Item 5. Market for Registrant’s Common Equity
Item 5. Market for the Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our Common Stock is traded on NASDAQ under the symbol “MIND.” As of April 29, 2024, there were approximately 1,600 beneficial holders of our Common Stock.
Dividend Policy
We have not paid any cash dividends on our Common Stock since our inception and our Board of Directors does not contemplate the payment of cash dividends on our Common Stock in the foreseeable future. In the future, our payment of dividends on our Common Stock will depend on the amount of funds available, our financial condition, capital requirements and such other factors as our Board of Directors may consider.
As of April 29, 2024, there were 1,682,985 shares of Series A Preferred Stock outstanding with a liquidation preference of $25.00 per share. The quarterly dividends on the outstanding Series A Preferred Stock are approximately $947,000. However, in response to unexpected demands on our liquidity, we have suspended the quarterly dividend on the Series A Preferred Stock. Undeclared dividends total approximately $5.7 million.
On March 25, 2024, we commenced the solicitation of proxies to approve an amendment (the “Amendment”) to the Certificate of Designations, Preferences and Rights of our Series A Cumulative Preferred Stock to provide that, at the discretion of our Board of Directors deciding to file the Amendment with the Secretary of State of the State of Delaware at any time prior to July 31, 2024, each share of Series A Preferred Stock shall be converted into 2.7 shares of Common Stock upon the effective time of the Amendment (the “Preferred Stock Proposal”). Holders of Series A Preferred Stock as of the record date of February 27, 2024 were entitled to vote at a Virtual Special Meeting of Preferred Stockholders to be held on April 25, 2024 (the “Special Meeting”). The affirmative vote of two-thirds (66 2/3%) of the outstanding shares of Series A Preferred Stock was required for approval of the Preferred Stock Proposal. Holders of Common Stock were not entitled to vote at the Special Meeting. On April 24, 2024, we announced that our Board of Directors had postponed the Special Meeting and would determine a revised date for the Special Meeting, as well as a revised record date. When the Board of Directors establishes a new record date, we will deliver a new notice of the Special Meeting and an updated proxy statement, which will include a new proxy card.
As of January 31, 2024, we had deposits in foreign banks equal to approximately $4.9 million. These funds may generally be transferred to our accounts in the United States without restriction. However, in certain cases the transfer of these funds may result in withholding taxes payable to foreign taxing authorities. These factors could limit our ability to pay cash dividends in the future.
Unregistered Sales of Equity Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Neither we, nor any affiliated purchaser, purchased any of our equity securities during the fourth quarter of fiscal 2024.
Item 6. [Reserved]
Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Effective January 31, 2023, we split our Marine Technology Products Segment into two segments, Seamap Marine Products and Klein Marine Products, to more accurately reflect our operations. On August 21, 2023, we sold the Klein Marine Products segment and now operate in one segment.
Our worldwide Seamap Marine Products business includes Seamap Pte Ltd, MIND Maritime Acoustics, LLC, Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd (collectively “Seamap”), which designs, manufactures and sells specialized marine seismic equipment.
Revenue from the Seamap Marine Products business relates to sales of Seamap products, which operates from locations near Bristol, United Kingdom; Huntsville, Texas; Johor, Malaysia and in Singapore.
The discontinued operations of the Klein Marine Products business related to sales of Klein products, which operated from Salem, New Hampshire.
Management believes that the performance of our continued operations is indicated by revenues from sales of products and by gross profit from those sales. Management monitors EBITDA and Adjusted EBITDA, both as defined and reconciled to the most directly comparable financial measures calculated and presented in accordance with United States generally accepted accounting principles (“GAAP”), in the following table, as key indicators of our overall performance and liquidity.
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The following table presents certain operating information of our continuing operations:
Year Ended January 31,
2024
2023
(in thousands)
Revenues:
Sale of marine technology products
$
36,510
$
25,012
Total revenues
$
36,510
$
25,012
Cost of sales:
Sale of marine technology products
$
20,539
$
15,062
Total cost of sales
$
20,539
$
15,062
Gross profit
$
15,971
$
9,950
Operating expenses:
Selling, general and administrative
$
12,142
$
12,883
Research and development
$
2,133
$
1,373
Depreciation and amortization
$
1,178
$
1,344
Total operating expenses
$
15,453
$
15,600
Operating income (loss)
$
518
$
(5,650
)
Year Ended January 31,
2024
2023
(in thousands)
Reconciliation of Net Income (loss) to EBITDA and Adjusted EBITDA from continuing operations
Net income (loss)
$
274
$
(8,832
)
Interest expense, net
634
4
Depreciation and amortization
1,516
1,887
Provision for income taxes
1,355
699
EBITDA
3,779
(6,242
)
(Income) loss from discontinued operations net of depreciation and amortization
(1,729
)
2,196
Stock-based compensation
261
654
Adjusted EBITDA from continuing operations (1)
$
2,311
$
(3,392
)
Reconciliation of Net Cash Used In Operating Activities to EBITDA
Net cash used in operating activities
$
(4,967
)
$
(2,905
)
Stock-based compensation
(261
)
(654
)
Provision for inventory obsolescence
(341
)
(445
)
Changes in accounts receivable (current and long-term)
3,318
(4,864
)
Interest paid
634
—
Taxes paid, net of refunds
847
371
Gain on sale of other equipment
476
939
Gain on sale of Klein
2,343
—
Changes in inventory
3,601
1,756
Changes in accounts payable, accrued expenses and other current liabilities and deferred revenue
(2,744
)
1,223
Changes in prepaid expenses and other current and long-term assets
847
10
Non-cash cumulative translation adjustment for discontinued operations
—
(1,626
)
Other
26
(47
)
EBITDA(1)
$
3,779
$
(6,242
)
___________________________________________________________
(1)
EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA is defined as net income before (a) interest income and interest expense, (b) provision for (or benefit from) income taxes and (c) depreciation and amortization. Adjusted EBITDA excludes non-cash foreign exchange gains and losses, stock-based compensation, impairment of intangible assets, other non-cash tax related items and non-cash costs of lease pool equipment sales. We consider EBITDA and Adjusted EBITDA to be important indicators for the performance of our business, but not measures of performance or liquidity calculated in accordance with GAAP. We have included these non-GAAP financial measures because management utilizes this information for assessing our performance and liquidity, and as indicators of our ability to make capital expenditures, service debt and finance working capital requirements and we believe that EBITDA and Adjusted EBITDA are measurements that are commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us. In particular, we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP and should not be considered in isolation or as alternatives to cash flow from operating activities or net income as indicators of operating performance or any other measures of performance derived in accordance with GAAP. In evaluating our performance as measured by EBITDA, management recognizes and considers the limitations of this measurement. EBITDA and Adjusted EBITDA do not reflect our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures. Accordingly, EBITDA and Adjusted EBITDA are only two of the measurements that management utilizes. Other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do. EBITDA and Adjusted EBITDA may not be comparable with similarly titled measures reported by other companies.
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Within our Seamap business, we design, manufacture and sell a variety of products used primarily in oceanographic, hydrographic, defense, seismic and maritime security industries. Seamap’s primary products include (i) the GunLink seismic source acquisition and control systems; (ii) the BuoyLink RGNSS positioning system used to provide precise positioning of seismic sources and streamers and (iii) SeaLink marine sensors and solid streamer systems (collectively, the “SeaLink” product line or “towed streamer products”). These towed streamer products are primarily designed for three-dimensional, high-resolution marine surveys in survey and exploration applications.
The discontinued operations of our Klein business designed, manufactured, and sold side scan sonar and water-side security systems to commercial, governmental, and military customers throughout the world.
Our results of operations can experience fluctuations in activity levels due to a number of factors outside of our control. These factors include budgetary or financial concerns, difficulties in obtaining licenses or permits, security problems, labor or political issues, inclement weather, and global pandemics. See Item 1A- “Risk Factors."
Business Outlook
Our financial results during fiscal year 2024 improved significantly when compared to fiscal 2023. Despite improving results, our operations continue to be impacted by the following factors:
•
Extended lead times for key components.
•
Requirements for advanced payments from some vendors for key components.
•
Delays and uncertainties in the timing of orders due to customer delivery requirements.
•
Difficulties sourcing skilled labor and obtaining necessary work permits and visas in some jurisdictions in which we operate.
However, we believe general economic and geopolitical trends are now favorable for much of our business. Global energy prices traded within a fairly tight range during fiscal 2024 but remain significantly higher than the past several years and are generally expected to rise in fiscal 2025. We believe this is a positive development for our marine seismic customers and many of our customers in this space have recently reported improving financial metrics and outlooks. Expected increases in energy prices and the global movement towards renewable energy is, we believe, positive for our customers in the marine survey industry. We have seen increasing demand for our products regarding alternative energy projects, such as marine wind farm installations, and carbon capture projects.
In recent months, we have continued to experience significant inquiries and bid activity for our Seamap Marine products. As of January 31, 2024, our backlog of firm orders for Seamap Marine Products was approximately $38.4 million, which is an increase of approximately 145% from the $15.7 million reported at January 31, 2023. In addition, we continue to pursue a number of other significant opportunities and expect to secure additional orders, primarily for delivery in fiscal 2025 and beyond. The level of backlog at a particular point in time may not necessarily be indicative of results in subsequent periods as the size and delivery period of individual orders can vary significantly.
Based on our current backlog of orders, continued product inquiries, and current production and delivery schedules, we expect revenue in fiscal 2025 to exceed that of fiscal 2024. If revenues in fiscal 2025 increase as expected, we believe the Company will report net income from continuing operations and positive EBITDA for fiscal 2025. However, no assurances of such results can be made, and there are a number of risks which could cause results to be less than anticipated. Those risks include the following:
•
Inability of our customers to accept delivery of orders as scheduled;
•
Cancellation of orders;
•
Production difficulties, including supply chain disruptions, which could delay the completion of orders as scheduled; and
•
Higher than anticipated costs.
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We continue to address three primary markets through our continued operations businesses -
•
Marine Survey;
•
Marine Exploration; and
•
Maritime Defense.
Specific applications within those markets include sea-floor survey, mineral and geophysical exploration and maritime security. We have existing technology and products that meet needs across all these markets such as -
•
Marine seismic equipment, such as GunLink and BuoyLink; and
•
Acoustic arrays, such as SeaLink
We see a number of opportunities to add to our technology and to apply existing technology and products to new applications.
In response, we have initiated certain strategic initiatives in order to exploit the opportunities that we perceive. These initiatives include the following:
•
Development of our Spectral Ai sonar software system; and
•
Introduction of Sea Serpent passive sonar arrays for use in maritime security applications.
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We believe that the above applications expand our addressable markets and provide opportunities for further growth in our revenues; however, neither initiative has produced material revenue to date.
As we grow our business, we are also looking to control our costs. During fiscal 2024, we eliminated several executive and management level positions to control general and administrative costs. Should future financial results fall below our expectation, we may take further steps to reduce costs. We believe many of our costs are variable in nature, such as raw materials and labor-related costs. Accordingly, we believe we can reduce such costs commensurate with any declines in our business.
General inflation levels have increased recently due in part to supply chain issues and geopolitical uncertainty. In addition, shortages of certain components, such as electronic components, have caused prices for available components to increase in some cases. These factors can be expected to have a negative impact on our costs; however, the magnitude of such an impact cannot be accurately determined. In response to these cost increases, in the first quarter of fiscal 2024, we increased the pricing for most of our products. The amount of the increase varies by product and ranged from approximately 5% to 10%.
Our revenues and results of operations have not been materially impacted by inflation or changing prices in the past two fiscal years, except as described below.
Results of Continuing Operations
For fiscal 2024, we recorded operating income of approximately $518,000 and for fiscal 2023, we recorded an operating loss of approximately $5.7 million. The improvement in operating results was driven primarily by significant increases in revenue for the Seamap product lines in addition to cost-saving efforts implemented in the current fiscal year.
Revenues and cost of sales from continued operations were as follows:
Year Ended January 31,
2024
2023
(in thousands)
Sale of marine technology products
$
36,510
$
25,012
36,510
25,012
Cost of sales
20,539
15,062
20,539
15,062
Gross profit
$
15,971
$
9,950
Gross profit margin
44
%
40
%
A significant portion of Seamap’s sales consist of large discrete orders, the timing of which is dictated by our customers. This timing generally relates to the availability of a vessel in port so that our products can be installed. Accordingly, there can be significant variation in sales from one period to another, which does not necessarily indicate a fundamental change in demand for these products. The gross profit and gross profit margins generated by sales of Seamap products were approximately $16.0 million and 44% during fiscal 2024 and approximately $10.0 million and 40% in fiscal 2023. The increase in gross profit margins between the periods is primarily due to incremental revenue and production activity resulting in higher absorption of fixed costs.
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Operating Expenses
Selling, general and administrative expenses for fiscal 2024 amounted to approximately $12.1 million, compared to approximately $12.9 million in 2023, respectively. In fiscal 2024 compared to fiscal 2023, the decrease of approximately 6% is primarily the result of reductions in headcount, compensation expense and other administrative costs due to cost reduction initiatives implemented in fiscal 2024.
Research and development costs were approximately $2.1 million in fiscal 2024 as compared to approximately $1.4 million in fiscal 2023. The increase in research and development spending was due primarily to development of the next generation of the Sealink product line.
We did not record a provision for credit losses in fiscal 2024 or fiscal 2023. On January 31, 2024, and 2023, we had trade accounts and note receivables over 180 days past due of approximately $51,000 and $349,000, respectively. Contractual payment terms vary by customer and by contract and, under certain circumstances, we may grant extended payment terms to our customers. In our industry, and in our experience, it is not unusual for accounts to become delinquent from time to time and this is not necessarily indicative of an account becoming uncollectable. As of January 31, 2024, and 2023, our allowance for credit losses receivable for continuing operations amounted to approximately $332,000.
Depreciation and amortization expense relates primarily to the depreciation of furniture and fixtures, office and manufacturing equipment and the amortization of intangible assets. Depreciation and amortization expense was approximately $1.2 million and $1.3 million for fiscal 2024 and 2023, respectively. The decrease in depreciation and amortization expense in fiscal 2024 is due primarily to tangible and intangible assets becoming fully depreciated during the current fiscal year.
We periodically evaluate the recoverability of our long-lived assets. As of January 31, 2024, we performed a qualitative analysis of our long-lived assets and determined that there were no indicators of impairment for fiscal 2024.
Other Income and Expense
In fiscal 2024, we recorded other expense of approximately $280,000, consisting of interest expense of approximately $675,000 related to the $3.75 million loan that was repaid, in full, in conjunction with the sale of Klein, partially offset by gains from sale of assets. In fiscal 2023, we recorded other income of approximately $256,000, consisting primarily of gains from sale of assets.
Provision for Income Taxes
Our provision for income taxes for continuing operations for fiscal 2024 was approximately $1.3 million compared to approximately $699,000 for fiscal 2023. These amounts differed from the result expected when applying the U.S. statutory rate of 21% to our income or loss from continuing operations before income taxes for the respective periods due primarily to the impact of income taxes accrued in certain foreign jurisdictions, primarily in Singapore, which do not have net operating losses available to offset taxable income, and because valuation allowances have been recorded against increases in our deferred tax assets. Valuation allowances have been provided against all deferred tax assets in the United States and several foreign jurisdictions.
Internal Controls
As of January 31, 2024, the Company’s executive officers determined that the Company’s internal control over financial reporting was not effective due to an identified material weakness. See Item 9A. Controls and Procedures for further details.
As of January 31, 2023, the Company’s executive officers determined that the Company’s internal control over financial reporting was not effective due to an identified material weakness. See Item 9A. Controls and Procedures for further details.
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Table of Contents
Results of Discontinued Operations
Revenues and cost of sales from discontinued operations were comprised of the following:
Year Ended January 31,
2024
2023
(in thousands)
Revenues:
Sales of Klein Equipment
3,315
10,079
3,315
10,079
Cost of sales:
Cost of sales
1,979
7,145
1,979
7,145
Gross profit
1,336
2,934
Operating expenses:
Selling, general and administrative
2,022
5,185
Depreciation and amortization
338
543
Total operating expenses
2,360
5,728
Operating loss
(1,024
)
(2,794
)
Other income, including $2.3 million gain on sale of Klein
2,415
81
Income (loss) before income taxes
1,391
(2,713
)
Provision for income taxes
(17
)
(26
)
Net income (loss)
1,374
(2,739
)
In the third quarter of fiscal 2024, we sold the Klein business and therefore present those operations as discontinued operations.
We recorded revenue of $3.3 million from discontinued operations during fiscal 2024, compared to approximately $10.1 million for fiscal 2023. The revenue recorded in fiscal 2024 and 2023 is from the discontinued operations of Klein. The drop in revenue is due to only seven months of activity in fiscal 2024 and several large multi-beam system sales in fiscal 2023, not recurring in fiscal 2024.
Costs of sales related to the discontinued operations of Klein dropped to approximately $2.0 million in fiscal 2024 from approximately $7.1 million reported in fiscal 2023. The reduction in direct costs is commensurate with the decline in revenue.
Selling, general and administrative costs related to the discontinued operations, primarily related to Klein, totaled approximately $2.0 million in fiscal 2024 compared to approximately $5.2 million during fiscal 2023. The decrease was due primarily to only seven months of activity in fiscal 2024 due to the sale of Klein on August 21, 2023.
Depreciation and amortization expense was approximately $338,000 in fiscal 2024 and approximately $543,000 for fiscal 2023. The decrease in depreciation and amortization expense in fiscal 2024 is due primarily to the sale of Klein on August 21, 2023.
In fiscal 2024 we recognized approximately $2.3 million of gain on the sale of Klein.
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Table of Contents
We recorded provision for income taxes of approximately $17,000 and $26,000 related to the discontinued operations of Klein in fiscal 2024 and fiscal 2023, respectively. The tax provision for the discontinued operations of Klein relates to state income tax varies from the expected provision based on the U.S. statutory rate due to the proration of profit and loss allocated to the state taxing jurisdiction.
Liquidity and Capital Resources
The Company has a history of generating operating losses and negative cash from operating activities and has relied on cash from the sale of lease pool equipment and the sale of Preferred Stock and Common Stock for the past several years. However, the Company’s operating results improved significantly in fiscal 2024 as compared to fiscal 2023 and prior years, generating net income from operations and positive Adjusted EBITDA for the fiscal year ended January 31, 2024. In addition, the Company sold its Klein business on August 21, 2023, generating net proceeds of approximately $7.3 million after settlement of closing cost and all outstanding amounts due and owed, including principal, interest, and other charges, on the Company’s $3.75 million loan. The sale of Klein increased the Company’s working capital and improved its liquidity situation.
As of January 31, 2024, the Company had working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, compared to working capital of approximately $13.3 million, including cash and cash equivalents of approximately $778,000, as of January 31, 2023. The Company does not have a credit facility in place and depends on cash on hand, cash flows from operations, and potential sales of remaining lease pool equipment to satisfy its liquidity needs.
The Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, potential financing secured by company owned real property, disciplined working capital commitments, and potentially securing a credit facility or some other form of financing.
In addition, management believes there are additional factors and actions available to the Company to address liquidity concerns, including the following:
•
The Company has no obligations or agreements containing “maintenance type” financial covenants.
•
The Company had working capital of approximately $18.1 million as of January 31, 2024, including cash of approximately $5.3 million.
•
Should revenues be less than projected, the Company believes it is able, and has plans in place, to reduce costs proportionately in an effort 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 recently eliminated two executive level positions, and additional reductions in operations, sales, and general and administrative headcount could be made, if deemed necessary by management.
•
The Company has a backlog of orders from continuing operations of approximately $38.4 million as of January 31, 2024, which is an increase of approximately 145% from the $15.7 million reported at January 31, 2023. Production for certain of these orders was in process and included in inventory as of January 31, 2024, thereby reducing the liquidity needed to complete the orders. Based largely on this backlog, Management expects the Company to produce positive operating income and EBITDA in fiscal 2025.
•
The Company declared and paid the quarterly dividend on its Preferred Stock for the first quarter of fiscal 2023, but deferred payment of the quarterly dividend for the first, second and fourth quarters of fiscal 2024 and the first quarter of fiscal 2025. The Company also has the option to defer future quarterly dividend payments if deemed necessary. The dividends are a cumulative dividend that accrue for payment in the future. During a deferral period, the Company is prohibited from paying dividends or distributions on its common stock or redeeming any of those shares. On March 25, 2024, the Company commenced the solicitation of proxies to approve an amendment to the Certificate of Designations, Preferences and Rights of its Series A Cumulative Preferred Stock to provide that, at the discretion of its Board of Directors deciding to file the Amendment with the Secretary of State of the State of Delaware at any time prior to July 31, 2024, each share of Series A Preferred Stock shall be converted into 2.7 shares of Common Stock upon the effective time of the Amendment. Holders of Series A Preferred Stock as of the record date of February 27, 2024 were entitled to vote at a Virtual Special Meeting of Preferred Stockholders to be held on April 25, 2024. The affirmative vote of two-thirds (66 2/3%) of the outstanding shares of Series A Preferred Stock was required for approval of the Preferred Stock Proposal. Holders of Common Stock were not entitled to vote at the Special Meeting. On April 24, 2024, the Company announced that its Board of Directors had postponed the Special Meeting and would determine a revised date for the Special Meeting, as well as a revised record date. When the Board of Directors establishes a new record date, the Company will deliver a new notice of the Special Meeting and an updated proxy statement, which will include a new proxy card.
•
In recent years, the Company has raised capital through the sale of Common Stock and Preferred Stock pursuant to the ATM Offering Program (as defined herein) and underwritten offerings on Form S-1. Currently, the Company is not eligible to issue securities pursuant to Form S-3 and accordingly cannot sell securities pursuant to the ATM Offering Program. However, the Company may sell securities pursuant to Form S-1 or in private transactions. Management expects to be able to raise further capital through these available means should the need arise.
•
The Company owns unencumbered real estate near Huntsville, Texas which could be used to generate capital if needed through a mortgage or sale lease transaction. The Company demonstrated its ability to do this through a secured lending transaction in early fiscal 2024, which was repaid from the proceeds from the sale of Klein. The appraised value of this property is approximately $5.0 million.
As of this date, under our Amended and Restated Certificate of Incorporation, we have 2,000,000 shares of Preferred Stock authorized, of which 1,682,985 are currently outstanding, leaving 317,015 available for future issuance. In addition, 40,000,000 shares of Common Stock are authorized, of which 1,405,779 are currently outstanding and 38,377 are reserved for issuance pursuant to our Amended and Restated Stock Awards Plan, leaving 38,555,844 available for future issuance. We believe these factors provide capacity for subsequent issues of Common Stock or Preferred Stock.
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Table of Contents
Due to the rising level of sales and production activities, there are increasing requirements for purchases of inventory and other production costs. Additionally, due to component shortages and long-lead times for certain items there are requirements in some cases to purchase items well in advance. Furthermore, some suppliers require prepayments in order to secure some items. All of these factors combine to increase the Company’s working capital requirements. Furthermore, Management believes there are opportunities to increase production capacity and efficiencies. However, some of these opportunities may require investments such as production equipment or other fixed assets. If we are unable to meet suppliers demands, we may not be able to produce products and fulfill orders from our customers.
The following table sets forth selected historical information regarding cash flows from our Consolidated Statements of Cash Flows:
Year Ended January 31,
2024
2023
(in thousands)
Net cash used in operating activities
$
(4,967
)
$
(2,905
)
Net cash provided by investing activities
11,018
470
Net cash used in financing activities
(1,535
)
(1,895
)
Effect of changes in foreign exchange rates on cash and cash equivalents
(5
)
(6
)
Net (decrease) increase in cash and cash equivalents
$
4,511
$
(4,336
)
As of January 31, 2024, we had working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, as compared to working capital of approximately $13.3 million, including cash and cash equivalents of approximately $778,000 at January 31, 2023. Our working capital increased during fiscal 2024 compared to fiscal 2023 , due primarily to increases in cash, accounts receivable and inventory and a decrease in accounts payable.
Cash Used In Operating Activities. Cash used in operating activities amounted to approximately $5.0 million in fiscal 2024, compared to approximately $2.9 million in fiscal 2023. In fiscal 2024, the primary sources of cash used in operating activities was the net change in working capital items, such as accounts receivable, inventories, prepaid assets, and accounts payable, totaling approximately $4.4 million.
Cash Flows From Investing Activities . Cash provided by investing activities during fiscal 2024 increased approximately $10.5 million over fiscal 2023, due primarily to proceeds from the sale of Klein totaling approximately $11.5 million.
Cash Flows From Financing Activities . Net cash used in financing activities during fiscal 2024 consisted of approximately $0.9 million of Preferred Stock dividend payments and approximately $600,000 of net outflows related to the borrowing and repayment of a short-term loan. Net cash used in financing activities during fiscal 2023 consisted of approximately $1.9 million of Preferred Stock dividend payments.
As of January 31, 2024, we have no funded debt and no obligations containing restrictive financial covenants. On February 2, 2023, we entered into a $3.75 million Loan and Security Agreement (“the Loan”). The Loan was due February 1, 2024, and bore interest at 12.9% per annum, payable monthly. However, the interest due through maturity and an origination fee equal to $240,000 were withheld from the proceeds issued by the Lender. The Loan was secured by mortgages on certain real estate owned by the Company and contained terms customary with this type of transaction, including representations, warranties, covenants, and reporting requirements. The terms of the Loan also allowed for prepayment at any time without penalty. On August 22, 2023, following the sale of Klein, all outstanding amounts due and owed, including principal, interest, and other charges, with respect to the Loan were repaid, in full.
We regularly evaluate opportunities to expand our business through the acquisition of other companies, businesses or product lines. If we were to make any such acquisitions, we believe they could generally be financed with a combination of cash on hand and cash flows from operations. However, should these sources of financing not be adequate, we may seek other sources of capital to fund future acquisitions. These additional sources of capital include bank credit facilities or the issuance of debt or equity securities.
We have determined that, due to the potential requirement for additional investment and working capital to achieve our objectives, the undistributed earnings of foreign subsidiaries are not deemed indefinitely reinvested outside of the United States as of January 31, 2024. Furthermore, we have concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial.
As of January 31, 2024, we had deposits in foreign banks equal to approximately $4.9 million, all of which we believe could be distributed to the United States without adverse tax consequences. However, in certain cases the transfer of these funds may result in withholding taxes payable to foreign taxing authorities. These factors could limit our ability to pay cash dividends in the future.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.
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Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in determining the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Critical accounting estimates made by us in the accompanying consolidated financial statements relate to the allowances for uncollectible accounts receivable and inventory obsolescence, and the impairment assessments of our various intangible assets.
Critical accounting estimates are those that are most important to the portrayal of a company’s financial position and results of operations and require management’s subjective judgment. Below is a brief discussion of our critical accounting estimates.
Allowance for Credit Losses
We make provisions to the allowance for credit losses based on a detailed review of outstanding receivable balances. Factors considered include the age of the receivable, the payment history of the customer, the general financial condition of the customer, any financial or operational leverage we may have in a particular situation and general industry conditions and reasonable and supportable forecasts. Our estimates are subject to uncertainty because financial information about our customers may not be public information or readily available, and the information that is available may not be current or verifiable. However, we have longstanding relationships with most of our Marine Technology business customers and can rely on internal collection history data which we believe is more predictable than most of the other sources of data we use for this purpose. We typically do not charge fees on past-due accounts, although we reserve the right to do so in most of our contractual arrangements with our customers and have done so from time to time. No additional allowance for credit losses related to continuing operations was recorded during fiscal 2024 or fiscal 2023. At January 31, 2024 and 2023, we had an allowance for credit losses of approximately $332,000 related to continuing operations receivables.
Inventory Obsolescence
We value our inventory based on our cost. We adjust the value of our inventory to the extent we determine that our cost cannot be recovered due to obsolescence or other factors. In order to make these determinations, we may use estimates of future demand for our products to determine appropriate inventory reserves and to make corresponding reductions in inventory values to reflect the lower of cost or market value. Our estimates related to inventory obsolescence are subject to uncertainty because many aspects of estimating future demand for our products are beyond our control and subject to change and variation. We are currently experiencing record levels of confirmed backlog of orders which makes the estimate of future demand more sure and less sensitive to changes beyond our control. For fiscal 2024, we increased our inventory obsolescence reserve for continuing operations by approximately $316,000. In fiscal 2023 we decreased our inventory obsolescence reserve for continuing operations by approximately $315,000 primarily due to write-offs of obsolete inventory.
Intangible Assets
Intangible assets consist primarily of proprietary rights, customer relationships, patents, trade names, developed software and other developed technology.
Intangible assets with finite lives are amortized over their estimated useful life on a straight-line basis. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period. We test these assets for potential impairment whenever our management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset’s useful life and the impact of an event or circumstance on either an asset’s useful life or carrying value involve significant judgment regarding estimates of the future cash flows associated with each asset. Our estimates of an asset’s useful life are subject to uncertainty because our intangible assets are unique and may differ from one to another by type, technology, or use, all of which may impact its estimated useful life. Likewise, if we perform quantitative analysis to determine the recoverability of the carrying value of an asset, our estimate is subject to uncertainty because cashflow projections involve numerous assumptions, many of which are beyond our control. However, due to the Company’s improving financial results our facts and circumstances do not mandate quantitative analysis.
For fiscal 2024 and fiscal 2023, management did not identify any events or changes in circumstances that indicated that the carrying amount may not be recoverable. As a result, no charge for impairment was recorded for fiscal 2024 or fiscal 2023.
Significant Accounting and Disclosure Changes
See Note 3 - “New Accounting Pronouncements” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not required under Item 305 Regulation S-K for smaller reporting companies.
Item 8. Financial Statements and Supplementary Data
The information required by this Item appears beginning on page F-1 and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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