10-Q 1 mind20231031_10q.htm FORM 10-Q mind20231031_10q.htm
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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 October 31, 2023

 

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 December 13, 2023.

 



 

 

 

MIND TECHNOLOGY, INC.

Table of Contents

 

 

PART I. FINANCIAL INFORMATION

     

Item 1.

Financial Statements (Unaudited)

 
 

Condensed Consolidated Balance Sheets as of October 31, 2023 and January 31, 2023

1

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2023 and 2022

2

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended October 31, 2023 and 2022

3

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2023 and 2022

4

 

Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended October 31, 2023 and 2022

5

 

Notes to Condensed Consolidated Financial Statements

7

 

Cautionary Statement about Forward-Looking Statements

15

     

Item 2.

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

16

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

     

Item 4.

Controls and Procedures

22

 

PART II. OTHER INFORMATION

     

Item 1.

Legal Proceedings

22

     

Item 1A.

Risk Factors

22

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

     

Item 3.

Defaults Upon Senior Securities

22

     

Item 4.

Mine Safety Disclosures

22

     

Item 5.

Other Information

22

     

Item 6.

Exhibits

23

     
 

Exhibit Index

23

     
 

Signatures

24

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MIND TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

  

October 31, 2023

  

January 31, 2023

 

ASSETS

 

Current assets:

        

Cash and cash equivalents

 $5,569  $778 

Accounts receivable, net of allowance for doubtful accounts of $332 at each of October 31, 2023 and January 31, 2023

  3,882   3,247 

Inventories, net

  13,263   11,026 

Prepaid expenses and other current assets

  1,701   1,400 

Current assets of discontinued operations

     5,783 

Total current assets

  24,415   22,234 

Property and equipment, net

  830   953 

Operating lease right-of-use assets

  1,517   1,749 

Intangible assets, net

  3,073   3,633 

Long-term assets of discontinued operations

     4,289 

Total assets

 $29,835  $32,858 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

        

Accounts payable

 $1,127  $2,494 

Deferred revenue

  130   144 

Accrued expenses and other current liabilities

  4,360   1,477 

Income taxes payable

  1,457   1,493 

Operating lease liabilities - current

  833   903 

Current liabilities of discontinued operations

     2,420 

Total current liabilities

  7,907   8,931 

Operating lease liabilities - non-current

  684   846 

Deferred tax liability

  41   29 

Total liabilities

  8,632   9,806 

Stockholders’ equity:

        

Preferred stock, $1.00 par value; 2,000 shares authorized; 1,683 shares issued and outstanding at each of October 31, 2023 and January 31, 2023

  37,779   37,779 

Common stock, $0.01 par value; 40,000 shares authorized; 1,406 shares issued at October 31, 2023 and 1,599 shares at January 31, 2023 (as Adjusted, see Note 14)

  14   16 

Additional paid-in capital (as Adjusted, see Note 14)

  113,124   129,721 

Treasury stock, at cost (193 shares at January 31, 2023) (As Adjusted, see Note 14)

     (16,863)

Accumulated deficit

  (129,748)  (127,635)

Accumulated other comprehensive gain

  34   34 

Total stockholders’ equity

  21,203   23,052 

Total liabilities and stockholders’ equity

 $29,835  $32,858 

 

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 October 31,

  

For the Nine Months Ended October 31,

 
  

2023

  

2022

  

2023

  

2022

 

Revenues:

                

Sale of marine technology products

 $4,974  $3,038  $23,132  $16,142 

Total revenues

  4,974   3,038   23,132   16,142 

Cost of sales:

                

Sale of marine technology products

  2,721   2,176   13,402   10,446 

Total cost of sales

  2,721   2,176   13,402   10,446 

Gross profit

  2,253   862   9,730   5,696 

Operating expenses:

                

Selling, general and administrative

  2,941   3,023   9,160   9,867 

Research and development

  508   412   1,479   1,063 

Depreciation and amortization

  257   331   892   1,011 

Total operating expenses

  3,706   3,766   11,531   11,941 

Operating loss

  (1,453)  (2,904)  (1,801)  (6,245)

Other (expense) income:

                

Interest expense

  (169)     (536)  (4)

Other, net

  25   59   336   (186)

Total other (expense) income

  (144)  59   (200)  (190)

Loss from continuing operations before income taxes

  (1,597)  (2,845)  (2,001)  (6,435)

Provision for income taxes

  (112)  (38)  (590)  (380)

Net loss from continuing operations

  (1,709)  (2,883)  (2,591)  (6,815)

Income (loss) from discontinued operations, net of income taxes, (including a $2,393 gain on the sale of Klein for the three and nine months ended October 31, 2023)

  2,277   (2,276)  1,424   (2,683)

Net income (loss)

 $568  $(5,159) $(1,167) $(9,498)

Preferred stock dividends - declared

  (947)     (947)  (947)

Preferred stock dividends - undeclared

     (947)  (1,894)  (1,894)

Net loss attributable to common stockholders

 $(379) $(6,106) $(4,008) $(12,339)

Net loss per common share - Basic and Diluted

                

Continuing operations

 $(1.89) $(2.72) $(3.86) $(6.87)

Discontinued operations

 $1.62  $(1.62) $1.01  $(1.91)

Net loss

 $(0.27) $(4.34) $(2.85) $(8.78)

Shares used in computing net loss per common share:

                

Basic

  1,406   1,406   1,406   1,405 

Diluted

  1,406   1,406   1,406   1,405 

 

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 October 31,

   

For the Nine Months Ended October 31,

 
   

2023

   

2022

   

2023

   

2022

 

Net income (loss)

  $ 568     $ (5,159 )   $ (1,167 )   $ (9,498 )

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

          1,626             1,919  

Other changes in cumulative translation adjustment

          (9 )           (5 )

Comprehensive income (loss)

  $ 568     $ (3,542 )     (1,167 )     (7,584 )

 

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 Nine Months Ended October 31,

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net loss

  $ (1,167 )   $ (9,498 )

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

               

Depreciation and amortization

    1,230       1,414  

Stock-based compensation

    264       524  

Gain on sale of Klein

    (2,393 )      

Provision for inventory obsolescence

    23       68  

Gross profit from sale of other equipment

    (385 )     (269 )

Non-cash cumulative translation adjustment for discontinued operations

          1,626  

Changes in:

               

Accounts receivable

    (688 )     4,981  

Unbilled revenue

    51       1  

Inventories

    (3,174 )     (2,899 )

Prepaid expenses and other current and long-term assets

    566       506  

Income taxes receivable and payable

    (21 )     (16 )

Accounts payable, accrued expenses and other current liabilities

    (1,045 )     983  

Deferred revenue and customer deposits

    1,115       328  

Net cash used in operating activities

    (5,624 )     (2,251 )

Cash flows from investing activities:

               

Purchases of property and equipment

    (199 )     (531 )

Proceeds from the sale of Klein, net

    10,832        

Sale of other equipment

    385       382  

Net cash provided by (used in) investing activities

    11,018       (149 )

Cash flows from financing activities:

               

Purchase of treasury stock

          (1 )

Net proceeds from short-term loan

    2,947        

Payment on short-term loan

    (3,750 )      

Refund of prepaid interest on short-term loan

    214        

Preferred stock dividends

          (1,894 )

Net cash used in financing activities

    (589 )     (1,895 )

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

    (14 )     (7 )

Net change in cash and cash equivalents

    4,791       (4,302 )

Cash and cash equivalents, beginning of period

    778       5,114  

Cash and cash equivalents, end of period

  $ 5,569     $ 812  

Supplemental cash flow information:

               

Interest paid

  $ 576     $ 4  

Income taxes paid

  $ 617     $ 371  

 

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, 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  

Net loss

                                        (1,494 )           (1,494 )

Stock-based compensation

                            108                         108  

Balances, July 31, 2023

    1,599     $ 16       1,683     $ 37,779     $ 129,879     $ (16,863 )   $ (129,369 )   $ 34     $ 21,476  

Net income

                                        568             568  

Retirement of treasury stock

    (193 )     (2 )                 (16,861 )     16,863                    

Preferred stock dividends

                                        (947 )           (947 )

Stock-based compensation

                            106                         106  

Balances, October 31, 2023

    1,406     $ 14       1,683     $ 37,779     $ 113,124     $     $ (129,748 )   $ 34     $ 21,203  

 

 

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, 2022

    1,597     $ 16     $ 1,683     $ 37,779     $ 129,067     $ (16,862 )   $ (117,856 )   $ (1,881 )   $ 30,263  

Net loss

                                        (2,419 )           (2,419 )

Foreign currency translation

                                              (3 )     (3 )

Restricted stock issued

    1                                                  

Restricted stock surrendered for tax withholding

                                  (1 )                 (1 )

Preferred stock dividends

                                        (947 )           (947 )

Stock-based compensation

                            236                         236  

Balances, April 30, 2022

    1,598     $ 16     $ 1,683     $ 37,779     $ 129,303     $ (16,863 )   $ (121,222 )   $ (1,884 )   $ 27,129  

Net loss

                                        (1,920 )           (1,920 )

Foreign currency translation

                                              300       300  

Restricted stock issued

    1                                                  

Stock-based compensation

                            152                         152  

Balances, July 31, 2022

    1,599     $ 16       1,683     $ 37,779     $ 129,455     $ (16,863 )   $ (123,142 )   $ (1,584 )   $ 25,661  

Net loss

                                        (5,159 )           (5,159 )

Foreign currency translation

                                                  1,617       1,617  

Restricted stock issued

                                                     

Stock-based compensation

                            136                         136  

Balances, October 31, 2022

    1,599     $ 16       1,683     $ 37,779     $ 129,591     $ (16,863 )   $ (128,301 )   $ 33     $ 22,255  

 

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

 

 

MIND TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. Organization and Liquidity

 

MIND Technology, Inc., a Delaware corporation (the “Company”), 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 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 – “Discontinued Operations” for additional details). On August 21, 2023, the Company completed the sale of our Klein Marine Systems, Inc. subsidiary (“Klein”) (see Note 2-"Sale of Subsidiary" and Note 4-"Discontinued Operations" for additional details). The operations of Klein are included as part of the accompanying financial statements and are considered discontinued operations for the three- and nine-month periods ended  October 31, 2023 and 2022. Balance sheet amounts related to Klein as of January 31, 2023, have been presented as current and long-term assets of discontinued operations, Long-term assets of discontinued operations, and current liabilities of discontinued operations. 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 $16.5 million as of October 31, 2023, including cash of approximately $5.6 million.

 

 

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 $37.4 million as of October 31, 2023. Production for certain of these orders was in process and included in inventory as of October 31, 2023, thereby reducing the liquidity needed to complete the orders.

 

 

Although the Company declared a dividend on its Series A Preferred Stock ("Preferred Stock") in the third quarter of fiscal 2024, 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 has the option to defer future quarterly dividend payments if deemed necessary. The dividends are cumulative and deferred dividends 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 Preferred Stock for six or more quarters, the holders of 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, the Company completed the Sale of Klein for consideration 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 increased the Company’s working capital and significantly improved its liquidity situation.

 

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

 

7

 
 

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 $2.4 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 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, 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 October 31, 2023, the results of operations for the three and nine months ended October 31, 2023 and 2022, the cash flows for the nine months ended  October 31, 2023 and 2022, and the statement of stockholders’ equity for the three and nine-months ended October 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”).

 

8

 
 

4. Discontinued Operations

 

On August 21, 2023, the Company sold Klein pursuant to the SPA with the Buyer. As a result, the assets and liabilities of Klein have been reclassified as assets, excluding cash, and liabilities of discontinued operations at January 31, 2023 and it’s results of operations are reported as discontinued operations for the three and nine-month periods ended October 31, 2023 and 2022.

 

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 reported as discontinued operations at January 31, 2023, and its results of operations were reported as discontinued operations for the three and nine month periods ended October 31, 2022. As of February 1, 2023, discontinued operations of the Leasing Business were considered materially completed.

 

The assets and liabilities reported as part of discontinued operations consist of the following:

 

   

January 31, 2023

 

Current assets of discontinued operations:

       

Accounts receivable, net

  $ 746  

Inventories, net

    4,292  

Prepaid expenses and other current assets

    745  
Total current assets of discontinued operations   $ 5,783  

Property and equipment, net

    2,992  

Intangible assets, net

    1,297  

Total assets of discontinued operations

  $ 10,072  

Current liabilities of discontinued operations:

       

Accounts payable

  $ 1,607  

Accrued and other liabilities

    813  

Total liabilities of discontinued operations

  $ 2,420  

 

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

 

  

For the Three Months Ended October 31,

  

For the Nine Months Ended October 31,

 
  

2023

  

2022

  

2023

  

2022

 

Revenues:

 

(in thousands)

 

Revenue from discontinued operations

 $140  $1,847  $3,318  $6,543 

Cost of sales:

                

Cost of discontinued operations

  11   1,230   1,982   3,981 

Operating expenses:

                

Selling, general and administrative

  179   680   1,348   2,109 

Research and development

  45   431   689   1,628 

Depreciation and amortization

  18   136   324   402 

Total operating expenses

  242   1,247   2,361   4,139 

Operating loss

  (113)  (630)  (1,025)  (1,577)

Other income (expense) (Including $1,626 of currency translation loss for the three and nine months ended October 31, 2022.)

  2   (1,646)  73   (1,106)

Gain on sale of Klein

  2,393      2,393    

Income (loss) before income taxes from discontinued operations

  2,282   (2,276)  1,441   (2,683)

Provision for income taxes from discontinued operations

  (5)     (17)   

Net income (loss) from discontinued operations

  2,277   (2,276)  1,424   (2,683)

 

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

 

   

For the Nine Months Ended October 31,

 
   

2023

   

2022

 
    (in thousands)  

Gross profit from sale of assets held-for-sale

  $     $ (382 )

Gain on sale of Klein

  $ (2,393 )   $  

Non-Cash cumulative translation adjustment for discontinued operations

  $     $ 1,626  

Sale of assets held for sale

  $     $ 383  

 

 

5. New Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, 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 will become effective February 1, 2024. The Company is currently evaluating the new guidance to determine the impact it will have on its condensed consolidated financial statements.

 

In June 2016, the FASB issued 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 condensed consolidated financial statements.

 

9

 
 

6. Revenue from Contracts with Customers

 

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

 

  

Three Months Ended October 31,

  

Nine Months Ended October 31,

 
  

2023

  

2022

  

2023

  

2022

 

Revenue recognized at a point in time:

 

(in thousands)

 

Total revenue recognized at a point in time

 $4,458  $2,778  $21,966  $15,060 

Revenue recognized over time:

                

Total revenue recognized over time

  516   260   1,166   1,082 

Total revenue from contracts with customers

 $4,974  $3,038  $23,132  $16,142 

 

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 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 October 31,

  

Nine Months Ended October 31,

 
  

2023

  

2022

  

2023

  

2022

 
  

(in thousands)

 

United States

 $351  $131  $852  $1,895 

Europe

  2,019   1,547   11,013   9,130 

Asia-Pacific

  1,591   1,252   10,085   4,850 

Other

  1,013   108   1,182   267 

Total revenue from contracts with customers

 $4,974  $3,038  $23,132  $16,142 

 

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

 

  

October 31, 2023

  

January 31, 2023

 

Contract Assets:

 

(in thousands)

 

Unbilled revenue - current

 $53  $2 

Total unbilled revenue

 $53  $2 

Contract Liabilities:

        

Deferred revenue & customer deposits - current

 $1,687  $571 

Total deferred revenue & customer deposits

 $1,687  $571 

 

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.

 

10

 
 

7. Balance Sheet

 

  

October 31, 2023

  

January 31, 2023

 
  

(in thousands)

 

Inventories:

        

Raw materials

 $7,828  $6,798 

Finished goods

  3,075   2,744 

Work in progress

  3,618   2,699 

Cost of inventories

  14,521   12,241 

Less allowance for obsolescence

  (1,258)  (1,215)

Total inventories, net

 $13,263  $11,026 

 

  

October 31, 2023

  

January 31, 2023

 
  

(in thousands)

 

Property and equipment:

        

Furniture and fixtures

 $8,704  $8,739 

Autos and trucks

  382   341 

Land and buildings

  997   997 

Cost of property and equipment

  10,083   10,077 

Accumulated depreciation and amortization

  (9,253)  (9,124)

Total property and equipment, net

 $830  $953 

 

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, that would, in the aggregate, indicate additional impairment analysis is necessary as of October 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 nine months ended October 31, 2023 was approximately $198,000 and $621,000, respectively, and during the three and nine months ended October 31, 2022 was approximately $218,000 and $639,000, 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 $5,000 for the three and nine months ended October 31, 2023, respectively, and during the three and nine months ended October 31, 2022 was approximately$2,000 and $5,000 respectively. 

 

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

 

Lease

 

October 31, 2023

  

January 31, 2023

 

Assets

 (in thousands)

Operating lease assets

 $1,517  $1,749 
         

Liabilities

        

Operating lease liabilities

 $1,517  $1,749 
         

Classification of lease liabilities

        

Current liabilities

 $833  $903 

Non-current liabilities

  684   846 

Total Operating lease liabilities

 $1,517  $1,749 

 

Lease-term and discount rate details as of October 31, 2023 and January 31, 2023 were as follows:

 

Lease term and discount rate

 

October 31, 2023

  

January 31, 2023

 

Weighted average remaining lease term (years)

        

Operating leases

  1.69   1.98 
         

Weighted average discount rate:

        

Operating leases

  13%  13%

 

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

 

11

 

Supplemental cash flow information related to leases was as follows:

 

Lease

 

Nine Months Ended October 31, 2023

  

Nine Months Ended October 31, 2022

 

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

 (in thousands)

Operating cash flows from operating leases

 $(621) $(639)
         

Changes in lease balances resulting from new and modified leases:

        

Operating leases

 $391  $655 

 

Maturities of lease liabilities at October 31, 2023 were as follows:

 

  

October 31, 2023

 
  (in thousands) 

2024

 $299 

2025

  700 

2026

  338 

2027

  232 

2028

  235 

Thereafter

  33 

Total payments under lease agreements

 $1,837 
     

Less: imputed interest

  (320)

Total lease liabilities

 $1,517 

 

 

9. Intangible Assets

 

      

October 31, 2023

  

January 31, 2023

 
  

Weighted

                         
  

Average Life at

  

Gross Carrying

  

Accumulated

  

Net Carrying

  

Gross Carrying

  

Accumulated

  

Net Carrying

 
  

October 31, 2023

  

Amount

  

Amortization

  

Amount

  

Amount

  

Amortization

  

Amount

 
      

(in thousands)

  

(in thousands)

 

Proprietary rights

  5.1   7,473   (4,943)  2,530   7,473   (4,612)  2,861 

Customer relationships

  0.1   4,884   (4,827)  57   4,884   (4,754)  130 

Patents

  1.6   2,540   (2,140)  400   2,540   (2,027)  513 

Trade name

  2.6   134   (105)  29   134   (97)  37 

Other

  0.4   396   (339)  57   375   (283)  92 

Intangible assets

     $15,427  $(12,354) $3,073  $15,406  $(11,773) $3,633 

 

Approximately $158,000 of the gross carrying amount of intangible assets, primarily in proprietary rights, are related to technology development projects that have not yet been completed. As a result, these intangible assets are not currently being amortized.

 

On January 31, 2023, 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 nine months ended October 31, 2023, there have been no substantive indicators of impairment.

 

Aggregate amortization expense was $591,000 and $667,000 for the nine months ended October 31, 2023 and 2022, respectively, and approximately $173,000 and $222,000 for the three months ended October 31, 2023 and 2022, respectively. As of October 31, 2023, future estimated amortization expense related to amortizable intangible assets was estimated to be:

 

For fiscal years ending January 31,

  (in thousands) 

2024

 $333 

2025

  538 

2026

  514 

2027

  316 

2028

  316 

Thereafter

  898 

Total

 $2,915 

 

12

 
 

10. Notes Payable

 

On February 2, 2023, we entered into a $3.75 million Loan and Security Agreement (“the Loan”). The Company has 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 have been recorded as a reduction to the carrying value of our debt and are amortized to interest expense straight-line over the term of the Loan. Approximately $169,000 and $536,000 of amortization of debt acquisition costs have been recorded as interest expense for the three and nine months ended October 31, 2023, respectively. 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- and nine-month periods ended October 31, 2023, the income tax expense from continuing operations was approximately $112,000 and $ 590,000, respectively, on a pre-tax loss from continuing operations of approximately$1.6 million and $2.0 million, respectively. For the three- and nine-month periods ended October 31, 2022, the income tax expense from continuing operations was approximately $38,000 and $ 380,000, respectively, on a pre-tax loss from continuing operations of $2.8 million and $6.4 million, respectively. The variance between our actual provision and the expected provision based on the U.S. statutory rate is due primarily to recording valuation allowances against the increase in our deferred tax assets in the respective periods and permanent differences between book income and taxable income.

 

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 2023. 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 2023. In addition, the Company's tax returns filed in foreign jurisdictions are generally subject to examination for the fiscal years ended January 31, 2017 through 2023.

 

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 October 31, 2023. 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 October 31, 2023.

 

For the three- and nine-month periods ended October 31, 2023 and 2022, 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 and nine months ended October 31, 2023 and October 31, 2022, 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 and nine months ended October 31, 2023 and October 31,2022, 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 $50,000 in fees for such services.  Additionally, Ladenburg provided advisory services related to the Sale of Klein and received fees of $355,000 for such services. The 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.

 

13

 
 

14. Equity and Stock-Based Compensation

 

As of October 31, 2023, there are approximately 1,683,000 shares of Preferred Stock outstanding with an aggregate liquidation preference of approximately $46.8 million, which amount includes approximately $4.7 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. During the three months ended October 31, 2023, the Board declared a quarterly dividend on our Preferred Stock. The Company has approximately $4.7 million of cumulative undeclared preferred dividends as of October 31, 2023.

 

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- and nine-month periods ended October 31, 2023 was approximately $106,000 and $ 264,000, respectively, and during the three and nine-month periods ended October 31, 2022, was approximately $136,000 and $524,000, respectively.

 

 

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 October 31, 2023, Seamap is the Company’s sole operating segment.

 

14

 
 

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 ability to continue as a going concern

 

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 the global pandemic and other 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, 2023, 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 October 31,

   

For the Nine Months Ended October 31,

 
   

2023

   

2022

   

2023

   

2022

 

Reconciliation of Net loss from Continuing Operations to EBITDA (loss) and Adjusted EBITDA (loss)

 

(in thousands)

 

Net loss from continuing operations

  $ (1,709 )   $ (2,883 )   $ (2,591 )   $ (6,815 )

Interest expense, net

    169             536       4  

Depreciation and amortization

    257       331       892       1,011  

Provision for income taxes

    112       38       590       380  

EBITDA (loss) from continuing operations (1)

    (1,171 )     (2,514 )     (573 )     (5,420 )

Stock-based compensation

    106       136       264       524  

Adjusted EBITDA (loss) from continuing operations (1)

  $ (1,065 )   $ (2,378 )   $ (309 )   $ (4,896 )

Reconciliation of Net Cash (Used in) Provided by Operating Activities to EBITDA (loss) from continuing operations

                               

Net cash (used in) provided by operating activities

  $ (2,146 )   $ 247     $ (5,624 )   $ (2,251 )

Stock-based compensation

    (106 )     (136 )     (264 )     (524 )

Provision for inventory obsolescence

    (23 )     (23 )     (23 )     (68 )

Changes in accounts receivable (current and long-term)

    (2,496 )     (886 )     514       (4,150 )

Interest paid, net

    129             536       4  

Taxes paid, net of refunds

          94       425       371  

Gross profit (loss) from sale of other equipment

    49