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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 April 30, 2024

 

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: 1,405,779 shares of common stock, $0.01 par value, were outstanding as of June 10, 2024.

 



 

 

 

MIND TECHNOLOGY, INC.

Table of Contents

 

 

PART I. FINANCIAL INFORMATION

     

Item 1.

Financial Statements (Unaudited)

 
 

Condensed Consolidated Balance Sheets as of April 30, 2024 and January 31, 2024

1

 

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2024 and 2023

2

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended April 30, 2024 and 2023

3

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2024 and 2023

4

 

Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended April 30, 2024 and 2023

5

 

Notes to Condensed Consolidated Financial Statements

7

 

Cautionary Statement about Forward-Looking Statements

16

     

Item 2.

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

17

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

     

Item 4.

Controls and Procedures

23

 

PART II. OTHER INFORMATION

     

Item 1.

Legal Proceedings

23

     

Item 1A.

Risk Factors

23

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

     

Item 3.

Defaults Upon Senior Securities

23

     

Item 4.

Mine Safety Disclosures

23

     

Item 5.

Other Information

23

     

Item 6.

Exhibits

24

     
 

Exhibit Index

24

     
 

Signatures

25

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

   

April 30, 2024

   

January 31, 2024

 

ASSETS

 

Current assets:

               

Cash and cash equivalents

  $ 924     $ 5,289  

Accounts receivable, net of allowance for credit losses of $332 at each of April 30, 2024 and January 31, 2024

    9,412       6,566  

Inventories, net

    16,161       13,371  

Prepaid expenses and other current assets

    3,014       3,113  

Total current assets

    29,511       28,339  

Property and equipment, net

    791       818  

Operating lease right-of-use assets

    1,725       1,324  

Intangible assets, net

    2,714       2,888  

Deferred tax asset

    122       122  

Total assets

  $ 34,863     $ 33,491  

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

               

Accounts payable

  $ 1,703     $ 1,623  

Deferred revenue

    561       203  

Accrued expenses and other current liabilities

    5,303       5,586  

Income taxes payable

    1,928       2,114  

Operating lease liabilities - current

    728       751  

Total current liabilities

    10,223       10,277  

Operating lease liabilities - non-current

    997       573  

Total liabilities

    11,220       10,850  

Stockholders’ equity:

               

Preferred stock, $1.00 par value; 2,000 shares authorized; 1,683 shares issued and outstanding at each of April 30, 2024 and January 31, 2024

    37,779       37,779  

Common stock, $0.01 par value; 40,000 shares authorized; 1,406 shares issued at April 30, 2024 and January 31, 2024

    14       14  

Additional paid-in capital

    113,169       113,121  

Accumulated deficit

    (127,353 )     (128,307 )

Accumulated other comprehensive gain

    34       34  

Total stockholders’ equity

    23,643       22,641  

Total liabilities and stockholders’ equity

  $ 34,863     $ 33,491  

 

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 April 30,

 
   

2024

   

2023

 

Revenues:

               

Sales of marine technology products

  $ 9,678     $ 10,597  

Cost of sales:

               

Sales of marine technology products

    5,460       6,061  

Gross profit

    4,218       4,536  

Operating expenses:

               

Selling, general and administrative

    2,759       3,306  

Research and development

    462       478  

Depreciation and amortization

    267       333  

Total operating expenses

    3,488       4,117  

Operating income

    730       419  

Other income (expense):

               

Interest expense

          (204 )

Other, net

    469       72  

Total other income (expense)

    469       (132 )

Income from continuing operations before income taxes

    1,199       287  

Provision for income taxes

    (245 )     (411 )

Net income (loss) from continuing operations

    954       (124 )

Loss from discontinued operations, net of income taxes

          (116 )

Net income (loss)

  $ 954     $ (240 )

Preferred stock dividends - declared

           

Preferred stock dividends - undeclared

    (947 )     (947 )

Net income (loss) attributable to common stockholders

  $ 7     $ (1,187 )

Net income (loss) per common share - Basic and Diluted

               

Continuing operations

  $     $ (0.76 )

Discontinued operations

  $     $ (0.08 )

Net income (loss)

  $     $ (0.84 )

Shares used in computing net income (loss) per common share:

               

Basic and diluted

    1,406       1,406  

 

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

 

 

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

   

For the Three Months Ended April 30,

 
   

2024

   

2023

 

Net income (loss)

  $ 954     $ (240 )

Comprehensive income (loss)

  $ 954     $ (240 )

 

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 Three Months Ended April 30,

 
   

2024

   

2023

 

Cash flows from operating activities:

               

Net income (loss)

  $ 954     $ (240 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Depreciation and amortization

    267       481  

Stock-based compensation

    48       50  

Provision for inventory obsolescence

    23        

Gross profit from sale of other equipment

    (457 )     (138 )

Changes in:

               

Accounts receivable

    (2,837 )     (3,462 )

Unbilled revenue

    (10 )     11  

Inventories

    (2,812 )     979  

Prepaid expenses and other current and long-term assets

    100       1,308  

Income taxes receivable and payable

    (186 )     206  

Accounts payable, accrued expenses and other current liabilities

    277       (2,788 )

Deferred revenue and customer deposits

    (120 )     606  

Net cash used in operating activities

    (4,753 )     (2,987 )

Cash flows from investing activities:

               

Purchases of property and equipment

    (66 )     (57 )

Sale of other equipment

    457       138  

Net cash provided by investing activities

    391       81  

Cash flows from financing activities:

               

Net proceeds from short-term loan

          2,945  

Net cash provided by financing activities

          2,945  

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

    (3 )     (2 )

Net change in cash and cash equivalents

    (4,365 )     37  

Cash and cash equivalents, beginning of period

    5,289       778  

Cash and cash equivalents, end of period

  $ 924     $ 815  

Supplemental cash flow information:

               

Interest paid

  $     $ 204  

Income taxes paid

  $ 430     $ 189  

 

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

   

Gain

   

Total

 

Balances, January 31, 2024

    1,406     $ 14       1,683     $ 37,779     $ 113,121     $     $ (128,307 )   $ 34     $ 22,641  

Net income

                                        954             954  

Stock-based compensation

                            48                         48  

Balances, April 30, 2024

    1,406     $ 14       1,683     $ 37,779     $ 113,169     $     $ (127,353 )   $ 34     $ 23,643  

 

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands)

(unaudited)

 

   

Common Stock

   

Preferred Stock

                           

Accumulated

         
   

As adjusted

   

See Note 14

                   

Additional

                   

Other

         
                                   

Paid-In

   

Treasury

   

Accumulated

   

Comprehensive

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Stock

   

Deficit

   

Loss

   

Total

 

Balances, January 31, 2023

    1,599     $ 16     $ 1,683     $ 37,779     $ 129,721     $ (16,863 )   $ (127,635 )   $ 34     $ 23,052  

Net loss

                                        (240 )           (240 )

Stock-based compensation

                            50                         50  

Balances, April 30, 2023

    1,599     $ 16     $ 1,683     $ 37,779     $ 129,771     $ (16,863 )   $ (127,875 )   $ 34     $ 22,862  

 

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, Liquidity and Summary of Significant Accounting Policies

 

Organization—MIND Technology, Inc., a Delaware corporation (the “Company”), was incorporated in 1987. The Company, through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC, Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd, collectively “Seamap”, 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 state of Texas. Prior to August 21, 2023, the Company, through its wholly owned subsidiary Klein Marine Systems, Inc. (“Klein”), designed, manufactured and sold a broad range of proprietary products for the seismic, hydrographic and offshore industries from its facility in the state of New Hampshire. Effective August 21, 2023, the Company sold Klein and retrospectively presented its prior periods financial results reported as discontinued operations (see Note 2 – “Sale of a Subsidiary” for additional details).

 

Liquidity—As of April 30, 2024, the Company had working capital of approximately $19.3 million, including cash and cash equivalents of approximately $924,000, compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million as of January 31, 2024. The Company does not have a credit facility in place and depends on cash on hand and cash flows from operations to satisfy its liquidity needs.  However, the Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, disciplined working capital management, potential financing secured by company owned real property, and potentially securing a credit facility or some other form of financing.

 

Summary of Significant Accounting Policies—We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024. During the three months ended April 30, 2024, there were no changes to those accounting policies.

 

 

F-9

7

 

8

 
 

2. Sale of Subsidiary

 

On August 21, 2023, the Company sold 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 to 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 $2.3 million. The SPA contained 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 (as defined below) 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).

 

 

3. Basis of Presentation

 

The condensed consolidated balance sheet as of January 31, 2024, 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, 2024 (“fiscal 2024”). 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 April 30, 2024, the results of operations for the three months ended April 30, 2024 and 2023, the cash flows for the three months ended April 30, 2024 and 2023, and the statement of stockholders’ equity for the three-months ended April 30, 2024 and 2023, 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, 2025 (“fiscal 2025”).

 

9

 
 

4. Discontinued Operations

 

On August 21, 2023, the Company sold Klein pursuant to the SPA with the Buyer. As a result, its results of operations are reported as discontinued operations for the three-month period ended April 30, 2023.

 

The results of operations from discontinued operations for the three months ended April 30, 2023 consist of the following:

 

  

For the Three Months Ended April 30,

 
  

2024

  

2023

 

Revenues:

 

(in thousands)

 

Revenue from discontinued operations

 $  $1,989 

Cost of sales:

        

Cost of discontinued operations

     1,108 

Operating expenses:

        

Selling, general and administrative

     568 

Research and development

     295 

Depreciation and amortization

     148 

Total operating expenses

     1,011 

Operating loss

     (130)

Other income

     21 

Loss before income taxes from discontinued operations

     (109)

Provision for income taxes from discontinued operations

     (7)

Net loss from discontinued operations

     (116)

 

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

 

  

For the Three Months Ended April 30,

 
  

2024

  

2023

 
  (in thousands) 

Depreciation and amortization

 $  $148 

 

 

5. New Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-7"), to enhance the disclosures public entities provide regarding significant segment expenses so that investors can better understand an entity’s overall performance and assess potential future cash flows. ASU 2023-07 is effective four our annual periods beginning February 1, 2024 and interim periods within fiscal years beginning February 1, 2025. The Company is evaluating the impacts of adoption.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 seeks to improve transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. The updated guidance is effective for the Company on February 1, 2025. The Company is currently evaluating the new guidance to determine the impact it will have on the disclosures to its consolidated financial statements.

 

10

 
 

6. Revenue from Contracts with Customers

 

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

 

   

Three Months Ended April 30,

 
   

2024

   

2023

 

Revenue recognized at a point in time:

 

(in thousands)

 

Total revenue recognized at a point in time

  $ 9,377     $ 10,512  

Revenue recognized over time:

               

Total revenue recognized over time

    301       85  

Total revenue from contracts with customers

  $ 9,678     $ 10,597  

 

The revenue from products manufactured and sold by our Seamap business 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 business provides repair and maintenance services, or performs 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 April 30,

 
   

2024

   

2023

 
   

(in thousands)

 

United States

  $ 345     $ 392  

Europe

    2,785       6,500  

Asia-Pacific

    5,843       3,582  

Other

    705       123  

Total revenue from contracts with customers

  $ 9,678     $ 10,597  

 

As of April 30, 2024, and January 31, 2024, contract assets and liabilities consisted of the following:

 

   

April 30, 2024

   

January 31, 2024

 

Contract Assets:

 

(in thousands)

 

Unbilled revenue - current

  $ 16     $ 26  

Total unbilled revenue

  $ 16     $ 26  

Contract Liabilities:

               

Deferred revenue & customer deposits - current

  $ 3,529     $ 3,649  

Total deferred revenue & customer deposits

  $ 3,529     $ 3,649  

 

Considering the products manufactured and sold by our Seamap business and the Company’s standard contract terms and conditions, we expect the Company's 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.

 

11

 
 

7. Balance Sheet

 

  

April 30, 2024

  

January 31, 2024

 
  

(in thousands)

 

Inventories:

        

Raw materials

 $9,949  $8,730 

Finished goods

  2,657   2,463 

Work in progress

  5,089   3,709 

Cost of inventories

  17,695   14,902 

Less allowance for obsolescence

  (1,534)  (1,531)

Total inventories, net

 $16,161  $13,371 

 

  

April 30, 2024

  

January 31, 2024

 
  

(in thousands)

 

Property and equipment:

        

Furniture and fixtures

 $8,923  $8,868 

Autos and trucks

  286   287 

Land and buildings

  997   997 

Cost of property and equipment

  10,206   10,152 

Accumulated depreciation and amortization

  (9,415)  (9,334)

Total property and equipment, net

 $791  $818 

 

As of January 31, 2024, 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 2024. Since  January 31, 2024, there have been no changes to the market, economic or legal environment in which the Company operates or overall performance of the Company, that would, in the aggregate, indicate additional impairment analysis is necessary as of April 30, 2024.

 

 

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. 

 

Lease expense for the three months ended April 30, 2024 was approximately $207,000, respectively, and during the three months ended April 30, 2023 was approximately $221,000, respectively, and was recorded as a component of operating income (loss). Included in these costs was short-term lease expense of approximately$1,000 for the three months ended April 30, 2024, and during the three months ended April 30, 2023 was approximately$2,000. 

 

Supplemental balance sheet information related to leases as of April 30, 2024 and January 31, 2024 was as follows:

 

Lease

 

April 30, 2024

  

January 31, 2024

 

Assets

 (in thousands)

Operating lease assets

 $1,725  $1,324 
         

Liabilities

        

Operating lease liabilities

 $1,725  $1,324 
         

Classification of lease liabilities

        

Current liabilities

 $728  $751 

Non-current liabilities

  997   573 

Total Operating lease liabilities

 $1,725  $1,324 

 

Lease-term and discount rate details as of April 30, 2024 and January 31, 2024 were as follows:

 

Lease term and discount rate

 

April 30, 2024

  

January 31, 2024

 

Weighted average remaining lease term (years)

        

Operating leases

  1.83   1.40 
         

Weighted average discount rate:

        

Operating leases

  13%  13%

 

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

 

12

 

Supplemental cash flow information related to leases was as follows:

 

  

For the Three Months Ended April 30,

 

Lease

 

2024

  

2023

 

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

 

(in thousands)

 

Operating cash flows from operating leases

 $(207) $(221)
         

Changes in lease balances resulting from new and modified leases:

        

Operating leases

 $612  $223 

 

Maturities of lease liabilities at April 30, 2024 were as follows:

 

  

April 30, 2024

 
  (in thousands) 

2025

 $705 

2026

  595 

2027

  487 

2028

  275 

2029

  35 

Thereafter

   

Total payments under lease agreements

 $2,097 
     

Less: imputed interest

  (372)

Total lease liabilities

 $1,725 

 

 

9. Intangible Assets

 

      

April 30, 2024

  

January 31, 2024

 
  

Weighted

                         
  

Average Life at

  

Gross Carrying

  

Accumulated

  

Net Carrying

  

Gross Carrying

  

Accumulated

  

Net Carrying

 
  

April 30, 2024

  

Amount

  

Amortization

  

Amount

  

Amount

  

Amortization

  

Amount

 
      

(in thousands)

  

(in thousands)

 

Proprietary rights

  4.6   7,473   (5,168)  2,305   7,473   (5,053)  2,420 

Customer relationships

  0.1   4,884   (4,876)  8   4,884   (4,852)  32 

Patents

  1.2   2,540   (2,216)  324   2,540   (2,190)  350 

Trade name

  2.1   134   (111)  23   134   (108)  26 

Other

  0.2   416   (362)  54   426   (366)  60 

Intangible assets

     $15,447  $(12,733) $2,714  $15,457  $(12,569) $2,888 

 

 

On January 31, 2024, 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 three months ended April 30, 2024, there have been no substantive indicators of impairment.

 

Aggregate amortization expense was $185,000 and $224,000 for the three months ended April 30, 2024 and 2023, respectively. As of April 30, 2024, future estimated amortization expense related to amortizable intangible assets was estimated to be:

 

For fiscal years ending January 31,

  (in thousands) 

2025

 $442 

2026

  520 

2027

  381 

2028

  315 

2029

  213 

Thereafter

  843 

Total

 $2,714 

 

13

 
 

10. Notes Payable

 

On February 2, 2023, we entered into a $3.75 million Loan and Security Agreement (“the Loan”). The Company incurred approximately $814,000 of debt acquisition costs associated with the loan including approximately $254,000 in origination and other transaction fees and approximately $484,000 of prepaid interest, which is the interest due through maturity. These costs were recorded as a reduction to the carrying value of our debt and amortized to interest expense straight-line over the term of the Loan. Approximately $204,000 of amortization of debt acquisition costs were recorded as interest expense for the three months ended April 30, 2023. On August 22, 2023, in connection with the Sale of Klein, the Loan was repaid in full (see Note 2- "Sale of Subsidiary" for additional details). 

 

 

11. Income Taxes

 

For the three-month period ended April 30, 2024, the income tax expense from continuing operations was approximately  $ 245,000, on pre-tax income from continuing operations of approximately $1.2 million. For the three- month period ended April 30, 2023, the income tax expense from continuing operations was approximately $ 411,000, on pre-tax income from continuing operations of  $ 287,000. The variance between our actual provision and the expected provision when applying the U.S. statutory rate of 21% is due primarily to the impact of income taxes accrued in certain foreign jurisdictions, mainly Singapore, which do not have net operating losses available to offset taxable income, and because valuation allowances have been recorded against increases in our deferred tax assets. Valuation allowances have been provided against all deferred tax assets in the United States and several foreign jurisdictions.

 

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 2024. The Company’s tax returns may also be subject to examination by state and local tax authorities for fiscal years ending  January 31, 2017 through 2024. The Company's Singapore income tax returns are subject to examination by the Singapore tax authorities for the fiscal years ended January 31, 2017, through 2024. The Company’s tax returns in other foreign jurisdictions are generally subject to examination for the fiscal years ended January 31, 2018 through 2024.

 

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 April 30, 2024. 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 April 30, 2024.

 

For the three-month period ended April 30, 2024 and 2023, the Company did not recognize any tax expense or benefit related to uncertain tax positions.

 

 

12. 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. For the three months ended April 30, 2024 and April 30, 2023, dilutive potential common shares outstanding were immaterial and had no effect on the calculation of earnings per share because shares were anti-dilutive. The total basic weighted average common shares outstanding for the three months ended April 30, 2024 and April 30,2023, was approximately 1.4 million shares.

 

On October 12, 2023, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Charter (the “Charter Amendment”) to effect a one-for-ten reverse stock split (the “Reverse Stock Split”). Prior periods shares have been restated to reflect the impact of the Reverse Stock Split in calculating earnings per share (see Note 14- "Equity and Stock Based Compensation " for additional details).

 

 

 

13. Related Party Transaction

 

 Ladenburg Thalmann & Co. Inc. (“Ladenburg”) provided advisor and arrangement services for the Loan (See Note 10 - "Notes Payable" for additional details) and received $75,000 in fees for such services.  Additionally, Ladenburg provided advisory services related to the Sale of Klein and received fees of $405,000 for such services. The former Co-Chief Executive Officer and Co-President of Ladenburg is the Non-Executive Chairman of our Board. Our Non-Executive Chairman of the Board received no portion of the above-mentioned compensation.

 

14

 
 

14. Equity and Stock-Based Compensation

 

As of April 30, 2024, there are approximately 1,683,000 shares of Preferred Stock outstanding with an aggregate liquidation preference of approximately $48.7 million, which amount includes approximately $6.6 million in undeclared cumulative dividends. Holders of our Preferred Stock are entitled to receive, when and as declared by the Board out of funds of the Company available for the payment of distributions, quarterly cumulative preferential cash dividends of $0.5625 per share of the $25.00 per share stated liquidation preference on our Preferred Stock. Dividends on the Preferred Stock are payable quarterly in arrears, on April 30, July 31, October 31, and January 31, of each year.

 

On September 28, 2023, the Board approved the Reverse Stock Split at a ratio of one-for-ten. On October 12, 2023, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Charter Amendment to effect the Reverse Stock Split. The Charter Amendment became effective on October 13, 2023.

 

As a result of the Charter Amendment and Reverse Stock Split, every ten shares of issued and outstanding Common Stock were combined into one issued and outstanding share of Common Stock, without any change in par value per share. Proportionate adjustments were also made to any outstanding securities or rights convertible into, or exchangeable or exercisable for, shares of Common Stock. Fractional shares were not issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to receive a fractional share were entitled to receive one full share of post-Reverse Stock Split Common Stock, in lieu of receiving such fractional shares. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s relative interest in the Company’s equity securities. The Reverse Stock Split reduced the number of shares of issued and outstanding Common Stock from approximately 13,788,738 shares to approximately 1,405,779 shares. Common stock and treasury stock shares have been retroactively adjusted to reflect the Reverse Stock Split in all periods presented. In connection with the reverse stock split, the Company retired all treasury stock.

 

Total compensation expense recognized for stock-based awards granted under the Company’s equity incentive plan during the three-month period ended April 30, 2024 was approximately $ 48,000, and during the three-month period ended April 30, 2023, was approximately $50,000.

 

 

15. Segment Reporting

 

Prior to August 22, 2023, the Company operated in two segments, Seamap and Klein.  On August 21, 2023, the Company completed the Sale of Klein. (see Note 2-"Sale of Subsidiary" for additional details). As a result, at April 30, 2024, Seamap is the Company’s sole operating segment.

 

 

15

 
 

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “expect,” “may,” “will,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward-looking statements, which are not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts of our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

 

 

risks associated with our manufacturing operations including availability and reliability of materials and components as well the reliability of the products that we manufacture and sell;

 

loss of significant customers;

 

the impact of disruptions in global supply chains due to various factors, including certain components and materials becoming unavailable, increased lead times for components and materials, as well as increased costs for such items;

  demands from suppliers for advance payments could increase our need for working capital; inability to access such working capital could impede our ability to complete orders;
 

increased competition;

 

loss of key suppliers;

 

intellectual property claims by third parties;

 

the effect of uncertainty in financial markets on our customers’ and our ability to obtain financing;

 

our ability to successfully execute strategic initiatives to grow our business;

 

uncertainties regarding our foreign operations, including political, economic, currency, environmental regulation and export compliance risks;

 

seasonal fluctuations that can adversely affect our business;

 

fluctuations due to circumstances beyond our control or that of our customers;

 

defaults by customers on amounts due to us;

 

possible further impairment of our long-lived assets due to technological obsolescence or changes in anticipated cash flow generated from those assets;

 

inability to obtain funding or to obtain funding under acceptable terms;

  changes in government spending, including efforts by the U.S. and other governments to decrease spending for defense contracts, or as a result of U.S. or other administration transition;
  efforts by U.S. Congress and other U.S. government bodies to reduce U.S. government spending and address budgetary constraints and the U.S. deficit, as well as associated uncertainty around the timing, extent, nature and effect of such efforts;
 

fluctuations in demand for seismic data, which is dependent on the level of spending by oil and gas companies for exploration, production and development activities, and may potentially negatively impact the value of our assets held for sale;

  inflation and price volatility in the global economy could negatively impact our business and results of operations;
  the consequences of future geopolitical events, which we cannot predict but which may adversely affect the markets in which we operate, our operations, or our results of operations; and
  negative impacts to our business from security threats, including cybersecurity threats, and other disruptions.

 

For additional information regarding known material factors that could cause our actual results to differ materially from our projected results, please see (1) Part II, Item 1A. Risk Factors of this Form 10-Q, (2) Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, and (3) the Companys other filings filed with the SEC from time to time.

 

There may be other factors of which the Company is not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement after the date they are made, whether as the result of new information, future events or otherwise, except as required by law. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

 

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

On August 21, 2023, the Company completed the Sale of Klein (see Note 2-"Sale of Subsidiary" in the accompanying financial statements for additional details). Effective with the Sale of Klein, we operate in one segment, Seamap.  Seamap designs, produces and sells seismic exploration and survey equipment. Its customers include foreign and domestic commercial marine survey companies and various governmental institutions. 

 

Management believes that the performance of our Seamap business is indicated by revenues from sales of products and by gross profit from those sales. Management monitors EBITDA and Adjusted EBITDA, both as defined and reconciled to the most directly comparable financial measures calculated and presented in accordance with United States generally accepted accounting principles (“GAAP”), in the following table, as key indicators of our overall performance and liquidity.

 

 

   

For the Three Months Ended April 30,

 
   

2024

   

2023

 

Reconciliation of Net income (loss) to EBITDA and Adjusted EBITDA from continuing operations

 

(in thousands)

 

Net income (loss)

  $ 954     $ (240 )

Interest expense, net

          204  

Depreciation and amortization

    267       481  

Provision for income taxes

    245       411  

EBITDA (1)

    1,466       856  

Stock-based compensation

    48       50  

Income from discontinued operations net of depreciation and amortization

          (32 )

Adjusted EBITDA from continuing operations (1)

  $ 1,514     $ 874  

Reconciliation of Net Cash Used in Operating Activities to EBITDA

               

Net cash used in operating activities

  $ (4,753 )   $ (2,987 )

Stock-based compensation

    (48 )     (50 )

Provision for inventory obsolescence

    (23 )      

Changes in accounts receivable (current and long-term)

    2,847       3,451  

Interest paid, net

          204  

Taxes paid, net of refunds

    430       189  

Gross profit from sale of other equipment

    457       138  

Changes in inventory

    2,812       (979 )

Changes in accounts payable, accrued expenses and other current liabilities and deferred revenue

    (157 )     2,182  

Changes in prepaid expenses and other current and long-term assets

    (100 )     (1,308 )

Other

    1       16  

EBITDA (1)

  $ 1,466     $ 856  

 


 

(1)

EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA is defined as net income before (a) interest income and interest expense, (b) provision for (or benefit from) income taxes and (c) depreciation and amortization. Adjusted EBITDA excludes non-cash foreign exchange gains and losses, stock-based compensation, impairment of intangible assets, other non-cash tax related items and non-cash costs of lease pool equipment sales. We consider EBITDA and Adjusted EBITDA to be important indicators for the performance of our business, but not measures of performance or liquidity calculated in accordance with GAAP. We have included these non-GAAP financial measures because management utilizes this information for assessing our performance and liquidity, and as indicators of our ability to make capital expenditures, service debt and finance working capital requirements and we believe that EBITDA and Adjusted EBITDA are measurements that are commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us. In particular, we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP and should not be considered in isolation or as alternatives to cash flow from operating activities or to net income as indicators of operating performance or any other measures of performance derived in accordance with GAAP. In evaluating our performance as measured by EBITDA, management recognizes and considers the limitations of this measurement. EBITDA and Adjusted EBITDA do not reflect our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures. Accordingly, EBITDA and Adjusted EBITDA are only two of the measurements that management utilizes. Other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do and EBITDA and Adjusted EBITDA may not be comparable with similarly titled measures reported by other companies.

 

 

We design, manufacture and sell a variety of products used primarily in seismic and marine survey industries. Seamap’s primary products include (i) the GunLink seismic source acquisition and control systems; (ii) the BuoyLink RGPS tracking system used to provide precise positioning of seismic sources and streamers (marine recording channels that are towed behind a vessel) and (iii) SeaLink marine sensors and solid streamer systems (collectively, the “SeaLink” product line or “towed streamer products”). These towed streamer products are primarily designed for three-dimensional, high-resolution marine surveys in marine survey applications.

 

Our results of operations can experience fluctuations in activity levels due to a number of factors outside of our control. These factors include budgetary or financial concerns, supply chain issues, labor or political issues, inclement weather, and global pandemics. See Part II, Item 1A- “Risk Factors.”

 

 

Business Outlook

 

Our financial performance has improved significantly in recent periods.  Although we have a history of operating losses, we generated positive operating income from continuing operations in fiscal 2024 and the first quarter of fiscal 2025.  We believe this is due to increased demand within our primary markets and efforts to reduce costs and improve product margins.

 

On August 21, 2023, we completed the Sale of Klein for cash consideration of $11.5 million. In addition, in connection with the Sale of Klein, the Company granted the Buyer a license in its Spectral Ai software suite, 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 license and collaboration agreements provide opportunities for recurring licensing revenue and recovery of certain ongoing operating costs.  We believe the Sale of Klein serves to streamline the Company’s operations and provides needed working capital to address the financial requirements associated with the continuing growth of our Seamap business.

 

We have experienced increased inquiries and bid activity for our marine technology products. As of April 30, 2024, our backlog of firm orders was approximately $31.0 million, as compared to approximately $38.4 million as of January 31, 2024, and $18.1 million as of April 30, 2023. We believe that essentially all of our current backlog will be completed and shipped by the end of fiscal 2025. We believe that these firm orders provide good visibility for the balance of this fiscal year and into the next year. However, the level of backlog at a particular point in time may not necessarily be indicative of results in subsequent periods as the size and delivery period of individual orders can vary significantly.

 

Our revenues tend to fluctuate from quarter to quarter due to delivery schedules and other factors. We currently expect revenue in the fiscal year ending January 31, 2025 to exceed that of fiscal 2024. However, no assurances of such results can be made, and there are a number of risks which could cause results to be less than anticipated. Those risks include the following:

 

 

Inability of our customers to accept delivery of orders as scheduled;

 

 

Cancellation of orders;

 

 

Production difficulties, including supply chain disruptions, which could delay the completion of orders as scheduled;

 

 

Anticipated orders not being received as expected; and

 

 

Other unanticipated delays beyond our control. 

 

In our Seamap business we address the following primary markets:

 

 

Marine Survey

 

 

Marine Exploration

 

We see a number of opportunities to add to our technology and to apply existing technology and products to new applications.

 

 

We also continue to pursue initiatives to further expand our product offerings. These initiatives include new internally developed technology, introduction of new products based on our existing technology, technology obtained through partnering arrangements with others and a combination of all of these. There can be no assurance that any of these initiatives will ultimately have a material impact on our financial position or results of operations. Certain business opportunities that we are pursuing are with military or other governmental organizations. The sales cycle for these projects can be quite long and can be impacted by a variety of factors, including the level of competition and budget limitations. Therefore, the timing of contract awards is often difficult to predict. However, once awarded, programs of this type can extend for many years. To date, the majority of our revenues have been from commercial customers.

 

We believe there are certain developments within the marine technology industry that can have a significant impact on our business. These developments include the following:

 

 

Demand for economical, commercially developed, technology for maritime security applications; and

 

 

Increased activity within the marine exploration space, including applications for alternative energy projects such as offshore windfarms and carbon capture projects.

 

In response to these, and other, developments we have prioritized certain strategic initiatives to exploit the opportunities that we perceive. These initiatives include the following:

 

 

Application of our Spectral Ai software suite technology to side scan sonar systems and potentially other sensor systems;

 

 

Adaptation of our SeaLink solid streamer technology to alternative applications, such as hydrographic surveys for windfarm and carbon capture projects; and

 

 

Application of our SeaLink solid streamer technology to passive sonar arrays for use in maritime security applications, such as domain awareness and anti-submarine warfare.

 

We believe that the above applications expand our addressable markets and provide opportunities for further growth in our revenues.

 

In fiscal 2024, we eliminated two executive management positions and certain other administrative positions in order to further control general and administrative costs. The Sale of Klein has allowed us to further streamline our operations and may provide opportunities to further reduce overhead costs. Should future financial results fall below our expectation, we may take further steps to reduce costs. We believe many of our costs are variable in nature, such as raw materials and labor-related costs. Accordingly, we believe we can reduce such costs commensurate with any declines in our business.

 

General inflation levels have increased recently due in part to supply chain issues, increased energy costs and geopolitical uncertainty. In addition, shortages of certain components, such as electronic components, have caused prices for available components to increase in some cases. These factors can be expected to have a negative impact on our costs; however, the magnitude of such impact cannot be accurately determined.

 

Our revenues and results of operations have not been materially impacted by inflation or changing prices in the past two fiscal years, except as described above.

 

Results of Operations

 

Revenues for the three months ended April 30, 2024 were approximately $9.7 million, compared to approximately $10.6 million for the three months ended April 30, 2023 The decrease in the first three months of fiscal 2025 compared to the prior year period was primarily due to timing of completion of projects. For the three months ended April 30, 2024, we generated operating income of approximately $730,000, compared to operating income of approximately $419,000 for the three months ended April 30, 2023. The increase in operating income in the current three month periods was primarily attributable to decreased selling, general and administrative costs during the three months ended April 30, 2024. A more detailed explanation of these variations follows.

 

 

Revenues and Cost of Sales

 

Revenues and cost of sales for our Marine Technology Products business were as follows:

 

   

Three Months Ended

 
   

April 30,

 
   

2024

   

2023

 
   

(in thousands)

 

Revenues:

               

Seamap

  $ 9,678     $ 10,597  

Cost of sales:

               

Seamap

    5,460       6,061  

Gross profit

  $ 4,218     $ 4,536  

Gross profit margin

    44 %     43 %

 

A significant portion of Seamap’s sales consist of large discrete orders, the timing of which is dictated by our customers. This timing generally relates to the availability of a vessel in port so that our products can be installed. Accordingly, there can be significant variation in sales from one period to another, which does not necessarily indicate a fundamental change in demand for these products. Revenue from the sale of Seamap products was approximately $9.7 million for the three-month period ended April 30, 2024, compared to revenue of approximately $10.6 million for three-month period ended April 30, 2023.  The gross profit and gross profit margins remained consistent for Seamap and were approximately $4.2 million and 44% and approximately $4.5 million and 43% in the three-month periods ended April 30, 2024 and 2023, respectively. The gross profit margin in the first quarter of fiscal 2025 improved from the comparable period in the prior fiscal year, despite lower revenues, due to price increases implemented in fiscal 2024 and increased production efficiencies. The increased production efficiencies were due primarily to production and procurement efficiencies facilitated by increased order backlog. 

 

Operating Expenses

 

General and administrative expenses for the three months ended April 30, 2024, were approximately $2.8 million, compared to approximately $3.3 million for the three months ended April 30, 2023. The decrease from the prior periods is primarily the result of lower compensation expense due to headcount reductions, and the impact of broader cost control measures.

 

Research and development costs were approximately $462,000 in the three-month period ended April 30, 2024, compared to approximately $478,000 in the three-month period ended April 30, 2023, respectively. Costs in each of the periods are related primarily to our next generation towed streamer system and ongoing development of our Spectral Ai software suite.

 

Depreciation and amortization expense, which includes depreciation of equipment, furniture and fixtures and the amortization of intangible assets, decreased primarily attributable to assets becoming fully depreciated and amortized over the year. These costs were approximately $267,000 in the three -month period ended April 30, 2024, as compared to approximately $333,000 in the three-month period ended April 30, 2023.

 

Interest Expense

 

Interest expense of approximately $204,000 in the three months ended April 30, 2023, was primarily due to interest on the Loan. The Loan was repaid in fiscal 2024 in connection with the sale of Klein (see note 10-"Notes Payable" and Note 2-"Sale of Subsidiary" for additional details).

 

Other Expense

 

Other expense primarily relates to gains on the sale of certain ancillary equipment, scrap sales and other income.

 

Provision for Income Taxes

 

For the three-months ended April 30, 2024, we reported tax expense of approximately $245,000 on pre-tax income from continuing operations of approximately $1.2 million. For the three-month period ended April 30, 2023, our income tax expense was approximately $411,000 on pre-tax Income from continuing operations of approximately $287,000. These amounts differed from the result expected when applying the U.S. statutory rate of 21% to our income or loss from continuing operations before income taxes for the respective periods due primarily to the impact of income taxes accrued in certain foreign jurisdictions, primarily in Singapore, which do not have net operating losses available to offset taxable income, and because valuation allowances have been recorded against increases in our deferred tax assets. Valuation allowances have been provided against all deferred tax assets in the United States and several foreign jurisdictions.

 

 

Liquidity and Capital Resources

 

The Company has a history of generating operating losses and negative cash from operating activities and has relied on cash from the sale of lease pool equipment and the sale of Preferred Stock and Common Stock for the past several years. However, the Company’s operating results improved significantly in fiscal 2024 as compared to fiscal 2023 and prior years, generating net income from operations and positive Adjusted EBITDA for the fiscal year ended January 31, 2024 and the three months ended April 30, 2024. In addition, the Company sold its Klein business on August 21, 2023, generating net proceeds of approximately $7.3 million after settlement of closing cost and all outstanding amounts due and owed, including principal, interest, and other charges, on the Company’s $3.75 million loan. The sale of Klein increased the Company’s working capital and improved its liquidity situation.

 

As of April 30, 2024, the Company had working capital of approximately $19.3 million, including cash and cash equivalents of approximately $924,000, compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, as of January 31, 2024. The Company does not have a credit facility in place and depends on cash on hand, cash flows from operations, and potential sales of remaining lease pool equipment to satisfy its liquidity needs.

 

The Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, potential financing secured by company owned real property, disciplined working capital commitments, and potentially securing a credit facility or some other form of financing. 

 

In addition, management believes there are a number of additional factors and actions available to the Company to address any liquidity needs, including the following:

 

 

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

 

 

The Company had working capital of approximately $19.3 million as of April 30, 2024, including cash of approximately $924,000.

 

 

Should revenues be less than projected, the Company believes it is able, and has plans, 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. In fiscal 2024, the Company 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 had a backlog of orders related to the Seamap segment of approximately $31.0 million as of April 30, 2024, production for certain of these orders was in process and included in inventory as of April 30, 2024, thereby reducing the liquidity needed to complete the orders.

 

 

The Company has deferred payment of the quarterly dividend on its Series A Preferred Stock for seven fiscal quarters, including the first quarter of fiscal 2025. 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. The Company has commenced the solicitation of proxies to approve an amendment to the Certificate of Designations, Preferences and Rights of its Series A Cumulative Preferred Stock to provide that, at the discretion of its Board of Directors at any time prior to July 31, 2024, each share of Series A Preferred Stock shall be converted into 3.9 shares of Common Stock upon the effective time of the Amendment. Holders of Series A Preferred Stock as of the record date of April 26, 2024 are entitled to vote at a Virtual Special Meeting of Preferred Stockholders to be held on June 13, 2024. The affirmative vote of two-thirds (66 2/3%) of the outstanding shares of Series A Preferred Stock is required for approval of the Preferred Stock Proposal. Holders of Common Stock are not entitled to vote at the Special Meeting.

 

 

In recent years, the Company has raised capital through the sale of Common Stock and Preferred Stock pursuant to the at-the-market program (the "ATM Offering Program") 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.

     
  The Company owns unencumbered real estate near Huntsville, Texas which could be used to generate capital if needed through a mortgage or sale lease transaction. The Company demonstrated its ability to do this through a secured lending transaction in early fiscal 2024, which was repaid from the proceeds from the sale of Klein. The appraised value of this property is approximately $5.0 million.

  

 

Due to the rising level of sales and production activities there are increasing requirements for purchases of inventory and other production costs. Additionally, due to component shortages and long-lead times for certain items there are requirements in some cases to purchase items well in advance. Furthermore, some suppliers require prepayments in order to secure some items. All of these factors combine to increase the Company’s working capital requirements. Furthermore, Management believes there are opportunities to increase production capacity and efficiencies. However, some of these opportunities may require additional investments such as in production equipment or other fixed assets. If we are unable to meet suppliers' demands, we may not be able to produce products and fulfill orders from our customers. 

 

In order to fund future growth, we may explore sources of additional capital. Such sources include private or public issues of equity or debt securities, or a combination of such securities. Other sources could include secured debt financing, the sale of assets or investment from strategic industry participants.

 

The Company has deferred payment of quarterly dividends for seven fiscal quarters including the first quarter of fiscal 2025. Accumulated and undeclared dividends amount to approximately $6.6 million as of April 30, 2024. Management does not believe that current operations can simultaneously fund the capital requirements of the ongoing business, as discussed above, as well as ongoing or accumulated dividends related to the Preferred Stock.  Accordingly, although no firm decisions have been made, management currently believes it is unlikely that the Company will declare dividends on the Preferred Stock for the foreseeable future.

 

 

The following table sets forth selected historical information regarding cash flows from our Consolidated Statements of Cash Flows:

 

   

For the Three Months Ended

 
   

April 30,

 
   

2024

   

2023

 
   

(in thousands)

 

Net cash used in operating activities

  $ (4,753 )   $ (2,987 )

Net cash provided by investing activities

    391       81  

Net cash provided by financing activities

          2,945  

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

    (3 )     (2 )

Net (decrease) increase in cash and cash equivalents

  $ (4,365 )   $ 37  

 

As of April 30, 2024, we had working capital of approximately $19.3 million, including cash and cash equivalents of approximately $924,000, as compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, at January 31, 2024. 

 

Cash Flows from Operating Activities. Net cash used in operating activities was approximately $4.8 million in the first three months of fiscal 2025 as compared to approximately $3.0 million in the first three months of fiscal 2024. The increase in net cash used in operating activities in the first three months of fiscal 2025 compared to the prior year period was due mainly to an increase in accounts receivable and inventories.

 

Cash Flows from Investing Activities. Cash provided by investing activities during the first three months of fiscal 2025 increased approximately $310,000 over the same period in fiscal 2024. The increase relates primarily to sales of other equipment.

 

Cash Flows from Financing Activities. Net cash provided by financing activities during the first three months of fiscal 2024 consisted of approximately $2.9 million of net proceeds related to short-term loans (see Note 10 - "Notes Payable" for additional details).

 

We have determined that the undistributed earnings of foreign subsidiaries are not deemed indefinitely reinvested outside of the United States as of April 30, 2024. Furthermore, we have concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial.

 

As of April 30, 2024, we had deposits in foreign banks equal to approximately $710,000, all of which we believe could be distributed to the United States without adverse tax consequences. However, in certain cases the transfer of these funds may result in withholding taxes payable to foreign taxing authorities. If withholding taxes should become payable, we believe the amount of tax withheld would be immaterial.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Critical Accounting Estimates

 

Information regarding our critical accounting estimates is included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 31, 2024. There have been no material changes to our critical accounting estimates during the three-month period ended April 30, 2024.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risk, which is the potential loss arising from adverse changes in market prices and rates. We have not entered, and do not intend to enter, into derivative financial instruments for hedging or speculative purposes.

 

Foreign Currency Risk

 

We operate in several foreign locations, which gives rise to risk from changes in foreign currency exchange rates. To the extent possible, we attempt to denominate our transactions in foreign locations in U.S. dollars. For those cases in which transactions are not denominated in U.S. dollars, we are exposed to risk from changes in exchange rates to the extent that non-U.S. dollar revenues exceed non-U.S. dollar expenses related to those transactions. Our non-U.S. dollar transactions are denominated primarily in British pounds, Singapore dollars and European Union euros. As a result of these transactions, we generally hold cash balances that are denominated in these foreign currencies. At April 30, 2024, our consolidated cash and cash equivalents included foreign currency denominated amounts equivalent to approximately $390,000 in U.S. dollars. A 10% increase in the U.S. dollar as compared to each of these currencies would result in a loss of approximately $39,000 in the U.S. dollar value of these deposits, while a 10% decrease would result in an equal amount of gain. We do not currently hold or issue foreign exchange contracts or other derivative instruments to hedge these exposures.

 

Interest Rate Risk

 

As of April 30, 2024, we had no debt.

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officers and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our principal executive officer and principal financial officer have concluded that our current disclosure controls and procedures were not effective as of April 30, 2024, due to a material weakness in our internal control over financial reporting relating to the existence of inventory that was disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

 

Remediation

 

As previously described in Part II, Item 9A, "Controls and Procedures" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, we are implementing a remediation plan to address the material weakness in our internal controls over the existence of inventory. The weakness will remain unresolved until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

 

Changes in Internal Control over Financial Reporting

 

Other than changes in connection with the remediation plan discussed above, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended April 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

Item 1. Legal Proceedings

 

From time to time, we are a party to legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceedings, individually or collectively, that we believe could have a material adverse effect on our results of operations or financial condition or is otherwise material.

 

Item 1A. Risk Factors

 

In addition to the other information set forth elsewhere in this Form 10-Q, you should carefully consider the risks discussed in our Annual Report on Form 10-K for the year ended January 31, 2024, which risks could materially affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the year ended January 31, 2024. The risks described in our Annual Report on Form 10-K for the year ended January 31, 2024, are not the only risks the Company faces. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, or future results.

 

 

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

 

 

(a)

Not applicable.

 

(b)

Not applicable.

  (c) Not applicable.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

Item  5. Other Information

 

Not applicable.

 

23

 
 

Item 6. Exhibits

 

Exhibits

 

The exhibits marked with the cross symbol (†) are filed (or furnished in the case of Exhibit 32.1) with this Form 10-Q.

 

Exhibit

 

Document Description

 

Form

 

Exhibit

Number

         

Reference

2.1

 

Agreement and Plan of Merger dated as of August 3, 2020, by and between Mitcham Industries, Inc. and MIND Technology, Inc.

 

Current Report on Form 8-K, filed with the SEC on August 7, 2020.

 

2.1

3.1

 

Amended and Restated Certificate of Incorporation of MIND Technology, Inc.

 

Current Report on Form 8-K, filed with the SEC on August 7, 2020.

 

3.3

3.2   Certificate of Amendment of Certificate of Incorporation of MIND Technology, Inc., effective as of October 12, 2023.   Current Report on Form 8-K, filed with the SEC on October 13, 2023.   3.1

3.3

 

Amended and Restated Bylaws of MIND Technology, Inc.

 

Current Report on Form 8-K, filed with the SEC on August 7, 2020.

 

3.4

3.4

 

Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock

 

Current Report on Form 8-K, filed with the SEC on August 7, 2020.

 

3.5

3.5

 

Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock

 

Form 8-K filed with the SEC on September 25, 2020.

 

3.1

3.6

 

Second Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock

 

Registration Statement on Form S-1 filed with the SEC on October 25, 2021.

 

3.5

3.7

 

Third Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock

 

Form 8-K filed with the SEC on November 4, 2021.

 

3.3

3.8   Fourth Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock   Form 8-K filed with the SEC on October 13, 2023.   3.2

3.9

 

Texas Certificate of Merger, effective as of August 3, 2020

 

Current Report on Form 8-K, filed with the SEC on August 7, 2020.

 

3.1

3.10

 

Delaware Certificate of Merger, effective as of August 3, 2020

 

Current Report on Form 8-K, filed with the SEC on August 7, 2020.

 

3.2

             

31.1†

 

Certification of Robert P. Capps, Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended

       
             

31.2†

 

Certification of Mark A. Cox, Chief Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended

       
             

32.1†

 

Certification of Robert P. Capps, Chief Executive Officer, and Mark A. Cox, Chief Financial Officer, under Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. § 1350

       
             

101.INS†

 

Inline XBRL Instance Document

       
             

101.SCH†

 

Inline XBRL Taxonomy Extension Schema Document

       
             

101.CAL†

 

Inline XBRL Taxonomy Extension Calculation of Linkbase Document

       
             

101.DEF†

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

       
             

101.LAB†

 

Inline XBRL Taxonomy Extension Label Linkbase Document

       
             

101.PRE†

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

       
             

104†

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

       

 

 

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.

 

   
 

MIND TECHNOLOGY, INC.

   

Date: June 11, 2024

/s/ Robert P. Capps

 

Robert P. Capps

 

President and Chief Executive Officer

   
 

(Duly Authorized Officer)

 

25
ex_669501.htm

Exhibit 31.1

 

CERTIFICATION

 

I, Robert P. Capps, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended April 30, 2024 of MIND Technology, Inc. (the “registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ Robert P. Capps                                       

Robert P. Capps

President, Chief Executive Officer and Director

(Principal Executive Officer)

June 11, 2024

 

 
ex_669502.htm

Exhibit 31.2

 

CERTIFICATION

 

I, Mark A. Cox, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended April 30, 2024 of MIND Technology, Inc. (the “registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ Mark A. Cox                            

Mark A. Cox

Chief Financial Officer and Vice President of Finance and Accounting

(Principal Financial Officer)

June 11, 2024

 

 
ex_669503.htm

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of MIND Technology, Inc. (the “Company”) on Form 10-Q for the quarterly period ended April 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert P. Capps, Chief Executive Officer of the Company, and Mark A. Cox, Chief Financial Officer of the Company, each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Robert P. Capps                                   

Robert P. Capps

President, Chief Executive Officer and Director

(Principal Executive Officer)

June 11, 2024

 

/s/ Mark A. Cox                            

Mark A. Cox

Chief Financial Officer and Vice President of Finance and Accounting

(Principal Financial Officer)

June 11, 2024