MIND Technology(MIND) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) MIND Technology, Inc.'s unaudited financial statements show improved operating income and reduced net loss, despite ongoing liquidity and going concern doubts Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | April 30, 2023 | January 31, 2023 | | :-------------------- | :------------- | :--------------- | | Total Assets | $33,845 | $32,858 | | Total Liabilities | $10,983 | $9,806 | | Total Stockholders' Equity | $22,862 | $23,052 | | Cash and cash equivalents | $815 | $778 | | Accounts receivable, net | $7,390 | $3,993 | | Inventories, net | $14,339 | $15,318 | | Accounts payable | $1,206 | $4,101 | | Note payable, net | $3,139 | — | - Total assets increased by approximately $1 million, primarily driven by a significant rise in accounts receivable, while inventories decreased. Total liabilities increased due to a new note payable, and stockholders' equity slightly decreased[10] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total Revenues | $12,586 | $9,087 | | Total Cost of Sales | $7,169 | $5,798 | | Gross Profit | $5,417 | $3,289 | | Total Operating Expenses | $5,128 | $5,765 | | Operating Income (Loss) | $289 | $(2,476) | | Net Loss from Continuing Operations | $(240) | $(2,805) | | Net Loss Attributable to Common Stockholders | $(1,187) | $(3,366) | | Net Loss per Common Share (Continuing Operations) | $(0.09) | $(0.27) | | Net Loss per Common Share (Total) | $(0.09) | $(0.24) | - The company significantly improved its operating performance, moving from an operating loss of $(2.48) million in Q1 2022 to an operating income of $0.29 million in Q1 2023, driven by a 38.5% increase in total revenues and a higher gross profit margin[13] Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(240) | $(2,419) | | Change in cumulative translation adjustment | — | $(3) | | Comprehensive loss | $(240) | $(2,422) | - The comprehensive loss significantly decreased from $(2.42) million in Q1 2022 to $(0.24) million in Q1 2023, primarily reflecting the improved net loss[16] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(2,987) | $(3,522) | | Net cash provided by investing activities | $81 | $176 | | Net cash provided by (used in) financing activities | $2,945 | $(948) | | Net increase (decrease) in cash and cash equivalents | $37 | $(4,297) | | Cash and cash equivalents, end of period | $815 | $817 | - Net cash used in operating activities decreased by $0.54 million year-over-year. A significant shift in financing activities, from cash used to cash provided, was primarily due to a new short-term loan of $2.95 million in Q1 2023, leading to a net increase in cash and cash equivalents[19][98] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Balances, January 31, 2023 | Net Loss | Stock-based compensation | Balances, April 30, 2023 | | :-------------------- | :------------------------- | :------- | :----------------------- | :----------------------- | | Total Stockholders' Equity | $23,052 | $(240) | $50 | $22,862 | - Stockholders' equity slightly decreased from $23.05 million at January 31, 2023, to $22.86 million at April 30, 2023, primarily due to the net loss, partially offset by stock-based compensation[21] Notes to Condensed Consolidated Financial Statements 1. Organization and Liquidity - MIND Technology, Inc. designs, manufactures, and sells proprietary products for the seismic, hydrographic, and offshore industries through its subsidiaries Seamap and Klein. The company has a history of losses and negative operating cash flow, leading to substantial doubt about its ability to continue as a going concern[25][26][27] - Management has identified several mitigating factors, including $13.7 million in working capital as of April 30, 2023, the ability to reduce variable costs, a $22.6 million order backlog, the option to defer preferred stock dividends, and potential access to further capital through equity or debt financing[28][93] 2. Basis of Presentation - The unaudited interim condensed consolidated financial statements are prepared in accordance with SEC rules, with certain information condensed or omitted. These statements should be read in conjunction with the company's Annual Report on Form 10-K for the year ended January 31, 2023[31] 3. Assets Held for Sale and Discontinued Operations - The Leasing Business was classified as held for sale on July 27, 2020, and its results were reported as discontinued operations. As of February 1, 2023, discontinued operations were considered materially completed, resulting in no revenue or costs from discontinued operations for the three months ended April 30, 2023[32][33] 4. New Accounting Pronouncements - The adoption of ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), effective during the three months ended April 30, 2023, did not have a material effect on the Company's financial statements[34] 5. Revenue from Contracts with Customers Revenue by Type (in thousands) | Revenue Type (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Total revenue recognized at a point in time | $11,877 | $9,002 | | Total revenue recognized over time | $709 | $85 | | Total revenue from contracts with customers | $12,586 | $9,087 | Revenue by Geography (in thousands) | Revenue by Geography (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | United States | $1,342 | $2,253 | | Europe | $7,035 | $4,612 | | Asia-Pacific | $3,953 | $2,184 | | Other | $256 | $38 | | Total revenue from contracts with customers | $12,586 | $9,087 | - Revenue recognized at a point in time, primarily from product sales, increased significantly. Geographically, Europe and Asia-Pacific saw substantial revenue growth, while U.S. revenue decreased[35][36] 6. Balance Sheet Inventories (in thousands) | Inventories (in thousands) | April 30, 2023 | January 31, 2023 | | :------------------------- | :------------- | :--------------- | | Raw materials | $8,341 | $8,480 | | Finished goods | $3,657 | $4,156 | | Work in progress | $4,079 | $4,422 | | Total inventories, net | $14,339 | $15,318 | Property and Equipment (in thousands) | Property and equipment (in thousands) | April 30, 2023 | January 31, 2023 | | :------------------------------------ | :------------- | :--------------- | | Cost of property and equipment | $15,146 | $15,134 | | Accumulated depreciation and amortization | $(11,359) | $(11,189) | | Total property and equipment, net | $3,787 | $3,945 | - Net inventories decreased by approximately $1 million, with reductions across raw materials, finished goods, and work in progress. Net property and equipment also saw a slight decrease[38] 7. Leases Lease Metrics (in thousands) | Lease Metric (in thousands) | April 30, 2023 | January 31, 2023 | | :-------------------------- | :------------- | :--------------- | | Operating lease assets | $1,762 | $1,749 | | Operating lease liabilities | $1,762 | $1,749 | | Current lease liabilities | $753 | $903 | | Non-current lease liabilities | $1,009 | $846 | - Lease expense for the three months ended April 30, 2023, was approximately $0.22 million, an increase from $0.20 million in the prior year period. The weighted average remaining lease term for operating leases was 1.94 years with a 13% discount rate[40][41] 8. Intangible Assets Intangible Assets Net Carrying Amount (in thousands) | Intangible Asset (in thousands) | Net Carrying Amount (April 30, 2023) | Net Carrying Amount (January 31, 2023) | | :------------------------------ | :----------------------------------- | :------------------------------------- | | Proprietary rights | $3,516 | $3,632 | | Customer relationships | $105 | $130 | | Patents | $450 | $513 | | Trade name | $35 | $37 | | Developed technology | $381 | $417 | | Other | $177 | $202 | | Total intangible assets | $4,664 | $4,931 | - Total net intangible assets decreased from $4.93 million to $4.66 million. Approximately $0.92 million of the gross carrying amount relates to technology development projects not yet completed and thus not amortized. No impairment indicators were identified during the quarter[44][45] Estimated Amortization Expense (in thousands) | Fiscal Year Ending January 31, | Estimated Amortization Expense (in thousands) | | :----------------------------- | :-------------------------------------------- | | 2024 | $757 | | 2025 | $728 | | 2026 | $628 | | 2027 | $349 | | 2028 | $283 | | Thereafter | $996 | | Total | $3,741 | 9. Notes Payable - On February 2, 2023, the company entered into a $3.75 million Loan and Security Agreement, due February 1, 2024, bearing interest at 12.9% per annum. Debt acquisition costs of approximately $0.81 million were incurred and are being amortized to interest expense[47] 10. Income Taxes Income Tax Metrics (in thousands) | Tax Metric (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Income tax expense from continuing operations | $418 | $211 | | Pre-tax income (loss) from continuing operations | $178 | $(2,600) | - The company reported income tax expense despite pre-tax income in Q1 2023 and pre-tax loss in Q1 2022, primarily due to recording valuation allowances against increases in deferred tax assets and permanent differences between book and taxable income[48][88] 11. Earnings per Share - Net loss per common share from continuing operations improved to $(0.09) in Q1 2023 from $(0.27) in Q1 2022. Dilutive potential common shares were immaterial and anti-dilutive for both periods[13][52] 12. Related Party Transaction - The company has an equity distribution agreement with Ladenburg Thalmann & Co. Inc., whose Co-Chief Executive Officer is the Non-Executive Chairman of MIND's Board. No shares of Preferred or Common Stock were sold under the ATM Offering Program in Q1 2023 or Q1 2022. The Agent received approximately $0.05 million in fees for acting as broker for the $3.75 million loan[53][54][55] 13. Equity and Stock-Based Compensation - As of April 30, 2023, there are approximately 1.68 million shares of Preferred Stock outstanding with an aggregate liquidation preference of $43.9 million, including $3.8 million in undeclared cumulative dividends. No quarterly dividend was declared or paid on Preferred Stock for Q1 fiscal 2024, allowing for deferral of future payments[56] Stock-Based Compensation Expense (in thousands) | Metric (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Stock-based compensation expense | $50 | $236 | 14. Segment Reporting - The company operates in two segments: Seamap (seismic exploration equipment) and Klein (sonar equipment). Segment reporting was restated for Q1 2022 to correct a misapplication of ASC 280[58][59][67][68] Segment Performance (in thousands) | Segment (in thousands) | Revenues (Q1 2023) | Revenues (Q1 2022) | Operating Income (Loss) (Q1 2023) | Operating Income (Loss) (Q1 2022) | | :--------------------- | :----------------- | :----------------- | :-------------------------------- | :-------------------------------- | | Seamap Marine Products | $10,597 | $8,079 | $2,720 | $1,431 | | Klein Marine Products | $2,330 | $1,122 | $(131) | $(1,180) | | Corporate expenses | - | - | $(2,300) | $(2,727) | | Consolidated | $12,586 | $9,087 | $289 | $(2,476) | - Both Seamap and Klein segments showed significant revenue growth and improved operating income/reduced losses year-over-year, contributing to the overall consolidated operating income[60][61] Cautionary Statement about Forward-Looking Statements - This section warns readers that the report contains forward-looking statements based on current expectations and beliefs, which involve significant risks and uncertainties that could cause actual results to differ materially. Key risk factors include the ability to continue as a going concern, supply chain disruptions, increased competition, and geopolitical events[64][66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, liquidity, and outlook, highlighting improved operating income but ongoing liquidity concerns Overview - MIND Technology operates in two segments: Seamap (seismic exploration equipment) and Klein (sonar equipment), serving oceanographic, hydrographic, defense, seismic, and maritime security industries. Management monitors EBITDA and Adjusted EBITDA as key performance and liquidity indicators[67][69][72] Key Performance Indicators (in thousands) | Metric (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss from continuing operations | $(240) | $(2,805) | | EBITDA (loss) from continuing operations | $863 | $(2,115) | | Adjusted EBITDA (loss) from continuing operations | $913 | $(1,879) | - EBITDA from continuing operations significantly improved to $0.86 million in Q1 2023 from a loss of $(2.12) million in Q1 2022, reflecting the improved operating results[70] Business Outlook - The company's financial performance has improved significantly, with positive operating income in the last two fiscal quarters, attributed to increased market demand, alleviation of pandemic impacts, and cost reduction efforts[73] - Order backlog increased to approximately $22.6 million as of April 30, 2023, up from $20.7 million at January 31, 2023, and $13.4 million at April 30, 2022, indicating increased demand[74] - Strategic initiatives include applying Automatic Target Recognition (ATR) to sonar systems, developing Synthetic Aperture Sonar (SAS), adapting SeaLink technology for alternative applications (windfarms, carbon capture), and passive sonar arrays for maritime security[77] - The company implemented price increases (5% to 20%) for most products in Q1 fiscal 2023 to offset rising costs due to inflation and supply chain issues[79] Results of Operations - Total revenues for the three months ended April 30, 2023, were $12.59 million, a 38.5% increase from $9.09 million in the prior year, leading to an operating income of $0.29 million compared to an operating loss of $(2.5) million[81] Revenues and Cost of Sales Segment Revenues, Gross Profit, and Margins (in thousands) | Segment (in thousands) | Revenues (Q1 2023) | Revenues (Q1 2022) | Gross Profit (Q1 2023) | Gross Profit (Q1 2022) | Gross Profit Margin (Q1 2023) | Gross Profit Margin (Q1 2022) | | :--------------------- | :----------------- | :----------------- | :--------------------- | :--------------------- | :---------------------------- | :---------------------------- | | Seamap | $10,597 | $8,079 | $4,536 | $3,022 | 43% | 37% | | Klein | $2,330 | $1,122 | $881 | $267 | 38% | 24% | | Consolidated | $12,586 | $9,087 | $5,417 | $3,289 | 43% | 36% | - Both Seamap and Klein segments experienced significant revenue growth and improved gross profit margins, driven by a favorable mix of higher-margin products, increased manufacturing activity, and price increases[82][83] Operating Expenses Operating Expenses (in thousands) | Expense (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Selling, general and administrative | $3,874 | $4,272 | | Research and development | $773 | $1,014 | | Depreciation and amortization | $481 | $479 | - Selling, general and administrative expenses decreased due to headcount reductions and cost control measures. Research and development costs also decreased, while depreciation and amortization remained consistent[84][85][86] Other Expense - Other expense in Q1 2023 was primarily due to $0.20 million in interest expense from the new short-term loan, partially offset by $0.14 million in gains from equipment sales[87] Provision for Income Taxes - The company reported income tax expense of $0.42 million on pre-tax income of $0.18 million in Q1 2023, and $0.21 million on a pre-tax loss of $2.6 million in Q1 2022. This is mainly due to valuation allowances against deferred tax assets and permanent differences[88] Liquidity and Capital Resources - The company has a history of operating losses and negative cash flow, relying on asset sales and equity issuance. Substantial doubt exists regarding its ability to meet obligations over the next twelve months[89][90] - Mitigating factors include $13.7 million in working capital (as of April 30, 2023), a $22.6 million order backlog, the ability to reduce variable costs, and the option to defer preferred stock dividends. The company also has authorized but unissued shares of Preferred and Common Stock for potential capital raising[93][90] - Working capital requirements are increasing due to rising sales, production activities, component shortages, long lead times, and supplier prepayment demands. The company is exploring additional capital sources, including equity or debt financing, asset sales, or strategic investments[92][94] Cash Flow Summary (in thousands) | Cash Flow (in thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(2,987) | $(3,522) | | Net cash provided by investing activities | $81 | $176 | | Net cash provided by (used in) financing activities | $2,945 | $(948) | | Net increase (decrease) in cash and cash equivalents | $37 | $(4,297) | - Net cash used in operating activities decreased, while financing activities shifted to a net cash provided position due to a $2.9 million short-term loan in Q1 2024[96][98] Off-Balance Sheet Arrangements - The company does not have any off-balance sheet arrangements[101] Critical Accounting Estimates - There have been no material changes to the company's critical accounting estimates during the three-month period ended April 30, 2023, as detailed in the Annual Report on Form 10-K[102] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's market risk exposure, primarily foreign currency fluctuations, with no interest rate risk from variable-rate debt or derivative use Foreign Currency Risk - The company is exposed to foreign currency risk from transactions denominated in British pounds, Singapore dollars, and European Union euros. As of April 30, 2023, foreign currency denominated cash and cash equivalents totaled approximately $0.28 million. A 10% change in the U.S. dollar exchange rate would result in a gain or loss of approximately $0.03 million[104] Interest Rate Risk - As of April 30, 2023, the company had no interest-bearing debt with a variable rate, thus no exposure to interest rate risk[106] Item 4. Controls and Procedures Management deemed disclosure controls ineffective due to an unresolved material weakness in internal control over financial reporting, with a remediation plan underway Evaluation of Disclosure Controls and Procedures - The principal executive and financial officers concluded that disclosure controls and procedures were not effective as of April 30, 2023, due to a material weakness in internal control over financial reporting previously disclosed in the Annual Report on Form 10-K[107] Remediation - A remediation plan is being implemented to address the material weakness, which will remain unresolved until the controls operate effectively for a sufficient period and are tested[108] Changes in Internal Control over Financial Reporting - Other than changes related to the remediation plan, there were no material changes in the system of internal control over financial reporting during the quarter ended April 30, 2023[109] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to materially adversely affect its operations or financial condition - The company is not currently involved in any legal proceedings that are individually or collectively material or could have a material adverse effect on its results of operations or financial condition[111] Item 1A. Risk Factors No material changes have occurred in the company's risk factors from those described in its Annual Report on Form 10-K for the year ended January 31, 2023 - No material changes have occurred in the company's risk factors from those described in its Annual Report on Form 10-K for the year ended January 31, 2023[112] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the current reporting period - This item is marked as 'Not applicable'[113] Item 3. Defaults Upon Senior Securities This item is not applicable to the current reporting period - This item is marked as 'Not applicable'[113] Item 4. Mine Safety Disclosures This item is not applicable to the current reporting period - This item is marked as 'Not applicable'[114] Item 5. Other Information This item is not applicable to the current reporting period - This item is marked as 'Not applicable'[115] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, agreements, certifications, and XBRL data - The exhibits include the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation and Bylaws, Certificates of Designations for Preferred Stock, Loan and Security Agreement, and certifications from the CEO and CFO[117] Signatures The report is duly signed on behalf of MIND Technology, Inc. by its President and Chief Executive Officer - The report is signed by Robert P. Capps, President and Chief Executive Officer, on June 14, 2023[122]