MIND TECHNOLOGY, INC 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officers and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-K. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our principal executive officers and principal financial officer have concluded that our current disclosure controls and procedures were effective as of January 31, 2021 at the reasonable assurance level. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As disclosed in Part II Item 9A Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020, during which we identified a material weakness in internal control involving the Company’s review controls over significant estimates. The Company failed to detect an error related to our provision for doubtful accounts identified by the Company’s auditors during the audit of our financial statements for the fiscal year ended January 31, 2020. Remediation Plan for the Material Weakness in Internal Control over Financial Reporting During fiscal 2021, management implemented our previously disclosed remediation plan that included: • Reinforcing the importance of proper significant estimates through policy statements, regular communication and in periodic reviews and meetings with managers and staff; • Establishing policies and procedures to ensure the accumulation of relevant, sufficient, and reliable data on which to base significant estimates; • Ensuring adequate review and approval of the significant estimates by appropriate levels of authority, including the source of relevant factors, development of assumptions and the reasonableness of assumptions and resulting estimates; • Performing comparison of prior significant estimates with subsequent results to assess the reliability of the process used to develop significant estimates; and • Consideration by management of whether the resulting significant estimate is consistent with the operational plans of the entity. As required by Rule 13a-15(c) under the Exchange Act, our management, including our principal executive officers and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of January 31, 2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework in 2013. Based on this assessment, our management, including our principal executive officers and principal financial officer, concluded that, as of January 31, 2021, our internal control over financial reporting was effective based on those criteria. As a result we have concluded the material weakness has been remediated as of January 30, 2021. Changes in Internal Control over Financial Reporting Except for the changes in connection with our implementation of the remediation plan discussed above, there was no change in our system of internal control over financial reporting during the quarter ended January 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 33 Table of Contents Index to Financial Statements PART III Item 10. Directors, Executive Officers and Corporate Governance Pursuant to General Instruction G to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2021. We have adopted a Code of Business Conduct and Ethics, which covers a wide range of business practices and procedures. The Code of Business Conduct and Ethics represents the code of ethics applicable to our principal executive officers, principal financial officer, and principal accounting officer or controller and persons performing similar functions (“senior financial officers”). A copy of the Code of Business Conduct and Ethics is available on our website, https://www.mind-technology.com , and a copy will be mailed without charge, upon written request, to MIND Technology, Inc., 2002 Timberloch Place, Suite 400, The Woodlands, Texas, 77380, Attention: Robert P. Capps. We intend to disclose any amendments to or waivers of the Code of Business Conduct and Ethics on behalf of our senior financial officers on our website, at https://www.mind-technology.com promptly following the date of the amendment or waiver. Item 11. Executive Compensation Pursuant to General Instruction G to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2021. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Pursuant to General Instruction G to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2021. Item 13. Certain Relationships and Related Transactions and Director Independence Pursuant to General Instruction G to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2021. Item 14. Principal Accounting Fees and Services Pursuant to General Instruction G to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2021. 34 Table of Contents Index to Financial Statements PART IV Item 15. Exhibits, Financial Statement Schedules (a) List of Documents Filed (i) Financial Statements The financial statements filed as part of this Form 10-K are listed in “Index to Consolidated Financial Statements” on page F-l. (ii) Financial Statement Schedules Schedule II – Valuation and Qualifying Accounts. (iii) Exhibits The exhibits required by Item 601 of Regulation S-K are listed in subparagraph (b) below. (b) Exhibits The exhibits marked with the cross symbol (†) are filed (or furnished in the case of Exhibits 32.1 and 32.2) with this Form 10-K. The exhibits marked with the asterisk symbol (*) are management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii) of Regulation S-K. Exhibit Number Document Description Report or Registration Statement SEC File or Registration Number Exhibit Reference 1.1 Equity Distribution Agreement, dated as of September 25, 2020, by and between MIND Technology, Inc. and Ladenburg Thalmann & Co. Inc. Incorporated by reference to MIND Technology, Inc.’s Form 8-K filed with the SEC on September 25, 2020. 001-13490 1.1 2.1 Agreement and Plan of Merger dated as of August 3, 2020, by and between Mitcham Industries, Inc. and MIND Technology, Inc. Incorporated by reference to MIND Technology, Inc.’s Current Report on Form 8-K, filed with the SEC on August 7, 2020. 001-13490 2.1 3.1 Amended and Restated Certificate of Incorporation of MIND Technology, Inc. Incorporated by reference to MIND Technology, Inc.’s Current Report on Form 8-K, filed with the SEC on August 7, 2020. 3.3 3.2 Amended and Restated Bylaws of MIND Technology, Inc. Incorporated by reference to MIND Technology, Inc.’s Current Report on Form 8-K, filed with the SEC on August 7, 2020. 001-13490 3.4 3.3 Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock Incorporated by reference to MIND Technology, Inc.’s Current Report on Form 8-K, filed with the SEC on August 7, 2020. 001-13490 3.5 3.4 Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock Incorporated by reference to MIND Technology, Inc.’s Form 8-K filed with the SEC on September 25, 2020. 001-13490 3.1 3.5 Texas Certificate of Merger, effective as of August 3, 2020 Incorporated by reference to MIND Technology, Inc.’s Current Report on Form 8-K, filed with the SEC on August 7, 2020. 001-13490 3.1 3.6 Delaware Certificate of Merger, effective as of August 3, 2020 Incorporated by reference to MIND Technology, Inc.’s Current Report on Form 8-K, filed with the SEC on August 7, 2020 001-13490 3.2 35 Table of Contents Index to Financial Statements Exhibit Number Document Description Report or Registration Statement SEC File or Registration Number Exhibit Reference 4.1 Form of Senior Indenture (including Form of Senior Note) Incorporated by reference to Mitcham Industries, Inc.’s Registration Statement on Form S-3, filed with the SEC on March 18, 2011. 333-172935 4.1 4.2 Form of Subordinated Indenture (including form of Subordinated Note) Incorporated by reference to Mitcham Industries, Inc.’s Registration Statement on Form S-3, filed with the SEC on March 18, 2011. 333-172935 4.2 4.3 † Description of Description of Securities 10.1* Mitcham Industries, Inc. Amended and Restated Stock Awards Plan Incorporated by reference to Mitcham Industries, Inc.’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 31, 2013. 000-25142 Appendix A 10.2* First Amendment to the Mitcham Industries, Inc. Amended and Restated Stock Awards Plan Incorporated by reference to Mitcham Industries, Inc.’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 16, 2016. 000-25142 Appendix A 10.3* Second Amendment to the Mitcham Industries, Inc. Amended and Restated Stock Awards Plan Incorporated by reference to Mitcham Industries, Inc.’s Form S-8 filed with the SEC on September 5, 2019. 333-233635 4.5 10.4* Form of Nonqualified Stock Option Agreement under the Mitcham Industries, Inc. Stock Awards Plan Incorporated by reference to Mitcham Industries, Inc.’s Report on Form 10-Q for the quarter ended July 31, 2006, filed with the SEC on September 12, 2006. 000-25142 10.3 10.5* Form of Restricted Stock Agreement under the Mitcham Industries, Inc. Stock Awards Plan Incorporated by reference to Mitcham Industries, Inc.’s Report on Form 10-Q for the quarter ended July 31, 2006, filed with the SEC on September 12, 2006. 000-25142 10.4 10.6* Form of Incentive Stock Option Agreement under the Mitcham Industries, Inc. Stock Awards Plan Incorporated by reference to Mitcham Industries, Inc.’s Report on Form 10-Q for the quarter ended July 31, 2006, filed with the SEC on September 12, 2006. 000-25142 10.5 10.7* Form of Restricted Stock Agreement (Stock Awards Plan) Incorporated by reference to Mitcham Industries, Inc.’s Current Report on Form 8-K, filed with the SEC on September 8, 2004. 000-25142 10.1 10.8* Form of Nonqualified Stock Option Agreement (Stock Awards Plan) Incorporated by reference to Mitcham Industries, Inc.’s Current Report on Form 8-K, filed with the SEC on September 8, 2004. 000-25142 10.2 10.9* Form of Incentive Stock Option Agreement (Stock Awards Plan) Incorporated by reference to Mitcham Industries, Inc.’s Current Report on Form 8-K, filed with the SEC on September 8, 2004. 000-25142 10.4 10.10* Form of Phantom Stock Award Agreement (Stock Awards Plan) Incorporated by reference to Mitcham Industries, Inc.’s Current Report on Form 8-K, filed with the SEC on September 8, 2004. 000-25142 10.5 36 Table of Contents Index to Financial Statements Exhibit Number Document Description Report or Registration Statement SEC File or Registration Number Exhibit Reference 10.11* Form of Stock Appreciation Rights Agreement (Stock Awards Plan) Incorporated by reference to Mitcham Industries, Inc.’s Current Report on Form 8-K, filed with the SEC on September 8, 2004. 000-25142 10.6 10.12* Form of Incentive Stock Option Agreement (2000 Stock Option Plan) Incorporated by reference to Mitcham Industries, Inc.’s Current Report on Form 8-K, filed with the SEC on September 8, 2004. 000-25142 10.7 10.13* Form of Nonqualified Stock Option Agreement (2000 Stock Option Plan) Incorporated by reference to Mitcham Industries, Inc.’s Current Report on Form 8-K, filed with the SEC on September 8, 2004. 000-25142 10.8 10.14†* Summary of Non-Employee Director Compensation 10.15 Employment Agreement between the Company and Robert P. Capps, dated September 11, 2017. Incorporated by reference to Mitcham Industries, Inc.'s Current Report on Form 8-K, filed with the SEC on September 15, 2017. 001-13490 10.1 10.16 Employment Agreement between the Company and Guy M. Malden, dated September 11, 2017. Incorporated by reference to Mitcham Industries, Inc.'s Current Report on Form 8-K, filed with the SEC on September 15, 2017. 001-13490 10.2 10.17 Employment Agreement between the Company and Dennis P. Morris, dated April 21, 2020. Incorporated by reference to Mitcham Industries, Inc.'s Current Report on Form 8-K, filed with the SEC on April 24, 2020. 001-13490 10.1 10.18 Amendment No. 1 to Guy M. Malden's Employment Agreement (dated June 19, 2020) Incorporated by reference to Mitcham Industries, Inc.'s Form 8-K, filed with the SEC on June 25, 2020. 001-13490 10.1 10.19 Amended and Restated Equity Distribution Agreement, dated as of September 25, 2020, by and between MIND Technology, Inc. and Ladenburg Thalmann & Co. Inc. Incorporated by reference to MIND Technology, Inc.’s Current Report on Form 8-K, filed with the SEC on September 25, 2020. 001-13490 1.1 21.1† Subsidiaries of MIND Technology, Inc. 23.1† Consent of Moss Adams LLP 31.1† Certification of Guy Malden., Co-Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended 31.2† Certification of Robert P. Capps, Co-Chief Executive Officer and Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended 32.1† Certification of Guy Malden., Co-Chief Executive Officer, under Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. § 1350 32.2† Certification of Robert P. Capps, Co-Chief Executive Officer, and Chief Financial Officer, under Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. § 1350 37 Table of Contents Index to Financial Statements Exhibit Number Document Description Report or Registration Statement SEC File or Registration Number Exhibit Reference 101.INS† XBRL Instance Document 101.SCH† XBRL Taxonomy Extension Schema Document 101.CAL† XBRL Taxonomy Extension Calculation of Linkbase Document 101.DEF† XBRL Taxonomy Extension Definition Linkbase Document 101.LAB† XBRL Taxonomy Extension Label Linkbase Document 101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document Item 16. Form 10-K Summary Not applicable. 38 Table of Contents Index to Financial Statements SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 16th day of April 2021. MIND TECHNOLOGY, INC. By: /s/ ROBERT P. CAPPS Robert P. Capps Co-Chief Executive Officer, Executive Vice President-Finance, Chief Financial Officer and Director (Co-Principal Executive Officer and Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title/Capacity Date /s/ GUY MALDEN Co-Chief Executive Officer, Executive Vice President – Marine Systems (Co-Principal Executive Officer) April 16, 2021 Guy Malden /s/ ROBERT P. CAPPS Co-Chief Executive Officer, Executive Vice President – Finance, Chief Financial Officer and Director (Co-Principal Executive Officer and Principal Financial Officer) April 16, 2021 Robert P. Capps /s/ MARK A. COX Vice President of Finance and Accounting (Principal Accounting Officer) April 16, 2021 Mark A. Cox /s/ PETER H. BLUM Non-Executive Chairman of the Board of Directors April 16, 2021 Peter H. Blum /s/ THOMAS S. GLANVILLE Director April 16, 2021 Thomas S. Glanville /s/ ROBERT J. ALBERS Director April 16, 2021 Robert J. Albers /s/ MARCUS ROWLAND Director April 16, 2021 Marcus Rowland /s/ WILLIAM H. HILARIDES Director April 16, 2021 William H. Hilarides 39 Table of Contents Index to Financial Statements INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 2 Consolidated Balance Sheets as of January 31, 202 1 and 20 2 0 4 Consolidated Statements of Operations for the Years Ended January 31, 202 1 and , 20 20 5 Consolidated Statements of Comprehensive Loss for the Years Ended January 31, 202 1 and 20 20 6 Consolidated Statements of Changes in S tock holders’ Equity for the Years Ended January 31, 202 1 and 20 20 7 Consolidated Statements of Cash Flows for the Years Ended January 31, 202 1 and , 20 20 8 Notes to Consolidated Financial Statements 9 F-1 Table of Contents Index to Financial Statements Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of MIND Technology, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of MIND Technology, Inc. and subsidiaries (the “Company”) as of January 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of January 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Doubtful Accounts As described in Note 1 to the consolidated financial statements, the Company’s allowance for doubtful accounts reflects management’s estimate of the amounts that will not be collected, based on the age of the receivable, payment history of the customer, general industry conditions, general financial condition of the customer, and any financial or operational leverage the Company may have in a particular situation. The evaluation of these factors requires that management make significant judgments regarding these factors, which may significantly impact the estimated reserve. The allowance for doubtful accounts for continuing operations was $948,345 and for discontinued operations was $827,940 as of January 31, 2021. We identified the allowance for doubtful accounts as a critical audit matter as auditing management’s determination of qualitative factors, including probability and range of loss, involved a high degree of auditor judgment given the highly subjective nature of management’s judgement. The primary procedures we performed to address this critical audit matter included: • Obtaining an understanding and evaluating the design of controls over the Company’s allowance for doubtful accounts review process. • Obtaining an understanding of management’s process and methodology used to develop the estimate of allowance for doubtful accounts. • Evaluating the reasonableness of qualitative factor judgments assessed by management and their correlation to potential losses. • Evaluating collections subsequent to the balance sheet date in assessing the reasonableness of management’s estimate. F-2 Table of Contents Index to Financial Statements • Performing a retrospective review of the allowance comparing current year write-offs and reserves to amounts estimated in the prior year. Inventory Reserves - Seamap The Company's inventories totaled $11,453,000 net of inventory reserves of $1,363,000, as of January 31, 2021. Included in these amounts related to Seamap were $9,034,700, net of inventory reserves of $1,150,602. As explained in Note 1 to the consolidated financial statements, the Company assesses the value of all inventories including raw materials, work-in-process, and finished goods in each reporting period. Obsolete inventory is written down to its estimated market value if those amounts are determined to be less than cost. Auditing management's estimates for obsolete and excess inventory involved subjective auditor judgement because the estimates rely on a number of factors that are affected by market and economic conditions outside the Company's control. The primary procedures we performed to address this critical audit matter included: • Evaluating the significant assumptions and the accuracy and completeness of the underlying data management used to value obsolete inventory. • Performing inquiries of the Company’s management and obtaining documentation to evaluate the Company’s estimate. • Performing procedures to compare recent sales transactions or market data to cost of inventories to assess that the carrying value of inventories was the lower of cost or net realizable value. Liquidity and Going Concern As described in note 4, the financial statements are prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has a history of losses and has had negative cash flows from operating activities in the last two years. The Company may not have access to sources of capital that were available in prior periods. In addition, the COVID-19 pandemic and the decline in oil prices during fiscal 2021 caused a disruption to the Company’s business and delays in some orders. Currently management’s forecasts and related assumptions support their assertion that they have the ability to meet their obligations as they become due through the management of expenditures and, if necessary, accessing additional funding from the at-the-market program or other equity financing. Should there be constraints on the ability to access capital under the at-the-market program or other equity financing, the Company has asserted that it can manage cash outflows to meet the obligations through reductions in capital expenditures and other operating expenditures. Management made judgments to conclude that it is probable that the Company’s plans will be effectively implemented and will provide the necessary cash flows to fund the Company’s obligations as they become due. Specifically, the judgments with the highest degree of impact and subjectivity in determining that it is probable that the Company’s plans will be effectively implemented included the revenue growth and gross margin assumptions underlying its forecast of operating cash flows, its ability to reduce other operating expenditures if required, its ability to access funding from the at-the-market program or other equity financing, and its ability to sell its remaining leasepool equipment and collect on its outstanding notes receivable balances. This required a high degree of auditor subjectivity and judgment to evaluate the audit evidence supporting management’s liquidity and going concern conclusions. The primary procedures we performed to address this critical audit matter included: • Evaluating the probability that the Company will be able to access funding from the at-the-market program by assessing the terms of the program and the Company’s history of using the program. • Evaluating the probability that the Company will be able to sell its remaining leasepool equipment. • Evaluating the probability that the Company will be able to collect the remaining amounts due from outstanding notes receivable. • Assessing management’s plans in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusion reached by management. /s/ Moss Adams LLP Houston, Texas April 16, 2021 We have served as the Company’s auditor since 2017. F-3 Table of Contents Index to Financial Statements MIND TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) January 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 4,611 $ 3,090 Restricted cash — 144 Accounts receivable, net of allowance for doubtful accounts of $ 948 and $ 2,378 at January 31, 2021 and 2020, respectively 4,747 6,623 Inventories, net 11,453 12,656 Prepaid expenses and other current assets 1,659 1,987 Assets held for sale 4,321 14,913 Total current assets 26,791 39,413 Property and equipment, net 4,751 5,419 Operating lease right-of-use assets 1,471 2,300 Intangible assets, net 6,750 8,136 Goodwill — 2,531 Other assets — 429 Total assets $ 39,763 $ 58,228 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,704 $ 1,767 Deferred revenue 208 731 Accrued expenses and other current liabilities 2,912 1,565 Income taxes payable 562 316 Operating lease liabilities - current 1,008 1,339 Liabilities held for sale 1,442 2,730 Total current liabilities 7,836 8,448 Operating lease liabilities - non-current 463 961 Notes payable 850 — Other non-current liabilities — 967 Deferred tax liability 198 200 Total liabilities 9,347 10,576 Commitments and contingencies (Notes 10,17, and 21) Stockholders’ equity: Preferred stock, $ 1.00 par value; 2,000 shares authorized; 1,038 and 994 shares issued and outstanding at January 31, 2021, and 2020, respectively 23,104 22,104 Common stock $ 0.01 par value; 40,000 shares authorized; 15,681 and 14,049 shares issued at January 31, 2021 and 2020, respectively 157 141 Additional paid-in capital 128,241 123,964 Treasury stock, at cost ( 1,929 shares at January 31, 2021 and 2020) ( 16,860 ) ( 16,860 ) Accumulated deficit ( 99,870 ) ( 77,310 ) Accumulated other comprehensive loss ( 4,356 ) ( 4,387 ) Total stockholders’ equity 30,416 47,652 Total liabilities and stockholders’ equity $ 39,763 $ 58,228 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents Index to Financial Statements MIND TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended January 31, 2021 2020 Revenues: Sale of marine technology products $ 21,215 $ 29,919 Total revenues 21,215 29,919 Cost of sales: Sale of marine technology products 13,906 16,965 Total cost of sales 13,906 16,965 Gross profit 7,309 12,954 Operating expenses: Selling, general and administrative 12,648 14,140 Research and development 3,003 1,850 Provision for doubtful accounts 659 — Impairment of intangible assets 2,531 760 Depreciation and amortization 2,796 2,494 Total operating expenses 21,637 19,244 Operating loss ( 14,328 ) ( 6,290 ) Other income: Other income, net 862 100 Total other income 862 100 Loss from continuing operations before income taxes ( 13,466 ) ( 6,190 ) Provision for income taxes ( 536 ) ( 353 ) Loss from continuing operations ( 14,002 ) ( 6,543 ) Loss from discontinued operations, net of income taxes ( 6,304 ) ( 4,744 ) Net loss $ ( 20,306 ) $ ( 11,287 ) Preferred stock dividends ( 2,254 ) ( 2,050 ) Net loss attributable to common stockholders $ ( 22,560 ) $ ( 13,337 ) Net loss per common share - Basic Continuing operations $ ( 1.30 ) $ ( 0.71 ) Discontinued operations $ ( 0.50 ) $ ( 0.39 ) Net loss $ ( 1.80 ) $ ( 1.10 ) Net loss per common share - Diluted Continuing operations $ ( 1.30 ) $ ( 0.71 ) Discontinued operations $ ( 0.50 ) $ ( 0.39 ) Net loss $ ( 1.80 ) $ ( 1.10 ) Shares used in computing loss per common share: Basic 12,519 12,143 Diluted 12,519 12,143 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents Index to Financial Statements MIND TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended January 31, 2021 2020 Net loss attributable to common stockholders $ ( 22,560 ) $ ( 13,337 ) Other changes in cumulative translation adjustment 31 ( 343 ) Comprehensive loss $ ( 22,529 ) $ ( 13,680 ) The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents Index to Financial Statements MIND TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands) Year Ended January 31, 2020 and 2021 Common Stock Preferred Stock Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Shares Amount Shares Amount Additional Paid-In Capital Treasury Stock Total Balances, January 31, 2019 14,049 140 830 18,330 123,085 ( 16,860 ) ( 63,973 ) ( 4,044 ) 56,678 Net loss — — — — ( 11,287 ) — ( 11,287 ) Foreign currency translation — — — — — — — ( 343 ) ( 343 ) Equity compensation 9 1 — — 25 — — — 26 Restricted stock issued 39 — — — — — — — — Restricted stock forfeited for taxes — — — — — — — — — Preferred stock offering — — 164 3,774 — — — — 3,774 Preferred stock dividends — — — — — — ( 2,050 ) — ( 2,050 ) Stock-based compensation — — — — 854 — — — 854 Balances, January 31, 2020 14,097 $ 141 994 22,104 $ 123,964 $ ( 16,860 ) $ ( 77,310 ) $ ( 4,387 ) $ 47,652 Net loss — — — — — — ( 20,306 ) — ( 20,306 ) Foreign currency translation — — — — — — — 31 31 Equity Compensation — — — — — — — — — Restricted stock issued — — — — — — — — — Preferred stock offering — — 44 1,000 — — — — 1,000 Preferred stock dividends — — — — — — ( 2,254 ) — ( 2,254 ) Common stock offerings 1,584 16 — — 3,569 — — — 3,585 Purchase of common stock — — — — — — — — — Stock-based compensation — — — — 708 — — — 708 Balances, January 31, 2021 15,681 $ 157 1,038 $ 23,104 $ 128,241 $ ( 16,860 ) $ ( 99,870 ) $ ( 4,356 ) $ 30,416 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents Index to Financial Statements MIND TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended January 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 20,306 ) $ ( 11,287 ) Adjustments to reconcile net loss to net cash used in operating activities: PPP loan forgiveness ( 757 ) — Depreciation and amortization 4,627 7,768 Stock-based compensation 708 854 Impairment of intangible assets 2,531 760 Loss on disposal of discontinued operations 1,859 — Provision for doubtful accounts, net of charge offs 1,129 2,000 Provision for inventory obsolescence 321 298 Gross profit from sale of lease pool equipment ( 1,326 ) ( 1,197 ) Gross profit from sale of other equipment ( 357 ) — Deferred tax expense 32 503 Non-current prepaid tax — 50 Changes in: Accounts receivable 4,632 ( 1,723 ) Unbilled revenue 72 ( 327 ) Inventories 1,178 ( 2,810 ) Income taxes receivable and payable 767 — Accounts payable, accrued expenses and other current liabilities ( 2,510 ) ( 178 ) Prepaid expenses and other current and long-term assets 581 ( 506 ) Deferred revenue 459 ( 335 ) Foreign exchange losses net of gains — 313 Net cash used in operating activities ( 6,360 ) ( 5,817 ) Cash flows from investing activities: Purchases of seismic equipment held for lease ( 110 ) ( 2,955 ) Purchase of technology ( 366 ) — Purchases of property and equipment ( 90 ) ( 1,036 ) Sale of used lease pool equipment 2,010 1,664 Sale of assets held for sale 1,506 — Sale of business, net of cash sold 257 239 Net cash provided by (used in) investing activities 3,207 ( 2,088 ) Cash flows from financing activities: Net proceeds from preferred stock offering 1,000 3,773 Net proceeds from common stock offering 3,584 — Preferred stock dividends ( 1,677 ) ( 2,050 ) Proceeds from PPP loans 1,607 — Proceeds from exercise of stock options — 26 Net cash provided by financing activities 4,514 1,749 Effect of changes in foreign exchange rates on cash, cash equivalents and restricted cash 16 ( 159 ) Net increase (decrease) in cash, cash equivalents and restricted cash 1,377 ( 6,315 ) Cash, cash equivalents and restricted cash, beginning of period 3,234 9,549 Cash, cash equivalents and restricted cash, end of period $ 4,611 $ 3,234 The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents Index to Financial Statements MIND Technology, Inc. Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies Organization —MIND Technology, Inc., a Delaware corporation (the “Company”), formerly Mitcham Industries, Inc., a Texas corporation, was incorporated in 1987. Effective August 3, 2020 the Company effectuated a reincorporation to the state of Delaware. Concurrent with the reincorporation the name of the Company was changed to MIND Technology, Inc. and the number of shares of common stock and preferred stock authorized for issuance was increased. See Note 20 – Corporate Restructuring. The Company, through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC (formerly Seamap USA, LLC), Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd, collectively “Seamap”, and its wholly owned subsidiary, Klein Marine Systems, Inc. (“Klein”), designs, manufactures and sells a broad range of proprietary products for the seismic, hydrographic and offshore industries with product sales and support facilities based in Singapore, Malaysia, the United Kingdom and the states of New Hampshire and Texas. Prior to July 31, 2020, the Company, through its wholly owned Canadian subsidiary, Mitcham Canada, ULC (“MCL”), its wholly owned Hungarian subsidiary, Mitcham Europe Ltd. (“MEL”), and its branch operations in Colombia, provided full-service equipment leasing, sales and service to the seismic industry worldwide. Effective July 31, 2020, the Leasing Business has been classified as held for sale on the financial results reported as discontinued operations (see Note 2 – “Assets Held for Sale and Discontinued Operations” for additional details). All intercompany transactions and balances have been eliminated in consolidation. During February 2019, the Company completed the sale of its wholly owned Australian subsidiary, Seismic Asia Pacific Pty Ltd. (“SAP”) (see Note 23 - “Sale of Subsidiary” for additional details related to this transaction). Revenue Recognition of Marine Technology Product Sales —Revenues and cost of sales from the sale of marine technology products are recognized upon acceptance of terms and completion of our performance obligations, which is typically when delivery has occurred, barring any question as to collectability. Revenue Recognition of Long-term Projects —From time to time the Company enters into contracts whereby certain marine equipment is assembled or manufactured and sold, primarily to governmental entities. Performance under these contracts generally occurs over a period of three to twelve months . Revenue and costs related to these contracts are recognized “over time”, as each separately identified performance obligation is satisfied. Revenue Recognition of Service Agreements —In some cases the Company provides on-going support services pursuant to contracts that generally have a term of 12 months. The Company recognizes revenue from these contracts ratably over the term of the contract. The Company may also provide support services on a time and material basis. Revenue from these arrangements is recognized as the services are provided. For certain new systems, the Company provides support services for up to 12 months at no additional charge. Any amounts attributable to these support obligations are immaterial. Revenues from service contracts for fiscal years ended 2021 and 2020 were not material and as a result are not presented separately in the financial statements. Revenue Recognition of Leasing Arrangements —The Company leases various types of seismic equipment to seismic data acquisition companies. All leases at January 31, 2021 and 2020 are for one year or less. Lease revenue is recognized ratably over the term of the lease. The Company does not enter into leases with embedded maintenance obligations. The standard lease provides that the lessee is responsible for maintenance and repairs to the equipment, excluding normal wear and tear. The Company occasionally provides technical advice to its customers without additional compensation as part of its customer service practices. Repairs or maintenance performed by the Company is charged to the lessee, generally on a time and materials basis. Repair and maintenance revenues are recognized as incurred. Effective July 31, 2020, the Leasing Business has been classified as held for sale on the financial results reported as discontinued operations (see Note 2 – “Assets Held for Sale and Discontinued Operations” for additional details). Allowance for Doubtful Accounts —Trade receivables are uncollateralized customer obligations due under normal trade terms. The carrying amount of trade receivables and contracts receivable is reduced by a valuation allowance that reflects management’s estimate of the amounts that will not be collected, based on the age of the receivable, payment history of the customer, general industry conditions, general financial condition of the customer and any financial or operational leverage the Company may have in a particular situation. Amounts are written-off when collection is deemed unlikely. Past due amounts are determined based on contractual terms. The Company generally does not charge interest on past due accounts. Cash and Cash Equivalents —The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Short-term Investments— The Company considers all highly liquid investments with an original maturity greater than three months, but less than twelve months, to be short-term investments. Inventories —Inventories are stated at the lower of cost or market. An allowance for obsolescence is maintained to reduce the carrying value of any materials or parts that may become obsolete. Inventories are periodically monitored to ensure that the allowance for obsolescence covers any obsolete items. F-9 Table of Contents Index to Financial Statements Property and Equipment —Property and equipment is carried at cost, net of accumulated depreciation. Depreciation is computed on the straight-line method over the related estimated useful lives. The estimated useful lives of equipment range from three to seven years . Buildings are depreciated over 30 years and property improvements are amortized over 10 years or the shorter of their useful life. Leasehold improvements are amortized over the shorter of the realized estimated useful life or the life of the respective leases. No salvage value is assigned to property and equipment. Intangible Assets —Intangible assets are carried at cost, net of accumulated amortization. Amortization is computed on the straight-line method (for customer relationships, the straight-line method is not materially different from other methods that estimate run off of the underlying customer base) over the estimated life of the asset. Proprietary rights, developed technology and amortizable tradenames are amortized over a 10 to 15 -year period. Customer relationships are amortized over an eight-year period. Patents are amortized over an eight to ten-year period. Impairment —The Company reviews its long-lived assets, including its amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates on the part of management. The Company performs an impairment test on goodwill and indefinite lived assets on an annual basis. The Company performs a qualitative review to determine if it is more likely than not that the fair value of our reporting units is greater their carrying value. If the Company is unable to conclude qualitatively that it is more likely than not that a reporting unit’s fair value exceeds its carrying value, then the Company performs a quantitative assessment of fair value of the reporting unit. The quantitative reviews involve significant estimates on the part of management. Product Warranties —Seamap provide its customers warranties against defects in materials and workmanship generally for a period of three months after delivery of the product. Klein also provides its customers with similar warranties against defects in material and workmanship for an approximate twelve months period subsequent to delivery of the product. The Company maintains an accrual for potential warranty costs based on historical warranty claims. For the fiscal years ended January 31, 2021 and 2020, warranty expense was not material. Income Taxes —The Company accounts for income taxes under the liability method, whereby the Company recognizes deferred tax assets and liabilities which represent differences between the financial and income tax reporting basis of its assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. The Company has assessed, using all available positive and negative evidence, the likelihood that the deferred tax assets will be recovered from future taxable income. The weight given to the potential effect of positive and negative evidence is commensurate with the extent to which it can be objectively verified. The preponderance of negative or positive evidence supports a conclusion regarding the need for a valuation allowance for some portion, or all, of the deferred tax asset. The more significant types of evidence considered include the following: • projected taxable income in future years; • our history of taxable income within a particular jurisdiction; • any history of deferred tax assets expiring prior realization; • whether the carry forward period is so brief that it would limit realization of tax benefits; • other limitations on the utilization of tax benefits; • future sales and operating cost projections that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures; • our earnings history exclusive of the loss that created the future deductible amount coupled with evidence indicating that the loss is an aberration rather than a continuing condition; and • tax planning strategies that will create additional taxable income. Use of Estimates —The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, the allowance for doubtful accounts, lease pool valuations, valuation allowance on deferred tax assets, the evaluation of uncertain tax positions, estimated depreciable lives of fixed assets and intangible assets, impairment of fixed assets and intangible assets, valuation of assets acquired and liabilities assumed in business combinations and the valuation of stock options. Future events and their effects cannot be perceived with certainty. Accordingly, these accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results could differ from these estimates. F-10 Table of Contents Index to Financial Statements Substantial judgment is necessary in the determination of the appropriate levels for the Company’s allowance for doubtful accounts because of the extended payment terms the Company offers to its customers on occasion and the limited financial wherewithal of certain of these customers. As a result, the Company’s allowance for doubtful accounts could change in the future, and such change could be material to the financial statements taken as a whole. The Company must also make substantial judgments regarding the valuation allowance on deferred tax assets and with respect to quantitative analysis prepared in conjunction with impairment analysis related to goodwill and other intangible assets. Fair Value of Financial Instruments — The Company’s financial instruments consist of accounts and contracts receivable and accounts payable. The Financial Accounting Standards Board (“FASB”) has issued guidance on the definition of fair value, the framework for using fair value to measure assets hierarchy, which prioritizes the inputs used to measure fair value. These tiers include: • Level 1: Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. • Level 2: Defined as pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current and contractual prices for the underlying instruments, as well as other relevant economic measures. • Level 3: Defined as pricing inputs that are unobservable form objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The Company measures the fair values of goodwill, intangibles and other long-lived assets on a recurring basis if required by impairment tests applicable to these assets. The Company utilized Level 3 inputs to value intangibles and other long-lived assets as of January 31, 2021. See Notes 10 and 11 to our consolidated financial statements. Foreign Currency Translation —All balance sheet accounts of the Canadian resident subsidiary for fiscal 2021 and 2020, and for the United Kingdom resident subsidiaries for fiscal 2020, have been translated at the current exchange rate as of the end of the accounting period. Statements of operations items have been translated at average currency exchange rates. The resulting translation adjustment is recorded as a separate component of comprehensive income within stockholders’ equity. Stock-Based Compensation —Stock-based compensation expense is recorded based on the grant date fair value of share-based awards. Restricted stock awards are valued at the closing price on the date of grant. Determining the grant date fair value for options requires management to make estimates regarding the variables used in the calculation of the grant date fair value. Those variables are the future volatility of our common stock price, the length of time an optionee will hold their options until exercising them (the “expected term”), and the number of options that will be forfeited before they are exercised (the “forfeiture rate”). We utilize various mathematical models in calculating the variables. Share-based compensation expense could be different if we used different models to calculate the variables. Earnings Per Share —Net income (loss) per basic common share is computed using the weighted average number of common shares outstanding during the period. Net income (loss) per diluted common share is computed using the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares result from the assumed exercise of outstanding common stock options having a dilutive effect using the treasury stock method, from unvested shares of restricted stock using the treasury stock method and from outstanding common stock warrants. For the fiscal years ended January 31, 2021 and 2020, the following table sets forth the number of potentially dilutive shares that may be issued pursuant to options, restricted stock and warrants outstanding used in the per share calculations. Year Ended January 31, 2021 2020 (in thousands) Stock options 48 79 Restricted stock 17 3 Total dilutive shares 65 82 For the fiscal years ended January 31, 2021 and 2020, respectively, potentially dilutive common shares, underlying stock options and unvested restricted stock were anti-dilutive and were therefore not considered in calculating diluted loss per share for those periods. Reclassifications —Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on the results of operations or comprehensive income. F-11 Table of Contents Index to Financial Statements 2. Assets Held for Sale and Discontinued Operations On July 27, 2020, the Board determined to exit the Leasing Business. As a result, the assets, excluding cash, and liabilities of the Leasing Business are considered held for sale and it's results of operations are reported as discontinued operations as of January 31, 2021 and for all comparative periods presented in these condensed consolidated financial statements. The Company anticipates selling the discontinued operations within twelve months from July 27, 2020 in multiple transactions, which may involve the sale of legal entities or assets. The assets reported as held for sale consist of the following: As of January 31, 2021 2020 Current assets of discontinued operations: Accounts receivable, net 1,668 5,699 Inventories, net 352 605 Prepaid expenses and other current assets 150 227 Seismic equipment lease pool and property and equipment, net 2,151 8,382 Total assets of discontinued operations $ 4,321 $ 14,913 The liabilities reported as held for sale consist of the following: As of January 31, 2021 2020 Current liabilities of discontinued operations: Accounts payable $ 59 $ 884 Deferred revenue 73 34 Accrued expenses and other current liabilities 831 1,886 Income taxes payable 479 ( 74 ) Total liabilities of discontinued operations $ 1,442 $ 2,730 The results of operations from discontinued operations for the twelve months ended January 31, 2021 and 2020, consist of the following: Twelve Months Ended January 31, 2021 2020 Revenues: Revenue from discontinued operations $ 5,747 $ 12,756 Cost of sales: Cost of discontinued operations 4,537 9,089 Operating expenses: Selling, general and administrative 4,589 5,576 Provision for doubtful accounts 470 2,000 Depreciation and amortization 132 176 Total operating expenses 5,191 7,752 Operating loss ( 3,981 ) ( 4,085 ) Other income (expenses) 201 ( 134 ) Loss on disposal (including $ 2,745 of cumulative translation loss) ( 1,859 ) — Loss before income taxes ( 5,639 ) ( 4,219 ) Provision for income taxes ( 665 ) ( 525 ) Net loss ( 6,304 ) ( 4,744 ) F-12 Table of Contents Index to Financial Statements The significant operating and investing noncash items and capital expenditures related to discontinued operations are summarized below: As of January 31, 2021 2020 Depreciation and amortization $ 1,830 $ 4,818 Gross profit from sale of lease pool equipment $ ( 1,326 ) $ ( 1,145 ) Provisions for doubtful accounts $ 470 $ 2,000 Loss on disposal of discontinued operations $ 1,859 $ — Sale of used lease pool equipment $ 2,010 $ 1,415 Sale of assets held for sale $ 1,506 $ — Purchase of seismic equipment held for lease $ ( 110 ) $ ( 2,955 ) 3. New Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Qualitative and quantitative disclosures are required, and optional practical expedients may be elected. This ASU is effective for the annual period beginning after December 15, 2018, including interim periods within that annual period. Subsequent amendments to the initial guidance have been issued in January 2017, January 2018, and July 2018 within ASU No. 201703, ASU No. 2018-01, ASU No. 2018-10, and ASU No. 2018-11 regarding qualitative disclosures, optional practical expedients, codification improvements and an optional transition method to adopt with a cumulative-effect adjustment versus a modified retrospective approach. These updates do not change the core principle of the guidance under ASU No. 2016-02, but rather provide implementation guidance. The Company adopted the accounting standard as of February 1, 2019, using the cumulative-effect transition method, which applies the guidance at the beginning of the period of adoption. The Company elected the package of practical expedients permitted, which, among other things, allowed the Company to carry forward the historical lease classification. In addition, the Company made the accounting policy elections to not recognize lease assets and lease liabilities with an initial term of 12 months or less and to not separate lease and non-lease components. The impact of adoption on the Company’s consolidated balance sheet was the recognition of a ROU asset of $ 3.0 million and an operating lease liability of $ 3.0 million, primarily for office and shop space leases that are currently off-balance sheet. The adoption did not have a material impact on its results of operations nor any material impact on its cash flows. 4. Liquidity The global pandemic has created significant uncertainty in the global economy which could have a material adverse effect on the Company’s business, financial position, results of operations and liquidity. The time frame for which disruptions related to the pandemic will continue is uncertain as is the magnitude of any adverse impacts. We were required to temporarily shut-down our facilities in Malaysia and Singapore on March 17, 2020 and April 7, 2020, respectively. Both locations have now reopened and are operating at essentially full capacity. Our other facilities have been allowed to operate, although at reduced efficiencies, in some cases some employees have worked remotely. Management believes that any negative impacts will be temporary, but there can be no assurance of that. The Company has a history of operating losses and has had negative cash from operating activities. The above factors create substantial uncertainty regarding the Company’s future financial results and liquidity. Management has identified the following mitigating factors regarding adequate liquidity and capital resources to meet its obligations.: • The Company has no funded debt, excluding the PPP Loan granted to Klein which has been completely forgiven in February 2021, or other outstanding obligations, outside of normal trade obligations. • The Company has no obligations or agreements containing “maintenance type” financial covenants. • The Company has working capital of approximately $ 19.0 million as of January 31, 2021, including cash of approximately $ 4.6 million. • 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. • The majority of the Company’s costs are variable in nature, such as raw materials and personnel related costs. The Company has already terminated or furloughed certain employees and contractors. F-13 Table of Contents Index to Financial Statements • The Company has a backlog of orders of approximately $ 14.2 million (unaudited) as of January 31, 2021, as compared to approximately $ 8.9 million (unaudited) as of January 31, 2020. Production for certain of these orders was in process and included in inventory as of January 31, 2021, thereby reducing the liquidity needed to complete the orders. • Despite difficulties in world energy markets, the Company has been able to generate cash from the sale of lease pool equipment and collection of accounts receivable related to its discontinued operations. Management expects to generate additional liquidity from the sale of lease pool equipment in fiscal 2022. • The Company has declared the quarterly dividend on the its Series A Preferred Stock for the quarter ending April 30, 2021, but such quarterly dividends could be suspended in the future. • Despite the challenging economic environment in the year ended January 31, 2021, the Company was successful expanding its authorized capital stock (See Note 20 - Corporate Restructuring) and raising approximately $ 4.6 million in new capital through the sale of common and preferred stock pursuant to the 2 nd ATM offering program. Management expects to be able to raise further capital through the 2 nd ATM offering program should the need arise. • Based on publicized transactions and discussions with potential funding sources, Management believes that other sources of debt and equity financing are available should the need arise. For the factors discussed above, Management expects the Company to continue to meet its obligations as they arise over the next twelve months. 5. Revenue from Contracts with Customers The following table presents revenue from contracts with customers disaggregated by product line and timing of revenue recognition: Twelve Months Ended January 31, 2021 2020 Revenue recognized at a point in time: (in thousands) Seamap $ 16,304 $ 21,617 Klein 4,145 7,468 SAP — 101 Total revenue recognized at a point in time $ 20,449 $ 29,186 Revenue recognized over time: Seamap $ 766 $ 733 Klein — — SAP — — Total revenue recognized over time 766 733 Total revenue from contracts with customers $ 21,215 $ 29,919 The revenue from products manufactured and sold by our Seamap and Klein businesses, as well as the revenue from products marketed and sold by our SAP business, is generally recognized at a point in time, or when the customer takes possession of the product, based on the terms and conditions stipulated in our contracts with customers. Our Seamap business also provides annual Software Maintenance Agreements (“SMA”) to customers who have an active license for software imbedded in Seamap products. The revenue from SMA is recognized over time, with the total value of the SMA amortized in equal monthly amounts over the life of the contract. The following table presents revenue from contracts with customers disaggregated by geography, based on shipping location of our customers: Twelve Months Ended January 31, 2021 2020 Revenue from contracts with customers: (in thousands) United States $ 3,687 $ 3,920 Europe, Russia & CIS 8,512 15,262 Middle East & Africa 1,226 1,576 Asia-Pacific 6,523 5,377 Canada & Latin America 1,267 3,784 Total revenue from contracts with customers $ 21,215 $ 29,919 F-14 Table of Contents Index to Financial Statements As of January 31, 2021, contract assets and liabilities consisted of the following: January 31, 2021 January 31, 2020 Contract Assets: (in thousands) Unbilled revenue-current $ 85 $ 13 Unbilled revenue - non-current — — Total unbilled revenue $ 85 $ 13 Contract Liabilities: Deferred revenue & customer deposits - current $ 691 $ 220 Deferred revenue & customer deposits - non-current — 12 Total deferred revenue & customer deposits $ 691 $ 232 Considering the products manufactured and sold by our Marine Technology Products business and the Company’s standard contract terms and conditions, we expect our contract assets and liabilities to turn over, on average, within a three to six-month period. With respect to the disclosures above, sales and transaction-based taxes are excluded from revenue, and we do not disclose the value of unsatisfied performance obligations for contacts with an original expected duration of one year or less. Also, we expense costs incurred to obtain contracts because the amortization period would be one year or less. These costs are recorded in selling, general and administrative expenses. 6. Supplemental Statements of Cash Flows Information Supplemental disclosures of cash flows information for the fiscal years ended January 31, 2021 and 2020 were as follows (in thousands): Year Ended January 31, 2021 2020 Interest paid $ 40 $ 63 Income taxes paid, net 336 498 Seismic equipment purchases included in accounts payable at year-end — 812 7. Inventories Inventories from continuing operations consisted of the following (in thousands): As of January 31, 2021 2020 Raw materials $ 6,905 $ 7,388 Finished goods 3,466 3,758 Work in progress 2,445 2,720 Cost of inventories 12,816 13,866 Less allowance for obsolescence ( 1,363 ) ( 1,210 ) Net inventories $ 11,453 $ 12,656 8. Accounts Receivables Accounts receivables from continuing operations consisted of the following (in thousands): As of January 31, 2021 As of January 31, 2020 Current Total Current Total Accounts receivable $ 5,695 $ 5,695 $ 9,001 $ 9,001 Less allowance for doubtful accounts ( 948 ) ( 948 ) ( 2,378 ) ( 2,378 ) Accounts receivable net of allowance for doubtful accounts $ 4,747 $ 4,747 $ 6,623 $ 6,623 F-15 Table of Contents Index to Financial Statements 9. Property and Equipment Property and equipment from continuing operations consisted of the following (in thousands) As of January 31, 2021 2020 Marine seismic service equipment 5,969 8,341 Land and buildings 4,354 4,274 Furniture and fixtures 9,750 9,364 Autos and trucks 491 491 Cost of property and equipment 20,564 22,470 Less accumulated depreciation ( 15,813 ) ( 17,051 ) Net book value of property and equipment $ 4,751 $ 5,419 Location of property and equipment (in thousands): As of January 31, 2021 2020 United States $ 3,133 $ 3,379 Europe 87 78 Singapore 480 773 Malaysia 1,051 1,189 Net book value of property and equipment $ 4,751 $ 5,419 10. Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which was modified by subsequently issued ASUs 2018-01, 2018-10, 2018-11 and 2018-20 (collectively the “New Lease Standard”). The New Lease Standard requires organizations that lease assets (“lessees”) to recognize the assets and liabilities of the rights and obligations created by leases with terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee remains dependent on its classification as a finance or operating lease. The New Lease Standard also requires additional disclosure of the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The New Lease Standard was effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provided additional relief in the comparative reporting requirements for initial adoption of the New Lease Standard. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 provided an additional transition method allowing entities to initially apply the New Lease Standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. The Company adopted the New Lease Standard effective February 1, 2019. We elected to apply the current period transition approach as introduced by ASU 2018-11 and we elected to apply the following practical expedients and accounting policy decisions. We elected a package of transition expedients, which must be elected together, that allowed us to forgo reassessing certain conclusions reached under ASC 840. All expedients in this package were applied together for all leases that commenced before the effective date, February 1, 2019, of the adoption of the New Lease Standard. As a result, in transitioning to the New Lease Standard, for existing leases as of February 1, 2019, we continued to use judgments made under ASC 840 related to embedded leases, lease classification and accounting for initial direct costs. In addition, we have chosen, as an accounting policy election by class of underlying asset, not to separate non-lease components from the associated lease for all our leased asset classes, excluding for Real Estate related leases. As a result, for classes of Automobiles, Office Equipment and Manufacturing Equipment, we account for each separate lease component and the non-lease components associated with that lease as a single lease component. The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in Texas, Hungary, Singapore, Malaysia, United Kingdom and Canada. Adoption of the New Lease Standard did have a material impact on our consolidated balance sheet as we recorded right-of-use assets and the corresponding lease liabilities related to our operating leases of approximately $ 3.0 million, each. The Company determined to treat lease costs with an original maturity of less than one year as short-term lease costs and did not record a right-of-use asset or related lease liability for these leases. The new standard did not have a material impact on our consolidated statements of operations or our statements of cash flows. F-16 Table of Contents Index to Financial Statements Lease expense for the twelve months ended January 31, 2021 and 2020 was approximately $ 828,000 and $ 1.2 million, respectively, and was recorded as a component of operating loss. Included in these costs was short-term lease expense of approximately $ 20,000 and $ 30,000 for the twelve months ended January 31, 2021 and 2020, respectively. Supplemental balance sheet information related to leases as of January 31, 2021 and 2020 was as follows (in thousands): As of January 31, Lease 2021 2020 Assets Operating lease assets $ 1,471 $ 2,300 Liabilities Operating lease liabilities $ 1,471 $ 2,300 Classification of lease liabilities Current liabilities $ 1,008 $ 1,339 Non-current liabilities 463 961 Total Operating lease liabilities $ 1,471 $ 2,300 Lease-term and discount rate details as of January 31, 2021 and 2020 were as follows: As of January 31, Lease term and discount rate 2021 2020 Weighted average remaining lease term (years) Operating leases 1.09 1.76 Weighted average discount rate: Operating leases 10 % 9.27 % The incremental borrowing rate was calculated using the Company’s weighted average cost of capital. Supplemental cash flow information related to leases at January 31, 2021 and 2020 was as follows (in thousands): As of January 31, Lease 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ ( 1,157 ) $ ( 1,182 ) Right-of-use assets obtained in exchange for lease liabilities: Operating leases $ — $ 635 Maturities of lease liabilities at January 31, 2021 and 2020 were as follows (in thousands): As of January 31, 2021 2020 2021 $ 1,007 $ 1,338 2022 421 838 2023 110 222 2024 58 98 2025 24 52 Thereafter — 21 Total payments under lease agreements $ 1,620 $ 2,569 Less: imputed interest ( 149 ) ( 269 ) Total lease liabilities $ 1,471 $ 2,300 Prior to July 31, 2020, the Company leased seismic equipment to customers under operating leases with non-cancelable terms of one year or less. These leases were generally renewable on a month-to-month basis. All taxes (other than income taxes) and assessments were the F-17 Table of Contents Index to Financial Statements contractual responsibility of the lessee. To the extent that foreign taxes were not paid by the lessee, the relevant foreign taxing authorities might seek to collect such taxes from the Company. Under the terms of its lease agreements, any amounts paid by the Company to such foreign taxing authorities may be billed and collected from the lessee. The Company is not aware of any foreign tax obligations as of January 31, 2021 and 2020 that are not reflected in the accompanying consolidated financial statements. The Company leases its office and warehouse facilities in Canada, Texas, Singapore, United Kingdom, Hungary and Malaysia under operating leases. Facility lease expense for the fiscal years ended January 31, 2021 and 2020 was approximately $ 1.2 million and $ 1.2 million, respectively. 11. Goodwill and Other Intangible Assets Goodwill and other intangible assets from continuing operations consisted of the following: Weighted Average Life at 1/31/20 January 31, 2021 January 31, 2020 Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount (in thousands) (in thousands) Goodwill $ 7,060 $ — $ ( 7,060 ) $ — $ 7,060 $ — $ ( 4,529 ) $ 2,531 Proprietary rights 7.2 $ 7,781 $ ( 3,688 ) — 4,093 $ 9,247 $ ( 4,950 ) — 4,297 Customer relationships 0.8 5,024 ( 4,513 ) — 511 5,024 ( 3,831 ) — 1,193 Patents 3.6 2,440 ( 1,528 ) — 912 2,440 ( 1,277 ) — 1,163 Trade name 5.3 894 ( 74 ) ( 760 ) 60 894 ( 63 ) ( 760 ) 71 Developed technology 4.9 1,430 ( 727 ) — 703 1,430 ( 584 ) — 846 Other 3.4 684 ( 213 ) — 471 653 ( 87 ) — 566 Amortizable intangible assets $ 18,253 $ ( 10,743 ) $ ( 760 ) $ 6,750 $ 19,688 $ ( 10,792 ) $ ( 760 ) $ 8,136 As of January 31, 2021, the Company completed its annual review of intangible assets. Based on a review of qualitative factors it was determined it was more likely than not that the fair value of our Seamap reporting unit was greater than its carrying value. Based on a review of qualitative and quantitative factors it was determined it was more likely than not that the fair value of our Klein reporting unit was greater than its carrying value. Accordingly, we did no t record an impairment charge related to intangible assets in the Seamap and Klein reporting units. Due to the economic impact of the global pandemic, the decline in oil prices during the three months ended April 30, 2020 and a decline in the market value of the Company’s equity securities, the Company performed a quantitative review of the Seamap reporting unit and concluded that goodwill had been impaired. As a result, the Company recorded an impairment expense of approximately $ 2.5 million related to goodwill in the Seamap reporting unit during the quarter ended April 30, 2020. As of January 31, 2020, the Company completed its annual review of goodwill and indefinite lived intangible assets. Based on a review of qualitative factors it was determined it was more likely than not that the fair value of our Seamap reporting unit was greater than its carrying value. Based on a review of qualitative and quantitative factors it was determined it was more likely than not that the fair value of our Klein reporting unit was not greater than its carrying value. Accordingly, we recorded an impairment of approximately $ 760,000 related to indefinite lived intangible assets in the Klein reporting unit. Aggregate amortization expense was $ 1.8 million, and $ 1.8 million for the fiscal years ended January 31, 2021 and 2020, respectively. As of January 31, 2021, future estimated amortization expense related to amortizable intangible assets is estimated to be (in thousands): For fiscal year ending January 31: 2022 $ 1,266 2023 1,125 2024 989 2025 828 2026 658 Thereafter 1,884 Total $ 6,750 F-18 Table of Contents Index to Financial Statements 12. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities from continuing operations consisted of the following (in thousands): As of January 31, 2021 2020 Contract settlement $ 968 $ 228 Wages and benefits 577 317 Customer deposits 484 239 Accrued inventory — 229 Other 883 552 Accrued Expenses and Other Liabilities $ 2,912 $ 1,565 13. Notes Payable On May 5, 2020, the Company, and its wholly owned subsidiary, Klein (collectively, the “Borrowers”), were granted loans (the “Loans”) from Bank of America, N.A. in the aggregate amount of approximately $ 1.6 million, pursuant to the Small Business Association's Paycheck Protection Program (the “PPP”), a component of the Coronavirus Aid, Relief, and Economic Security Act which was enacted on March 27, 2020. The Loans, in the form of promissory notes (the “Notes”) dated May 1, 2020 issued by the Borrowers, mature on May 1, 2022 and bear interest at a rate of 1 % per annum, payable monthly commencing on November 1, 2020. The Notes stipulate various restrictions customary with this type of transaction including representations, warranties, and covenants, in addition to events of default, breaches of representation and warranties or other provisions of the Notes. In the event of default, the Borrowers may become obligated to repay all amounts outstanding under the Notes. The Borrowers may prepay the Notes at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, funds from the Loans may only be used for payroll costs, rent, utilities and interest on other debt obligations incurred prior to February 15, 2020. In addition, certain amounts of the Loan may be forgiven if the funds are used to pay qualifying expenses. In January 2021, the Loan related to the Company in the amount of approximately $ 757,000 was forgiven resulting in other income of that amount. In February 2021, the Loan related to Klein in the amount of approximately $ 850,000 was forgiven. 14. Stockholders’ Equity The Company has 2,000,000 shares of preferred stock authorized. The preferred stock may be issued in multiple series with various terms, as authorized by the Company’s Board of Directors. As of January 31, 2021, 1,038,232 shares of the Series A Preferred Stock were outstanding, and 994,046 shares were outstanding as of January 31, 2020. Dividends on the Series A Preferred Stock are cumulative from the date of original issue and payable quarterly on or about the last day of January, April, July and October of each year when, as and if, declared by the Company’s board of directors. Dividends are payable out of amounts legally available therefor at a rate equal to 9.00 % per annum per $ 25.00 of stated liquidation preference per share, or $ 2.25 per share of Series A Preferred Stock per year. The Company may not redeem the Series A Preferred Stock before June 8, 2021, except as described below. On or after June 8, 2021, the Company may redeem, at the Company’s option, the Series A Preferred Stock, in whole or in part, at a cash redemption price of $ 25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. If at any time a change of control occurs, the Company will have the option to redeem the Series A Preferred Stock, in whole or in part, within 120 days after the date on which the change of control occurred by paying $ 25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. The Series A Preferred Stock has no stated maturity, is not subject to any sinking fund or other mandatory redemption and will remain outstanding indefinitely unless repurchased or redeemed by the Company or converted into our common stock in connection with a change of control. Holders of the Series A Preferred Stock generally have no voting rights except for limited voting rights if dividends payable on the outstanding Series A Preferred Stock are in arrears for six or more consecutive or non-consecutive quarterly dividend periods, or if the Company fails to maintain the listing of the Series A Preferred Stock on a national securities exchange for a period continuing for more than 180 days. The Company has 40,000,000 shares of common stock authorized, of which 15,681,000 and 14,049,000 were issued as of January 31, 2021 and 2020, respectively, including 1,929,000 treasury shares. During the fiscal years ended January 31, 2021, and 2020 there were no shares surrendered in exchange for payment of taxes due upon vesting of restricted shares. F-19 Table of Contents Index to Financial Statements 15. Related Party Transaction On October 7, 2016, the Company entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc. (the “Agent”). On December 18, 2019, the Company and Agent entered into an Amended and Restated equity distribution agreement (the “1 st Equity Distribution Agreement”). Pursuant to the 1 st Equity Distribution Agreement, the Company may sell up to 500,000 shares of the Series A Preferred Stock through the Agent through the 1 st ATM offering program. The Co-Chief Executive Officer and Co-President of the Agent is the Non-Executive Chairman of the Board. Under the Equity Distribution Agreement, the Agent was entitled to compensation of up to 2.0 % of the gross proceeds from the sale of Series A Preferred Stock under the 1 st ATM offering program. As of January 31, 2021, we had issued 994,046 shares which represent 100 % of the Series A Preferred Stock available for sale through the 1 st Equity Distribution Agreement. In September 2020 we entered into a new equity distribution agreement (the “2 nd Equity Distribution Agreement”) with the Agent with economic terms essentially identical to the initial agreement. Pursuant to the 2 nd Equity Distribution Agreement, the Company may sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of $ 0.01 par value common stock (“Common Stock”) through the 2 nd ATM offering program. For the twelve months ended January 31, 2021, the Company issued 44,186 shares of Series A Preferred Stock under the 2 nd ATM offering program. Gross proceeds from these sales were approximately $ 1.0 million and the Agent received compensation of approximately $ 20,408 , resulting in net proceeds to the Company of $ 1.0 million for the twelve months ended January 31, 2021. The Non-Executive Chairman of the Company received no portion of this compensation. For the twelve months ended January 31, 2021, the Company issued 1,584,556 shares of Common Stock under the 2 nd ATM offering program. Gross proceeds from these sales were approximately $ 4.0 million, the Agent received compensation of approximately $ 79,307 resulting in net proceeds to the Company, after deducting underwriting discounts and offering costs, of approximately $ 3.6 million for the twelve months ended January 31, 2021. The Non-Executive Chairman of the Company received no portion of this compensation. At January 31, 2021, the Company has an outstanding obligation payable to the beneficiary of the estate of our former CEO. The obligation, which bears interest at 4 % per annum, totals approximately $ 968,000 and is included in accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheet as of January 31, 2021. 16. Income Taxes Year Ended January 31, 2021 2020 (in thousands) (Loss) income from continuing operations before income taxes is attributable to the following jurisdictions: Domestic $ ( 8,851 ) $ ( 7,550 ) Foreign ( 4,615 ) 1,360 Total $ ( 13,466 ) $ ( 6,190 ) The components of income tax expense (benefit) for continuing operations were as follows: Current: Domestic $ 22 $ 27 Foreign 515 58 537 85 Deferred: Domestic — — Foreign ( 1 ) 268 ( 1 ) 268 Income tax expense $ 536 $ 353 F-20 Table of Contents Index to Financial Statements The following is a reconciliation of expected to actual income tax expense (benefit) for continuing operations: Year Ended January 31, 2021 2020 (in thousands) Federal income tax at 21 % $ ( 2,828 ) $ ( 1,300 ) Changes in tax rates ( 50 ) 50 Permanent differences 413 52 Foreign effective tax rate differential 66 ( 80 ) Foreign withholding taxes, including penalties and interest 29 34 Tax effect of book loss on disposition of subsidiaries — 79 Valuation allowance on deferred tax assets 2,682 1,205 Excess tax deficiency for share-based payments under ASU 2016-09 66 284 Other 158 29 $ 536 $ 353 The components of the Company’s deferred taxes for continuing operations consisted of the following: As of January 31, 2021 2020 (in thousands) Deferred tax assets: Net operating losses $ 17,177 $ 13,716 Tax credit carry forwards 139 117 Stock option book expense 718 650 Allowance for doubtful accounts — 229 Inventory 565 525 Accruals not yet deductible for tax purposes 281 357 Fixed assets 232 105 Intangible assets 445 337 Other 599 561 Gross deferred tax assets 20,156 16,597 Valuation allowance ( 20,156 ) ( 16,597 ) Deferred tax assets — — Deferred tax liabilities: Other ( 198 ) ( 200 ) Deferred tax liabilities ( 198 ) ( 200 ) Unrecognized tax benefits — — Total deferred tax (liabilities) assets, net ( 198 ) $ ( 200 ) On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the global pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company does not believe the CARES Act will have a material impact on the Company’s future income tax expense or the related tax assets and liabilities. The Company has determined that, due to the potential requirement for additional investment and working capital to achieve its objectives, the undistributed earnings of foreign subsidiaries as of January 31, 2021, are not deemed indefinitely reinvested outside of the United States. Furthermore, the Company has concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial, particularly in light of the one-time repatriation of foreign earnings imposed by the TCJA and recorded in fiscal 2019. Therefore, the Company has no t recorded a deferred tax liability associated with the undistributed foreign earnings as of January 31, 2021. Included in deferred tax assets is approximately $ 700,000 related to stock-based compensation, including non-qualified stock options. A significant number of stock options expired during fiscal 2021 because the market price of the Company’s common stock remained below the exercise price of these options. Recent market prices for the Company’s common stock remain below the exercise price of a number of options outstanding as of January 31, 2021. Should the market price of the Company’s common stock remain below the exercise price of the F-21 Table of Contents Index to Financial Statements options, these stock options will expire without exercise. In accordance with the provisions of ASC 718-740-10, a valuation allowance has not been computed based on the decline in stock price. As of January 31, 2021, the Company has recorded valuation allowances of approximately $ 20.2 million related to deferred tax assets for continuing operations. These deferred tax assets relate primarily to net operating loss carryforwards in the United States and other jurisdictions. The valuation allowances were determined based on management’s judgment as to the likelihood that the deferred tax assets would not be realized. The judgment was based on an evaluation of available evidence, both positive and negative. At January 31, 2021, the Company had tax credit carry forwards for continuing operations of approximately $ 139,000 , which amounts can be carried forward through at least 2026. As of January 31, 2021, and 2020 the company had no unrecognized tax benefits attributable to uncertain tax positions. The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. The Company files U.S. federal income tax returns as well as separate returns for its foreign subsidiaries within their local jurisdictions. The Company’s U.S. federal tax returns are subject to examination by the IRS for fiscal years ended January 31, 2017 through 2021. The Company’s tax returns may also be subject to examination by state and local revenue authorities for fiscal years ended January 31, 2015 through 2021. The Company’s Singapore income tax returns are subject to examination by the Singapore tax authorities for fiscal years ended January 31, 2015 through 2021. The Company’s tax returns in other foreign jurisdictions are generally subject to examination for the fiscal years ended January 31, 2015 through January 31, 2021. 17. Commitments and Contingencies During fiscal 2021 we entered into an agreement (the “Agreement”) with a major European defense contractor (the “Co-developer”) for the joint development and marketing of synthetic aperture sonar (“SAS”) systems. Under the terms of the Agreement, we are obligated to make payments upon completion of certain developmental milestones related to a license for use of the Co-developer’s underlying technology. Our total potential commitment, assuming achievement of all milestones contemplated in the Agreement, is approximately $ 1.6 million, of which approximately $ 300,000 was paid in January 2021. Purchase Obligations —At January 31, 2021, the Company had approximately $ 3.9 million in purchase orders outstanding. 18. Stock Option Plans At January 31, 2021, the Company had stock-based compensation plans as described in more detail below. The total compensation expense related to stock-based awards granted under these plans during the fiscal years ended January 31, 2021 and 2020 was approximately $ 708,000 and $ 854,000 , respectively. The Company recognizes stock-based compensation costs net of a forfeiture rate for only those awards expected to vest over the requisite service period of the award. The Company estimates the forfeiture rate based on its historical experience regarding employee terminations and forfeitures. The fair value of each option award is estimated as of the date of grant using a Black-Scholes-Merton option pricing formula. Expected volatility is based on historical volatility of the Company’s stock over a preceding period commensurate with the expected term of the option. The expected term is based upon historical exercise patterns. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since the Company does not pay dividends and has not paid any dividends since its incorporation. The weighted average grant-date fair value of options granted during the fiscal years ended January 31, 2021 and 2020 were $ 0.70 and $ 1.77 , respectively. The assumptions for the periods indicated are noted in the following table. Weighted average Black-Scholes-Merton fair value assumptions Year Ending January 31, 2021 2020 Risk free interest rate 0.34 % - 0.37 % 1.47 % - 2.53 % Expected life 3.97 years - 5.97 years 3.98 years - 6.00 years Expected volatility 53 % - 64 % 49 % - 51 % Expected dividend yield 0.0 % 0.0 % Cash flows resulting from tax benefits attributable to tax deductions in excess of the compensation expense recognized for those options (excess tax benefits) are classified as financing out-flows and operating in-flows. The Company had no excess tax benefits during the fiscal years ended January 31, 2021 and 2020. F-22 Table of Contents Index to Financial Statements The Company has share-based awards outstanding under, the MIND Technology, Inc. Stock Awards Plan (“the Plan”). Stock options granted and outstanding under the Plan generally vest evenly over three years and have a 10 -year contractual term. The exercise price of a stock option generally is equal to the fair market value of the Company’s common stock on the option grant date. As of January 31, 2021, there were approximately 615,000 shares available for grant under the Plan. The Plan provides for awards of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units and phantom stock. New shares are issued upon vesting for restricted stock and upon exercise for options. Stock Based Compensation Activity The following table presents a summary of the Company’s stock option activity for the fiscal year ended January 31, 2021: Number of Shares (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding, January 31, 2020 2,440 $ 4.51 7.08 $ 20 Granted 320 1.47 Exercised — — Forfeited ( 41 ) 4.63 Expired ( 133 ) 5.31 Outstanding, January 31, 2021 2,586 $ 4.09 6.58 $ 223 Exercisable at January 31, 2021 1,778 $ 4.63 5.71 $ — Vested and expected to vest at January 31, 2021 2,562 $ 4.12 6.55 $ 213 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the fourth quarter of fiscal 2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on January 31, 2021. This amount changes based upon the market value of the Company’s common stock. No options were exercised during fiscal year ended January 31, 2021. There was no intrinsic value of the 9,000 options exercised during the fiscal year ended January 31, 2020. The fair value of options that vested during the fiscal years ended January 31, 2021 and 2020 was approximately $ 950,000 and $ 650,000 , respectively. For the fiscal year ended January 31, 2021, approximately 500,000 options vested. As of January 31, 2021, there was approximately $ 482,228 of total unrecognized compensation expense related to unvested stock options granted under the Company’s share-based compensation plans. That expense is expected to be recognized over a weighted average period of 1.3 years. Restricted stock as of January 31, 2021 and changes during the fiscal year ended January 31, 2021 were as follows: Year Ended January 31, 2021 Number of Shares (in thousands) Weighted Average Grant Date Fair Value Unvested, beginning of period 37 $ 3.98 Granted 15 1.25 Vested ( 12 ) 3.98 Canceled — — Unvested, end of period 40 $ 2.94 As of January 31, 2021, there was approximately no unrecognized stock-based compensation expense related to unvested restricted stock awards. 19. Segment Reporting With the designation of the Equipment Leasing segment as discontinued operations as of July 31, 2020, the Company operates in one segment, Marine Technology Products. The Marine Technology Products business is engaged in the design, manufacture and sale of state-of- F-23 Table of Contents Index to Financial Statements the-art seismic and offshore telemetry systems. Manufacturing, support and sales facilities are maintained in the United Kingdom, Singapore, Malaysia and the states of New Hampshire and Texas. 20. Corporate Restructuring On August 3, 2020, the Company, formerly Mitcham Industries, Inc., completed the reincorporation from the State of Texas to the State of Delaware, including a name change to MIND Technology, Inc. The change in legal domicile and company name were approved by the affirmative vote of the holders of more than two-thirds of the votes of the Company’s Common Stock and Preferred Stock, voting separately, at the Annual Meeting of Stockholders held on July 27, 2020. As part of the reincorporation merger, the stockholders approved an increase in the number of authorized shares of capital stock from 21,000,000 shares to 42,000,000 shares, consisting of (i) 40,000,000 shares of Common Stock (up from 20,000,000 shares), and (ii) 2,000,000 shares of Preferred Stock(up from 1,000,000 shares). Pursuant to the terms of the reincorporation merger, each outstanding share of Common Stock and each share of Preferred Stock of Mitcham Industries, Inc., the Texas corporation, automatically converted into one share of Common Stock and one share of Series A Preferred Stock, respectively, of MIND Technology, Inc., the Delaware corporation. Stockholders who hold physical stock certificates are not required to, but may, exchange stock certificates as a result of the reincorporation. The Company’s Common Stock and Preferred Stock continued to trade on the NASDAQ Global Select Market under their ticker symbols, “MIND” and “MINDP”, respectively. The Company’s Common Stock was assigned a new CUSIP number of 602566 101 and the Company’s Preferred Stock was assigned a new CUSIP number of 602566 200. No changes have been made to the Board, management, business or operations of the Company as a result of the reincorporation. The Company’s corporate headquarters remains in Texas. 21. Concentrations Credit Risk — As of January 31, 2021, we had three customers that exceeded 10 % of consolidated accounts receivable. During our fiscal year ended 2020, no customer exceeded 10% of consolidated accounts receivable. The Company maintains deposits and certificates of deposit with banks which may exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limit and money market accounts which are not FDIC insured. In addition, deposits aggregating approximately $ 2.8 million at January 31, 2021 are held in foreign banks. Management believes the risk of loss in connection with these accounts is minimal. Supplier Concentration —The Company has satisfactory relationships with its suppliers. However, should those relationships deteriorate, the Company may have difficulty in obtaining new technology requested by its customers and maintaining the existing equipment in accordance with manufacturers’ specifications. 22. Sales and Major Customers A summary of the Company’s revenues, from continuing operations, from customers by geographic region, outside the U.S., is as follows (in thousands): Year Ended January 31, 2021 2020 UK/Europe $ 8,005 $ 14,975 Canada 1,267 3,519 Latin America — 262 Asia/South Pacific 6,523 5,377 Eurasia 507 290 Other 1,226 1,576 Total $ 17,528 $ 25,999 During each of the fiscal years ended 2021 and 2020, no individual customer exceeded 10% of total revenue. 23. Sale of Subsidiary In February 2019, the Company completed the sale of its wholly owned Australian subsidiary, Seismic Asia Pacific Pty Ltd. for total contractual proceeds of approximately $ 660,000 U.S. dollars of which the Company received approximately $ 240,000 in cash at closing and an unsecured, non-interest bearing two-year note receivable in the amount of $ 420,000 . The agreement also included a working capital adjustment of approximately $ 114,000 payable to the Company which was received in August of 2019. In fiscal 2021, the Company received a payment of approximately $ 124,000 that was applied against the note receivable.. The note receivable is recorded in other current assets as of January 31, 2021, and in other non-current assets as of January 31, 2020. F-24 Table of Contents Index to Financial Statements SCHEDULE II MIND TECHNOLOGY, INC. VALUATION AND QUALIFYING ACCOUNTS (in thousands) Col. A Col. B Col. C(1) Col. C(2) Col. D Col. E Description Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts Deductions Describe Balance at End of Period Allowance for doubtful accounts January 31, 2021 $ 4,054 1,129 ( 43 ) (a) ( 3,364 ) (b) $ 1,776 January 31, 2020 $ 2,113 2,000 — (a) ( 59 ) (b) $ 4,054 Allowance for obsolete equipment and inventory January 31, 2021 $ 1,404 321 1 (a) ( 66 ) (c) $ 1,660 January 31, 2020 $ 1,222 298 1 (a) ( 117 ) (c) $ 1,404 (a) Represents translation differences. (b) Represents recoveries and uncollectible accounts written off. (c) Represents sale or scrap of inventory and obsolete equipment. F-25