Item 9A. Controls and Procedures
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 officer 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. Management has identified a material weakness involving the Company’s controls over the existence of inventory at its subsidiary location in Singapore. The Company performed less-than-complete physical inventory at year-end because it placed reliance on other compensating controls during the year, including cycle counts and controls involving receipt and disbursement of inventory. However, due to the material value of inventory items not counted at yearend, management determined that reliance on other compensating controls was insufficient to ensure there is not a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected in a timely basis.
As described below, the Company will implement changes to internal control procedures over the existence of inventory. Notwithstanding the material weakness described above, the Company’s management, including our principal executive officer and principal financial officer, have concluded that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company's financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
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 in 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 required by Rule 13a-15(c) under the Exchange Act, our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of January 31, 2024. 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, identified a material weakness involving the Company’s control over the existence of inventory at its subsidiary location in Singapore. The annual physical count of the subsidiary’s inventory was limited to items with an extended value greater than $5,000, so all the inventory at the subsidiary location was not counted. The Company performed less-than-complete physical inventory at year-end because it placed reliance on other compensating controls during the year, including cycle counts and controls involving receipt and disbursement of inventory. However, due to the material value of inventory items not counted at yearend, management determined that reliance on other compensating controls was insufficient to ensure there is not a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected in a timely basis.. Solely as a result of such material weakness, the Company’s executive officers determined that the Company’s internal control over financial reporting was not effective at the reasonable assurance level as of January 31, 2024.
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, 2023, we had a material weakness in our controls over financial reporting because of the Company's failure to perform a sufficient level of review related to the aggregation of operating segments, which resulted in a misapplication of ASC 280, Segment Reporting, as identified by the Company’s auditors during the audit of our financial statements for the fiscal year ended January 31, 2023.
Remediation Plan for the Material Weakness in Internal Control over Financial Reporting
To address the material weakness regarding controls over the existence of inventory, the Company will implement and reinforce the following:
●
Implement a robust cycle count process at its subsidiary location in Singapore,
●
Reinforce the importance of proper cycle counts through policy statements, regular communications and in periodic reviews and meetings with managers and staff, and
●
Ensure adequate review and oversight of cycle count procedures and results.
The Company anticipates the actions described above and resulting improvements in controls will strengthen the Company's processes, procedures and controls related to the existence of inventory and will address the related material weakness described above. However, the material weakness cannot be considered fully remediated until the remediation processes have been in operation for a period of time and successfully tested.
Remediation of the Material Weakness in Internal Control over Financial Reporting
During fiscal 2024, management implemented our previously disclosed remediation plan that included reinforcing an executive level of review of the Company's technical accounting matters:
In connection with its assessment of the effectiveness of our internal control over financial reporting as of January 31, 2024, our management, including our principal executive officer and principal financial officer, concluded that the material weakness involving the Company’s review controls to ensure the proper application of generally accepted accounting principles (ASC 280, Segment Reporting) has been remediated as of January 31, 2024.
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 fiscal year ended January 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Not Applicable.
31
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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 2024 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2024.
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 officer, 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 550, 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 2024 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2024.
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 2024 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2024.
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 2024 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2024.
Item 14. Principal Accountant 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 2024 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2024.
32
Table of Contents
PART IV
Item 15. Exhibit and 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-1.
(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
Form
Exhibit
Reference
2.1
Agreement and Plan of Merger dated as of August 3, 2020, by and between Mitcham Industries, Inc. and MIND Technology, Inc.
Current Report on Form 8-K, filed with the SEC on August 7, 2020.
2.1
3.1
Amended and Restated Certificate of Incorporation of MIND Technology, Inc.
Current Report on Form 8-K, filed with the SEC on August 7, 2020.
3.3
3.2
Certificate of Amendment of Certificate of Incorporation of MIND Technology, Inc., effective as of October 12, 2023.
Current Report on Form 8-K, filed with the SEC on October 13, 2023.
3.1
3.3
Amended and Restated Bylaws of MIND Technology, Inc..
Current Report on Form 8-K, filed with the SEC on August 7, 2020.
3.4
3.4
Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock
Current Report on Form 8-K, filed with the SEC on August 7, 2020.
3.5
3.5
Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock
Form 8-K filed with the SEC on September 25, 2020.
3.1
3.6
Second Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock
Registration Statement on Form S-1, filed with the SEC on October 25, 2021
3.5
3.7
Third Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock
Form 8-K filed with the SEC on November 4, 2021.
3.3
3.8
Fourth Certificate of Amendment of Certificate of Designations, Preferences and Rights of MIND Technology, Inc. 9.00% Series A Cumulative Preferred Stock effective as of October 12, 2023
Current Report on Form 8-K, filed with the SEC on October 13, 2023.
3.2
3.9
Texas Certificate of Merger, effective as of August 3, 2020
Current Report on Form 8-K, filed with the SEC on August 7, 2020.
3.1
3.10
Delaware Certificate of Merger, effective as of August 3, 2020
Current Report on Form 8-K, filed with the SEC on August 7, 2020
3.2
4.1†
Description of Securities
33
Table of Contents
Exhibit
Number
Document Description
Form
Exhibit
Reference
10.1*
Mitcham Industries, Inc. Amended and Restated Stock Awards Plan
Definitive Proxy Statement on Schedule 14A filed with the SEC on May 31, 2013.
Appendix A
10.2*
First Amendment to the Mitcham Industries, Inc. Amended and Restated Stock Awards Plan
Definitive Proxy Statement on Schedule 14A filed with the SEC on May 16, 2016.
Appendix A
10.3*
Second Amendment to the Mitcham Industries, Inc. Amended and Restated Stock Awards Plan
Form S-8 filed with the SEC on September 5, 2019.
4.5
10.4*
Third Amendment to the Mitcham Industries, Inc. Amended and Restated Stock Awards Plan
Definitive Proxy Statement on Schedule 14A filed with the SEC on May 28, 2021.
Appendix A
10.5*
Form of Nonqualified Stock Option Agreement under the Mitcham Industries, Inc. Stock Awards Plan
Report on Form 10-Q for the quarter ended July 31, 2006, filed with the SEC on September 12, 2006.
10.3
10.6*
Form of Restricted Stock Agreement under the Mitcham Industries, Inc. Stock Awards Plan
Report on Form 10-Q for the quarter ended July 31, 2006, filed with the SEC on September 12, 2006.
10.4
10.7*
Form of Incentive Stock Option Agreement under the Mitcham Industries, Inc. Stock Awards Plan
Report on Form 10-Q for the quarter ended July 31, 2006, filed with the SEC on September 12, 2006.
10.5
10.8*
Form of Restricted Stock Agreement (Stock Awards Plan)
Current Report on Form 8-K, filed with the SEC on September 8, 2004.
10.1
10.9*
Form of Nonqualified Stock Option Agreement (Stock Awards Plan)
Current Report on Form 8-K, filed with the SEC on September 8, 2004.
10.2
10.10*
Form of Incentive Stock Option Agreement (Stock Awards Plan)
Current Report on Form 8-K, filed with the SEC on September 8, 2004.
10.4
10.11*
Form of Phantom Stock Award Agreement (Stock Awards Plan)
Current Report on Form 8-K, filed with the SEC on September 8, 2004.
10.5
34
Table of Contents
Exhibit
Number
Document Description
Form
Exhibit
Reference
10.12*
Form of Stock Appreciation Rights Agreement (Stock Awards Plan)
Current Report on Form 8-K, filed with the SEC on September 8, 2004.
10.6
10.13*
Form of Incentive Stock Option Agreement (2000 Stock Option Plan)
Current Report on Form 8-K, filed with the SEC on September 8, 2004.
10.7
10.14*
Form of Nonqualified Stock Option Agreement (2000 Stock Option Plan)
Current Report on Form 8-K, filed with the SEC on September 8, 2004.
10.8
10.15*
Summary of Non-Employee Director Compensation
Annual Report on Form 10-K for the year ended January 31, 2022, filed with the SEC on April 29, 2022
10.15
10.16*
Employment Agreement between the Company and Robert P. Capps, dated September 11, 2017
Current Report on Form 8-K, filed with the SEC on September 15, 2017.
10.1
10.17
Amended and Restated Equity Distribution Agreement, dated as of September 25, 2020, by and between MIND Technology, Inc. and Ladenburg Thalmann & Co. Inc.
Current Report on Form 8-K, filed with the SEC on September 25, 2020.
1.1
10.18
Separation and Release Agreement, dated the Effective Date, between the Company and Dennis P. Morris.
Current Report on Form 8-K, filed with the SEC on April 20, 2022.
10.1
10.19
Loan and Security Agreement, dated February 2, 2023, between the Borrowers and Sachem Capital Corp.
Current Report on Form 8-K, filed with the SEC on February 8, 2023.
10.1
10.20
Stock Purchase Agreement, dated August 21, 2023
Current Report on Form 8-K, filed with the SEC on August 25, 2023.
10.1
21.1†
Subsidiaries of MIND Technology, Inc.
23.1†
Consent of Moss Adams LLP
31.1†
Certification of Robert P. Capps, 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 Mark A. Cox, Chief Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
32.1†
Certification of Robert P. Capps, Chief Executive Officer, under Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. § 1350
32.2†
Certification of Mark A. Cox, Chief Financial Officer, under Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. § 1350
35
Table of Contents
Exhibit
Number
Document Description
Form
Exhibit
Reference
101.INS†
Inline XBRL Instance Document
101.SCH†
Inline XBRL Taxonomy Extension Schema Document
101.CAL†
Inline XBRL Taxonomy Extension Calculation of Linkbase Document
101.DEF†
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE†
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)
Item 16. Form 10-K Summary
Not applicable.
36
Table of Contents
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 30th day of April 2024.
MIND TECHNOLOGY, INC.
By:
/s/ ROBERT P. CAPPS
Robert P. Capps
President, Chief Executive Officer and Director
(Principal Executive 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/ ROBERT P. CAPPS
President, Chief Executive Officer
and Director
April 30, 2024
Robert P. Capps
(Principal Executive Officer)
/s/ MARK A. COX
Vice President and Chief Financial Officer
April 30, 2024
Mark A. Cox
(Principal Financial Officer and Principal Accounting Officer)
/s/ PETER H. BLUM
Non-Executive Chairman of the Board of Directors
April 30, 2024
Peter H. Blum
/s/ THOMAS S. GLANVILLE
Director
April 30, 2024
Thomas S. Glanville
/s/ WILLIAM H. HILARIDES
Director
April 30, 2024
William H. Hilarides
/s/ ALAN P. BADEN
Director
April 30, 2024
Alan P. Baden
37
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , Houston, Texas , PCAOB ID: 659 )
2
Consolidated Balance Sheets as of January 31, 2024 and 2023
4
Consolidated Statements of Operations for the Years Ended January 31, 2024 and 2023
5
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended January 31, 2024 and 2023
6
Consolidated Statements of Changes in Stockholders ’ Equity for the Years Ended January 31, 2024 and 2023
7
Consolidated Statements of Cash Flows for the Years Ended January 31, 2024 and 2023
8
Notes to Consolidated Financial Statements
9
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
The Stockholders and the Board of Directors
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, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), changes in 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, 2024 and 2023, 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.
F-2
Table of Contents
Critical Audit Matters
Critical audit matters 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 financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Moss Adams LLP
Houston, Texas
April 30, 2024
We have served as the Company’s auditor since 2017.
F-3
Table of Contents
MIND TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
January 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$ 5,289 $ 778
Accounts receivable, net of allowance for credit losses of $ 332 and $ 332 at January 31, 2024 and 2023, respectively
6,566 3,247
Inventories, net
13,371 11,026
Prepaid expenses and other current assets
3,113 1,400
Current assets of discontinued operations
— 5,783
Total current assets
28,339 22,234
Property and equipment, net
818 953
Operating lease right-of-use assets
1,324 1,749
Intangible assets, net
2,888 3,633
Deferred tax asset
122 —
Long-term assets of discontinued operations
— 4,289
Total assets
$ 33,491 $ 32,858
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$ 1,623 $ 2,494
Deferred revenue
203 144
Accrued expenses and other current liabilities
5,586 1,477
Income taxes payable
2,114 1,493
Operating lease liabilities - current
751 903
Current liabilities of discontinued operations
— 2,420
Total current liabilities
10,277 8,931
Operating lease liabilities - non-current
573 846
Deferred tax liability
— 29
Total liabilities
10,850 9,806
Stockholders’ equity:
Preferred stock, $ 1.00 par value; 2,000 shares authorized; 1,683 shares issued and outstanding at each January 31, 2024, and 2023
37,779 37,779
Common stock $ 0.01 par value; 40,000 shares authorized; 1,406 and 1,599 shares issued at January 31, 2024 and 2023, respectively
14 16
Additional paid-in capital
113,121 129,721
Treasury stock, at cost ( 0 and 193 shares at January 31, 2024 and 2023, respectively)
— ( 16,863 )
Accumulated deficit
( 128,307 ) ( 127,635 )
Accumulated other comprehensive gain
34 34
Total stockholders’ equity
22,641 23,052
Total liabilities and stockholders’ equity
$ 33,491 $ 32,858
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
MIND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended January 31,
2024
2023
Revenues:
Sale of marine technology products
$ 36,510 $ 25,012
Cost of sales:
Sale of marine technology products
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 )
Other (expense) income
( 280 ) 256
Income (loss) from continuing operations before income taxes
238 ( 5,394 )
Provision for income taxes
( 1,338 ) ( 699 )
Loss from continuing operations
( 1,100 ) ( 6,093 )
Income (loss) from discontinued operations, net of income taxes
1,374 ( 2,739 )
Net income (loss)
$ 274 $ ( 8,832 )
Preferred stock dividends - declared
( 946 ) ( 947 )
Preferred stock dividends - undeclared
( 2,842 ) ( 2,841 )
Net loss attributable to common stockholders
$ ( 3,514 ) $ ( 12,620 )
Net (loss) income per common share - Basic and diluted
Continuing operations
$ ( 3.48 ) $ ( 7.03 )
Discontinued operations
$ 0.98 $ ( 1.95 )
Net loss
$ ( 2.50 ) $ ( 8.98 )
Basic
1,406 1,405
Diluted
1,406 1,405
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
MIND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year Ended January 31,
2024
2023
Net income (loss)
$ 274 $ ( 8,832 )
Change in cumulative translation adjustment for liquidation of entities held for sale
$ — $ 1,915
Comprehensive income (loss)
$ 274 $ ( 6,917 )
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
MIND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY
(In thousands)
Year Ended January 31, 2023 and 2024
Common Stock
Preferred Stock
Retained
Accumulated
Additional
Earnings
Other
Paid-In
Treasury
(Accumulated
Comprehensive
Shares
Amount
Shares
Amount
Capital
Stock
Deficit)
Income (Loss)
Total
Balances, January 31, 2022
1,597 16 1,683 37,779 129,067 ( 16,862 ) ( 117,856 ) ( 1,881 ) 30,263
Net loss
— — — — ( 8,832 ) — ( 8,832 )
Foreign currency translation
— — — — — — — 1,915 1,915
Restricted stock issued
2 — — — — — — — —
Restricted stock forfeited for taxes
— — — — — ( 1 ) — — ( 1 )
Preferred stock dividends
— — — — — — ( 947 ) — ( 947 )
Stock-based compensation
— — — — 654 — — — 654
Balances, January 31, 2023
1,599 16 1,683 37,779 129,721 ( 16,863 ) ( 127,635 ) 34 23,052
Net income
— — — — — — 274 — 274
Preferred stock dividends
— — — — — — ( 946 ) — ( 946 )
Retirement of treasury stock
( 193 ) ( 2 ) — — ( 16,861 ) 16,863 — — —
Stock-based compensation
— — — — 261 — — — 261
Balances, January 31, 2024
1,406 14 1,683 37,779 113,121 — ( 128,307 ) 34 $ 22,641
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
MIND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended January 31,
2024
2023
Cash flows from operating activities:
Net income (loss)
$ 274 $ ( 8,832 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization
1,516 1,887
Stock-based compensation
261 654
Non-cash cumulative translation adjustment for discontinued operations
— 1,626
Gain on sale of Klein
( 2,343 ) —
Provision for inventory obsolescence
341 445
Gross profit from sale of other equipment
( 476 ) ( 939 )
Deferred tax benefit
( 153 ) ( 62 )
Changes in:
Accounts receivable
( 3,343 ) 4,890
Unbilled revenue
25 ( 26 )
Inventories
( 3,601 ) ( 1,756 )
Income taxes receivable and payable
635 441
Accounts payable, accrued expenses and other current liabilities
( 334 ) 775
Prepaid expenses and other current and long-term assets
( 847 ) ( 10 )
Deferred revenue
3,078 ( 1,998 )
Net cash used in operating activities
( 4,967 ) ( 2,905 )
Cash flows from investing activities:
Cost incurred to develop technology
( 49 ) ( 12 )
Purchases of property and equipment
( 241 ) ( 570 )
Sale of other assets
476 1,052
Proceeds from the sale of Klein, net
10,832 —
Net cash provided by investing activities
11,018 470
Cash flows from financing activities:
Net proceeds from short-term loan
2,947 —
Payment on short-term loan
( 3,750 ) —
Refund of prepaid interest on short-term loan
214
Repurchase of common stock
— ( 1 )
Preferred stock dividends
( 946 ) ( 1,894 )
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 increase (decrease) in cash and cash equivalents
4,511 ( 4,336 )
Cash and cash equivalents, beginning of period
778 5,114
Cash and cash equivalents, end of period
$ 5,289 $ 778
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
MIND Technology, Inc.
Notes to Consolidated Financial Statements
1. Organization, Liquidity and Summary of Significant Accounting Policies
Organization —MIND Technology, Inc., a Delaware corporation (the “Company”), was incorporated in 1987. The Company, through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC, Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd, collectively “Seamap”, 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 state of Texas. Prior to August 21, 2023, the Company, through its wholly owned subsidiary Klein Marine Systems, Inc. (“Klein”), designed, manufactured and sold a broad range of proprietary products for the seismic, hydrographic and offshore industries from its facility in the state of New Hampshire. Effective August 21, 2023, the Company sold Klein and retrospectively presented its prior periods balance sheet activity as assets and liabilities of discontinued operations and the financial results reported as discontinued operations (see Note 2 – “Sale of a Subsidiary and Discontinued Operations” for additional details).
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 and cash flows from operations to satisfy its liquidity needs. However, 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, disciplined working capital management, potential financing secured by company owned real property, and potentially securing a credit facility or some other form of financing.
Revenue Recognition of Marine Product Sales —Revenues and cost of sales from the sale of marine products are recognized upon acceptance of terms and completion of our performance obligations, which is typically when delivery has occurred, or in the case of bill-and-hold arrangements, when control has been transferred.
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 Repair Services and Equipment Upgrades —Revenue and cost of sales from the provision of repair services and equipment upgrades are recognized “over time” pursuant to the practical expedient under which revenue is recognized when invoiced.
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 2024 and 2023 were not material and as a result are not presented separately in the financial statements.
Allowance for Credit Losses —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.
Inventories —Inventories are stated at the lower of cost or realizable value. The Company determines cost on the basis of Average or Standard Cost. An allowance for obsolescence is maintained to reduce the carrying value of any inventory items that may become obsolete. Inventories are periodically monitored to ensure that the allowance for obsolescence covers any obsolete items.
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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 estimated useful life or the life of the respective leases. No salvage value is assigned to property and equipment. Significant improvements are capitalized while maintenance and repairs are charged to expense as incurred.
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 and non-amortizing 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 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 indefinite lived assets is greater than their carrying value. If the Company is unable to conclude qualitatively that it is more likely than not that an indefinite lived asset’s fair value exceeds its carrying value, then the Company performs a quantitative assessment of fair value of the indefinite lived asset. The quantitative reviews involve significant estimates on the part of management.
Product Warranties —Seamap provides its customers warranties against defects in materials and workmanship generally for a period of three months after delivery of the product. For fiscal 2024 and 2023, 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 to 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
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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 credit losses, inventory obsolescence, lease liabilities, 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.
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Substantial judgment is necessary in the determination of the appropriate levels for the Company’s allowance for credit losses 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 credit losses could change in the future, and such change could be material to the financial statements taken as a whole. The Company must also make judgments with respect to quantitative analysis prepared in conjunction with impairment analysis related to 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.
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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 intangibles and other long-lived assets on a non-recurring basis if required by impairment tests applicable to these assets. Based on the results of our qualitative reviews, no quantitative tests were applicable during fiscal years 2024 and 2023.
Foreign Currency Translation —All balance sheet accounts of the Canadian subsidiary for fiscal 2024 and 2023 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.
Leases —The Company determines if an arrangement is a lease at inception. Operating leases are recorded as right-of-use assets and operating lease liabilities. The Company has not entered into any financing leases.
Operating lease right-of-use assets represent a right to use an underlying asset for the lease term and operating lease right-of-use liabilities represent an obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term and use an implicit rate when readily available. Since most of the Company’s leases do not provide an implicit rate the Company utilizes the incremental borrowing rate to determine the present value of lease payments. The rate will take into consideration the underlying asset’s economic environment, including the length of the lease term and currency that the lease is payable in. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
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. The fair value of stock-based compensation awards is amortized over the requisite service period of the award, which is the vesting period of the related awards.
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 fiscal 2024 and 2023, 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,
2024
2023
(in thousands)
Stock options
— —
Restricted stock
— —
Total dilutive shares
— —
For fiscal 2024 and 2023 , respectively, potentially dilutive common shares, were immaterial and did not change the calculation of diluted loss per share for those periods.
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2. Sale of a Subsidiary 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 its results of operations are reported as discontinued operations as of January 31, 2023 and for the year then ended. The Company originally anticipated selling the discontinued operations in multiple transactions, potentially involving the sale of legal entities, assets, or a combination of both, within the twelve months ending July 31, 2021. As of January 31, 2023, we have substantially completed the sale of discontinued operations related to the Leasing Business.
On August 21, 2023, the Company sold Klein pursuant to a Stock Purchase Agreement (the “SPA”) with General Oceans AS (“the Buyer"). In connection with the SPA, the Company granted the Buyer a license to its Spectral Ai software suite (“Spectral Ai”). The license is exclusive to the Buyer as it relates to side scan sonar. The Company and the Buyer also entered into a collaboration agreement for the further development of Spectral Ai and potentially other software projects. The foregoing transactions contemplated by the SPA are referred to as the “Sale of Klein”. The aggregate consideration to the Company consisted of a cash payment of $ 10.8 million, resulting in a gain of approximately $ 2.4 million. The SPA contained customary representation and warranties. On August 22, 2023, following the closing of the Sale of Klein, all outstanding amounts due and owed, including principal, interest, and other charges, under the Loan were repaid in full and the Loan was terminated, and all liens and security interests granted thereunder were released and terminated (see Note 11 - "Notes Payable" for additional details). As a result of the sale, the assets, and liabilities of Klein, are considered assets and liabilities of discontinued operations in prior periods and its results of operations are reported as discontinued operations for the years ended January 31, 2024 and 2023.
The assets reported as discontinued operations consist of the following:
As of January 31,
2024
2023
Assets of discontinued operations:
(in thousands)
Accounts receivable, net
$ — $ 746
Inventories, net
— 4,292
Prepaid expenses and other current assets
— 745
Total current assets of discontinued operations
— 5,783
Property, plant and equipment, net
— 2,992
Intangible and other assets, net
— 1,297
Total assets of discontinued operations
$ — $ 10,072
The liabilities of discontinued operations consist of the following:
As of January 31,
2024
2023
Current liabilities of discontinued operations:
(in thousands)
Accounts payable
$ — $ 1,607
Deferred revenue
— 20
Accrued expenses and other current liabilities
— 769
Income taxes payable
— 24
Total current liabilities of discontinued operations
$ — $ 2,420
The results of operations from discontinued operations for the twelve months ended January 31, 2024 and 2023 , consist of the following:
Twelve Months Ended January 31,
2024
2023
Revenues:
(in thousands)
Revenue from discontinued operations
$ 3,315 $ 10,079
Cost of sales:
Cost of discontinued operations
1,979 7,145
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 from discontinued operations
1,391 ( 2,713 )
Provision for income taxes from discontinued operations
( 17 ) ( 26 )
Net income (loss) from discontinued operations
1,374 ( 2,739 )
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The significant operating and investing noncash items and capital expenditures related to discontinued operations are summarized below:
Twelve Months Ended January 31,
2024
2023
(in thousands)
Depreciation and amortization
$ 338 $ 543
Gross profit from sale of other equipment
$ — $ 939
Gain on sale of Klein
$ 2,343 $ —
Non-cash cumulative translation loss for discontinued operations
$ — $ 1,626
In fiscal 2023, our discontinued operations recognized a loss of approximately $ 1.6 million related to cumulative currency translation adjustments related to our subsidiary, Mitcham Canada, which was declared a discontinued entity. In addition, our discontinued operations recognized gains of approximately $ 939,000 related to the sales of lease pool equipment in fiscal 2023.
3. New Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (ASU) 2016 - 13, Financial Instruments-Credit Losses (Topic 326 ), which changes the existing incurred loss impairment model for financial assets held at amortized cost. The new model uses a forward-looking expected loss method to calculate credit loss estimates. ASU 2016 - 13 and its amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, though early adoption was permitted. The Company adopted the requirements of ASU 2016 - 13 as of February 1, 2023, on a modified retrospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures, to enhance the disclosures public entities provide regarding significant segment expenses so that investors can better understand an entity’s overall performance and assess potential future cash flows. ASU 2023 - 07 will become effective February 1, 2024. The Company is currently evaluating the new guidance to determine the impact it will have on the disclosures to its consolidated financial statements.
In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures (“ASU 2023 - 09” ). ASU 2023 - 09 seeks to improve transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. The updated guidance is effective for the Company on February 1, 2025. The Company is currently evaluating the new guidance to determine the impact it will have on the disclosures to its consolidated financial statements.
4. Revenue from Contracts with Customers
The following table presents revenue from contracts with customers disaggregated by timing of revenue recognition:
Twelve Months Ended January 31,
2024
2023
(in thousands)
Total revenue recognized at a point in time
$ 35,556 $ 22,544
Total revenue recognized over time
954 2,468
Total revenue from contracts with customers
$ 36,510 $ 25,012
The revenue from products manufactured and sold by our Seamap 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. However, from time to time our Seamap business provides repair and maintenance services, or performs upgrades, on customer owned equipment in which case revenue is recognized over time. In addition, our Seamap business provides annual Software Maintenance Agreements (“SMA”) to customers who have an active license for software embedded 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,
2024
2023
Revenue from contracts with customers:
(in thousands)
United States
$ 1,250 $ 1,986
Europe
20,248 11,836
Asia-Pacific
12,399 10,755
Other
2,613 435
Total revenue from contracts with customers
$ 36,510 $ 25,012
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As of January 31, 2024 and 2023 contract assets and liabilities consisted of the following:
January 31, 2024
January 31, 2023
Contract Assets:
(in thousands)
Unbilled revenue-current
$ 26 $ 2
Total unbilled revenue
$ 26 $ 2
Contract Liabilities:
Deferred revenue & customer deposits - current
$ 3,649 $ 571
Total deferred revenue & customer deposits
$ 3,649 $ 571
Considering the products manufactured and sold by our Seamap 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 contracts 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.
5. Supplemental Statements of Cash Flows Information
Supplemental disclosures of cash flows information for fiscal 2024 and 2023 were as follows (in thousands):
Year Ended January 31,
2024
2023
Interest paid
$ 634 $ 4
Income taxes paid, net
847 371
6. Inventories
Inventories from continuing operations consisted of the following (in thousands):
As of January 31,
2024
2023
Raw materials
$ 8,730 $ 6,798
Finished goods
2,463 2,744
Work in progress
3,709 2,699
Cost of inventories
14,902 12,241
Less allowance for obsolescence
( 1,531 ) ( 1,215 )
Net inventories
$ 13,371 $ 11,026
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7. Property and Equipment
Property and equipment from continuing operations consisted of the following (in thousands)
As of January 31,
2024
2023
Furniture and fixtures
8,868 8,739
Autos and trucks
287 341
Land and buildings
997 997
Cost of property and equipment
10,152 10,077
Less accumulated depreciation
( 9,334 ) ( 9,124 )
Net book value of property and equipment
$ 818 $ 953
Depreciation expense on property, plant and equipment was approximately $ 383,000 for fiscal 2024 , and approximately $ 471,000 for fiscal 2023 .
Location of property and equipment (in thousands):
As of January 31,
2024
2023
United States
$ 199 $ 174
Europe
60 44
Singapore
147 154
Malaysia
412 581
Net book value of property and equipment
$ 818 $ 953
8. Leases
The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in Texas, Singapore, Malaysia and United Kingdom. Our lease obligation in Canada was terminated as of March 31, 2022 and our lease obligation in Hungary was terminated as of October 31, 2022.
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Lease expense for the twelve months ended January 31, 2024 and 2023 was approximately $ 831,000 and $ 858,000 , respectively, and was recorded as a component of operating income (loss). Included in these costs was short-term lease expense of approximately $ 8,000 and $ 6,000 for the twelve months ended January 31, 2024 and 2023 , respectively.
Supplemental balance sheet information related to leases as of January 31, 2024 and 2023 was as follows (in thousands):
As of January 31,
Lease
2024
2023
Assets
Operating lease right-of-use assets
$ 1,324 $ 1,749
Liabilities
Operating lease liabilities
$ 1,324 $ 1,749
Classification of lease liabilities
Current liabilities
$ 751 $ 903
Non-current liabilities
573 846
Total Operating lease liabilities
$ 1,324 $ 1,749
Lease-term and discount rate details as of January 31, 2024 and 2023 were as follows:
As of January 31,
Lease term and discount rate
2024
2023
Weighted average remaining lease term (years)
Operating leases
1.40 1.98
Weighted average discount rate:
Operating leases
13 % 13 %
Supplemental cash flow information related to leases on January 31, 2024 and 2023 was as follows (in thousands):
As of January 31,
Lease
2024
2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$ ( 831 ) $ ( 858 )
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases
$ 409 $ 819
Maturities of lease liabilities on January 31, 2024 and 2023 were as follows (in thousands):
As of January 31,
2024
2023
2025
$ 753 $ 903
2026
343 574
2027
235 274
2028
232 188
2029
34 188
Thereafter
— 16
Total payments under lease agreements
$ 1,597 $ 2,143
Less: imputed interest
( 273 ) ( 394 )
Total lease liabilities
$ 1,324 $ 1,749
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9. Intangible Assets
Intangible assets from continuing operations consisted of the following:
January 31, 2024
January 31, 2023
Weighted
Average
Gross
Net
Gross
Net
Life at
Carrying
Accumulated
Carrying
Carrying
Accumulated
Carrying
1/31/2024
Amount
Amortization
Amount
Amount
Amortization
Amount
(in thousands)
(in thousands)
Proprietary rights
4.8 $ 7,473 $ ( 5,053 ) 2,420 $ 7,473 $ ( 4,612 ) 2,861
Customer relationships
0.1 4,884 ( 4,852 ) 32 4,884 ( 4,754 ) 130
Patents
1.3 2,540 ( 2,190 ) 350 2,540 ( 2,027 ) 513
Trade name
2.3 134 ( 108 ) 26 134 ( 97 ) 37
Other
0.3 426 ( 366 ) 60 375 ( 283 ) 92
Amortizable intangible assets
$ 15,457 $ ( 12,569 ) $ 2,888 $ 15,406 $ ( 11,773 ) $ 3,633
The Company did not record impairment of intangible assets during fiscal years 2024 and 2023 .
Aggregate amortization expense was approximately $ 795,000 and $ 873,000 for fiscal 2024 and fiscal 2023 , respectively. As of January 31, 2024 , future estimated amortization expense related to amortizable intangible assets is estimated to be (in thousands):
For fiscal year ending January 31:
2025
$ 614
2026
520
2027
381
2028
315
2029
213
Thereafter
845
Total
$ 2,888
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10. 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,
2024
2023
Wages and benefits
686 621
Customer deposits
3,447 215
Accrued inventory
621 69
Other
832 572
Accrued Expenses and Other Liabilities
$ 5,586 $ 1,477
11. Notes Payable
On February 2, 2023, we entered into a $ 3.75 million Loan and Security Agreement (“the Loan”). The Company had incurred approximately $ 814,000 of debt acquisition costs associated with the loan including approximately $ 254,000 in origination and other transaction fees and approximately $ 484,000 of prepaid interest, which was the total interest due through maturity. These costs were recorded as a reduction to the carrying value of our debt and are amortized to interest expense straight-line over the term of the Loan. Approximately $ 601,000 of amortization of debt acquisition costs were recorded as interest expense for the twelve months ended January 31, 2024. On August 22, 2023, in connection with the Sale of Klein, the Loan was repaid in full (see Note 2 - "Sale of a Subsidiary and Discontinued Operations" for additional details).
12. 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, 2024 and 2023, there were 1,682,985 shares of the Series A Preferred Stock outstanding. 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 therefore 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 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. As of January 31, 2024, the aggregate liquidation preference on preferred shares was approximately $ 47.7 million, including $ 5.7 million of cumulative undeclared dividends. 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. As of January 31, 2024, preferred stock dividends have not been declared for a cumulative of six quarters.
On September 28, 2023, the Board approved a reverse stock split (the "Reverse Stock Split") of the Company's shares of common stock at a ratio of one -for-ten. On October 12, 2023, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Charter Amendment to effect the Reverse Stock Split. The Charter Amendment became effective on October 13, 2023.
As a result of the Charter Amendment and Reverse Stock Split, every ten shares of issued and outstanding Common Stock were combined into one issued and outstanding share of Common Stock, without any change in par value per share. Proportionate adjustments were also made to any outstanding securities or rights convertible into, or exchangeable or exercisable for, shares of Common Stock. Fractional shares were not issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to receive a fractional share were entitled to receive one full share of post-Reverse Stock Split Common Stock, in lieu of receiving such fractional shares. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s relative interest in the Company’s equity securities. The Reverse Stock Split reduced the number of shares of issued and outstanding Common Stock from approximately 13,788,738 shares to approximately 1,405,779 shares. Common stock and treasury stock shares have been retroactively adjusted to reflect the Reverse Stock Split in all periods presented. In connection with the Reverse Stock Split, the Company retired all treasury stock.
The Company has 40,000,000 shares of Common Stock authorized, of which 1,405,779 and 1,599,053 were issued as of January 31, 2024 and 2023 . Treasury shares as of January 31, 2023 were 193,274 .
During fiscal 2023, approximately 220 shares were surrendered in exchange for payment of taxes due upon the vesting of restricted shares. The shares had an average fair value of $ 12.50 .
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13. Related Party Transaction
Ladenburg Thalmann & Co. Inc. (“Ladenburg”) provided advisor and arrangement services for the Loan (See Note 11 - "Notes Payable" for additional details) and received $ 75,000 in fees for such services. Additionally, Ladenburg provided advisory services related to the Sale of Klein and received fees of $ 405,000 for such services. The Co-Chief Executive Officer and Co-President of Ladenburg is the Non-Executive Chairman of our Board. Our Non-Executive Chairman of the Board received no portion of the above-mentioned compensation.
14. Income Taxes
Year Ended January 31,
2024
2023
(in thousands)
Income (loss) from continuing operations before income taxes is attributable to the following jurisdictions:
Domestic
$ ( 8,075 ) $ ( 9,108 )
Foreign
8,313 3,714
Total
$ 238 $ ( 5,394 )
The components of income tax expense (benefit) for continuing operations were as follows:
Current:
Domestic
$ — $ 19
Foreign
1,489 743
1,489 762
Deferred:
Domestic
— —
Foreign
( 151 ) ( 63 )
( 151 ) ( 63 )
Income tax (benefit) expense
$ 1,338 $ 699
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The following is a reconciliation of expected to actual income tax expense (benefit) for continuing operations:
Year Ended January 31,
2024
2023
(in thousands)
Federal income tax at 21 %
$ 50 $ ( 1,133 )
Taxes created by return to provision adjustments to prior year temporary differences
146 —
Global intangible low tax income ("GILTI") inclusion
1,653 —
Permanent differences
90 329
Foreign effective tax rate differential
( 218 ) ( 43 )
Valuation allowance on deferred tax assets
( 528 ) 1,400
Excess tax deficiency for share-based payments under ASU 2016-09
150 121
Other
( 5 ) 25
$ 1,338 $ 699
The components of the Company’s deferred taxes for continuing operations consisted of the following:
As of January 31,
2024
2023
(in thousands)
Deferred tax assets:
Net operating losses
$ 26,895 $ 22,425
Tax credit carry forwards
944 165
Stock option book expense
766 825
Allowance for credit losses
107 141
Inventory
594 1,262
Accruals not yet deductible for tax purposes
130 250
Fixed assets
80 236
Intangible assets
523 416
Disallowed interest expense
227 —
Other
1,033 527
Gross deferred tax assets
31,299 26,247
Valuation allowance
( 31,177 ) ( 26,247 )
Deferred tax assets
122 —
Deferred tax liabilities:
Other
— ( 29 )
Deferred tax liabilities
— ( 29 )
Unrecognized tax benefits
— —
Total deferred tax liabilities, net
— $ ( 29 )
On August 16, 2022, the Inflation Reduction Act (IRA) was enacted. The IRA, among other things, establishes certain “green energy” tax credits, establishes a corporate alternative minimum tax, and requires a 2% excise tax on stock buybacks. The Company does not believe the IRA 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, 2024 , 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. Therefore, the Company has not recorded a deferred tax liability associated with the undistributed foreign earnings as of January 31, 2024 .
Included in deferred tax assets is approximately $ 766,000 related to stock-based compensation, including non-qualified stock 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, 2024 . Should the market price of the Company’s Common Stock remain below the exercise price of the 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.
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As of January 31, 2024 , the Company has recorded valuation allowances of approximately $ 31.2 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. These net operating loss carry forwards are subject to limitation and future expiration. 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.
On January 31, 2024 , the Company had tax credit carry forwards for continuing operations of approximately $ 944,000 , which amounts can be carried forward through at least 2027.
As of January 31, 2024 , and 2023 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, 2019, through 2024 . The Company’s tax returns may also be subject to examination by state and local revenue authorities for fiscal years ended January 31, 2017, through 2024 . The Company’s Singapore income tax returns are subject to examination by the Singapore tax authorities for fiscal years ended January 31, 2017, through 2024 . The Company’s tax returns in other foreign jurisdictions are generally subject to examination for the fiscal years ended January 31, 2018 through January 31, 2024 .
15. Commitments and Contingencies
Purchase Obligations —On January 31, 2024 , the Company had approximately $ 11.7 million in purchase orders outstanding.
16. Stock Option Plans
At January 31, 2024 , 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 fiscal 2024 and 2023 was approximately $ 261,000 and $ 654,000 , 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. There were no options granted during fiscal 2024. The weighted average grant-date fair value of options granted during fiscal 2023 was $ 5.01 . The assumptions for the periods indicated are noted in the following table.
Weighted average Black-Scholes-Merton fair value assumptions
Year Ended January 31,
2023
Risk free interest rate
2.69 % - 3.03 %
Expected life (in years)
5.50 - 6.50
Expected volatility
68% -70%
Expected dividend yield
0.00 %
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 fiscal 2024 and 2023 .
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, 2024 , there were approximately 68,000 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.
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Stock Based Compensation Activity
The following table presents a summary of the Company’s stock option activity for the fiscal year ended January 31, 2024 :
Weighted
Average
Weighted
Remaining
Aggregate
Number of
Average
Contractual
Intrinsic
Shares
Exercise
Term
Value
(in thousands)
Price
(in years)
(in thousands)
Outstanding, January 31, 2023
410 $ 28.41 5.91 $ —
Granted
— —
Exercised
— —
Forfeited
( 35 ) 39.67
Expired
( 16 ) 13.23
Outstanding, January 31, 2024
359 $ 27.98 5.07
$ —
Exercisable at January 31, 2024
284 $ 32.35
4.25 $ —
Nonvested at January 31, 2024
75
$ 11.32 8.21
$ —
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 2024 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, 2024 . This amount changes based upon the market value of the Company’s Common Stock. No options were exercised during fiscal 2024 and 2023 . The fair value of options that vested during the fiscal years ended January 31, 2024 and 2023 was approximately $ 517,000 and $ 1.4 million, respectively. For fiscal 2024 and fiscal 2023 approximately 75,000 and 110,000 options vested, respectively.
As of January 31, 2024 , there was approximately $ 243,000 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 1.0 years.
Restricted stock as of January 31, 2024 , and changes during fiscal 2024 were as follows:
Year Ended January 31, 2024
Number of
Weighted Average
Shares
Grant Date Fair
(in thousands)
Value
Unvested, beginning of period
1 $ 10.00
Granted
— —
Vested
( 1 ) 10.00
Canceled
— —
Unvested, end of period
— $ —
As of January 31, 2024 , there was no unrecognized stock-based compensation expense related to unvested restricted stock awards.
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17. Segment Reporting
Prior to August 22, 2023, the Company operated in two segments, Seamap and Klein. On August 21, 2023, the Company completed the Sale of Klein. (see Note 2 -"Sale of a Subsidiary and Discontinued Operations" for additional details). As a result, at January 31, 2024, Seamap is the Company’s sole reporting segment.
18. Concentrations
Credit Risk — As of January 31, 2024 , we had four customers that individually exceeded 10 % of consolidated accounts receivable. During fiscal 2023 , we had two customers that individually exceeded 10 % of consolidated accounts receivable.
Revenue Risk — In fiscal 2024 and 2023 , our single largest customer accounted for approximately 21 % and 17 %, respectively, of our consolidated revenues, with these revenues being generated from the Seamap Marine Products segment. Together, our five largest customers accounted for approximately 67 % and 47 % of our consolidated revenues in fiscal 2024 and fiscal 2023 , respectively.
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 $ 4.9 million at January 31, 2024 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.
19. 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,
2024
2023
Europe
$ 20,248 $ 11,836
Asia/South Pacific
12,399 10,755
Other
2,613 435
Total
$ 35,260 $ 23,026
During the fiscal year ended January 31, 2024 , Three Seamap Marine Products customers individually exceeded 10 % of total revenue. During the fiscal year ended January 31, 2023 , Two Seamap Marine Products customers individually exceeded 10 % of total revenue.
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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
Balance at
Charged to
Charged
Beginning
Costs and
to Other
Deductions
Balance at End
Description
of Period
Expenses
Accounts
Describe
of Period
Allowance for credit losses
January 31, 2024
$ 332 — — (a)
— (b)
$ 332
January 31, 2023
$ 332 — — (a)
— (b)
$ 332
Allowance for obsolete inventory
January 31, 2024
$ 1,215 341 — (a)
( 25 ) (c)
$ 1,531
January 31, 2023
$ 2,070 268 — (a)
( 1,123 ) (c)
$ 1,215
(a) Represents translation differences.
(b)
Represents recoveries and uncollectible accounts written off.
(c)
Represents sale or scrap of inventory and obsolete equipment.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.