What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-09-09 compared with 2021-06-03 · 115 added, 98 removed, 209 unchanged (50% of the section changed)

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

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

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

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

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

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

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

This business had been conducted from our locations in Huntsville, Texas;

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and our branch in Colombia.

Management believes that the performance of our Marine Technology Products segment is indicated by revenues from equipment sales and by gross profit from those sales.

Management believes that the performance of our Marine Technology Products business is indicated by revenues from product sales 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.

For the Three Months Ended April 30,

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

2021 2020 2021 2020

Reconciliation of Net loss from Continuing Operations to EBITDA and Adjusted EBITDA

Net loss from continuing operations $ (2,739) $ (1,896) $ (6,440) $ (8,323)

Interest expense (income), net 9 —

Interest income, net (9) — — —

Depreciation and amortization 557 714 1,223 1,479

6 unchanged sentences

Reconciliation of Net Cash Used in Operating Activities to EBITDA

Net cash (used in) provided by operating activities $ (2,807) $ 929

Net cash used in operating activities $ (4,384) $ (3,495) $ (7,191) $ (2,566)

PPP loan forgiveness — — 850 —

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Other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do and EBITDA and Adjusted EBITDA may not be comparable with similarly titled measures reported by other companies.

Within our Marine Technology Products segment, we design, manufacture and sell a variety of products used primarily in oceanographic, hydrographic, defense, seismic and maritime security industries.

Within our Marine Technology Products 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, which provide marine operators more precise control of exploration tools;

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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 other unforeseen circumstances such as the recent COVID-19 pandemic (the “Pandemic”).

See Part II, Item 1A-- “Risk Factors.”

Business Outlook

The Pandemic created significant uncertainty in the global economy, which we believe has had an adverse effect on the Company’s business, financial position, results of operations and liquidity.

The Pandemic has created significant uncertainty in the global economy, which we believe has had an adverse effect on the Company’s business, financial position, results of operations and liquidity.

We believe the resulting uncertainty caused many customers to delay purchasing decisions.

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However, travel between our Singapore and Malaysia facilities is limited, which has made management and coordination more difficult.

In addition, in May 2021, Singapore reimposed certain workplace restrictions.

In addition, Singapore reimposed certain workplace restrictions in May 2021.

While we are able to maintain full operation, we are required to rotate personnel and allow some personnel to work remotely.

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Lead times for some components and materials have increased as have prices for some items.

Additionally, shipping times and costs have increased, particularly for ocean freight.

Additionally, some components and materials are not readily available and shipping times and costs have increased, particularly for ocean freight.

We believe these issues will be temporary but there can be no assurance of that and these conditions could have an adverse effect on our operations and financial results.

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Furthermore, during the first quarter of fiscal 2022, we entered into an indefinite quantity, indefinite delivery supply agreement with a major international marine seismic contractor.

While we have not yet received a firm order related to this agreement, we do expect the arrangement to result in additional sales of our source controller products.

We expect the arrangement to result in additional sales of our source controller products.

Based on discussion with a particular customer, we expect to receive an order for a source controller and other related equipment related to a new build vessel.

We continue to pursue a number of other opportunities and believe there is a general uptick in activity in this market.

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

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Accordingly, we have not experienced the number of firm orders that we would have normally expected from the current level of inquiries and bid activity.

As of April 30, 2021, our backlog of firm orders for our Marine Technology Products business was approximately $11.0 million, as compared to approximately $14.1 million as of January 31, 2021 and $10.2 million at April 30, 2020.

We expect essentially all of these orders to be completed within fiscal 2022 and therefore expect revenues from continuing operations in fiscal 2022 to exceed those of fiscal 2021.

During the first quarter of fiscal 2022, a customer cancelled an order for approximately $2.1 million due to changes in their requirements.

We expect other orders from this customer in coming months as those requirements are more clearly defined.

Additionally, we received two specific orders totaling more than $5.0 million during the second quarter of fiscal 2022.

As of July 31, 2021, our backlog of firm orders for our Marine Technology Products business was approximately $11.7 million, as compared to approximately $14.1 million as of January 31, 2021 and $7.6 million at July 31, 2020.

We expect essentially all of these orders to be completed within fiscal 2022 and therefore expect revenues from continuing operations in fiscal 2022 to exceed those backlog of fiscal 2021.

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.

Going forward we intend to address three primary markets in our Marine Technology Products segment :

Going forward we intend to address three primary markets in our Marine Technology Products business :

• Marine Survey

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

In fiscal 2020, we introduced new sonar technology that we refer to as “ MA-X TM ” and we received an order from a manufacturer of unmanned underwater vehicles (“UUV’s”) for a MA-X TM related product to be installed on one of their UUV’s.

This request relates to a potentially significant program for the U.S.

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

During fiscal 2021 we introduced technology based on MA-XT M specifically focused on the rapidly growing autonomous vehicle market and entered into an agreement with a major European defense contractor for the joint offering of synthetic aperture sonar (“SAS”).

Earlier this year, we introduced a product line of sonar systems, referred to as AUV-Mako TM specifically focused on the rapidly growing autonomous vehicle market.

In addition, in fiscal 2021 we entered into an agreement with a major European defense contractor for the joint offering of synthetic aperture sonar (“SAS”).

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

Also, during fiscal 2021, we began development of passive sonar arrays based on our SeaLink technology.

We believe this technology is well suited for maritime security applications such as anti-submarine warfare, particularly in application involving un manned vessels.

We believe this technology is well suited for maritime security applications such as anti-submarine warfare, particularly in applications involving unmanned vessels.

Recently, we have noted an increase in inquiries and bids for our single-beam and multi-beam sonar systems.

As a result, we expect improvement in this portion of our business in the second half of fiscal 2022 and beyond.

However, there can be no assurance of any such improvement or the magnitude of such.

We are also pursuing a number of initiatives to further expand our product offerings.

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To date, the most of our revenues have been from commercial customers;

however, we expect the proportion of revenue relate d to military or governmental customers will increase in the future.

however, we believe the proportion of revenue relate d to military or governmental customers will increase in the future.

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

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These initiatives include the following:

• Development of side-scan sonar and other sensor systems specifically for unmanned vehicles, including integration of our MA-X TM technology ;

• Development of side-scan sonar and other sensor systems specifically for unmanned vehicles, including integration of our MA-X technology ;

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

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In fiscal 2021 we took steps to reduce expenses including the layoff or furloughing of certain employees and contractors and the deferral of other expenditures, in response to the effects of the Pandemic on the economic environment.

Should the effects of the Pandemic continue in fiscal 2022, we may take further steps to reduce costs.

Should the effects of the Pandemic continue through the second half of fiscal 2022 or beyond, we may take further steps to reduce costs.

We believe the majority 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.

Our revenues and results of operations have not been materially impacted by inflation or changing prices in the past t wo fiscal years, except as described above.

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 above.

Results of Continuing Operations

Revenues for the three months ended April 30, 2021 were approximately $4.2 million compared to approximately $3.2 million for the three months ended April 30, 2020.

We believe the increase in the first quarter of fiscal 2022 is due in large part to lifting of restrictions on commerce that were present in the prior period as a result of the Pandemic.

For the three months ended April 30, 2021, we generated an operating loss of approximately $4.8 million, compared to an operating loss of approximately $6.1 million for the three months ended April 30, 2020.

The decrease in operating loss during the three-month period ended April 30, 2021 is primarily attributable to a goodwill impairment charge related to our Seamap reporting unit in the prior year period that did not recur in the current quarter.

Revenues for the three months ended July 31, 2021 were approximately $6.8 million compared to approximately $5.1 million for the three months ended July 31, 2020.

For the six months ended July 31, 2021, revenues were approximately $11.0 million, compared to approximately $8.3 million for the six months ended July 31, 2020.

We believe the increase in fiscal 2022 periods is due in large part to lifting of restrictions on commerce that were present in the prior period as a result of the Pandemic.

For the three months ended July 31, 2021, we generated an operating loss of approximately $2.6 million, compared to an operating loss of approximately $2.4 million for the three months ended July 31, 2020.

For the six months ended July 31, 2021, we generated an operating loss of approximately $7.4 million, compared to an operating loss of approximately $8.6 million for the six months ended July 31, 2020.

The operating loss during the three-month periods ended July 31, 2021 and July 31, 2020 were relatively flat.

The decrease in operating loss during the six-month period ended July 31, 2021 is primarily attributable to a non-recurring goodwill impairment charge related to our Seamap reporting unit in the prior year period.

In addition, the current quarter operating loss was impacted by higher research and development and general and administrative costs.

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Revenues and Cost of Sales

Revenues and cost of sales for our Marine Technology Products segment were as follows:

Revenues and cost of sales for our Marine Technology Products business were as follows:

Three Months Ended

(in thousands)

July 31, Six Months Ended

2021 2020 2021 2020

(in thousands) (in thousands)

Seamap $ 5,402 $ 4,080 $ 8,446 $ 6,293

Klein 1,408 1,003 2,564 2,244

Intra-segment sales (6) (266)

Intra-business sales (3) — (9) (242)

6,807 5,083 11,001 8,295

Cost of sales:

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Klein 1,293 785 2,353 1,861

Intra-segment sales (6) (266)

Intra-business sales (3) — (9) (242)

4,583 3,066 8,234 5,794

Gross profit $ 2,224 $ 2,017 $ 2,767 $ 2,501

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We believe the increase in Seamap revenues is due in large part to lifting of commerce restrictions, previously caused by the Pandemic, including the temporary shutdown of our production facilities in the prior period.

Revenues in the first quarter of fiscal 2022 were less than in the fourth quarter of fiscal 2021 and less than we expected.

Revenues in the second quarter of fiscal 2022 increased when compared to second quarter of fiscal 2021.

We believe lingering effects of the Pandemic and the resulting impact on the global supply chain has impacted certain of our customers.

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We believe that delays in these customers receiving related products and materials from other supplier have contributed to these delays.

The gross profit and gross profit margins generated by sales of Seamap products were approximately $447,000 and 15% in the first quarter of fiscal 2022 and approximately $319,000 and 14% in the first quarter of fiscal 2021.

The increase in gross profit margins between the periods is due primarily to the mix of products and services sold in the respective periods.

Revenue from the sale of Klein products remained relatively flat year over year, at approximately $1.2 million for the first quarter of fiscal 2022 and fiscal 2021.

Gross profit was approximately $96,000 and $165,000 for the first quarter of fiscal 2022 and 2021, respectively.

The decline in gross profit margin in the first quarter of fiscal 2022 was due mainly to lower absorption of overhead costs and higher product testing and sustaining engineering activity during the period.

Nonetheless, we did experience an increase in deliveries and associated revenues in this area as we executed certain orders previously received.

Based on our remaining backlog and on-going order activity, we expect further improvement in the second half of fiscal 2022.

The gross profit and gross profit margins generated by sales of Seamap products were approximately $2.1 million and 39% in the second quarter of fiscal 2022 and approximately $1.8 million and 44% in the second quarter of fiscal 2021.

The decrease in gross profit margins between the periods is due primarily to the mix of products and services sold in the respective periods.

Revenue from the sale of Klein products was approximately $1.4 million for the second quarter of fiscal 2022 versus approximately $1.0 million in the prior year period.

Gross profit was approximately $115,000 and $218,000 for the second quarter of fiscal 2022 and 2021, respectively.

The decline in gross profit in the second quarter of fiscal 2022 was due mainly to lower absorption of overhead costs and higher product testing and sustaining engineering activity during the period.

Operating Expenses

General and administrative expenses for the three months ended April 30, 2021 increased to approximately $3.8 million from approximately $3.0 million for the three months ended April 30, 2020.

The increase in general and administrative expenses includes higher travel and entertainment expenses, due mainly to reduced pandemic related travel restrictions in the current period, and higher compensation costs resulting from the recent addition of several strategic corporate level positions.

In addition, the current period general and administrative costs from continuing operations includes certain personnel, facility and overhead costs which were included in discontinued operations in the prior year period.

Research and development costs were approximately $853,000 in the three-month period ended April 30, 2021, as compared to approximately $410,000 in the three-month period ended April 30, 2020.

General and administrative expenses for the three months ended July 31, 2021, increased to approximately $3.3 million from approximately $3.0 million for the three months ended July 31, 2020.

General and administrative expenses for the six months ended July 31, 2021 increased approximately $1.3 million to $7.2 million compared to $5.9 million for the six months ended July 31, 2020.

The increase in is primarily due to certain recurring general and administrative operating expenses, including but not limited to, property and casualty insurance premiums, facility maintenance expenses, communications costs, etc., reported in discontinued operations in the prior year comparative periods, but are being reported in continuing operations in the current fiscal year as we wind-down and dispose of our discontinued operations.

Current period costs also reflect increases in compensation and benefits costs, travel and entertainment expense and professional fees.

In addition, the prior year comparative periods included the benefit of governmental rent and payroll subsidies in several international locations that have been significantly reduced or eliminated in the current fiscal year.

Research and development costs remained relatively flat at approximately $888,000 in the three-month period ended July 31, 2021, as compared to approximately $755,000 in the three-month period ended July 31, 2020.

Research and development costs increased to approximately $1.7 million in the six-month period ended July 31, 2021, as compared to approximately $1.2 million in the prior year period ended.

The increase in these costs reflects activity in the strategic initiatives noted above, including our SAS system, passive sonar arrays and sensor packages specifically for unmanned systems.

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

These costs were approximately $666,000 in the three-month period ended April 30, 2021, as compared to approximately $730,000 in the three-month period ended April 30, 2020.

The lower depreciation and amortization expense in the three-month period of fiscal 2022 is due primarily to assets becoming fully depreciated over time.

During the three months ended April 30, 2021, it was determined that there were no substantive indicators of impairment.

During the quarter ended April 30, 2020, due to deterioration in macroeconomic factors and a decline in the market value of our equity securities subsequent to January 31, 2020, we concluded that goodwill was impaired and recorded an impairment charge of approximately $2.5 million in the first quarter of fiscal 2021.

These costs were approximately $557,000 and $1.2 million in the three- and six-month periods ended July 31, 2021, respectively, as compared to approximately $700,000 and $1.4 million in the three- and six-month periods ended July 31, 2020, respectively.

The lower depreciation and amortization expense in the three- and six-month periods of fiscal 2022 is due primarily to assets becoming fully depreciated over time.

During the six months ended July 31, 2021, it was determined that there were no substantive indicators of impairment.

During the first quarter of fiscal 2021, due to deterioration in macroeconomic factors and a decline in the market value of our equity securities subsequent to January 31, 2020, we concluded that goodwill associated with our Seamap business was impaired and recorded an impairment charge of approximately $2.5 million.

Provision for Income Taxes

For the three months ended April 30, 2021, we reported tax benefit of approximately $145,000 on pre-tax net loss from continuing operations, and for the three months ended April 30, 2020, we reported a tax expense of approximately $342,000 on pre-tax net loss from continuing operations.

Our recorded tax benefit and expense in the three and nine-month periods ended April 30, 2021 and 2020, are less than the benefit or expense that would be derived by applying the applicable statutory rate to loss before tax from continuing operations in each of these periods, due mainly to the effect of permanent differences between book and taxable income, foreign withholding taxes and recording valuation allowances against increases in our deferred tax assets.

For the six months ended July 31, 2021, we reported tax expense of approximately $52,000 on pre-tax net loss of approximately $6.4 million from continuing operations, and for the six months ended July 31, 2020, we reported tax benefit of approximately $188,000 on pre-tax net loss of approximately $8.5 million from continuing operations.

Our recorded tax expense and benefit in the six-month periods ended July 31, 2021, and 2020, respectively, are less than the benefit that would be derived by applying the applicable statutory rate to the net loss before tax from continuing operations in each of these periods, due mainly to the effect of permanent differences between book and taxable income, foreign withholding taxes, and recording valuation allowances against increases in our deferred tax assets.

Results of Discontinued Operations

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

For the Three Months Ended April 30,

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

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

2021 2020 2021 2020

Equipment leasing 757 622 787 3,197

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Other equipment sales — 35 — 211

757 1,230 787 5,418

Cost of sales:

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Cost of other equipment sales — 10 — 137

332 1,642 705 4,126

Gross profit (loss) 425 (412) 82 1,292

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Selling, general and administrative 378 1,476 720 3,176

Recovery of doubtful accounts (443) —

Provision for doubtful accounts (2) 470 (445) 470

Depreciation and amortization 2 41 3 85

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Other income (expenses) 35 72 (4) 75

Loss before income taxes (282) (37)

Loss on disposal (including $2,745 of cumulative translation loss) — (1,859) — (1,859)

Income (loss) before income taxes 82 (4,186) (200) (4,223)

Provision for income taxes (3) (522) (4) (700)

Net loss (283) (215)

Net income (loss) 79 (4,708) (204) (4,923)

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

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

Revenue from discontinued operations during the first quarter of fiscal 2022 decreased to $30,000, compared to $4.2 million for the first quarter of fiscal 2021.

Revenue from discontinued operations during the second quarter of fiscal 2022 decreased to $757,000, compared to $1.2 million for the second quarter of fiscal 2021.

The reduction in revenue is due to the curtailment of equipment leasing activity as a result of the decision to exit the Leasing Business and the change in treatment of lease pool sales as discussed above.

Direct costs related to Equipment Leasing dropped to approximately $373,000 for the first quarter of fiscal year 2022 from approximately $845,000 reported in the same period for 2020.

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

For the three-month period ended April 30, 2021, lease pool depreciation decreased approximately $926,000 from the three months ended April 30, 2020, due to the fact that we are no longer recording lease pool depreciation on discontinued operations.

Selling, general and administrative costs related to the Leasing Business decreased to approximately $342,000 in the three months ended April 30, 2021, from approximately $1.7 million in the same period one year ago.

The reduction in selling, general and administrative expense is due to permanent headcount reductions, closing and downsizing facilities, and lower overall operating costs due to the significant decline in activity.

In addition, the current period general and administrative costs from discontinued operations excludes certain personnel, facility and overhead costs which are included in continuing operations for the three months ended April 30, 2021.

Our tax expense for the three months ended April 30, 2021, was approximately $1,000 on pre-tax net loss from discontinued operations.

For the three months ended April 30, 2020, we reported tax expense of approximately $178,000 on pre-tax net loss from discontinued operations.

We recorded tax provisions in the three-month periods ended April 30, 2021, and 2020, despite generating a loss before income taxes from discontinued operations in each of these periods, due mainly to the effect of foreign withholding taxes and recording valuation allowances against increases in our deferred tax assets.

Direct costs related to Equipment Leasing dropped to approximately $332,000 for the second quarter of fiscal year 2022 from approximately $762,000 reported in the same period of fiscal 2021.

For the three- and six-month periods ended July 31, 2021, lease pool depreciation decreased approximately $772,000 and $1.7 million from the three- and six month periods ended July 31, 2020, because we are no longer recording lease pool depreciation on discontinued operations.

Selling, general and administrative costs related to the Leasing Business decreased to approximately $720,000 in the six months ended July 31, 2021, from approximately $3.2 million in the same period one year ago.

Our tax expense from discontinued operations for the three- and six-month periods ended July 31, 2021, was approximately $3,000 and $4,000, respectively, on pre-tax net income of approximately $82,000 for the three-month period and a pre-tax net loss of approximately $200,000 for the six-month period.

For the three and six months ended July 31, 2020, we reported tax expense of approximately $522,000 and $700,000, respectively, on pre-tax net loss from discontinued operations of approximately $4.2 million for both periods.

We recorded tax expense in the six-month periods ended July 31, 2021 and 2020, despite generating a pre-tax net loss from discontinued operations, due mainly to the effect of foreign withholding taxes and recording valuation allowances against increases in our deferred tax assets.

Subsequent to July 31,2021, we completed an agreement for the sale of lease pool equipment reported as Assets Held for Sale (see Note 3 – “Assets Held for Sale and Discontinued Operations” for additional details) in our condensed consolidated financial statements.

Under the terms of the agreement the Company will receive total proceeds of approximately $4.5 million, with approximately $2.5 million paid at closing and the balance of approximately $2.0 million paid before the end of fiscal 2022.

Liquidity and Capital Resources

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

• The Company has working capital of approximately $15.2 million as of April 30, 2021, including cash of approximately $2.0 million.

• The Company has working capital of approximately $16.1 million as of July 31, 2021, including cash of approximately $2.1 million.

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

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

• The Company has a backlog of orders of approximately $11.0 million as of April 30, 2021, which is a decrease from the record amount at January 31, 2021, but an increase of approximately 9% from April 30, 2020.

• The Company has been successful in selling certain assets held for sale and expects to generate further liquidity from such transactions in fiscal 2022.

• The Company has declared and paid the quarterly dividend on its Series A Preferred Stock for the first quarter of fiscal 2022, and each quarter in fiscal 2021, but such quarterly dividends could be suspended in the future.

• Despite the challenging economic environment in fiscal 2021, the Company successfully expanded its authorized capital stock (See Note 15 - Corporate Restructuring) and raised approximately $4.6 million in new capital through the sale of common and preferred stock pursuant to the 2 nd ATM Offering Program.

• The Company has a backlog of orders of approximately $11.7 million as of July 31, 2021, which is a decrease from the record amount at January 31, 2021, but an increase of approximately 54% from July 31, 2020.

• The Company has been successful in selling certain assets held for sale Subsequent to July 31, 2021, the Company completed an asset sale for total proceeds of approximately $4.5 million, all of which we expect to receive in fiscal 2022.

• The Company has declared and paid the quarterly dividend on its Preferred Stock for the first and second quarter of fiscal 2022, and each quarter in fiscal 2021, but such quarterly dividends could be suspended in the future.

• Despite the challenging economic environment in fiscal 2021, the Company successfully expanded its authorized capital stock (See Note 15 - “Corporate Restructuring”) and raised approximately $4.5 million in new capital through the sale of Common Stock and Preferred Stock pursuant to the 2nd ATM Offering Program.

Management expects to be able to raise further capital through the 2 nd ATM Offering Program should the need arise.

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

The Series A Preferred Stock has been issued in a June 2016 public offering, as consideration to Mitsubishi Heavy Industries, Ltd (“MHI”), and in the 1 st and 2 nd ATM Offering Programs.

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

Through April 30, 2021, we have issued 1,059,192 shares of our Series A Preferred Stock.

During the three months ended April 30, 2021, under the 2 nd ATM Offering Program, the Company sold (i) 18,053 shares of Common Stock, resulting in net proceeds to the Company of approximately $42,000, after deducting offering costs and (ii) 20,960 shares of Series A Preferred Stock, resulting in net proceeds to the Company of approximately $503,000.

The Preferred Stock has been issued in a June 2016 public offering, as consideration to Mitsubishi Heavy Industries, Ltd (“MHI”), and in the 1 st and 2 nd ATM Offering Programs.

The Preferred Stock (i) allows for redemption on at our option (even in the event of a change of

control), (ii) does not grant holders with voting control of our Board of Directors, and (iii) provides holders with a conversion option (into common stock) only upon a change of control which, upon conversion, would be subject to a limit on the maximum number of shares of common stock to be issued.

Through July 31, 2021, we have issued 1,222,972 shares of our Preferred Stock.

During the six months ended July 3, 2021, under the 2 nd ATM Offering Program, the Company sold (i) 18,415 shares of Common Stock, resulting in net proceeds to the Company of approximately $43,000, after deducting offering costs and (ii) 184,740 shares of Series A Preferred Stock, resulting in net proceeds to the Company of approximately $4.5 million.

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

For the Three Months Ended

For the Six Months Ended

(in thousands)

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Net cash provided by investing activities 1,231 1,598

Net cash used in financing activities (33) (559)

Net cash provided by financing activities 3,383 489

Effect of changes in foreign exchange rates on cash and cash equivalents 22 (117)

Net decrease in cash and cash equivalents $ (2,555) $ (596)

As of April 30, 2021, we had working capital of approximately $15.2 million, including cash and cash equivalents and restricted cash of approximately $2.0 million, as compared to working capital of approximately $19.0 million, including cash and cash equivalents and restricted cash of approximately $4.6 million, at January 31, 2021.

Our working capital decreased during the first three months of fiscal 2022 as compared to the same period in fiscal 2021 due primarily to reductions in accounts receivable and an increase in accounts payable and accrued liabilities.

As of July 31, 2021, we had working capital of approximately $16.1 million, including cash and cash equivalents and restricted cash of approximately $2.1 million, as compared to working capital of approximately $19.0 million, including cash and cash equivalents and restricted cash of approximately $4.6 million, at January 31, 2021.

Our working capital decreased during the first six months of fiscal 2022 as compared to January 31, 2021 due primarily to reductions in cash, assets held for sale and an increase in accounts payable.

Cash Flows from Operating Activities .

Net cash used in operating activities was approximately $2.8 million in the first three months of fiscal 2022 as compared to approximately $929,000 of cash provided by operating activities in the first three months of fiscal 2021.

In the quarter ended April 30, 2021, the primary sources of cash used in operating activities was our net loss of $4.0 million, net of non-cash charges, including depreciation and amortization and provision for inventory obsolescence totaling approximately $1.0 million.

In addition, the net change in working capital items, such as accounts receivable and accounts payable, decreased net cash used in operating activities by approximately $1.0 million.

Net cash used in operating activities was approximately $7.2 million in the first six months of fiscal 2022 as compared to approximately $2.6 million of cash used in operating activities in the first six months of fiscal 2021.

[In the quarter ended July 31, 2021, the primary sources of cash used in operating activities was our net loss of $6.6 million, net of non-cash charges, including depreciation, amortization and provision for inventory obsolescence totaling approximately $1.5 million.

In addition, the net change in working capital items, such as accounts receivable and accounts payable, increased net cash used in operating activities by approximately $4.6 million.

Cash Flows from Investing Activities .

Cash provided from investing activities decreased during the first three months of fiscal 2022 compared to the same period in the prior year.

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

We had no proceeds from sale of lease pool equipment and assets held for sale during the first three months of fiscal 2022 compared to approximately $1.4 million in the first three months of fiscal 2021.

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

However, there is no guarantee additional sales of lease pool equipment will occur.

Accordingly, cash flow from the sale of lease pool equipment is unpredictable.

Proceeds from any additional sales of lease pool equipment will be deployed in other areas of our business or used for general corporate purposes.

Cash provided from investing activities decreased during the first six months of fiscal 2022 compared to the same period in the prior year.

The decrease is primarily due to lower proceeds from the sale of Assets Held for Sale in fiscal 2022 as compared to proceeds from the sale of lease pool equipment in fiscal 2021.

We had $1.2 million of proceeds from sale of assets held for sale during the first six months of fiscal 2022 compared to approximately $2.0 million of proceeds from the sale of lease pool equipment in the first six months of fiscal 2021.

Due to the decision to exit the Leasing Business we are currently seeking to sell the remaining equipment from our lease pool, which is currently classified as Assets Held for Sale.

However, there is no guarantee additional sales of Assets Held for Sale will occur.

Accordingly, cash flow from the sale of Assets Held for Sale is unpredictable.

Proceeds from any additional sales of Assets Held for Sale will be deployed in other areas of our business or used for general corporate purposes.

Cash Flows from Financing Activities .

Net cash provided by financing activities in the first three months of fiscal 2021 consisted of approximately $42,000 of proceeds from sales of Common Stock, approximately $503,000 of proceeds from sales of Preferred Stock, offset by approximately $576,000 of preferred stock dividend payments, as compared to approximately $559,000 of preferred stock dividend payments in the prior year period.

Our 1 st ATM Offering Program related to the Series A Preferred Stock was concluded in the fourth quarter of fiscal 2020.

In September 2020, we launched the 2 nd ATM Offering Program to sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of $0.01 par value Common Stock of the Company.

As of April 30, 2021, we have no funded debt and no obligations containing restrictive financial covenants.

Net cash provided by financing activities in the first six months of fiscal 2021 consisted of approximately $43,000 of proceeds from sales of Common Stock, approximately $4.5 million of proceeds from sales of Preferred Stock, offset by approximately $1.2 million of Preferred Stock dividend payments.

Our 1 st ATM Offering Program related to the Preferred Stock was concluded in fiscal 2020.

In the third quarter of fiscal 2021, we launched the 2 nd ATM Offering Program to sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock.

As of July 31, 2021, we have no funded debt and no obligations containing restrictive financial covenants.

We regularly evaluate opportunities to expand our business through the acquisition of other companies, businesses or product lines.

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These additional sources of capital include bank credit facilities or the issuance of debt or equity securities.

We have determined that the undistributed earnings of foreign subsidiaries are not deemed indefinitely reinvested outside of the United States as of April 30, 2021.

We have determined that the undistributed earnings of foreign subsidiaries are not deemed indefinitely reinvested outside of the United States as of July 31, 2021.

Furthermore, we have concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial.

As of April 30, 2021, we had deposits in foreign banks equal to approximately $1.4 million all of which we believe could be distributed to the United States without adverse tax consequences.

As of July 31, 2021, we had deposits in foreign banks equal to approximately $669,000 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.

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Information regarding our critical accounting policies and estimates is included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 31, 2021.

There have been no material changes to our critical accounting policies and estimates during the three-month period ended April 30, 2021.

There have been no material changes to our critical accounting policies and estimates during the three- and six-month periods ended July 31, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis