MIND Technology(MIND) - 2023 Q3 - Quarterly Report

Filing Information Details the Form 10-Q filing, corporate status, stock exchange listings, and outstanding common stock Form 10-Q Details This document is a Quarterly Report on Form 10-Q for MIND TECHNOLOGY, INC., covering the period ended October 31, 2022 - The report is a Quarterly Report on Form 10-Q for the period ended October 31, 2022[2] - MIND TECHNOLOGY, INC. is incorporated in Delaware[2] Filer Status | Category | Status | | :------- | :----- | | Category | Status | | Category | Status | Securities and Shares Outstanding The company's common stock and Series A Preferred Stock are registered on The NASDAQ Stock Market LLC - Common Stock ($0.01 par value per share) and Series A Preferred Stock ($1.00 par value per share) are registered on The NASDAQ Stock Market LLC[3] - As of December 12, 2022, 13,788,738 shares of common stock were outstanding[5] PART I. FINANCIAL INFORMATION Presents unaudited financial statements, management's analysis, market risk, and internal control assessment Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive loss, cash flows, and stockholders' equity, along with detailed notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Item | October 31, 2022 | January 31, 2022 | | :------------------------------------------------------------------------------------------------ | :--------------- | :--------------- | | ASSETS | | | | Cash and cash equivalents | $812 | $5,114 | | Accounts receivable, net | $3,896 | $8,126 | | Inventories, net | $16,837 | $14,006 | | Prepaid expenses and other current assets | $1,610 | $1,840 | | Assets held for sale | — | $159 | | Total current assets | $23,155 | $29,245 | | Property and equipment, net | $4,103 | $4,272 | | Operating lease right-of-use assets | $1,807 | $1,835 | | Intangible assets, net | $5,193 | $6,018 | | Other assets | — | $650 | | Total assets | $34,258 | $42,020 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $4,191 | $2,046 | | Deferred revenue | $135 | $232 | | Accrued expenses and other current liabilities | $4,719 | $5,762 | | Income taxes payable | $1,059 | $837 | | Operating lease liabilities - current | $229 | $869 | | Liabilities held for sale | — | $953 | | Total current liabilities | $10,333 | $10,699 | | Operating lease liabilities - non-current | $1,578 | $966 | | Deferred tax liability | $92 | $92 | | Total liabilities | $12,003 | $11,757 | | Stockholders' equity: | | | | Preferred stock | $37,779 | $37,779 | | Common stock | $157 | $157 | | Additional paid-in capital | $129,450 | $128,926 | | Treasury stock | $(16,863) | $(16,862) | | Accumulated deficit | $(128,301) | $(117,856) | | Accumulated other comprehensive gain (loss) | $33 | $(1,881) | | Total stockholders' equity | $22,255 | $30,263 | | Total liabilities and stockholders' equity | $34,258 | $42,020 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Item | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues: Sale of marine technology products | $4,884 | $8,347 | $22,684 | $19,348 | | Total revenues | $4,884 | $8,347 | $22,684 | $19,348 | | Cost of sales: Sale of marine technology products | $3,382 | $5,177 | $14,355 | $13,411 | | Total cost of sales | $3,382 | $5,177 | $14,355 | $13,411 | | Gross profit | $1,502 | $3,170 | $8,329 | $5,937 | | Operating expenses: Selling, general and administrative | $3,556 | $3,903 | $11,617 | $11,098 | | Research and development | $843 | $826 | $2,690 | $2,567 | | Depreciation and amortization | $469 | $494 | $1,415 | $1,717 | | Total operating expenses | $4,868 | $5,223 | $15,722 | $15,382 | | Operating loss | $(3,366) | $(2,053) | $(7,393) | $(9,445) | | Other income (expense): Other, net | $90 | $33 | $(104) | $1,037 | | Total other income (expense) | $90 | $33 | $(104) | $1,037 | | Loss from continuing operations before income taxes | $(3,276) | $(2,020) | $(7,497) | $(8,408) | | Provision for income taxes | $(37) | $(59) | $(379) | $(111) | | Net loss from continuing operations | $(3,313) | $(2,079) | $(7,876) | $(8,519) | | Loss from discontinued operations, net of income taxes | $(1,846) | $(499) | $(1,622) | $(703) | | Net loss | $(5,159) | $(2,578) | $(9,498) | $(9,222) | | Preferred stock dividends - declared | — | $(688) | $(947) | $(1,954) | | Preferred stock dividends - undeclared | $(947) | — | $(1,894) | — | | Net loss attributable to common stockholders | $(6,106) | $(3,266) | $(12,339) | $(11,176) | | Net loss per common share - Basic: Continuing operations | $(0.31) | $(0.20) | $(0.78) | $(0.76) | | Net loss per common share - Basic: Discontinued operations | $(0.13) | $(0.04) | $(0.12) | $(0.05) | | Net loss per common share - Basic: Net loss | $(0.44) | $(0.24) | $(0.90) | $(0.81) | | Net loss per common share - Diluted: Continuing operations | $(0.31) | $(0.20) | $(0.78) | $(0.76) | | Net loss per common share - Diluted: Discontinued operations | $(0.13) | $(0.04) | $(0.12) | $(0.05) | | Net loss per common share - Diluted: Net loss | $(0.44) | $(0.24) | $(0.90) | $(0.81) | | Shares used in computing net loss per common share: Basic | 13,788 | 13,774 | 13,782 | 13,769 | | Shares used in computing net loss per common share: Diluted | 13,788 | 13,774 | 13,782 | 13,769 | Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Item | For the Three Months Ended Oct 31, 2022 | For the Three Months Ended Oct 31, 2021 | For the Nine Months Ended Oct 31, 2022 | For the Nine Months Ended Oct 31, 2021 | | :---------------------------------------------------------------- | :-------------------------------------- | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net loss | $(5,159) | $(2,578) | $(9,498) | $(9,222) | | Change in cumulative translation adjustment for liquidation of entities held for sale | $1,626 | — | $1,919 | — | | Other changes in cumulative translation adjustment | $(9) | $(17) | $(5) | $17 | | Comprehensive loss | $(3,542) | $(2,595) | $(7,584) | $(9,205) | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Item | For the Nine Months Ended Oct 31, 2022 | For the Nine Months Ended Oct 31, 2021 | | :---------------------------------------------------------------- | :------------------------------------- | :------------------------------------- | | Cash flows from operating activities: Net loss | $(9,498) | $(9,222) | | Adjustments to reconcile net loss to net cash used in operating activities: PPP loan forgiveness | — | $(850) | | Depreciation and amortization | $1,414 | $1,721 | | Stock-based compensation | $524 | $419 | | Non-cash cumulative translation adjustment for discontinued operations | $1,626 | — | | Provision for inventory obsolescence | $68 | $(453) | | (Gross profit) loss from sale of assets held-for-sale | $(382) | $388 | | Loss (gross profit) from sale of other equipment | $113 | $(155) | | Changes in: Accounts receivable | $4,981 | $(4,444) | | Unbilled revenue | $1 | $(27) | | Inventories | $(2,899) | $(183) | | Prepaid expenses and other current and long-term assets | $506 | $(293) | | Income taxes receivable and payable | $(16) | $3 | | Accounts payable, accrued expenses and other current liabilities | $983 | $1,696 | | Deferred revenue | $328 | $172 | | Net cash used in operating activities | $(2,251) | $(11,228) | | Cash flows from investing activities: Purchases of property and equipment | $(531) | $(139) | | Sale of assets held for sale | $382 | $3,187 | | Sale of a business, net of cash sold | — | $761 | | Net cash (used in) provided by investing activities | $(149) | $3,809 | | Cash flows from financing activities: Purchase of treasury stock | $(1) | $(2) | | Net proceeds from preferred stock offering | — | $5,145 | | Net proceeds from common stock offering | — | $43 | | Preferred stock dividends | $(1,894) | $(1,842) | | Net cash (used in) provided by financing activities | $(1,895) | $3,344 | | Effect of changes in foreign exchange rates on cash and cash equivalents | $(7) | $86 | | Net decrease in cash and cash equivalents | $(4,302) | $(3,989) | | Cash and cash equivalents, beginning of period | $5,114 | $4,611 | | Cash and cash equivalents, end of period | $812 | $622 | | Supplemental cash flow information: Interest paid | $4 | $26 | | Supplemental cash flow information: Income taxes paid | $371 | $149 | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands) - Nine Months Ended October 31, 2022 | Item | Common Stock Shares | Common Stock Amount | Preferred Stock Shares | Preferred Stock Amount | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Gain (Loss) | Total | | :-------------------------------- | :------------------ | :------------------ | :--------------------- | :--------------------- | :------------------------- | :------------- | :------------------ | :------------------------------------------ | :------ | | Balances, January 31, 2022 | 15,705 | $157 | 1,683 | $37,779 | $128,926 | $(16,862) | $(117,856) | $(1,881) | $30,263 | | Net loss | — | — | — | — | — | — | $(2,419) | — | $(2,419) | | Foreign currency translation | — | — | — | — | — | — | — | $(3) | $(3) | | Restricted stock issued | 10 | — | — | — | — | — | — | — | — | | Restricted stock surrendered for tax withholding | — | — | — | — | — | $(1) | — | — | $(1) | | Preferred stock dividends | — | — | — | — | — | — | $(947) | — | $(947) | | Stock-based compensation | — | — | — | — | $236 | — | — | — | $236 | | Balances, April 30, 2022 | 15,715 | $157 | 1,683 | $37,779 | $129,162 | $(16,863) | $(121,222) | $(1,884) | $27,129 | | Net loss | — | — | — | — | — | — | $(1,920) | — | $(1,920) | | Foreign currency translation | — | — | — | — | — | — | — | $300 | $300 | | Restricted stock issued | 5 | — | — | — | — | — | — | — | — | | Stock-based compensation | — | — | — | — | $152 | — | — | — | $152 | | Balances, July 31, 2022 | 15,720 | $157 | 1,683 | $37,779 | $129,314 | $(16,863) | $(123,142) | $(1,584) | $25,661 | | Net loss | — | — | — | — | — | — | $(5,159) | — | $(5,159) | | Foreign currency translation | — | — | — | — | — | — | — | $1,617 | $1,617 | | Restricted stock issued | 1 | — | — | — | — | — | — | — | — | | Stock-based compensation | — | — | — | — | $136 | — | — | — | $136 | | Balances, October 31, 2022 | 15,721 | $157 | 1,683 | $37,779 | $129,450 | $(16,863) | $(128,301) | $33 | $22,255 | Condensed Consolidated Statements of Stockholders' Equity (in thousands) - Nine Months Ended October 31, 2021 | Item | Common Stock Shares | Common Stock Amount | Preferred Stock Shares | Preferred Stock Amount | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | | :-------------------------------- | :------------------ | :------------------ | :--------------------- | :--------------------- | :------------------------- | :------------- | :------------------ | :--------------------------------- | :------ | | Balances, January 31, 2021 | 15,681 | $157 | 1,038 | $23,104 | $128,241 | $(16,860) | $(99,870) | $(4,356) | $30,416 | | Net loss | — | — | — | — | — | — | $(3,984) | — | $(3,984) | | Foreign currency translation | — | — | — | — | — | — | — | $57 | $57 | | Restricted stock issued | 5 | — | — | — | $11 | — | — | — | $11 | | Restricted stock surrendered for tax withholding | — | — | — | — | — | $(2) | — | — | $(2) | | Preferred stock offering | — | — | 21 | $503 | — | — | — | — | $503 | | Preferred stock dividends | — | — | — | — | — | — | $(584) | — | $(584) | | Common stock offering | 18 | — | — | — | $42 | — | — | — | $42 | | Stock-based compensation | — | — | — | — | $109 | — | — | — | $109 | | Balances, April 30, 2021 | 15,704 | $157 | 1,059 | $23,607 | $128,403 | $(16,862) | $(104,438) | $(4,299) | $26,568 | | Net loss | — | — | — | — | — | — | $(2,660) | — | $(2,660) | | Foreign currency translation | — | — | — | — | — | — | — | $(23) | $(23) | | Preferred stock offering | — | — | 164 | $3,999 | — | — | — | — | $3,999 | | Common stock offering | — | — | — | — | $1 | — | — | — | $1 | | Preferred stock dividends | — | — | — | — | — | — | $(682) | — | $(682) | | Stock-based compensation | — | — | — | — | $115 | — | — | — | $115 | | Balances, July 31, 2021 | 15,704 | $157 | 1,223 | $27,606 | $128,519 | $(16,862) | $(107,780) | $(4,322) | $27,318 | | Net loss | — | — | — | — | — | — | $(2,578) | — | $(2,578) | | Foreign currency translation | — | — | — | — | — | — | — | $(17) | $(17) | | Preferred stock offering | — | — | 27 | $642 | — | — | — | — | $642 | | Preferred stock dividends | — | — | — | — | — | — | $(688) | — | $(688) | | Stock-based compensation | — | — | — | — | $183 | — | — | — | $183 | | Balances, October 31, 2021 | 15,704 | $157 | 1,250 | $28,248 | $128,702 | $(16,862) | $(111,046) | $(4,339) | $24,860 | Notes to Condensed Consolidated Financial Statements Note 1. Organization and Liquidity This note details the company's corporate structure, business segments, and assessment of its ability to continue as a going concern - MIND Technology, Inc. reincorporated to Delaware and changed its name from Mitcham Industries, Inc. effective August 3, 2020[22] - The company designs, manufactures, and sells proprietary products for the seismic, hydrographic, and offshore industries through subsidiaries Seamap and Klein, with the Leasing Business classified as discontinued operations effective July 31, 2020[23] - Substantial doubt exists regarding the company's ability to continue as a going concern due to a history of losses, negative cash from operations, and uncertainties from the global pandemic, supply chain disruptions, and oil price volatility[24][27] - Mitigating factors include no funded debt, no maintenance-type financial covenants, $12.8 million in working capital (including $812,000 cash) as of October 31, 2022, plans to reduce costs, a backlog of $19.9 million, expected liquidity from asset sales, and the option to defer preferred stock dividends[25] - The company may raise further capital through Form S-1 offerings, private transactions, or other debt and equity financing, though no assurance of availability or terms can be made[28] Note 2. Basis of Presentation and Immaterial Correction of Comprehensive Loss This note explains the basis of preparing interim financial statements and an immaterial correction to comprehensive loss - The unaudited interim condensed consolidated financial statements are prepared in accordance with SEC rules and should be read with the Annual Report on Form 10-K for fiscal 2022[29] - An immaterial error was corrected in the statements of comprehensive loss for the three and nine months ended October 31, 2021, and for the years ended January 31, 2022 and 2021, related to the incorrect inclusion of preferred dividends as a component of comprehensive loss[30] Note 3. Assets Held for Sale and Discontinued Operations This note details the classification and financial results of the company's Leasing Business as discontinued operations - The Board decided to exit the Leasing Business on July 27, 2020, classifying its assets and liabilities as held for sale and its results of operations as discontinued operations, with the sale expected to be substantially completed by January 31, 2023[31] Assets Held for Sale (in thousands) | Item | October 31, 2022 | January 31, 2022 | | :------------------------------------------ | :--------------- | :--------------- | | Accounts receivable, net | — | $177 | | Inventories, net | — | $2 | | Prepaid expenses and other current assets | — | $167 | | Seismic equipment lease pool and property and equipment, net | — | $738 | | Loss recognized on classification as held for sale | — | $(925) | | Total assets of discontinued operations | $— | $159 | Liabilities Held for Sale (in thousands) | Item | October 31, 2022 | January 31, 2022 | | :------------------------------------ | :--------------- | :--------------- | | Accounts payable | $— | $132 | | Deferred revenue | $— | $73 | | Accrued expenses and other current liabilities | $— | $507 | | Income taxes payable | $— | $241 | | Total liabilities of discontinued operations | $— | $953 | Results of Discontinued Operations (in thousands) | Item | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :---------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue from discontinued operations | $— | $53 | $— | $840 | | Cost of discontinued operations | $24 | $86 | $72 | $791 | | Operating loss | $(169) | $(531) | $(431) | $(727) | | Other (expenses) income (including cumulative translation loss) | $(1,677) | $41 | $(1,191) | $37 | | Net loss from discontinued operations | $(1,846) | $(499) | $(1,622) | $(703) | Note 4. New Accounting Pronouncements This note addresses the evaluation of new accounting pronouncements and their expected impact - New accounting pronouncements are being evaluated and are not expected to have a material impact on financial position or results of operations[35] Note 5. Revenue from Contracts with Customers This note provides a breakdown of revenue by product line, timing of recognition, geography, and contract assets/liabilities Revenue from Contracts with Customers by Product Line and Timing (in thousands) | Item | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue recognized at a point in time: Seamap | $2,777 | $6,876 | $15,059 | $15,045 | | Revenue recognized at a point in time: Klein | $1,847 | $1,328 | $3,630 | $3,884 | | Total revenue recognized at a point in time | $4,624 | $8,204 | $18,689 | $18,929 | | Revenue recognized over time: Seamap | $260 | $143 | $1,082 | $419 | | Revenue recognized over time: Klein | $— | $— | $2,913 | $— | | Total revenue recognized over time | $260 | $143 | $3,995 | $419 | | Total revenue from contracts with customers | $4,884 | $8,347 | $22,684 | $19,348 | Revenue from Contracts with Customers by Geography (in thousands) | Geography | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | United States | $931 | $967 | $5,517 | $1,545 | | Europe | $1,972 | $3,491 | $10,666 | $9,593 | | Middle East & Africa | $113 | $120 | $293 | $809 | | Asia-Pacific | $1,796 | $3,667 | $6,022 | $6,560 | | Canada & Latin America | $72 | $102 | $186 | $841 | | Total revenue | $4,884 | $8,347 | $22,684 | $19,348 | Contract Assets and Liabilities (in thousands) | Item | October 31, 2022 | January 31, 2022 | | :------------------------------------ | :--------------- | :--------------- | | Contract Assets: Unbilled revenue - current | $29 | $28 | | Total unbilled revenue | $29 | $28 | | Contract Liabilities: Deferred revenue & customer deposits - current | $2,897 | $2,569 | | Total deferred revenue & customer deposits | $2,897 | $2,569 | - Contract assets and liabilities are expected to turn over within three to nine months[38] Note 6. Balance Sheet - Continuing Operations This note provides detailed breakdowns of accounts receivable, inventories, and property and equipment for continuing operations Accounts Receivable, Net of Allowance for Doubtful Accounts (in thousands) | Item | October 31, 2022 | January 31, 2022 | | :------------------------------------------ | :--------------- | :--------------- | | Accounts receivable | $4,400 | $8,610 | | Less allowance for doubtful accounts | $(504) | $(484) | | Accounts receivable net of allowance for doubtful accounts | $3,896 | $8,126 | Inventories (in thousands) | Item | October 31, 2022 | January 31, 2022 | | :-------------------------- | :--------------- | :--------------- | | Raw materials | $9,810 | $8,511 | | Finished goods | $4,510 | $3,806 | | Work in progress | $4,437 | $3,567 | | Cost of inventories | $18,757 | $15,884 | | Less allowance for obsolescence | $(1,920) | $(1,878) | | Total inventories, net | $16,837 | $14,006 | Property and Equipment, Net (in thousands) | Item | October 31, 2022 | January 31, 2022 | | :------------------------------------ | :--------------- | :--------------- | | Furniture and fixtures | $10,038 | $9,865 | | Autos and trucks | $359 | $495 | | Marine seismic service equipment | — | $3,880 | | Land and buildings | $4,845 | $4,555 | | Cost of property and equipment | $15,242 | $18,795 | | Accumulated depreciation and amortization | $(11,139) | $(14,523) | | Total property and equipment, net | $4,103 | $4,272 | - No impairment was recorded for long-lived assets as of January 31, 2022, and no additional impairment analysis was deemed necessary as of October 31, 2022[40] Note 7. Leases This note outlines the company's operating lease agreements, related expenses, and liabilities - The company has non-cancelable operating lease agreements for office, production, and warehouse space, with lease obligations in Colombia, Canada, and Hungary having been terminated[41] Lease Expense (in thousands) | Period | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Three months ended October 31 | $218 | $374 | | Nine months ended October 31 | $639 | $974 | Supplemental Balance Sheet Information Related to Leases (in thousands) | Item | October 31, 2022 | January 31, 2022 | | :-------------------------- | :--------------- | :--------------- | | Operating lease assets | $1,807 | $1,835 | | Operating lease liabilities | $1,807 | $1,835 | | Current liabilities | $229 | $869 | | Non-current liabilities | $1,578 | $966 | Lease Term and Discount Rate Details | Item | October 31, 2022 | January 31, 2022 | | :------------------------------------ | :--------------- | :--------------- | | Weighted average remaining lease term (years) | 2.29 | 1.82 | | Weighted average discount rate (Operating leases) | 13% | 13% | Maturities of Lease Liabilities at October 31, 2022 (in thousands) | Fiscal Year | Amount | | :-------------------------- | :----- | | 2023 | $229 | | 2024 | $808 | | 2025 | $544 | | 2026 | $274 | | 2027 | $188 | | Thereafter | $204 | | Total payments under lease agreements | $2,247 | | Less: imputed interest | $(440) | | Total lease liabilities | $1,807 | Note 8. Intangible Assets This note provides a detailed breakdown of intangible assets, including their carrying amounts, amortization, and impairment status Intangible Assets (in thousands) | Item | Weighted Average Life at Oct 31, 2022 | Gross Carrying Amount (Oct 31, 2022) | Accumulated Amortization (Oct 31, 2022) | Impairment (Oct 31, 2022) | Net Carrying Amount (Oct 31, 2022) | Gross Carrying Amount (Jan 31, 2022) | Accumulated Amortization (Jan 31, 2022) | Impairment (Jan 31, 2022) | Net Carrying Amount (Jan 31, 2022) | | :-------------------- | :------------------------------------ | :----------------------------------- | :-------------------------------------- | :------------------------ | :--------------------------------- | :----------------------------------- | :-------------------------------------- | :------------------------ | :--------------------------------- | | Proprietary rights | 5.3 | $8,237 | $(4,492) | — | $3,745 | $8,237 | $(4,150) | — | $4,087 | | Customer relationships | 0.2 | $5,024 | $(4,870) | — | $154 | $5,024 | $(4,797) | — | $227 | | Patents | 2.2 | $2,540 | $(1,965) | — | $575 | $2,540 | $(1,778) | — | $762 | | Trade name | 3.6 | $894 | $(94) | $(760) | $40 | $894 | $(85) | $(760) | $49 | | Developed technology | 3.2 | $1,430 | $(977) | — | $453 | $1,430 | $(870) | — | $560 | | Other | 1.5 | $694 | $(468) | — | $226 | $694 | $(361) | — | $333 | | Total intangible assets | | $18,819 | $(12,866) | $(760) | $5,193 | $18,819 | $(12,041) | $(760) | $6,018 | - Approximately $923,000 of intangible assets related to technology development projects are not yet amortized[46] - No impairment indicators were identified for amortizable intangible assets during the nine months ended October 31, 2022[47] Aggregate Amortization Expense (in thousands) | Period | Amount | | :------------------------------------ | :----- | | Nine months ended October 31, 2022 | $800 | | Nine months ended October 31, 2021 | $1,000 | Future Estimated Amortization Expense (in thousands) | Fiscal Year Ending January 31, | Amount | | :------------------------------- | :----- | | 2023 | $274 | | 2024 | $955 | | 2025 | $725 | | 2026 | $634 | | 2027 | $333 | | Thereafter | $1,349 | | Total | $4,270 | Note 9. Notes Payable This note describes the company's notes payable, specifically a forgiven PPP loan - Klein, a wholly-owned subsidiary, received an approximately $850,000 loan under the Paycheck Protection Program (PPP) in May 2020, which was forgiven in February 2021[49][52] Note 10. Income Taxes This note details the company's income tax expense from continuing operations and related factors Income Tax Expense from Continuing Operations (in thousands) | Period | Pre-Tax Loss | Tax Expense | | :------------------------------------ | :----------- | :---------- | | Three months ended October 31, 2022 | $(3,300) | $37 | | Nine months ended October 31, 2022 | $(7,500) | $379 | | Three months ended October 31, 2021 | $(2,000) | $59 | | Nine months ended October 31, 2021 | $(8,400) | $111 | - The variance between actual and expected tax provision is primarily due to valuation allowances against deferred tax assets, permanent differences between book and taxable income, and foreign withholding taxes[53] - The company has not recorded a deferred tax liability for undistributed foreign earnings, as they are not deemed indefinitely reinvested and any deferred taxes would be immaterial[55] - No tax expense or benefit related to uncertain tax positions was recognized for the three and nine months ended October 31, 2022 and 2021[56] Note 11. Earnings per Share This note explains the calculation of basic and diluted earnings per share and related share counts - Basic EPS is computed using the weighted average number of common shares outstanding, excluding unvested restricted stock, while diluted EPS includes dilutive potential common shares using the treasury stock method[57] Weighted Average Common Shares Used in EPS Calculation (in thousands) | Item | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic weighted average common shares outstanding | 13,788 | 13,774 | 13,782 | 13,769 | | Stock options | — | 66 | — | 80 | | Unvested restricted stock | 1 | 30 | 6 | 28 | | Total weighted average common share equivalents | 1 | 96 | 6 | 108 | | Diluted weighted average common shares outstanding | 13,789 | 13,870 | 13,788 | 13,877 | - Potentially dilutive common shares were anti-dilutive and not considered in calculating diluted loss per share for the periods presented[59] Note 12. Related Party Transaction This note discloses an Equity Distribution Agreement with a related party and associated stock offerings - The company has an Equity Distribution Agreement with Ladenburg Thalmann & Co. Inc. (Agent), whose Co-Chief Executive Officer and Co-President is the Non-Executive Chairman of the company's Board[60] - Under the ATM Offering Program, the company may sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock, with the Agent receiving up to 2.0% compensation[60] - No shares of Preferred or Common Stock were sold under the ATM Offering Program during the three and nine months ended October 31, 2022[63][64] - In November 2021, the company issued 432,000 shares of Series A Preferred Stock through an underwritten offering, generating approximately $9.5 million in net proceeds[62] Note 13. Equity and Stock-Based Compensation This note provides details on outstanding preferred stock, dividend deferrals, and stock-based compensation expense - As of October 31, 2022, there are approximately 1,683,000 shares of Preferred Stock outstanding with an aggregate liquidation preference of approximately $43.9 million, including $1.9 million in undeclared cumulative dividends[65] - The company deferred payment of the quarterly dividend on its Preferred Stock for the second and third quarters of fiscal 2023[65] Stock-Based Compensation Expense (in thousands) | Period | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Three months ended October 31 | $136 | $183 | | Nine months ended October 31 | $524 | $419 | Note 14. Segment Reporting This note clarifies the company's operating segments following the reclassification of the Equipment Leasing segment - Following the designation of the Equipment Leasing segment as discontinued operations, the company now operates in one segment: Marine Technology Products, which designs, manufactures, and sells seismic and offshore telemetry systems[67] CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS This section outlines the nature of forward-looking statements, emphasizing inherent risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are based on current expectations and beliefs but involve significant risks and uncertainties that could cause actual results to differ materially[69] - Important factors that could cause actual results to differ include risks associated with manufacturing, supply chain disruptions, loss of customers/suppliers, increased competition, intellectual property claims, financial market uncertainty, ability to execute strategic initiatives, global pandemic impacts, foreign operations risks, seasonal fluctuations, customer defaults, asset impairment, funding availability, changes in government spending, demand for seismic data, inflation, geopolitical events, and security threats[72] - The company undertakes no obligation to publicly update or revise any forward-looking statement after the date they are made, except as required by law[71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's financial condition and results, discussing the performance of its continuing Marine Technology Products business and the discontinued Equipment Leasing operations Overview This overview describes the company's business segments, operational structure, and key performance indicators monitored by management - The company historically operated in two segments: Marine Technology Products and Equipment Leasing, with the Leasing Business now presented as discontinued operations[74] - The Marine Technology Products business includes sales of Seamap and Klein equipment, operating from locations in the UK, New Hampshire, Texas, Malaysia, and Singapore[75] - Management monitors revenues, gross profit, EBITDA, and Adjusted EBITDA as key indicators of overall performance and liquidity[77] Reconciliation of Net Loss from Continuing Operations to EBITDA and Adjusted EBITDA (in thousands) | Item | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss from continuing operations | $(3,313) | $(2,079) | $(7,876) | $(8,519) | | Interest expense, net | — | — | $4 | — | | Depreciation and amortization | $469 | $494 | $1,415 | $1,717 | | Provision for income taxes | $37 | $59 | $379 | $111 | | EBITDA loss from continuing operations | $(2,807) | $(1,526) | $(6,078) | $(6,691) | | Non-cash foreign exchange losses | — | $42 | — | $124 | | Stock-based compensation | $136 | $183 | $524 | $419 | | Adjusted EBITDA loss from continuing operations | $(2,671) | $(1,301) | $(5,554) | $(6,148) | Business Description This section details the products and services offered by the Marine Technology Products business and the nature of discontinued operations - The Marine Technology Products business designs, manufactures, and sells products for oceanographic, hydrographic, defense, seismic, and maritime security industries, including Seamap's GunLink, BuoyLink, and SeaLink systems, and Klein's side scan sonar systems[80] - Discontinued operations primarily involved leasing seismic data acquisition equipment for land surveys and selling lease pool equipment[81] - Results of operations can fluctuate due to external factors such as budgetary concerns, permits, security, labor, political issues, weather, and global pandemics[82] Business Outlook This section discusses the company's financial performance trends, market drivers, order backlog, revenue projections, and strategic initiatives - Financial results for the first nine months of fiscal year 2023 improved compared to fiscal 2022, despite lingering impacts of the global pandemic[82] - Favorable trends include increased global energy prices, demand for renewable energy, and geopolitical unrest driving demand for defense and maritime security solutions[83] - Backlog of firm orders for Marine Technology Products increased to approximately $19.9 million as of October 31, 2022, up from $13.1 million at January 31, 2022, and $10.0 million at October 31, 2021[84] - Anticipated revenue from continuing operations for Q4 fiscal 2023 is projected to range between $12.0 million and $14.0 million, with fiscal 2023 revenue expected to exceed fiscal 2022, and the company expects to report net income from continuing operations for Q4 fiscal 2023[85] - Strategic initiatives include applying Automatic Target Recognition (ATR) technology to sonar systems, developing Synthetic Aperture Sonar (SAS) systems, and applying SeaLink solid streamer technology to passive sonar arrays for maritime security[94] - The company increased pricing for most products by approximately 5% to 20% in Q1 fiscal 2023 in response to inflation and component shortages[96] Results of Continuing Operations This section analyzes the financial performance of the company's continuing Marine Technology Products business, including revenues, cost of sales, operating expenses, and tax impacts Revenues and Operating Loss from Continuing Operations (in thousands) | Item | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | $4,884 | $8,347 | $22,684 | $19,348 | | Operating loss | $(3,366) | $(2,053) | $(7,393) | $(9,445) | - The decrease in three-month revenue is attributed to customer delivery requirements shifting to the latter part of the fiscal year, while the nine-month increase is due to positive market trends[98] Revenues and Cost of Sales by Business (in thousands) | Item | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues: Seamap | $3,037 | $7,034 | $16,141 | $15,480 | | Revenues: Klein | $1,937 | $1,330 | $6,748 | $3,894 | | Cost of sales: Seamap | $2,176 | $3,935 | $10,446 | $9,825 | | Cost of sales: Klein | $1,296 | $1,259 | $4,114 | $3,612 | | Gross profit | $1,502 | $3,170 | $8,329 | $5,937 | | Gross profit margin | 31% | 38% | 37% | 31% | - Seamap's gross profit margins decreased due to the mix of revenue from systems, spare parts, and service/repairs[102] - Klein's gross profits increased primarily due to the delivery of multi-beam sonar systems[103] - Selling, general and administrative expenses decreased in the three-month period due to reduced non-essential business expenses but increased in the nine-month period due to severance, travel, and reclassified costs from discontinued operations[104] - Research and development costs marginally increased, reflecting incremental product development activity in SAS, ATR, and passive array systems[105] - Depreciation and amortization expense decreased due to assets becoming fully depreciated over time[106] - Tax expense was recorded despite pre-tax losses from continuing operations, mainly due to valuation allowances against deferred tax assets and permanent differences[107] Results of Discontinued Operations This section presents the financial results of the company's discontinued Equipment Leasing operations, including revenues, costs, and net loss Results of Discontinued Operations (in thousands) | Item | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :---------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues: Equipment leasing | — | $53 | — | $840 | | Cost of sales: Direct costs-equipment leasing | $24 | $86 | $72 | $791 | | Gross (loss) profit | $(24) | $(33) | $(72) | $49 | | Operating expenses: Selling, general and administrative | $145 | $502 | $359 | $1,222 | | Operating loss | $(169) | $(531) | $(431) | $(727) | | Other (expenses) income (including $1,626 of cumulative translation loss) | $(1,677) | $41 | $(1,191) | $37 | | Net Loss | $(1,846) | $(499) | $(1,622) | $(703) | - Revenue and direct costs from discontinued operations decreased significantly due to the cessation of all equipment leasing activity in fiscal 2022[109] - Selling, general and administrative costs decreased due to lower headcount and reduced activity, though some recurring expenses were reclassified to continuing operations[110] - Other expense for the three months ended October 31, 2022, included a non-cash charge of approximately $1.6 million related to cumulative translation losses from the Canadian subsidiary[111] - No tax expense was recorded on the pre-tax loss from discontinued operations for the nine months ended October 31, 2022, due to tax valuation allowances[112] Liquidity and Capital Resources This section discusses the company's financial liquidity, capital needs, and cash flow activities, including challenges and mitigating factors - The company faces substantial doubt about its ability to meet obligations over the next twelve months due to a history of operating losses and negative cash flow, exacerbated by global economic uncertainties[114][115][116] - Mitigating factors include no funded debt, $12.8 million in working capital (including $812,000 cash) as of October 31, 2022, cost reduction plans, a $19.9 million order backlog, expected cash from lease pool asset sales, and the option to defer preferred stock dividends[117] - The company has 317,015 shares of Preferred Stock and 22,101,095 shares of Common Stock available for future issuance, and is exploring other debt and equity financing options[118][122] - Working capital requirements are increasing due to rising sales and production activities, component shortages, long lead times, and supplier prepayments[121] Selected Historical Cash Flows (in thousands) | Item | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(2,251) | $(11,228) | | Net cash (used in) provided by investing activities | $(149) | $3,809 | | Net cash (used in) provided by financing activities | $(1,895) | $3,344 | | Effect of changes in foreign exchange rates on cash and cash equivalents | $(7) | $86 | | Net decrease in cash and cash equivalents | $(4,302) | $(3,989) | - Net cash used in operating activities decreased significantly due to reductions in accounts receivable, increases in accounts payable, and non-cash expenses[125] - Net cash provided by investing activities decreased due to reduced sales of assets held-for-sale and increased purchases of property and equipment[126] - Net cash used in financing activities primarily consisted of Preferred Stock dividend payments[127] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements - The company does not have any off-balance sheet arrangements[130] Critical Accounting Policies This section states that there have been no material changes to the company's critical accounting policies - There have been no material changes to the company's critical accounting policies and estimates during the three and nine months ended October 31, 2022[131] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, specifically foreign currency risk and interest rate risk, and confirms that no derivative financial instruments are used for hedging or speculative purposes - The company is exposed to market risk from changes in foreign currency exchange rates due to foreign operations, primarily in British pounds, Singapore dollars, and European Union euros[133] - As of October 31, 2022, foreign currency denominated cash and cash equivalents totaled approximately $78,000, where a 10% increase or decrease in the U.S. dollar against these currencies would result in an approximate $8,000 loss or gain, respectively[133] - The company does not hold or issue foreign exchange contracts or other derivative instruments to hedge these exposures[133] - As of October 31, 2022, the company had no interest-bearing bank debt on its balance sheet, thus limiting interest rate risk[134] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of October 31, 2022, due to a previously disclosed material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of October 31, 2022, due to a material weakness in internal control over financial reporting[135] - A remediation plan is being implemented to address the material weakness, which will remain unresolved until controls operate effectively and are tested[136] - No other material changes in the system of internal control over financial reporting occurred during the quarter ended October 31, 2022, apart from those related to the remediation plan[137] PART II. OTHER INFORMATION Covers legal proceedings, updated risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings 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 - 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[139] Item 1A. Risk Factors This section refers to previously disclosed risk factors in the Annual Report on Form 10-K and prior Quarterly Report on Form 10-Q, with an update highlighting the risk associated with deferred preferred stock dividend payments - No material changes in risk factors from those described in the Annual Report on Form 10-K for January 31, 2022, and the Quarterly Report on Form 10-Q for July 31, 2022, other than the updated factors below[140] - The company has deferred payment of quarterly dividends on its Series A Preferred Stock for the second and third quarters of fiscal 2023[141] - During a dividend deferral period, the company is prohibited from paying dividends or distributions on its common stock or redeeming any common shares, and if dividends are unpaid for six or more quarters, Series A Preferred Stock holders gain the right to appoint two directors to the Board[141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is marked as not applicable for the reporting period - This item is not applicable[142] Item 3. Defaults Upon Senior Securities This item is marked as not applicable for the reporting period - This item is not applicable[142] Item 4. Mine Safety Disclosures This item is marked as not applicable for the reporting period - This item is not applicable[143] Item 5. Other Information This item is marked as not applicable for the reporting period - This item is not applicable[144] Item 6. Exhibits This section provides a list of exhibits filed with the Form 10-Q, including agreements, certificates, and certifications, with references to their original SEC filings - The report includes an Exhibit Index listing various documents such as merger agreements, certificates of incorporation, bylaws, preferred stock designations, and certifications[145][146][147][148] SIGNATURES This section contains the official signatures for the report, confirming its submission by authorized personnel Signatures The report is duly signed on behalf of MIND TECHNOLOGY, INC. by Robert P. Capps, President and Chief Executive Officer, on December 14, 2022 - The report was signed by Robert P. Capps, President and Chief Executive Officer, on December 14, 2022[152]