resulting in other income of that amount. As of July 31, 2022, the Company had no outstanding balance under the Loans.

 

 

10. Income Taxes

 

For the six months ended July 31, 2022, the income tax expense from continuing operations was approximately $ 342,000 on a pre-tax loss from continuing operations of $4.2 million. For the six months ended July 31, 2021, the income tax expense from continuing operations was approximately $ 52,000 on a pre-tax loss from continuing operations of $6.4 million. The variance between our actual provision and the expected provision based on the U.S. statutory rate is due primarily to recording valuation allowances against the increase in our deferred tax assets in the respective periods, permanent differences between book income and taxable income, and the effect of foreign withholding taxes.

 

The Company files U.S. federal and state income tax returns as well as separate returns for its foreign subsidiaries within their local jurisdictions. The Company's U.S. federal tax returns are subject to examination by the Internal Revenue Service for fiscal years ended January 31, 2019 through 2022. The Company’s tax returns may also be subject to examination by state and local tax authorities for fiscal years ended January 31, 2017 through 2022. In addition, the Company's tax returns filed in foreign jurisdictions are generally subject to examination for the fiscal years ended January 31, 2017 through 2022.

 

The Company has determined that the undistributed earnings of foreign subsidiaries are not deemed to be indefinitely reinvested outside of the United States as of July 31, 2022. Furthermore, the Company has concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial. Therefore, the Company has not recorded a deferred tax liability associated with the undistributed foreign earnings as of July 31, 2022.

 

For the six months ended July 31, 2022 and 2021, the Company did not recognize any tax expense or benefit related to uncertain tax positions.

 

 

11. Earnings per Share

 

Net income per basic common share is computed using the weighted average number of common shares outstanding during the period, excluding unvested restricted stock. Net income per diluted common share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the period using the treasury stock method. Potential common shares result from the assumed exercise of outstanding common stock options having a dilutive effect and from the assumed vesting of unvested shares of restricted stock.

 

The following table presents the calculation of basic and diluted weighted average common shares used in the earnings per share calculation:

 

  

Three Months Ended July 31,

  

Six Months Ended July 31,

 
  

2022

  

2021

  

2022

  

2021

 
  

(in thousands)

  

(in thousands)

 

Basic weighted average common shares outstanding

  13,782   13,774   13,779   13,767 

Stock options

     79      58 

Unvested restricted stock

  5   29   5   18 

Total weighted average common share equivalents

  5   108   5   76 

Diluted weighted average common shares outstanding

  13,787   13,882   13,784   13,843 

 

For the three and six months ended July 31, 2022 and 2021, potentially dilutive common shares underlying stock options and unvested restricted stock were anti-dilutive and were therefore not considered in calculating diluted loss per share for those periods.

 

 

12. Related Party Transaction

 

In September 2020 we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Ladenburg Thalmann & Co. Inc. (the “Agent”). The Co-Chief Executive Officer and Co-President of the Agent is the Non-Executive Chairman of our Board. Pursuant to the Equity Distribution Agreement, the Company may sell up to 500,000 shares of 9.00% Series A Cumulative Preferred Stock, par value $1.00 per share (the “Preferred Stock”) and 5,000,000 shares of $0.01 par value common stock (“Common Stock”) through an at-the-market offering program (the “ATM Offering Program”) administered by the Agent. Under the Equity Distribution Agreement, the Agent is entitled to compensation of up to 2.0% of the gross proceeds from the sale of Preferred Stock and Common Stock under the ATM Offering Program.