MIND Technology(MIND) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides unaudited condensed consolidated financial statements and related notes for Mitcham Industries, Inc. for the period ended April 30, 2020 Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and notes for Mitcham Industries, Inc. for the period ended April 30, 2020 Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | ASSETS | April 30, 2020 (in thousands) | January 31, 2020 (in thousands) | | :-------------------------- | :------------- | :--------------- | | Cash and cash equivalents | $4,705 | $3,090 | | Accounts receivable, net | $7,996 | $11,921 | | Inventories, net | $13,783 | $13,261 | | Total current assets | $28,999 | $30,627 | | Total assets | $51,203 | $58,228 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $8,551 | $8,448 | | Total liabilities | $10,653 | $10,576 | | Total shareholders' equity | $40,550 | $47,652 | | Total liabilities and equity | $51,203 | $58,228 | Condensed Consolidated Statements of Operations This section details the company's revenues, costs, and resulting net loss over specific reporting periods Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $7,375 | $9,857 | | Total cost of sales | $5,186 | $6,116 | | Gross profit | $2,189 | $3,741 | | Total operating expenses | $8,369 | $6,197 | | Operating loss | $(6,180) | $(2,456) | | Net loss | $(6,642) | $(2,415) | | Net loss attributable to common shareholders | $(7,201) | $(2,886) | | Basic Net loss per common share | $(0.59) | $(0.24) | | Diluted Net loss per common share | $(0.59) | $(0.24) | - The company experienced a significant increase in operating loss and net loss for the three months ended April 30, 2020, primarily due to a goodwill impairment charge of $2.531 million[11] Condensed Consolidated Statements of Comprehensive Loss This section presents the company's net loss and other comprehensive income/loss components for specific reporting periods Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to common shareholders | $(7,201) | $(2,886) | | Other changes in cumulative translation adjustment | $(131) | $(119) | | Comprehensive loss | $(7,332) | $(3,336) | Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $929 | $(1,851) | | Net cash provided by investing activities | $1,239 | $603 | | Net cash used in financing activities | $(559) | $(62) | | Net decrease in cash, cash equivalents and restricted cash | $1,471 | $(1,410) | | Cash, cash equivalents and restricted cash, end of period | $4,705 | $8,139 | - The company generated positive cash flow from operating activities of $929 thousand in Q1 2021, a significant improvement from the $1,851 thousand cash used in operating activities in Q1 2020[16] Condensed Consolidated Statements of Shareholders' Equity This section details changes in the company's equity components, including common stock, retained earnings, and other comprehensive loss Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Equity Component | Balances, January 31, 2020 (in thousands) | Balances, April 30, 2020 (in thousands) | | :--------------------------- | :------------------------- | :----------------------- | | Common Stock (Amount) | $141 | $141 | | Preferred Stock (Amount) | $22,104 | $22,104 | | Additional Paid-In Capital | $123,964 | $124,194 | | Treasury Stock | $(16,860) | $(16,860) | | Accumulated Deficit | $(77,310) | $(84,511) | | Accumulated Other Comprehensive Loss | $(4,387) | $(4,518) | | Total Shareholders' Equity | $47,652 | $40,550 | - Total shareholders' equity decreased from $47,652 thousand at January 31, 2020, to $40,550 thousand at April 30, 2020, primarily due to a net loss of $6,642 thousand and preferred stock dividends of $559 thousand[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization This note describes the company's business activities and highlights significant uncertainties regarding its going concern ability - Mitcham Industries, Inc. designs, manufactures, and sells proprietary products for seismic, hydrographic, and offshore industries through subsidiaries like Seamap and Klein, and provides equipment leasing services globally[20] - The company faces substantial uncertainty regarding its ability to continue as a going concern due to a history of losses, negative operating cash flows, the COVID-19 pandemic, and declining oil prices[21] 2. Basis of Presentation This note explains the preparation of the unaudited interim financial statements in accordance with SEC rules - The unaudited interim condensed consolidated financial statements are prepared in accordance with SEC rules, condensing certain disclosures, and include normal recurring adjustments, not necessarily indicative of full fiscal year results[22] 3. New Accounting Pronouncements This note details the adoption and evaluation of recent accounting standards updates and their impact on financial statements - The company is evaluating ASU No 2019-12 (Income Taxes) effective after December 15, 2020[23] - It adopted SEC amendments for interim shareholders' equity disclosures in Q1 fiscal 2020[24] - ASU No 2016-02 (Leases) was adopted effective February 1, 2019[25] - ASU No 2018-13 (Fair Value Measurement) and ASU No 2018-07 (Stock Compensation) were adopted effective February 1, 2020, with no material impact on financial statements[26][27][28] 4. Revenue from Contracts with Customers This note disaggregates revenue by recognition timing and geographical region, highlighting year-over-year changes Revenue from Contracts with Customers (in thousands) | Category | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenue recognized at a point in time | $3,012 | $5,776 | | Total revenue recognized over time | $200 | $206 | | Total revenue from contracts with customers | $3,212 | $5,982 | Revenue from Contracts with Customers by Geography (in thousands) | Geography | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :-------------------- | :-------------------------------- | :-------------------------------- | | United States | $1,100 | $756 | | Europe, Russia & CIS | $1,376 | $2,604 | | Middle East & Africa | $76 | $191 | | Asia-Pacific | $302 | $1,274 | | Canada & Latin America | $358 | $1,157 | | Total | $3,212 | $5,982 | - Total revenue from contracts with customers decreased by 46.3% year-over-year, from $5,982 thousand in Q1 2019 to $3,212 thousand in Q1 2020, with significant declines in Europe, Russia & CIS, Asia-Pacific, and Canada & Latin America[30][31] 5. Balance Sheet This note provides detailed breakdowns of accounts receivable, inventories, and property and equipment components Accounts Receivable, Net (in thousands) | Category | April 30, 2020 (in thousands) | January 31, 2020 (in thousands) | | :---------------------------------------- | :------------- | :--------------- | | Accounts receivable, net of allowance | $7,996 | $11,921 | | Long-term receivables, net | $535 | $403 | | Total accounts receivable net of allowance | $8,531 | $12,324 | Inventories, Net (in thousands) | Category | April 30, 2020 (in thousands) | January 31, 2020 (in thousands) | | :------------------------ | :------------- | :--------------- | | Raw materials | $7,452 | $7,388 | | Finished goods | $4,017 | $4,557 | | Work in progress | $3,736 | $2,720 | | Less allowance for obsolescence | $(1,422) | $(1,404) | | Total inventories, net | $13,783 | $13,261 | Seismic Equipment Lease Pool and Property and Equipment, Net (in thousands) | Category | April 30, 2020 (in thousands) | January 31, 2020 (in thousands) | | :---------------------------------------- | :------------- | :--------------- | | Seismic equipment lease pool | $128,418 | $145,134 | | Total gross property and equipment | $143,823 | $160,499 | | Accumulated depreciation and amortization | $(131,821) | $(146,722) | | Total net property and equipment | $12,002 | $13,777 | - Accounts receivable (net) decreased by $3,793 thousand from January 31, 2020, to April 30, 2020[34] - Inventories (net) increased by $522 thousand, driven by an increase in work in progress[35] - Seismic equipment lease pool and property and equipment (net) decreased by $1,775 thousand, primarily due to a reduction in the seismic equipment lease pool[36] 6. Leases This note outlines the impact of the new lease accounting standard on the balance sheet and future lease payment obligations - The company adopted the New Lease Standard (ASU No 2016-02) effective February 1, 2019, recording approximately $3,000 thousand in right-of-use assets and corresponding lease liabilities for operating leases[37][39] - The standard did not materially impact consolidated statements of operations or cash flows[42] - Lease expense for the three months ended April 30, 2020, was approximately $293 thousand[43] Lease Liabilities Maturities at April 30, 2020 (in thousands) | Fiscal Year | Amount (in thousands) | | :---------- | :----- | | 2020 | $966 | | 2021 | $819 | | 2022 | $220 | | 2023 | $96 | | 2024 | $50 | | Thereafter | $20 | | Total payments under lease agreements | $2,171 | 7. Goodwill and Other Intangible Assets This note details changes in goodwill and other intangible assets, including a significant impairment charge - The company recorded a goodwill impairment expense of approximately $2.5 million related to the Seamap reporting unit during Q1 2021, driven by the economic impact of the COVID-19 pandemic, declining oil prices, and a decrease in equity market value[46][47] - No impairment was recorded for other intangible assets[47] Goodwill and Other Intangible Assets, Net (in thousands) | Asset Category | April 30, 2020 (in thousands) | January 31, 2020 (in thousands) | | :------------------------ | :------------- | :--------------- | | Goodwill | $0 | $2,531 | | Proprietary rights | $4,147 | $4,322 | | Customer relationships | $1,022 | $1,193 | | Patents | $1,101 | $1,163 | | Trade name | $68 | $71 | | Developed technology | $810 | $846 | | Other | $555 | $566 | | Amortizable intangible assets | $7,703 | $8,161 | - Aggregate amortization expense was $460 thousand for the three months ended April 30, 2020, compared to $454 thousand for the same period in 2019[49] 8. Income Taxes This note explains the income tax provision, including factors contributing to a tax expense despite pre-tax losses Income Tax Provision (in thousands) | Period | Provision for Income Taxes (in thousands) | | :------------------------ | :------------------------- | | Three Months Ended April 30, 2020 | $521 | | Three Months Ended April 30, 2019 | $55 | - The company recorded an income tax provision despite pre-tax net losses in both periods, primarily due to valuation allowances against deferred tax assets and foreign withholding taxes[50] 9. Earnings per Share This note presents basic and diluted net loss per common share calculations and related weighted average shares outstanding Net Loss Per Common Share | Metric | Three Months Ended April 30, 2020 | Three Months Ended April 30, 2019 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Basic Net loss per common share | $(0.59) | $(0.24) | | Diluted Net loss per common share | $(0.59) | $(0.24) | | Basic weighted average common shares outstanding | 12,172 | 12,119 | | Diluted weighted average common shares outstanding | 12,176 | 12,220 | - Potentially dilutive common shares (stock options and unvested restricted stock) were anti-dilutive and thus excluded from diluted loss per share calculations for both periods[55] 10. Related Party Transaction This note describes the completion of the ATM offering program for Series A Preferred Stock and related proceeds - The company completed its ATM offering program for Series A Preferred Stock by January 31, 2020, with no shares available for issuance in Q1 2021[56] - In Q1 2020, 16,656 shares were issued, generating $417 thousand in gross proceeds, with the Agent receiving $8 thousand in compensation[56] 11. Equity and Stock-Based Compensation This note details preferred stock dividends, stock option and restricted stock grants, and total stock-based compensation expense - The Board declared quarterly dividends of $0.5625 per share for Preferred Stock[57] - In Q1 fiscal 2021, 250,000 non-qualified stock options and 15,000 shares of restricted stock were granted[57] - Total stock-based compensation expense was $230 thousand in Q1 2021, up from $172 thousand in Q1 2020[57] 12. Sale of Subsidiaries This note provides information on the sale of the company's Australian and Russian subsidiaries and related proceeds - In February 2019, the company sold its Australian subsidiary, SAP, for approximately $660 thousand, receiving $240 thousand cash and a $420 thousand note receivable[59][60] - In August 2018, its Russian subsidiary, MSE, was sold for approximately $1.2 million, with $705 thousand received by April 30, 2020, and the remaining balance expected to be paid[61] 13. Segment Reporting This note presents financial performance data for the company's Marine Technology Products and Equipment Leasing segments - The company operates in two segments: Marine Technology Products (design, manufacture, and sale of seismic/offshore telemetry systems) and Equipment Leasing (leasing/sale of seismic equipment)[62][63] Segment Financial Performance (in thousands) | Segment | Revenues 2020 (in thousands) | Revenues 2019 (in thousands) | Operating (loss) income 2020 (in thousands) | Operating (loss) income 2019 (in thousands) | | :-------------------------- | :------------ | :------------ | :--------------------------- | :--------------------------- | | Marine technology products | $3,212 | $5,982 | $(5,261) | $(1,161) | | Equipment leasing | $4,188 | $3,935 | $(26) | $(389) | | Consolidated | $7,375 | $9,857 | $(6,180) | $(2,456) | - Marine Technology Products revenue decreased by 46.3% year-over-year, while Equipment Leasing revenue increased by 6.4%[64] - The Marine Technology Products segment reported a significantly higher operating loss in 2020 compared to 2019[64] Cautionary Statement about Forward-Looking Statements This section warns about forward-looking statements, outlining various risks and uncertainties that could impact future results - This section contains forward-looking statements subject to significant risks and uncertainties, including manufacturing risks, customer loss, competition, supply chain issues, intellectual property claims, financial market uncertainty, COVID-19 impacts, foreign operations risks, seasonal fluctuations, customer defaults, asset impairment, funding availability, and demand for seismic data[67][70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting segment performance, the impact of external factors like COVID-19 and oil prices, strategic shifts, and liquidity management for the three months ended April 30, 2020 Overview This section introduces the company's operating segments and key performance indicators, including EBITDA and Adjusted EBITDA - The company operates in two segments: Marine Technology Products (sales of Seamap and Klein equipment) and Equipment Leasing (leasing and sales of seismic equipment)[71][72] - Management uses EBITDA and Adjusted EBITDA as key indicators of overall performance and liquidity[73] Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in thousands) | Metric | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(6,642) | $(2,415) | | EBITDA | $(4,409) | $(218) | | Adjusted EBITDA | $(952) | $61 | Business Outlook This section discusses the impact of external factors, strategic shifts, and the company's backlog for future operations - The COVID-19 pandemic and decline in oil prices create significant uncertainty, leading to temporary facility shutdowns in Malaysia and Singapore[81] - The company expects negative impacts but believes they will be temporary[82] - Backlog for the Marine Technology Products segment was $10.2 million as of April 30, 2020, with 80% from non-energy related customers[83] - The company is de-emphasizing its land seismic leasing business, making no new investments in lease pool equipment[84] - It is focusing on marine technology products for marine survey, exploration, and defense markets, including new MA-X sonar technology[85][86] Results of Operations This section analyzes the company's revenues, cost of sales, operating expenses, and income tax provision for the reporting period - Total revenues decreased to $7.4 million in Q1 2021 from $9.9 million in Q1 2020[90] - Operating loss increased to $6.2 million from $2.5 million, primarily due to goodwill impairment, lower revenue, and increased R&D costs[90] Revenues and Cost of Sales This section analyzes revenue and cost of sales performance for both Marine Technology Products and Equipment Leasing segments Marine Technology Products This section details revenue and gross profit performance for the Marine Technology Products segment, including Seamap and Klein Marine Technology Products Revenues and Gross Profit (in thousands) | Metric | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :-------------- | :-------------------------------- | :-------------------------------- | | Seamap Revenues | $2,213 | $4,324 | | Klein Revenues | $1,241 | $1,561 | | Total Revenues | $3,212 | $5,982 | | Gross profit | $484 | $2,467 | | Gross profit margin | 15% | 41% | - Marine Technology Products revenue decreased by 46.3% year-over-year, primarily due to temporary delays from the COVID-19 pandemic and facility shutdowns[92][93] - Gross profit margin declined from 41% to 15% due to lower manufacturing activity and overhead absorption[94] Equipment Leasing This section details revenue and gross profit performance for the Equipment Leasing segment, including lease pool and other equipment sales Equipment Leasing Revenues and Gross Profit (in thousands) | Metric | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Equipment leasing revenue | $2,576 | $3,378 | | Lease pool equipment sales | $1,436 | $419 | | Other equipment sales | $176 | $138 | | Total Revenues | $4,188 | $3,935 | | Gross profit | $1,705 | $1,274 | - Equipment leasing revenue decreased by 24% year-over-year, but sales of lease pool and other equipment significantly increased to $1.6 million from $557 thousand[96] - Gross profit for the segment increased by 33.8% to $1.7 million[96] Operating Expenses This section analyzes changes in selling, general and administrative expenses, depreciation, amortization, and goodwill impairment - Selling, general and administrative (SG&A) expenses decreased to $4.7 million in Q1 2021 from $5.2 million in Q1 2020 due to strategic restructuring activities[98] - Depreciation and amortization expense increased to $774 thousand from $650 thousand, driven by asset additions for the Malaysian manufacturing facility and software upgrade amortization[100][101] - A $2.5 million goodwill impairment charge was recorded[101] - Co-Chief Executive Officers and the Board of Directors agreed to temporary salary/cash compensation reductions (20% and 25% respectively) effective May 1, 2020, to control costs[99] Provision for Income Taxes This section explains the income tax provision in relation to pre-tax net losses and the impact of valuation allowances - The tax provision for Q1 2021 was $521 thousand on a $6.1 million pre-tax net loss, compared to $55 thousand on a $2.4 million pre-tax net loss in Q1 2020[102] - This is mainly due to valuation allowances against deferred tax assets and foreign withholding taxes[102] Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations, detailing working capital, cash flows, and mitigating factors - The company faces substantial doubt about its ability to meet obligations over the next twelve months due to a history of losses, negative operating cash flows, and the completion of its preferred stock ATM program[103] - Mitigating factors include no funded debt, $20.4 million in working capital, positive operating cash flow in Q1 2021, cost reduction plans, a $10.2 million backlog, and receipt of $1.6 million in PPP loans post-period end[104][105][106] Selected Cash Flow Information (in thousands) | Cash Flow Activity | Three Months Ended April 30, 2020 (in thousands) | Three Months Ended April 30, 2019 (in thousands) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $929 | $(1,851) | | Net cash provided by investing activities | $1,239 | $603 | | Net cash used in financing activities | $(559) | $(62) | | Net increase (decrease) in cash and cash equivalents | $1,471 | $(1,410) | - Working capital decreased to $20.4 million at April 30, 2020, from $27.0 million at April 30, 2019, primarily due to decreased cash and increased accounts payable[107][109] - Cash provided by investing activities increased to $1.2 million, driven by $1.4 million from lease pool equipment sales[107][110] - Net cash used in financing activities was $559 thousand for preferred stock dividends in Q1 2021[111] - Annual dividend requirements for outstanding preferred stock are approximately $2.2 million[111] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements that could impact the company's financial position - The company does not have any off-balance sheet arrangements[114] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, specifically foreign currency risk and interest rate risk, and its approach to managing these exposures Foreign Currency Risk This section details the company's exposure to foreign currency fluctuations and its impact on cash and cash equivalents - The company is exposed to foreign currency risk from operations in various foreign locations, primarily British pounds, Canadian dollars, Singapore dollars, and European Union euros[116] - As of April 30, 2020, foreign currency denominated cash and cash equivalents totaled approximately $1.1 million[116] - A 10% increase in the U.S. dollar would result in a $110 thousand loss, and vice versa[116] - The company does not use derivative instruments to hedge these exposures[116] Interest Rate Risk This section assesses the company's exposure to interest rate fluctuations, noting the absence of interest-bearing bank debt - As of April 30, 2020, the company had no interest-bearing bank debt on its balance sheet, limiting its exposure to interest rate risk[118] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting, including identified material weaknesses and remediation efforts Evaluation of Disclosure Controls and Procedures This section reports on the ineffectiveness of disclosure controls due to a material weakness in internal control over financial reporting - The company's principal executive and financial officers concluded that disclosure controls and procedures were not effective as of April 30, 2020, due to a material weakness in internal control over financial reporting previously disclosed in the Form 10-K for fiscal year ended January 31, 2020[119] Remediation This section outlines the company's plan and anticipated timeline for addressing the identified material weakness - The company has commenced implementing a remediation plan to address the material weakness and anticipates it will be satisfied prior to the end of fiscal 2021[120] Changes in Internal Control over Financial Reporting This section confirms no material changes to internal control over financial reporting during the reporting quarter - There were no changes in the company's internal control over financial reporting during the quarter ended April 30, 2020, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[121] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal, risk, and equity matters Item 1. Legal Proceedings This section confirms that the company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial condition or results of operations - The company is not currently a party to any legal proceedings that are believed to have a material adverse effect on its results of operations or financial condition[124] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K, while acknowledging the potential for additional unknown risks - The risk factors included in the Annual Report on Form 10-K for the fiscal year ended January 31, 2020, have not materially changed[125] - Additional unknown risks may also adversely affect the business[125] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there is no information to report regarding unregistered sales of equity securities or the use of proceeds - This item is not applicable[126] Item 3. Defaults Upon Senior Securities This section indicates that there are no defaults upon senior securities to report - This item is not applicable[126] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - This item is not applicable[127] Item 5. Other Information This section indicates that there is no other information to report - This item is not applicable[128] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, indentures, employment agreements, and certifications - The report includes various exhibits such as Amended and Restated Articles of Incorporation, Bylaws, Certificate of Designations for Series A Preferred Stock, Forms of Indentures, an Employment Agreement, and certifications (31.1, 31.2, 32.1) by executive officers[129][130][131] SIGNATURES This section provides the official signature and date of the report's filing by a principal executive officer - The report was signed on June 11, 2020, by Robert P Capps, Co-Chief Executive Officer, Executive Vice President of Finance, and Chief Financial Officer[136]