What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-12-04 compared with 2020-09-15 · 112 added, 91 removed, 226 unchanged (47% of the section changed)

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and increase in the number of shares of Common Stock and Preferred Stock authorized for issuance.

See Note 16 - “Subsequent Event” of our consolidated financial statements for additional details.

See Note 16 - “Corporate Restructuring” to our condensed consolidated financial statements for additional details.

Historically, we have operated in two segments, Marine Technology Products and Equipment Leasing.

During the second quarter of fiscal 2021, our Board determined to exit the Leasing Business and instructed management to develop and implement a plan to dispose of those operations.

Accordingly, the assets, excluding cash, and liabilities of the Equipment Leasing segment are considered held for sale and the segment’s operations are presented as discontinued operations.

See Note 3 to our condensed consolidated financial statements for more details.

Revenue from the Marine Technology Products segment includes sales of Seamap equipment, sales of Klein equipment and through the first quarter of fiscal 2020, sales of oceanographic and hydrographic equipment by SAP.

Accordingly, the assets, excluding cash, and liabilities of the Leasing Business are considered held for sale and the Leasing Business operations are presented as discontinued operations.

See Note 3 - “ Assets Held for Sale and Discontinued Operations” to our condensed consolidated financial statements for more details.

Revenue from the Marine Technology Products segment includes sales of Seamap equipment and sales of Klein equipment.

This segment operates from locations near Bristol, United Kingdom, Salem, New Hampshire, Huntsville, Texas, Johor, Malaysia and in Singapore.

During February 2019, the Company completed the sale of its Australian operations in Brisbane, Australia.

See Note 14 - “Sale of Subsidiaries” of our condensed consolidated financial statements for additional details.

See Note 14 - “Sale of Subsidiaries” to our condensed consolidated financial statements for additional details.

The discontinued operations of the Equipment Leasing segment includes all leasing activity, sales of lease pool equipment and certain other equipment sales and services related to those operations.

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Management monitors EBITDA and Adjusted EBITDA, both as defined and reconciled to the most directly comparable financial measures calculated and presented in accordance with United States generally accepted accounting principles (“GAAP”), in the following table, as key indicators of our overall performance and liquidity.

For the Three Months Ended July 31, For the Six Months Ended July 31,

For the Three Months Ended October 31, For the Nine Months Ended October 31,

2020 2019 2020 2019

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Depreciation and amortization 662 639 2,092 1,914

Benefit for income taxes (530) (46) (188) (44)

Provision (benefit) for income taxes 109 (31) (79) (75)

EBITDA from continuing operations (1) (1,599) (711) (8,680) (3,170)

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Adjusted EBITDA from continuing operations (1) $ (1,451) $ (423) $ (5,508) $ (2,472)

Reconciliation of Net Cash Provided by Operating Activities to EBITDA

Reconciliation of Net Cash Used in Operating Activities to EBITDA

Net cash used in operating activities $ (2,237) $ (745) $ (4,803) $ (4,247)

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Taxes paid, net of refunds (27) 143 219 325

Gross profit from sale of other equipment 303 — 303 —

Changes in inventory (1,462) 494 (762) 3,162

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(1) EBITDA is defined as net income before (a) interest income and interest expense, (b) provision for (or benefit from) income taxes and (c) depreciation and amortization.

Adjusted EBITDA excludes non-cash foreign exchange gains and losses, non-cash costs of lease pool equipment sales, impairment of

intangible assets, stock-based compensation and other non-cash tax related items.

Adjusted EBITDA excludes non-cash foreign exchange gains and losses, non-cash costs of lease pool equipment sales, impairment of intangible assets, stock-based compensation and other non-cash tax related items.

We consider EBITDA and Adjusted EBITDA to be important indicators for the performance of our business, but not measures of performance or liquidity calculated in accordance with GAAP.

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Our other facilities have been allowed to operate, although at reduced efficiencies as certain employees have worked remotely.

We expect these disruptions will have a negative effect on our business;

however, the magnitude of such effect is uncertain.

Furthermore, travel restrictions resulting from the COVID-19 pandemic have impacted our ability to visit customers, conduct product demonstrations and visit our various operating locations.

These disruptions have had, and we expect they will continue to have, a negative effect on our business;

however, the duration and magnitude of these disruptions are uncertain.

Management believes that the negative impact will be temporary, but there can be no assurance of that.

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Many of our marine customers have recently indicated increases in backlog, which we believe is a positive indication of a recovery later in fiscal 2021 and beyond.

The general economic environment concerning the energy industry could also impact our ability to realize value from our discontinued land seismic leasing operations.

In recent months, we have continued to experience significant inquiries and bid activity and have conducted a number of demonstrations for various customers, including the U.S.

However, we believe many customers have delayed purchase commitments due to the uncertainty in the global economy.

Accordingly, we have not experienced the level of firm orders that we would have normally expected.

It is not clear how long this reduced order activity will persist;

however, we expect it to continue at least through the third quarter of fiscal 2021.

As of July 31, 2020, our backlog of firm orders for our Marine Technology Products segment was approximately $7.6 million, as compared to approximately $10.2 million as of April 30, 2020 and $8.9 million as of January 31, 2020.

We expect all of these orders to be completed within fiscal 2021.

Accordingly, we have not experienced the number of firm orders that we would have normally expected

from the current level of inquiries and bid activity.

Recently we have received orders for new seismic source controllers or upgrades of systems that we previously sold.

Our GunLink seismic source controllers have certain capabilities that we believe are unique and that increasingly certain of these capabilities are required of operators of seismic exploration vessels.

Based on this, and on discussions with current and potential customers, we believe demand for our GunLink source controllers will increase in coming months, although there can be no assurance of this.

As of October 31, 2020, our backlog of firm orders for our Marine Technology Products segment was approximately $8.2 million, as compared to approximately $7.6 million as of July 31, 2020 and $8.9 million as of January 31, 2020.

We expect a significant number of these orders to be completed within fiscal 2021 and therefore expect revenues from continuing operation in the fourth quarter of fiscal 2021 to exceed those of the third quarter of this year.

The level of backlog at a particular point in time may not necessarily be indicative of results in subsequent periods as the size and delivery period of individual orders can vary significantly.

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We see a number of opportunities to add to our technology and to apply existing technology and products to new applications.

In connection with these proposed changes and in recognition of our focus on our marine technology products business, as well as recent changes in the global energy markets, we believe that it is now appropriate to exit the Leasing Business.

In fiscal 2020, we introduced new sonar technology that we refer to as “MA-X”.

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While this specific order may not have a material impact on our results of operations, we believe this, and similar opportunities could have a material impact on our operations.

During the current fiscal year we also introduced technology based on MA-X specifically focused on the rapidly grown autonomous vehicle market and entered into an agreement with a major European defense contractor for the joint offering of synthetic aperture sonar (“SAS”).

During the current fiscal year we also introduced technology based on MA-X specifically focused on the rapidly growing autonomous vehicle market and entered into an agreement with a major European defense contractor for the joint offering of synthetic aperture sonar (“SAS”).

We believe that each of these initiatives can significantly expand our serviceable market.

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However, the timing of orders and delivery of products remain uncertain.

We believe there are certain developments within the marine technology industry which can have a significant impact on our business.

These developments include the following:

• The increase in the use of unmanned, or uncrewed, marine vessels, both surface vehicles and underwater vehicles, and the need for a variety of sensor packages designed for these applications.

• Demand for higher resolution sonar images, such as for mine countermeasure applications.

• Demand for economical, commercially developed, technology for anti-submarine warfare and maritime security applications,

In response to these, and other, developments we have initiated certain strategic initiatives in order to exploit the opportunities that we perceive.

These initiatives include the following:

• Development of side-scan sonar systems specifically for unmanned vehicles, including integration of our MA-X technology.

• Development of SAS sonar systems in cooperation with a major European defense contractor.

• Application of our SeaLink solid streamer technology to passive sonar arrays for use in maritime security applications, such as anti-submarine warfare.

In response to the effects of the COVID-19 pandemic and the current economic environment we have taken steps to reduce expenses including the layoff or furloughing of certain employees and contractors and the deferral of other expenditures.

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Accordingly, we believe we can reduce such costs commensurate with any declines in our business.

During fiscal 2021, the Company received a Singapore government grant pursuant to its Job Support Scheme, which primary objective is to assist companies in retaining local employees during the COVID-19 pandemic.

During fiscal 2021, the Company received a Singapore government grant pursuant to its Job Support Scheme.

The primary objective of the Job Support Scheme is to assist companies in retaining local employees during the COVID-19 pandemic.

Similar to the Singapore government grant our operations in the United Kingdom were also recipients of the government backed Job Retention Scheme.

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Results of Continuing Operations

Revenues for the three months ended July 31, 2020 were approximately $5.1 million compared to approximately $6.8 million for the three months ended July 31, 2019.

For the six months ended July 31, 2020, revenues were approximately $8.3 million, compared to

approximately $12.9 million for the six months ended July 31, 2019.

Revenues for the three months ended October 31, 2020 were approximately $6.6 million compared to approximately $8.1 million for the three months ended October 31, 2019.

For the nine months ended October 31, 2020, revenues were approximately $14.8 million, compared to approximately $21.0 million for the nine months ended October 31, 2019.

We believe the decrease in fiscal 2021 periods is due in large part to restrictions on commerce as a result of the global pandemic.

For the three months ended July 31, 2020, we generated an operating loss of approximately $2.4 million, compared to an operating loss of approximately $1.7 million for the three months ended July 31, 2019.

For the six months ended July 31, 2020, we generated an operating loss of approximately $8.6 million, compared to an operating loss of approximately $3.9 million for the six months ended July 31, 2019.The increase in operating loss during the three and six month periods ended July 31, 2020 is primarily attributable to a goodwill impairment expense in our Seamap reporting unit, lower revenue contribution and an increase in research and development costs.

For the three months ended October 31, 2020, we generated an operating loss of approximately $2.3 million, compared to an operating loss of approximately $1.3 million for the three months ended October 31, 2019.

For the nine months ended October 31, 2020, we generated an operating loss of approximately $10.8 million, compared to an operating loss of approximately $5.2 million for the nine months ended October 31, 2019.

The increase in operating loss during the three and nine month periods ended October 31, 2020 is primarily attributable to lower revenue contribution and an increase in research and development costs and in the nine-month period, goodwill impairment related to our Seamap reporting unit.

A more detailed explanation of these variations follows.

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

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Accordingly, there can be significant variation in sales from one period to another, which does not necessarily indicate a fundamental change in demand for these products.

In the second quarter of fiscal 2020 we delivered a SeaLink system for installation on a vessel built for the Japanese Coast Guard.

The value of this order was approximately $1.8 million.

We believe the decline in Seamap revenues is due in large part to temporary delays caused by the COVID-19 pandemic, including the temporary shutdown of our production facilities.

As discussed in previous periods, a particular order of approximately $1.8 million has been delayed from the first quarter of fiscal 2021 and was expected to be completed and recognized in the second quarter of fiscal 2021.

As of July 31, 2020 the order was completed and ready for shipment.

However, due to travel restrictions, the customer has been unable to arrange shipment and take delivery of the equipment.

Accordingly, we have not recognized the associated revenue as of July 31, 2020.

We expect the shipment to be completed in the third quarter of fiscal 2021.

The gross profit and gross profit margins generated by sales of Seamap products were approximately $1.8 million and 44% in the second quarter of fiscal 2021 and approximately $2.6 million and 51% in the second quarter of fiscal 2020.

As discussed in previous periods, a particular order of approximately $1.8 million was delayed from the first quarter of fiscal 2021 as due to travel restrictions, the customer was unable to arrange shipment and take delivery of the equipment.

This order was shipped and recognized in the third quarter of fiscal 2021.

The gross profit and gross profit margins generated by sales of Seamap products were approximately $2.2 million and 41% in the third quarter of fiscal 2021 and approximately $2.5 million and 43% in the third quarter of fiscal 2020.

The decrease in gross profit margins between the periods is due primarily to lower manufacturing activity, which resulted in lower overhead absorption during the period.

Revenue from the sale of Klein products was approximately $1.0 million for the second quarter of fiscal 2021 versus approximately $1.8 million in the prior year period.

Revenue from the sale of Klein products was approximately $1.2 million for the third quarter of fiscal 2021 versus approximately $2.4 million in the prior year period.

We believe the decline in revenue is partially due to the effects of the COVID-19 pandemic.

Gross profit was approximately $218,000 and $239,000 for the second quarter of fiscal 2021 and 2020, respectively.

The decline in gross profit margin in the second quarter of fiscal 2021 was due mainly to the mix of products sold between the comparative periods.

Gross profit was approximately $53,000 and $805,000 for the third quarter of fiscal 2021 and 2020, respectively.

The decline in gross profit margin in the third quarter of fiscal 2021 was due mainly to lower absorption of overhead costs and higher product testing and sustaining engineering activity during the period.

Operating Expenses

General and administrative expenses for the three months ended July 31, 2020 decreased to approximately $3.0 million from approximately $3.4 million for the three months ended July 31, 2019.

General and administrative expenses for the six months ended July 31, 2020 decreased approximately $1.2 million to $5.9 million compared to $7.1 million for the six months ended July 31, 2019.

The decrease in general and administrative expenses is primarily due to reduced travel and entertainment expense as a result of restrictions due to the global

pandemic, reductions in salary and rent costs due to the offset of government subsidies received in several international locations and the impact of various strategic restructuring activities implemented in fiscal 2020.

General and administrative expenses for the three months ended October 31, 2020 decreased to approximately $3.0 million from approximately $3.4 million for the three months ended October 31, 2019.

General and administrative expenses for the nine months ended October 31, 2020 decreased approximately $1.6 million to $8.9 million, compared to $10.5 million for the nine months ended October 31, 2019.

The decrease in general and administrative expenses is primarily due to reduced travel and entertainment expense as a result of restrictions due

to the global pandemic, reductions in salary and rent costs due to the offset of government subsidies received in several international locations and the impact of various strategic restructuring activities implemented in fiscal 2020.

In recognition of the need to control costs in the current environment, effective May 1, 2020, Robert P.

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In addition, our Board has agreed to a temporary 25% reduction in cash compensation.

Research and development costs in the third quarter and first nine months of fiscal 2021 increased to approximately $912,000 and $2.1 million, respectively, compared to approximately $629,000 and $1.4 million in the three and nine months ended October 31, 2019, respectively.

The increase in these costs reflects activity in the strategic initiatives noted above, including the deployment of a passive array test system during the third quarter of fiscal 2021.

Depreciation and amortization expenses include depreciation of equipment, furniture and fixtures and the amortization of intangible assets.

These costs were approximately $700,000 and $1.4 million in the three and six month periods ended July 31, 2020, respectively, as compared to approximately $605,000 and $1.2 million in the three and six month periods ended July 31, 2019, respectively.

The higher depreciation and amortization expense in the three and six month periods of fiscal 2021 is due primarily to asset additions associated with the start-up of our Malaysian manufacturing facility and the amortization of intangible assets related to a recent software upgrade.

Due to deterioration in macroeconomic factors and a decline in the market value of our equity securities subsequent to January 31, 2020, we concluded that goodwill was impaired and recorded an impairment charge of approximately $2.5 million in the quarter ended April 30, 2020.

These costs were approximately $662,000 and $2.1 million in the three and nine month periods ended October 31, 2020, respectively, as compared to approximately $604,000 and $1.8 million in the three and nine month periods ended October 31, 2019, respectively.

The higher depreciation and amortization expense in the three and nine month periods of fiscal 2021 is due primarily to asset additions associated with the start-up of our Malaysian manufacturing facility and the amortization of intangible assets related to a recent software upgrade.

The goodwill impairment indicated that there was potential impairment of our other intangible and long-lived assets.

Accordingly, we performed an analysis of the undiscounted future cash flow from those assets and concluded that there was no impairment.

During the three months ended July 31, 2020 there have been no substantive indicators of additional impairment.

Subsequent to April 30, 2020 there have been no substantive indicators of additional impairment.

Provision for Income Taxes

Our tax benefit for the six months ended July 31, 2020 was approximately $188,000.

For the six months ended July 31, 2019, we reported tax benefit of approximately $44,000.

Our recorded tax benefit in the six-month periods ended July 31, 2020 and 2019, are less than the benefit that would be derived by applying the applicable statutory rate to income before tax from continuing operations in each of these periods, due mainly to the effect of permanent differences between book and taxable income, including impairment expense, and recording valuation allowances against increases in our deferred tax assets.

For the three months ended October 31, 2020, we reported tax expense of approximately $109,000, and for the three months ended October 31, 2019 we reported a tax benefit of approximately $31,000.

For the nine month periods ended October 31, 2020 and October 31, 2019 we reported a tax benefit of approximately $79,000 and $75,000, respectively.

Our recorded tax expense and benefit in the three and nine-month periods ended October 31, 2020 and 2019, are less than the expense or benefit that would be derived by applying the applicable statutory rate to loss before tax from continuing operations in each of these periods, due mainly to the effect of permanent differences between book and taxable income, including impairment expense, and recording valuation allowances against increases in our deferred tax assets.

Results of Discontinued Operations

Revenues and cost of sales from our Equipment Leasing segment were comprised of the following:

For the Three Months Ended July 31, For the Six Months Ended July 31,

For the Three Months Ended October 31, For the Nine Months Ended October 31,

2020 2019 2020 2019

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Net loss (1,220) (709) (6,143) (2,570)

Revenue from discontinued operations during the second quarter of fiscal 2021 decreased approximately 41% to $1.2 million compared to $2.0 million for the second quarter of fiscal 2020 and decreased approximately $500,000, or 8% in the first six months of fiscal 2021 as compared to the first six months of fiscal 2020.

The reduction in revenue is due to lower equipment leasing activity in the three and six month comparable periods, primarily as a result of the global pandemic, while revenue from lease pool equipment sales is higher in the three and six month comparable periods.

Direct costs related to equipment leasing were relatively flat in the three and six month periods ending July 31, 2020 as compared to the prior year periods, despite lower equipment leasing revenue in fiscal 2021 due mainly to the impact of sub-lease payments to certain OEMs under revenue sharing arrangements.

For the six months of fiscal 2021, lease pool depreciation decreased approximately $700,000 from the same period in the prior fiscal year, reflecting recent sales of lease pool equipment and the effect of certain equipment becoming fully depreciated.

Selling, general and administrative costs increased approximately $300,000 during the six months ended July 31, 2020 as compared to the prior year period.

The increase was due primarily to accrued severance and other costs related to the Board’s decision to exit the Leasing Business

Following the decision to exit the Leasing Business and present those operations as discontinued operations, we no longer recognize depreciation expense related to our lease pool of seismic equipment, but rather reassess, on a quarterly basis, the recoverability of the remaining carrying value of those assets.

Similarly, we no longer recognize gain or loss from the sale of individual lease pool assets, but treat any proceeds from such transactions as a reduction in the carrying value of the lease pool.

Revenue from discontinued operations during the third quarter of fiscal 2021 decreased approximately 87% to $313,000 compared to $2.5 million for the third quarter of fiscal 2020 and decreased approximately $2.6 million, or 32% in the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020.

The reduction in revenue is due to lower Equipment Leasing activity, primarily we believe as a result of the global pandemic, the decision to exit the Leasing Business and the change in treatment of lease pool sales as discussed above.

Direct costs related to Equipment Leasing dropped to approximately $263,000 for the third quarter of fiscal year 2021 from approximately $568,000 reported in the same period for 2019.

A significant portion of direct costs are generally fixed and therefore do not fluctuate with the level of leasing revenue.

However, these costs also include sub-lease payments to certain OEM’s under revenue sharing arrangements which do fluctuate with the level of leasing revenue.

For the three month period ended October 31, 2020 lease pool depreciation decreased approximately $1.1 million from the three months ended October 31, 2021 due to the fact that we are no longer recording lease pool depreciation on discontinued operations.

Selling, general and administrative costs related to the Leasing Business decreased in the three months ended October 31, 2020 as compared to the same period one year ago due to cost reduction efforts and a decline in activity.

These costs increased during the nine months ended October 31, 2020 as compared to the prior year period.

The increase in the nine-month period was due primarily to accrued severance and other costs related to the decision to exit the Leasing Business

The loss on disposal of approximately $1.9 million reflects the amount by which the unadjusted carrying value of the net assets of the Leasing Business exceed the estimated proceeds of the planned sale of the business.

The unadjusted carrying value of the Leasing Business includes approximately $2.7 million of cumulative translation adjustment which has historically been recorded in Accumulated Other Comprehensive Loss, a component of equity.

Our provision for income taxes for the three and six months ended July 31, 2020 are approximately $522,000 and $700,000, respectively, on loss before income tax of approximately $4.2 million for the three and six month periods.

Our provision for income taxes for the three and nine months ended October 31, 2020 are approximately $6,000 and $706,000, respectively, on loss before income tax of approximately $1.2 million and $5.4 million for the three and nine month periods, respectively.

Our provision varies from the expected provision based on the U.S.

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As discussed above, the COVID-19 pandemic and the decline in oil prices has created significant uncertainty in the global economy, which could have an adverse effect on our business, financial position, results of operations and liquidity.

The period for which disruptions related to the pandemic will continue is uncertain, as is the magnitude of any adverse impacts.

The period of time for which pandemic related disruptions will continue remains uncertain, as does the magnitude of any adverse impacts.

We believe that any negative impacts will be temporary, but there can be no assurance of that.

The Company has a history of losses, has had negative cash from operating activities in each of the last two years and its cash balance as of July 31, 2020 is lower than at January 31, 2020.

For the past three years, the Company has generated significant cash from the sale of preferred stock pursuant to an “at the market” program.

That program has been completed and no further preferred shares can be sold pursuant to it.

The Company has a history of losses, has had negative cash from operating activities in each of the last two fiscal years and its cash balance as of October 31, 2020 is lower than at January 31, 2020.

For the past three years, the Company has generated significant cash from the sale of preferred stock pursuant to the 1 st ATM program.

The 1 st ATM program has been completed and no further preferred shares can be sold pursuant to it.

However, the Company has established a 2 nd ATM program under which we may sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock.

Due to the above factors, there is substantial doubt about the Company’s ability to meet its obligations as they arise over the next twelve months.

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• The Company has no obligations or agreements containing “maintenance type” financial covenants.

• The Company has working capital of approximately $22.6 million as of July 31, 2020, including cash of approximately $2.6 million, which is a decrease from approximately $3.1 million of cash at January 31, 2020.

• The Company has working capital of approximately $20.7 million as of October 31, 2020, including cash of approximately $2.7 million, which is a decrease from approximately $3.1 million of cash at January 31, 2020.

• Should revenues be less than projected, the Company believes it is able, and has plans, to reduce costs proportionately in order to maintain positive cash flow.

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The Company has terminated or furloughed certain employees and contractors.

• Despite the temporary suspension of operations in Malaysia and Singapore, operations have continued uninterrupted at other locations.

• Despite the temporary suspension of operations in Malaysia and Singapore earlier this year, operations have continued uninterrupted at other locations.

Certain of these operations have been deemed “essential businesses” by authorities.

However, there can be no assurance that further suspensions will not occur in the future.

• The Company has a backlog of orders of approximately $7.6 million as of July 31, 2020 that is primarily related to customers not engaged in the energy industry.

Production for certain of these orders was in process and included in inventory as of January 31, 2020, thereby reducing the liquidity needed to complete the orders.

• There are various government sponsored grant or loan programs, both in the United States and in certain foreign locations which are available to the Company.

• The Company has a backlog of orders of approximately $8.2 million as of October 31, 2020.

• The Company received approximately $1.6 million in U.S.

government sponsored loans pursuant to the Small Business Association’s Paycheck Protection Program (“PPP”) and has received lesser amounts of government grants in several foreign jurisdictions.

government sponsored loans pursuant to the PPP and has received lesser amounts of government grants in several foreign jurisdictions.

The PPP loans are in the form of two-year promissory notes.

Management believes a significant portion of the $1.6 million PPP loan will be forgiven under the terms of the PPP.

• Management expects to generate cash from the sale of the Leasing Business or the related underlying assets.

• The Company has declared and paid the quarterly dividend on its Series A Preferred Stock for the quarter ending July 31, 2020, but such quarterly dividends could be suspended in the future.

The Company has submitted an application for the forgiveness of the loans and management believes a significant portion of the $1.6 million PPP loan will be forgiven under the terms of the PPP.

• Management expects to generate cash from the sale of the Leasing Business or the related underlying assets and has done so in recent periods.

• The Company has declared and paid the quarterly dividend on its Preferred Stock for the quarter ending October 31, 2020, but such quarterly dividends could be suspended in the future.

• In July 2020, the Company received shareholder approval and effective August 2020 increased the authorized number shares of common and preferred shares available for issuance.

Management believes this increase in authorized capital provides significant additional financing flexibility, including the possibility of subsequent future “at-the-market” offerings of common and preferred stock.

During the third quarter of fiscal 2021 we initiated the 2 nd ATM program providing for the sale of up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock.

During the third quarter of fiscal 2021, we sold and received net proceeds of approximately $1.3 million from the sale of Common Stock pursuant to the 2 nd ATM program.

• Based on publicized transactions and preliminary discussions with potential funding sources, management believes that other sources of debt and equity financing are available should the need arise.

Our principal sources of liquidity and capital over the past three fiscal years have been proceeds from issuances of preferred stock and from the sale of lease pool equipment.

The Series A Preferred Stock has been issued in the June 2016 offering, as consideration to MHI and in the ATM program.

The Series A Preferred Stock (i) allows for redemption on at our option (even in the event of a change of control), (ii) does not grant holders with voting control of our Board of Directors, and (iii) provides holders with a conversion option (into common stock) only upon a change of control which, upon conversion, would be subject to a limit on the maximum number of shares of common stock to be issued.

Through January 31, 2020, we have issued 994,046 shares of our Series A Preferred Stock.

The 994,046 shares represent 100% of the Series A Preferred Stock available for sale through our ATM program.

Our Preferred Stock has been issued in the June 2016 offering, as consideration to MHI and in the 1 st ATM program.

The Preferred Stock (i) allows for redemption on at our option (even in the event of a change of control), (ii) does not grant holders with voting control of our Board of Directors, and (iii) provides holders with a conversion option (into common stock) only upon a change of control which, upon conversion, would be subject to a limit on the maximum number of shares of common stock to be issued.

Through January 31, 2020, we have issued 994,046 shares of our Preferred Stock.

The 994,046 shares represent 100% of the Preferred Stock available for sale under the 1 st ATM program.

Under our Amended and Restated Certificate of Incorporation, we have 2,000,000 shares of preferred stock and 40,000,000 shares of common stock authorized which we believe provides capacity for subsequent issues of common or preferred stock.

During the three months ended October 31, 2020 the Company sold 676,283 shares of Common Stock under the 2 nd ATM program, resulting in net proceeds to the Company of approximately $1.3 million.

The following table sets forth selected historical information regarding cash flows from our Consolidated Statements of Cash Flows:

For the Six Months Ended

For the Nine Months Ended

(in thousands)

Net cash used in operating activities $ (4,803) $ (4,247)

Net cash provided by investing activities 1,598 622

Net cash provided by (used in) investing activities 2,570 (1,178)

Net cash provided by financing activities 1,780 744

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Net decrease in cash and cash equivalents $ (570) $ (4,750)

As of July 31, 2020, we had working capital of approximately $22.6 million, including cash and cash equivalents and restricted cash of approximately $2.6 million, as compared to working capital of approximately $31.0 million, including cash and cash equivalents and restricted cash of approximately $3.2 million, at January 31, 2020.

Our working capital decreased during the first six months of fiscal 2021 as compared to January 31, 2020 due primarily to a decrease in cash and cash equivalents, reductions in accounts receivable and an increase in accounts payable.

During the first six months of fiscal year 2021, we made payments of approximately $110,000 for lease pool equipment purchased during fiscal year 2020.

As of October 31, 2020, we had working capital of approximately $20.7 million, including cash and cash equivalents and restricted cash of approximately $2.7 million, as compared to working capital of approximately $31.0 million, including cash and cash equivalents and restricted cash of approximately $3.2 million, at January 31, 2020.

Our working capital decreased during the first nine months of fiscal 2021 as compared to January 31, 2020 due primarily to a decrease in cash and cash equivalents, reductions in accounts receivable and an increase in accounts payable.

Cash Flows from Operating Activities .

Net cash used in operating activities was approximately $2.6 million in the first six months of fiscal 2021 as compared to approximately $3.5 million of net cash used in operating activities in the first six months of fiscal 2020.

Net cash used in operating activities was approximately $4.8 million in the first nine months of fiscal 2021 as compared to approximately $4.2 million in the first nine months of fiscal 2020.

The decrease between the two periods resulted primarily from changes in working capital items such as cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities.

Cash Flows from Investing Activities .

Cash provided from Cash provided from investing activities increased during the first six months of fiscal 2021 compared to the same period in the prior year.

The increase is primarily due to a cash from sale of lease pool equipment.

In the first six months of fiscal 2021 proceeds from the sale of lease pool equipment totaled approximately $2.0 million compared to approximately $1.2 million in the first six months of fiscal 2020.

Cash provided from investing activities increased during the first nine months of fiscal 2021 compared to the same period in the prior year.

The increase is primarily due to proceeds from sale the of lease pool equipment and the sale of assets held for sale.

In the first nine months of fiscal 2021 proceeds from the sale of lease pool equipment and assets held for sale totaled approximately $2.7 million compared to approximately $1.4 million in the first nine months of fiscal 2020.

Due to the decision to exit the Leasing Business we are currently seeking to sell all of the remaining equipment from our lease pool.

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Cash Flows from Financing Activities .

Net cash provided by financing activities in the first six months of fiscal 2021 consisted of approximately $1.6 million of proceeds from the PPP Loans offset by approximately $1.1 million of preferred stock dividend payments, as compared to approximately $2.0 million of proceeds from sales of preferred stock, offset by approximately $1.0 million of preferred stock dividend payments in the prior year period.

As of July 31, 2020, there were 994,046 shares of Series A Preferred Stock outstanding, which represents 100% of the Series A Preferred Stock available for sale through our ATM program.

Based on the Preferred Stock outstanding at July 31, 2020, annual dividend requirements are approximately $2.2 million.

Subsequent to July 31, 2020, the Company effectuated a shareholder approved reincorporation to the state of Delaware, name change to MIND Technology, Inc.

Net cash provided by financing activities in the first nine months of fiscal 2021 consisted of approximately $1.6 million of proceeds from the PPP Loans, approximately $1.3 million of proceeds from sales of Common Stock, offset by approximately $1.1 million of preferred stock dividend payments, as compared to approximately $2.2 million of proceeds from sales of Preferred Stock, offset by approximately $1.4 million of preferred stock dividend payments in the prior year period.

We believe that a significant portion of the PPP Loans may be forgiven, and we have submitted applications for the forgiveness of the Loans.

However, there can be no assurance as to the amount of the Loans that will be forgiven, if any.

As of October 31, 2020, there were 994,046 shares of Preferred Stock outstanding, which represents 100% of the Preferred Stock available for sale through our 1st ATM program.

Based on the Preferred Stock outstanding at October 31, 2020, annual dividend requirements are approximately $2.2 million.

In August 2020 the Company effectuated a shareholder approved reincorporation to the state of Delaware, name change to MIND Technology, Inc.

and increase in the number of shares of common stock and preferred stock authorized for issuance.

See Note 16 - “Subsequent Event” of our condensed consolidated financial statements for

additional details.

See Note 16 - “Corporate Restructuring” to our condensed consolidated financial statements for additional details.

The Company may issue up to 40,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock.

Management believes this provides significant additional financing flexibility, including the possibility of future “at-the-market” offerings of common and preferred stock.

Management believes this provides significant additional financing flexibility, including the capacity for subsequent issues of Common Stock or Preferred Stock.

In September 2020 we entered the 2nd Equity Distribution Agreement with the Agent with economic terms essentially identical to the initial agreement.

Pursuant to the 2nd Equity Distribution Agreement, the Company may sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock through the 2nd ATM program.

During the three months ended October 31, 2020 the Company sold 676,283 shares of Commons Stock under the 2nd ATM program, resulting in net proceeds to the Company of approximately $1.3 million.

Compensation to the Agent during this period was approximately $30,500, none of which was received by the Non-Executive Chairman of the Board.

We currently do not have a line of credit or other bank credit facilities.

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In some cases, the party issuing the bond requires that we post collateral to secure our obligations under the bonds.

As of July 31, 2020, we had deposits in foreign banks consisting of both U.S.

As of October 31, 2020, we had deposits in foreign banks consisting of both U.S.

dollar and foreign currency deposits equal to approximately $1.9 million.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis