MIND Technology(MIND) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents MIND Technology, Inc.'s unaudited condensed consolidated financial statements and related notes. Item 1. Financial Statements (Unaudited) This section provides the company's unaudited condensed consolidated financial statements and comprehensive explanatory notes. Condensed Consolidated Balance Sheets This statement details the company's financial position, including assets, liabilities, and equity, at specific reporting dates. Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | July 31, 2023 | January 31, 2023 | | :-------------------------- | :------------ | :--------------- | | Total Assets | $34,225 | $32,858 | | Total Liabilities | $12,749 | $9,806 | | Total Stockholders' Equity | $21,476 | $23,052 | - Total assets increased by $1.367 million, primarily driven by increases in accounts receivable and inventories. Total liabilities increased significantly due to a new note payable[10] Condensed Consolidated Statements of Operations This statement outlines the company's revenues, expenses, and net loss over specified interim periods. Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $8,750 | $8,713 | $21,336 | $17,800 | | Gross Profit | $3,267 | $3,538 | $8,684 | $6,827 | | Operating Loss | $(1,548) | $(1,551) | $(1,259) | $(4,027) | | Net Loss | $(1,494) | $(1,920) | $(1,734) | $(4,339) | | Net Loss Attributable to Common Stockholders | $(2,441) | $(2,867) | $(3,628) | $(6,233) | | Net Loss per Common Share | $(0.18) | $(0.21) | $(0.26) | $(0.45) | - For the six months ended July 31, 2023, total revenues increased by 19.9% year-over-year, and net loss significantly decreased by 60% compared to the prior year period[13] Condensed Consolidated Statements of Comprehensive Loss This statement presents the net loss and other comprehensive income or loss components for the reporting periods. Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(1,494) | $(1,920) | $(1,734) | $(4,339) | | Comprehensive loss | $(1,494) | $(1,620) | $(1,734) | $(4,042) | - The comprehensive loss for the six months ended July 31, 2023, improved to $1.7 million from $4.0 million in the prior year, primarily reflecting the reduced net loss[15] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities. Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,477) | $(2,497) | | Net cash provided by investing activities | $234 | $111 | | Net cash provided by (used in) financing activities | $2,947 | $(1,895) | | Net decrease in cash and cash equivalents | $(284) | $(4,281) | | Cash and cash equivalents, end of period | $494 | $833 | - Net cash used in operating activities increased to $3.5 million for the six months ended July 31, 2023, while net cash provided by financing activities significantly improved to $2.9 million due to a new short-term loan[18] Condensed Consolidated Statements of Stockholders' Equity This statement details changes in the company's equity accounts, including common stock, preferred stock, and accumulated deficit. Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | January 31, 2023 | April 30, 2023 | July 31, 2023 | | :----------------------- | :--------------- | :------------- | :------------ | | Total Stockholders' Equity | $23,052 | $22,862 | $21,476 | | Accumulated Deficit | $(127,635) | $(127,875) | $(129,369) | - Total stockholders' equity decreased from $23.052 million at January 31, 2023, to $21.476 million at July 31, 2023, primarily due to the net loss incurred during the period[20] Notes to Condensed Consolidated Financial Statements These notes provide essential details and explanations supporting the condensed consolidated financial statements. 1. Organization and Liquidity This note describes the company's business and assesses its ability to continue as a going concern, outlining mitigating factors. - MIND Technology, Inc. designs, manufactures, and sells proprietary products for the seismic, hydrographic, and offshore industries[24] - Substantial doubt exists regarding the company's ability to continue as a going concern due to historical losses and negative cash from operating activities[25] - Mitigating factors include $12.6 million in working capital (as of July 31, 2023), plans to reduce costs, a $17.0 million order backlog, and $7.3 million net proceeds from the recent sale of Klein, significantly improving liquidity[26][29] 2. Sale of Subsidiary and Subsequent Events This note details the divestiture of the Klein Marine Services, Inc. subsidiary and its financial impact. - On August 21, 2023, the company sold its Klein Marine Services, Inc. subsidiary for $11.5 million in cash, resulting in an estimated gain of approximately $2.0 million[30] - Following the sale, all outstanding amounts under the company's loan were repaid in full on August 22, 2023, and the company received net proceeds of approximately $7.3 million[29][31] Unaudited Pro Forma Condensed Consolidated Statement of Operations (Six Months Ended July 31, 2023, in thousands, except per share data) | Metric | Historical MIND Technology | Operations of Klein | Pro Forma MIND Technology | | :----------------------------------- | :------------------------- | :------------------ | :------------------------ | | Total Revenues | $21,336 | $(3,178) | $18,158 | | Operating Income (Loss) | $(1,259) | $1,036 | $(223) | | Net Loss Attributable to Common Stockholders | $(3,628) | - | $(2,279) | | Net Loss per Common Share | $(0.26) | - | $(0.17) | 3. Basis of Presentation This note explains the accounting principles and rules used in preparing the unaudited interim financial statements. - The unaudited interim condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP, with certain information condensed or omitted[43] - Interim results are not necessarily indicative of the results of operations to be expected for the full fiscal year[43] 4. Assets Held for Sale and Discontinued Operations This note addresses the classification and financial reporting of assets and operations held for sale or discontinued. - The Leasing Business was classified as held for sale and reported as discontinued operations until January 31, 2023, when its operations were materially completed[44] Results from Discontinued Operations (in thousands) | Metric | Three Months Ended July 31, 2023 | Six Months Ended July 31, 2023 | | :----------------------------------- | :------------------------------- | :----------------------------- | | Revenue from discontinued operations | $— | $— | | Net (loss) income from discontinued operations | $— | $— | 5. New Accounting Pronouncements This note discusses the adoption of new accounting standards and their impact on the company's financial statements. - The company adopted ASU No. 2016-13, 'Financial Instruments-Credit Losses (Topic 326),' effective February 1, 2023[46] - The adoption of this standard did not have a material effect on the company's financial statements[46] 6. Revenue from Contracts with Customers This note provides a detailed breakdown of revenue recognition from contracts with customers by period, segment, and geography. Total Revenue from Contracts with Customers (in thousands) | Period | 2023 | 2022 | YoY Change | | :-------------------------- | :----- | :----- | :--------- | | Three Months Ended July 31 | $8,750 | $8,713 | +0.4% | | Six Months Ended July 31 | $21,336 | $17,800 | +19.9% | Revenue by Segment (Six Months Ended July 31, in thousands) | Segment | 2023 | 2022 | YoY Change | | :------ | :----- | :----- | :--------- | | Seamap | $17,508 | $12,281 | +42.6% | | Klein | $2,652 | $4,696 | -43.5% | Revenue by Geography (Six Months Ended July 31, in thousands) | Region | 2023 | 2022 | YoY Change | | :---------- | :----- | :----- | :--------- | | United States | $1,720 | $4,586 | -62.5% | | Europe | $10,000 | $8,694 | +14.9% | | Asia-Pacific | $8,653 | $4,226 | +104.8% | | Other | $963 | $294 | +227.2% | - Contract liabilities (deferred revenue & customer deposits - current) increased to $1.670 million at July 31, 2023, from $0.571 million at January 31, 2023[49] 7. Balance Sheet This note provides detailed breakdowns of specific balance sheet accounts, including inventories and property and equipment. Inventories, net (in thousands) | Metric | July 31, 2023 | January 31, 2023 | | :----------------------- | :------------ | :--------------- | | Raw materials | $8,730 | $8,480 | | Finished goods | $3,936 | $4,156 | | Work in progress | $4,876 | $4,422 | | Total inventories, net | $15,651 | $15,318 | Property and Equipment, net (in thousands) | Metric | July 31, 2023 | January 31, 2023 | | :-------------------------- | :------------ | :--------------- | | Total property and equipment, net | $3,620 | $3,945 | - No impairment was recorded for property and equipment for fiscal 2023 or the six months ended July 31, 2023[51] 8. Leases This note details the company's lease arrangements, including lease expenses, assets, liabilities, and key terms. Lease Expense (in thousands) | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended July 31 | $201 | $218 | | Six Months Ended July 31 | $422 | $421 | Operating Lease Assets and Liabilities (in thousands) | Metric | July 31, 2023 | January 31, 2023 | | :-------------------------- | :------------ | :--------------- | | Operating lease assets | $1,626 | $1,749 | | Total Operating lease liabilities | $1,626 | $1,749 | - The weighted average remaining lease term for operating leases was 1.84 years as of July 31, 2023, with a weighted average discount rate of 13%[55] 9. Intangible Assets This note provides information on the company's intangible assets, including their net value and amortization expense. Net Intangible Assets (in thousands) | Metric | July 31, 2023 | January 31, 2023 | | :----------------------- | :------------ | :--------------- | | Intangible assets, net | $4,418 | $4,931 | - Aggregate amortization expense was $0.522 million for the six months ended July 31, 2023, compared to $0.427 million for the same period in 2022[59] Future Estimated Amortization Expense (in thousands) | For fiscal years ending January 31, | Amount | | :---------------------------------- | :----- | | 2024 | $468 | | 2025 | $743 | | 2026 | $617 | | 2027 | $230 | | 2028 | $228 | | Thereafter | $1,054 | | Total | $3,495 | 10. Notes Payable This note describes the company's short-term loan, its terms, and its subsequent repayment. - The company entered into a $3.75 million Loan and Security Agreement on February 2, 2023, bearing interest at 12.9% per annum, due February 1, 2024[61] - Approximately $0.814 million of debt acquisition costs were incurred, including origination fees and prepaid interest[61] - The loan was fully repaid on August 22, 2023, in connection with the sale of Klein[61] 11. Income Taxes This note details the company's income tax expense, pre-tax loss, and factors influencing tax provisions. Income Tax Expense and Pre-tax Loss from Continuing Operations (in thousands) | Period | Income Tax Expense | Pre-tax Loss from Continuing Operations | | :-------------------------- | :----------------- | :-------------------------------------- | | Three Months Ended July 31, 2023 | $77 | $(1,417) | | Six Months Ended July 31, 2023 | $495 | $(1,239) | - The variance between actual and expected tax provision is primarily due to recording valuation allowances against increases in deferred tax assets and permanent differences[62] - The company has not recorded a deferred tax liability associated with undistributed foreign earnings, as they are not deemed indefinitely reinvested[64] 12. Earnings per Share This note presents the basic and diluted net loss per common share for the reporting periods. - Net loss per common share (basic and diluted) for the six months ended July 31, 2023, was $(0.26), an improvement from $(0.45) in the prior year[13][66] - Dilutive potential common shares were immaterial and anti-dilutive for both the three and six months ended July 31, 2023 and 2022[66] 13. Related Party Transaction This note discloses a transaction involving a related party acting as a broker for a company loan. - Ladenburg Thalmann & Co. Inc. acted as the broker for the $3.75 million loan, receiving approximately $0.050 million in fees[67] - The Co-Chief Executive Officer and Co-President of the Agent is the Non-Executive Chairman of the company's Board, but received no portion of this compensation[67] 14. Equity and Stock-Based Compensation This note provides details on outstanding preferred stock, cumulative dividends, and stock-based compensation expense. - As of July 31, 2023, there were approximately 1.68 million shares of Preferred Stock outstanding with an aggregate liquidation preference of approximately $46.8 million, including $4.7 million in undeclared cumulative dividends[68] - No quarterly dividend was declared or paid on Preferred Stock for the three months ended July 31, 2023[68] Stock-Based Compensation Expense (in thousands) | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended July 31 | $108 | $152 | | Six Months Ended July 31 | $158 | $388 | 15. Segment Reporting This note presents financial information by the company's operating segments, Seamap and Klein. - The company operates in two segments: Seamap and Klein. Segment reporting was restated for prior periods to conform to current presentation under ASC 280[70][71] Total Assets by Segment (as of July 31, 2023, in thousands) | Segment | Total Assets | | :------ | :----------- | | Seamap | $23,139 | | Klein | $10,537 | Revenues and Operating Income (Loss) by Segment (Six Months Ended July 31, in thousands) | Segment | 2023 Revenues | 2022 Revenues | 2023 Operating Income (Loss) | 2022 Operating Income (Loss) | | :------ | :------------ | :------------ | :--------------------------- | :--------------------------- | | Seamap | $18,215 | $13,104 | $3,746 | $1,723 | | Klein | $3,569 | $4,810 | $(911) | $(686) | Cautionary Statement about Forward-Looking Statements This statement advises readers on the inherent risks and uncertainties associated with forward-looking information. - Statements regarding future results, financial position, business strategy, and plans are forward-looking and subject to significant risks and uncertainties[75] - Readers are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to publicly update or revise them[77] - Important factors that could cause actual results to differ materially are summarized and referenced in the 'Risk Factors' section of this Form 10-Q and the Annual Report on Form 10-K[76][78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial performance, outlook, and liquidity. Overview This overview introduces the company's operating segments and key performance indicators. - The company operates in two segments: Seamap (seismic exploration equipment) and Klein (sonar equipment). The sale of Klein was completed on August 21, 2023[80] - Management monitors EBITDA and Adjusted EBITDA as key indicators of overall performance and liquidity[82] EBITDA and Adjusted EBITDA from Continuing Operations (Six Months Ended July 31, in thousands) | Metric | 2023 | 2022 | | :----------------------------------- | :----- | :----- | | Net loss from continuing operations | $(1,734) | $(4,563) | | EBITDA (loss) from continuing operations | $68 | $(3,271) | | Adjusted EBITDA (loss) from continuing operations | $226 | $(2,883) | Business Outlook This section outlines the company's future expectations, strategic initiatives, and market conditions. - Financial performance has improved significantly, with positive operating income in Q4 fiscal 2023 and Q1 fiscal 2024, driven by increased market demand, alleviation of pandemic impacts, and cost reduction efforts[86] - The sale of Klein provides $7.3 million in net proceeds, streamlines operations, and includes a license for Spectral Ai software and a collaboration agreement for recurring revenue opportunities[87][109] - The Seamap segment's backlog of firm orders was approximately $17.0 million as of July 31, 2023, up from $14.0 million in the prior year, providing good visibility for future periods[88] - The company expects revenue in fiscal 2024 to exceed that of fiscal 2023, focusing on strategic initiatives in unmanned marine vessels, higher resolution sonar, and marine exploration[89][93] Results of Operations This section analyzes the company's revenues, cost of sales, operating expenses, and other income/expense. - Revenues for the six months ended July 31, 2023, increased by 19.9% to $21.3 million, compared to $17.8 million in the prior year[97] - Operating losses decreased significantly to $1.3 million for the six months ended July 31, 2023, from $4.0 million in the prior year, primarily due to incremental revenues and higher profit margins[97] Revenues and Cost of Sales This subsection details revenue and gross profit margin trends across the company's operating segments. Revenues by Segment (Six Months Ended July 31, in thousands) | Segment | 2023 | 2022 | YoY Change | | :------ | :----- | :----- | :--------- | | Seamap | $18,215 | $13,104 | +39.0% | | Klein | $3,569 | $4,811 | -25.9% | Gross Profit Margins by Segment (Six Months Ended July 31) | Segment | 2023 | 2022 | Change | | :------ | :--- | :--- | :----- | | Seamap | 41% | 37% | +4 pp | | Klein | 34% | 41% | -7 pp | - Seamap's gross profit margin increase is due to a favorable mix of higher-margin products and increased manufacturing activity, while Klein's decrease is due to lower revenues and a less favorable product mix[100][101] Operating Expenses This subsection analyzes changes in selling, general and administrative, research and development, and depreciation and amortization expenses. Operating Expenses (Six Months Ended July 31, in thousands) | Expense Category | 2023 | 2022 | YoY Change | | :----------------------- | :----- | :----- | :--------- | | Selling, general and administrative | $7,388 | $8,061 | -8.3% | | Research and development | $1,615 | $1,847 | -12.6% | | Depreciation and amortization | $940 | $946 | -0.6% | - The decrease in SG&A expenses is primarily due to lower compensation expense from headcount reductions and broader cost control measures[102] - R&D costs were primarily related to synthetic aperture sonar, automatic target recognition development programs, and enhancements to towed streamer and passive sonar array systems[103] Other Expense This subsection explains the components contributing to other income or expense, net. Other Income (Expense), net (in thousands) | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended July 31 | $131 | $(76) | | Six Months Ended July 31 | $20 | $(194) | - Other income for the six months ended July 31, 2023, was primarily due to net interest expense of $0.367 million offset by gains on the sale of ancillary equipment, scrap sales, and other income of $0.387 million[105][106] Provision for Income Taxes This subsection discusses the company's income tax provision and its relation to pre-tax loss. Provision for Income Taxes (Six Months Ended July 31, in thousands) | Metric | 2023 | 2022 | | :----------------------- | :----- | :----- | | Provision for income taxes | $495 | $342 | | Loss from continuing operations before income taxes | $(1,239) | $(4,221) | - The income tax expense on a pre-tax loss is primarily due to recording valuation allowances against increases in deferred tax assets[107] Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations and fund operations, including the impact of the Klein sale. - The sale of Klein for $11.5 million (net proceeds of $7.3 million after debt repayment) significantly improved the company's liquidity and working capital[109] - As of July 31, 2023, working capital was approximately $12.6 million, including $0.494 million in cash and cash equivalents[112][119] - The company has a backlog of orders for the Seamap segment of approximately $17.0 million as of July 31, 2023, and has approximately 317,000 shares of Preferred Stock and 22.6 million shares of Common Stock available for issuance[112][113] Cash Flows Summary (Six Months Ended July 31, in thousands) | Metric | 2023 | 2022 | | :----------------------------------- | :----- | :----- | | Net cash used in operating activities | $(3,477) | $(2,497) | | Net cash provided by financing activities | $2,947 | $(1,895) | 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[126] Critical Accounting Estimates This section states that there have been no material changes to the company's critical accounting estimates. - There have been no material changes to the company's critical accounting estimates during the three and six months ended July 31, 2023[127] 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. Foreign Currency Risk This subsection details the company's exposure to foreign currency fluctuations and its hedging strategy. - The company is exposed to foreign currency exchange rate risk from operations denominated primarily in British pounds, Singapore dollars, and European Union euros[129][130] - As of July 31, 2023, foreign currency denominated cash and cash equivalents totaled approximately $221,000, with a 10% fluctuation potentially resulting in a $22,000 gain or loss[130] - The company does not currently hold or issue foreign exchange contracts or other derivative instruments to hedge these exposures[130] Interest Rate Risk This subsection confirms the company's limited exposure to interest rate risk due to the absence of variable-rate debt. - As of July 31, 2023, the company had no interest-bearing debt with a variable rate, limiting its exposure to interest rate risk[131] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures, noting a material weakness in internal control over financial reporting. Evaluation of Disclosure Controls and Procedures This subsection reports on management's assessment of the effectiveness of the company's disclosure controls and procedures. - As of July 31, 2023, management concluded that the company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[133] Remediation This subsection outlines the company's ongoing efforts to address identified material weaknesses in internal controls. - The company is implementing a remediation plan to address the material weakness, which will remain unresolved until the applicable controls operate effectively and are tested[134] Changes in Internal Control over Financial Reporting This subsection confirms any material changes in the company's internal control over financial reporting during the period. - Other than changes in connection with the remediation plan, there were no material changes in the company's internal control over financial reporting during the quarter ended July 31, 2023[135] PART II. OTHER INFORMATION This section contains additional information not covered in the financial statements, including legal matters and risk factors. Item 1. Legal Proceedings This section confirms the company is not involved in any material 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[137] Item 1A. Risk Factors This section states that there are no material changes to previously disclosed risk factors and acknowledges potential new risks. - There have been no material changes in the company's risk factors from those described in its Annual Report on Form 10-K for the year ended January 31, 2023[138] - Additional risks and uncertainties not currently known or deemed immaterial may also materially adversely affect the business[138] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the current reporting period. - Not applicable[139] Item 3. Defaults Upon Senior Securities This item is not applicable to the current reporting period. - Not applicable[139] Item 4. Mine Safety Disclosures This item is not applicable to the current reporting period. - Not applicable[140] Item 5. Other Information This item is not applicable to the current reporting period. - Not applicable[141] Item 6. Exhibits This section lists all supplementary documents filed with the Form 10-Q. - The exhibits include certifications (31.1, 31.2, 32.1), Inline XBRL Instance Document (101.INS), Taxonomy Extension Schema Document (101.SCH), Calculation Linkbase Document (101.CAL), Definition Linkbase Document (101.DEF), Label Linkbase Document (101.LAB), Presentation Linkbase Document (101.PRE), and Cover Page Interactive Data File (104)[143][144] Signatures This section confirms the official signing of the report by the authorized executive. - The report was signed by Robert P. Capps, President and Chief Executive Officer, on September 14, 2023[149]