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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, 2023

☐	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

(Registrant’s 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: 13,788,738 shares of common stock, $0.01 par value, were outstanding as of September 13, 2023.

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MIND TECHNOLOGY, INC.

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PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of July 31, 2023 and January 31, 2023	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended July 31, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended July 31, 2023 and 2022	5
	Notes to Condensed Consolidated Financial Statements	7
	Cautionary Statement about Forward-Looking Statements	17

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	24

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

	Exhibit Index	25

	Signatures	26

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

	*July 31, 2023*			*January 31, 2023*
*ASSETS*
Current assets:
Cash and cash equivalents	$	494		$	778
Accounts receivable, net of allowance for doubtful accounts of $504 at each of July 31, 2023 and January 31, 2023		7,143			3,993
Inventories, net		15,651			15,318
Prepaid expenses and other current assets		1,273			2,144
Total current assets		24,561			22,233
Property and equipment, net		3,620			3,945
Operating lease right-of-use assets		1,626			1,749
Intangible assets, net		4,418			4,931
Total assets	$	34,225		$	32,858
*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Current liabilities:
Accounts payable	$	2,459		$	4,101
Deferred revenue		309			164
Accrued expenses and other current liabilities		3,386			2,247
Income taxes payable		1,585			1,516
Operating lease liabilities - current		903			903
Note payable, net		3,343			—
Total current liabilities		11,985			8,931
Operating lease liabilities - non-current		723			846
Deferred tax liability		41			29
Total liabilities		12,749			9,806
Stockholders’ equity:
Preferred stock, $1.00 par value; 2,000 shares authorized; 1,683 shares issued and outstanding at each of July 31, 2023 and January 31, 2023		37,779			37,779
Common stock, $0.01 par value; 40,000 shares authorized; 15,721 shares issued at each of July 31, 2023 and January 31, 2023		157			157
Additional paid-in capital		129,738			129,580
Treasury stock, at cost (1,933 shares at each of July 31, 2023 and January 31, 2023 )		(16,863	)		(16,863	)
Accumulated deficit		(129,369	)		(127,635	)
Accumulated other comprehensive gain		34			34
Total stockholders’ equity		21,476			23,052
Total liabilities and stockholders’ equity	$	34,225		$	32,858

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

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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,*
	*2023*			*2022*			*2023*			*2022*
Revenues:
Sale of marine technology products	$	8,750		$	8,713		$	21,336		$	17,800
Total revenues		8,750			8,713			21,336			17,800
Cost of sales:
Sale of marine technology products		5,483			5,175			12,652			10,973
Total cost of sales		5,483			5,175			12,652			10,973
Gross profit		3,267			3,538			8,684			6,827
Operating expenses:
Selling, general and administrative		3,514			3,789			7,388			8,061
Research and development		842			833			1,615			1,847
Depreciation and amortization		459			467			940			946
Total operating expenses		4,815			5,089			9,943			10,854
Operating loss		(1,548	)		(1,551	)		(1,259	)		(4,027	)
Other expense:
Other, net		131			(76	)		20			(194	)
Total other income (expense)		131			(76	)		20			(194	)
Loss from continuing operations before income taxes		(1,417	)		(1,627	)		(1,239	)		(4,221	)
Provision for income taxes		(77	)		(131	)		(495	)		(342	)
Net loss from continuing operations		(1,494	)		(1,758	)		(1,734	)		(4,563	)
(Loss) income from discontinued operations, net of income taxes		—			(162	)		—			224
Net loss	$	(1,494	)	$	(1,920	)	$	(1,734	)	$	(4,339	)
Preferred stock dividends - declared		—			—			—			(947	)
Preferred stock dividends - undeclared		(947	)		(947	)		(1,894	)		(947	)
Net loss attributable to common stockholders	$	(2,441	)	$	(2,867	)	$	(3,628	)	$	(6,233	)
Net loss per common share - Basic and Diluted
Continuing operations	$	(0.18	)	$	(0.20	)	$	(0.26	)	$	(0.47	)
Discontinued operations	$	—		$	(0.01	)	$	—		$	0.02
Net loss	$	(0.18	)	$	(0.21	)	$	(0.26	)	$	(0.45	)
Shares used in computing net loss per common share:
Basic		13,792			13,782			13,791			13,779
Diluted		13,792			13,782			13,791			13,779

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

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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,*
	*2023*			*2022*			*2023*			*2022*
Net loss	$	(1,494	)	$	(1,920	)	$	(1,734	)	$	(4,339	)
Change in cumulative translation adjustment		—			300			—			297
Comprehensive loss	$	(1,494	)	$	(1,620	)		(1,734	)		(4,042	)

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

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MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	*For the Six Months Ended July 31,*
	*2023*			*2022*
Cash flows from operating activities:
Net loss	$	(1,734	)	$	(4,339	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		940			946
Stock-based compensation		158			388
Provision for inventory obsolescence		—			45
Gross profit from sale of other equipment		(336	)		(245	)
Changes in:
Accounts receivable		(3,238	)		1,998
Unbilled revenue		31			15
Inventories		(333	)		(461	)
Prepaid expenses and other current and long-term assets		1,329			168
Income taxes receivable and payable		63			19
Accounts payable, accrued expenses and other current liabilities		(1,556	)		(1,126	)
Deferred revenue and customer deposits		1,199			95
Net cash used in operating activities		(3,477	)		(2,497	)
Cash flows from investing activities:
Purchases of property and equipment		(102	)		(250	)
Sale of other equipment		336			361
Net cash provided by investing activities		234			111
Cash flows from financing activities:
Purchase of treasury stock		—			(1	)
Net proceeds from short-term loan		2,947			—
Preferred stock dividends		—			(1,894	)
Net cash provided by (used in) financing activities		2,947			(1,895	)
Effect of changes in foreign exchange rates on cash and cash equivalents		12			—
Net decrease in cash and cash equivalents		(284	)		(4,281	)
Cash and cash equivalents, beginning of period		778			5,114
Cash and cash equivalents, end of period	$	494		$	833
Supplemental cash flow information:
Interest paid	$	407		$	4
Income taxes paid	$	425		$	277

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

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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*			*Gain*		*Total*
Balances, January 31, 2023		15,721	$	157		1,683	$	37,779	$	129,580	$	(16,863	)	$	(127,635	)	$	34	$	23,052
Net loss		—		—		—		—		—		—			(240	)		—		(240	)
Stock-based compensation		—		—		—		—		50		—			—			—		50
Balances, April 30, 2023		15,721	$	157		1,683	$	37,779	$	129,630	$	(16,863	)	$	(127,875	)	$	34	$	22,862
Net loss		—		—		—		—		—		—			(1,494	)		—		(1,494	)
Stock-based compensation		—		—		—		—		108		—			—			—		108
Balances, July 31, 2023		15,721	$	157		1,683	$	37,779	$	129,738	$	(16,863	)	$	(129,369	)	$	34	$	21,476

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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

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

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MIND TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Liquidity

MIND Technology, Inc., a Delaware corporation (the “Company”), through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC, Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd (collectively “Seamap”), and 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 4 – “Assets Held for Sale and Discontinued Operations” for additional details). On August 21, 2023, the Company completed the sale of Klein (see Note 2-"Sale of Subsidiary and Subsequent Events" for additional details). The operations and balance sheet of Klein are included as part of the accompanying financial statements and were not considered Held-for-Sale at July 31, 2023. 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, 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 obligations or agreements containing “maintenance type” financial covenants.

•

The Company had working capital of approximately $12.6 million as of July 31, 2023, including cash of approximately $494,000.

•

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 other administrative positions, and additional reductions in operations, sales, and general and administrative headcount could be made, if deemed necessary by management.

•

The Company had a backlog of orders of approximately $17.0 million as of July 31, 2023. Production for certain of these orders was in process and included in inventory as of July 31, 2023, thereby reducing the liquidity needed to complete the orders.

•

There were no dividends declared or paid on the Company’s Preferred stock for the first or second quarter of fiscal 2024.The Company declared and paid the quarterly dividend on its Preferred Stock for the first quarter of fiscal 2023, but deferred all dividend payments for the subsequent quarters 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.

•

Based on publicized transactions and preliminary discussions with potential funding sources, management believes that other sources of debt and equity financing are available. Such sources could include private or public issues of equity or debt securities, or a combination of such securities. Other sources could include secured debt financing, sale-leaseback transactions on owned real estate or investment from strategic industry participants. There can be no assurance that any of these sources will be available to the Company, available in adequate amounts, or available under acceptable terms should the need arise.

•

On August 21, 2023, we completed the Sale of Klein for consideration to the Company of $11.5 million in cash. Following the closing of the Sale of Klein, all outstanding amounts due and owed, including principal, interest, and other charges, under the Loan were repaid in full (see Note 10 - "Notes Payable" for additional details). After transaction costs and repayment of the Loan, the Company received net proceeds from the Sale of Klein totaling approximately $7.3 million. The Sale of Klein increases the Company’s working capital and significantly improves the Company’s liquidity situation.

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.

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2. Sale of Subsidiary and Subsequent Events

On August 21, 2023, the Company sold its Klein Marine Services, Inc. subsidiary (“Klein”) pursuant to a Stock Purchase Agreement (the “SPA”) with General Oceans AS (“the Buyer"). In connection with the SPA, the Company granted the Buyer a license in its Spectral Ai software suite (“Spectral Ai”). The license is exclusive to the Buyer as it relates to side scan sonar. The Company and the Buyer also entered into a collaboration agreement for the further development of Spectral Ai and potentially other software projects. The foregoing transactions contemplated by the SPA are referred to as the “Sale of Klein”. The aggregate consideration to the Company consisted of a cash payment of $11.5 million, resulting in a gain of approximately $2.0 million that will be recorded in the quarter ended October 31, 2023. The SPA contains customary representation and warranties.

On August 22, 2023, following the closing of the Sale of Klein, all outstanding amounts due and owed, including principal, interest, and other charges, under the Loan were repaid in full and the Loan was terminated, and all liens and security interests granted thereunder were released and terminated (see Note 10 - "Notes Payable" for additional details).

The following unaudited pro forma condensed consolidated financial statements are intended to show how the Sale of Klein might have affected the historical financial statements of the Company if the Sale of Klein had been completed at an earlier time as indicated therein. The unaudited pro forma condensed consolidated balance sheet as of July 31, 2023, assumes that the transaction had occurred on July 31, 2023. The unaudited pro forma condensed consolidated statements of operations for the three and six months ended July 31, 2023, give effect to the transaction as if it had occurred as of February 1, 2023.The unaudited pro forma condensed consolidated financial information of the Company as of and for the three and six months ended July 31, 2023, and the notes related thereto, in each case giving effect to the Sale of Klein are as follows:

MIND Technology, Inc

Unaudited Pro Forma Condensed Consolidated Balance Sheet As of July 31, 2023

(in thousands, except per share data)

ASSETS	Historical MIND Technology (a)			Operations of Klein (b)				Pro Forma Adjustments				Pro-forma MIND Technology
Current assets:
Cash and cash equivalents		494			-				7,304		(e)		7,798
Accounts receivable, net of allowance for doubtful accounts of $ 504 as of July 31, 2023		7,143			(944	)	(c)		-				6,199
Inventories, net		15,651			(5,031	)	(c)		-				10,620
Prepaid expenses and other current assets		1,273			(312	)	(c)						961
Total current assets		24,561			(6,287	)			7,304				25,578
Property and equipment, net		3,620			(2,784	)	(c)		-				836
Operating lease right-of-use assets		1,626			-				-				1,626
Intangible assets, net		4,418			(1,193	)	(c)		-				3,225
Total assets		34,225			(10,264	)			7,304				31,265
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		2,459			(866	)	(c)		-				1,593
Deferred revenue		309			(10	)	(c)		-				299
Accrued expenses and other current liabilities		3,386			(690	)	(c)		-				2,696
Income taxes payable		1,585			-				-				1,585
Operating lease liabilities - current		903			-				-				903
Note payable, net		3,343			-				(3,343	)	(f)		-
Total current liabilities		11,985			(1,566	)			(3,343	)			7,076
Operating lease liabilities - non-current		723			-				-				723
Deferred tax liability		41			-				-				41
Total liabilities		12,749			(1,566	)			(3,343	)			7,840
Stockholders’ equity:
Preferred stock, $ 1.00 par value; 2,000 shares authorized; 1,683 shares issued and outstanding as of July 31, 2023		37,779			-				-				37,779
Common stock, $ 0.01 par value; 40,000 shares authorized; 15,721 shares issued as of July 31, 2023		157			-				-				157
Additional paid-in capital		129,738			-				-				129,738
Treasury stock, at cost ( 1,933 shares as of July 31, 2023)		(16,863	)		-				-				(16,863	)
Accumulated deficit		(129,369	)		(8,698	)	(g)		10,647		(g)		(127,420	)
Accumulated other comprehensive gain		34			-				-				34
Total stockholders’ equity		21,476			(8,698	)			10,647				23,425
Total liabilities and stockholders’ equity		34,225			(10,264	)			7,304				31,265

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MIND Technology, Inc

Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six Months Ended July 31, 2023

(in thousands, except per share data)

	Historical MIND Technology (a)			Operations of Klein (b)				Pro Forma Adjustments			Pro-forma MIND Technology
Revenues:
Sale of marine technology products		21,336			(3,178	)	(d)					18,158
Total revenues		21,336			(3,178	)			-			18,158
Cost of sales:
Sale of marine technology products		12,652			(1,972	)	(d)		-			10,680
Total cost of sales		12,652			(1,972	)						10,680
Gross profit		8,684			(1,206	)			-			7,478
Operating expenses:
Selling, general and administrative		7,388			(1,199	)	(d)		-			6,189
Research and development		1,615			(737	)	(d)		-			878
Depreciation and amortization		940			(306	)	(d)					634
Total operating expenses		9,943			(2,242	)			-			7,701

Operating income (loss)		(1,259	)		1,036				-			(223	)
Other expense:
Other, net		20			(77	)	(d)		407	(h)		350
Total other income (expense)		20			(77	)			407			350
Income (loss) from continuing operations before income taxes		(1,239	)		959				407			127
Provision for income taxes		(495	)		(17	)	(d)					(512	)
Net (loss) income from continuing operations		(1,734	)		942				407			(385	)
Preferred stock dividends - declared		-										-
Preferred stock dividends - undeclared		(1,894	)		-				-			(1,894	)
Net loss attributable to common stockholders		(3,628	)		-				-			(2,279	)
Net loss per common share - Basic and Diluted		(0.26	)									(0.17	)
Shares used in computing net loss per common share:
Basic		13,791										13,791
Diluted		13,791										13,791

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MIND Technology, Inc

Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Three Months Ended July 31, 2023

(in thousands, except per share data)

	Historical MIND Technology (a)			Operations of Klein (b)				Pro Forma Adjustments			Pro-forma MIND Technology
Revenues:
Sale of marine technology products		8,750			(1,190	)	(d)		-			7,560
Total revenues		8,750			(1,190	)			-			7,560
Cost of sales:
Sale of marine technology products		5,483			(864	)	(d)		-			4,619
Total cost of sales		5,483			(864	)						4,619
Gross profit		3,267			(326	)			-			2,941
Operating expenses:
Selling, general and administrative		3,514			(616	)	(d)		-			2,898
Research and development		842			(395	)	(d)		-			447
Depreciation and amortization		459			(157	)	(d)		-			302
Total operating expenses		4,815			(1,168	)			-			3,647

Operating income (loss)		(1,548	)		842				-			(706	)
Other expense:
Other, net		131			(98	)	(d)		204	(h)		237
Total other income (expense)		131			(98	)			204			237
Income (loss) from continuing operations before income taxes		(1,417	)		744				204			(469	)
Provision for income taxes		(77	)		(24	)	(d)		-			(101	)
Net loss from continuing operations		(1,494	)		720				204			(570	)
Preferred stock dividends - declared		-										-
Preferred stock dividends - undeclared		(947	)		-				-			(947	)
Net loss attributable to common stockholders		(2,441	)		-				-			(1,517	)
Net loss per common share - Basic and Diluted		(0.18	)									(0.11	)
Shares used in computing net loss per common share:
Basic		13,792										13,792
Diluted		13,792										13,792

The unaudited pro forma condensed consolidated financial statements reflect the following notes and adjustments:

(a) Reflects the condensed consolidated balance sheet as of July 31, 2023 and condensed consolidated statement of operations for the three and six months ended July 31, 2023 in the Form 10-Q.

(b) Reflects the consummation of the Sale of Klein in accordance with the terms of the SPA.

(c) Adjustments represent the disposition of assets and liabilities of the Klein operations.

(d) Adjustments represent the elimination of income and expenses of the Klein operations.

(e) To record the net cash proceeds from the Sale of Klein paid on the Closing Date of $11.5 million, less estimated closing costs, estimated pay-off of the Note Payable, and estimated transaction costs, primarily legal expenses and investment broker fees, associated with the sale, all of which were incurred as part of the consummation of the Sale of Klein.

(f) To record the pay-off of the Note Payable, net of prepaid interest and debt acquisition costs, due to Sachem Capital.

(g) Adjustments to accumulated deficit reflect the estimated gain on Sale of Klein. The estimated gain has not been reflected in the accompanying statements of operations as it is not related to continuing operations. The actual gain or loss on Sale of Klein will be recorded in the Company's financial statements for the quarter ending October 31, 2023, and will differ from this estimate.

(h) Reflects removal of interest expense that would not have been incurred if the Sale of Klein had been completed February 1, 2023.

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3. Basis of Presentation

The condensed consolidated balance sheet as of January 31, 2023, 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, 2023 (“fiscal 2023”). 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, 2023, the results of operations for the three and six months ended July 31, 2023 and 2022, the cash flows for the six months ended July 31, 2023 and 2022, and the statement of stockholders’ equity for the three and six-months ended July 31, 2023 and 2022, 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, 2024 (“fiscal 2024”).

4. 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 were considered held for sale and its results of operations were reported as discontinued operations through the fiscal year ended January 31, 2023. As of February 1, 2023, discontinued operations of the Leasing Business were considered materially completed.

The results of operations from discontinued operations for the three and six months ended July 31, 2023 and 2022 consist of the following:

	*For the Three Months Ended July 31,*					*For the Six Months Ended July 31,*
	*2023*		*2022*			*2023*		*2022*
Revenues:	(in thousands)
Revenue from discontinued operations	$	—	$	—		$	—	$	—
Cost of sales:
Cost of discontinued operations		—		23			—		48
Operating expenses:
Selling, general and administrative		—		101			—		214
Total operating expenses		—		101			—		214
Operating loss		—		(124	)		—		(262	)
Other (expense) income		—		(38	)		—		486
(Loss) income before income taxes from discontinued operations		—		(162	)		—		224
Net (loss) income from discontinued operations		—		(162	)		—		224

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

	*For the Six Months Ended July 31,*
	*2023*		*2022*
	(in thousands)
Gross profit from sale of assets held-for-sale	$	—	$	(358	)
Sale of assets held for sale	$	—	$	361

5. New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to address timing on recognition of credit losses on loans and other financial instruments. This update requires all organizations to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 became effective February 1, 2023. The adoption of this standard did not have a material effect on the Company’s financial statements.

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6. Revenue from Contracts with Customers

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

	*Three Months Ended July 31,*				*Six Months Ended July 31,*
	*2023*		*2022*		*2023*		*2022*
Revenue recognized at a point in time:	(in thousands)
Seamap	$	7,103	$	4,288	$	17,508	$	12,281
Klein		1,180		3,688		2,652		4,696
Total revenue recognized at a point in time	$	8,283	$	7,976	$	20,160	$	16,977
Revenue recognized over time:
Seamap	$	458	$	737	$	650	$	823
Klein	$	9	$	—	$	526	$	—
Total revenue recognized over time		467		737		1,176		823
Total revenue from contracts with customers	$	8,750	$	8,713	$	21,336	$	17,800

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 the shipping location of our customers:

	*Three Months Ended July 31,*				*Six Months Ended July 31,*
	*2023*		*2022*		*2023*		*2022*
	(in thousands)
United States	$	378	$	2,333	$	1,720	$	4,586
Europe		2,965		4,082		10,000		8,694
Asia-Pacific		4,700		2,042		8,653		4,226
Other		707		256		963		294
Total revenue from contracts with customers	$	8,750	$	8,713	$	21,336	$	17,800

As of July 31, 2023, and January 31, 2023, contract assets and liabilities consisted of the following:

	*July 31, 2023*		*January 31, 2023*
Contract Assets:	(in thousands)
Unbilled revenue - current	$	33	$	2
Total unbilled revenue	$	33	$	2
Contract Liabilities:
Deferred revenue & customer deposits - current	$	1,670	$	571
Total deferred revenue & customer deposits	$	1,670	$	571

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.

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7. Balance Sheet

	*July 31, 2023*			*January 31, 2023*
	(in thousands)
Inventories:
Raw materials	$	8,730		$	8,480
Finished goods		3,936			4,156
Work in progress		4,876			4,422
Cost of inventories		17,542			17,058
Less allowance for obsolescence		(1,891	)		(1,740	)
Total inventories, net	$	15,651		$	15,318

	*July 31, 2023*			*January 31, 2023*
	(in thousands)
Property and equipment:
Furniture and fixtures	$	10,048		$	9,896
Autos and trucks		399			358
Land and buildings		4,547			4,880
Cost of property and equipment		14,994			15,134
Accumulated depreciation and amortization		(11,374	)		(11,189	)
Total property and equipment, net	$	3,620		$	3,945

As of January 31, 2023, the Company completed an annual review of property and equipment noting no indications that the recorded value of assets may not be recoverable and no impairment was recorded for fiscal 2023. Since January 31, 2023, there have been no changes to the market, economic or legal environment in which the Company operates or overall performance of the Company in the six months ended July 31, 2023, that would, in the aggregate, indicate additional impairment analysis is necessary as of July 31, 2023.

8. Leases

The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in Texas, Singapore, Malaysia, and the United Kingdom. Our lease obligation in Canada was terminated as of March 31, 2022, and our lease obligation in Hungary was terminated as of November 30, 2022.

Lease expense for the three and six months ended July 31, 2023 was approximately $201,000 and $422,000, respectively, and during the three and six months ended July 31, 2022 was approximately $218,000 and $421,000, respectively, and was recorded as a component of operating income (loss). Included in these costs was short-term lease expense of approximately$2,000 and $4,000 for the three and six months ended July 31, 2023, respectively, and during the three and six months ended July 31, 2022 was approximately$9,000 and $18,000 respectively.

Supplemental balance sheet information related to leases as of July 31, 2023 and January 31, 2023 was as follows:

Lease	*July 31, 2023*		*January 31, 2023*
Assets	(in thousands)
Operating lease assets	$	1,626	$	1,749

Liabilities
Operating lease liabilities	$	1,626	$	1,749

Classification of lease liabilities
Current liabilities	$	903	$