Item 1. Financial Statements
Item 1. Financial Statements
MIND TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
July 31, 2021 January 31, 2021
ASSETS
Current assets:
Cash and cash equivalents $ 2,056 $ 4,611
Accounts receivable, net of allowance for doubtful accounts of $ 481 and $ 948
at July 31, 2021 and January 31, 2021, respectively
5,100 4,747
Inventories, net 11,928 11,453
Prepaid expenses and other current assets 1,190 1,659
Assets held for sale 3,312 4,321
Total current assets 23,586 26,791
Property and equipment, net 4,440 4,751
Operating lease right-of-use assets 1,568 1,471
Intangible assets, net 6,455 6,750
Total assets $ 36,049 $ 39,763
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 2,148 $ 1,704
Deferred revenue 459 208
Accrued expenses and other current liabilities 2,651 2,912
Income taxes payable 1,002 1,041
Operating lease liabilities - current 567 1,008
Liabilities held for sale 705 963
Total current liabilities 7,532 7,836
Operating lease liabilities - non-current 1,001 463
Notes payable — 850
Deferred tax liability 198 198
Total liabilities 8,731 9,347
Stockholders’ equity:
Preferred stock, $ 1.00 par value; 2,000 shares authorized; 1,223 and 1,038 shares issued and
outstanding at July 31, 2021 and January 31, 2021, respectively
27,606 23,104
Common stock, $ 0.01 par value; 40,000 shares authorized; 15,704 and 15,681 shares issued at
July 31, 2021 and January 31, 2021, respectively
157 157
Additional paid-in capital
128,519 128,241
Treasury stock, at cost ( 1,931 and 1,929 shares at July 31, 2021 and January 31, 2021, respectively)
( 16,862 ) ( 16,860 )
Accumulated deficit ( 107,780 ) ( 99,870 )
Accumulated other comprehensive loss ( 4,322 ) ( 4,356 )
Total stockholders’ equity 27,318 30,416
Total liabilities and stockholders’ equity $ 36,049 $ 39,763
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MIND TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the Three Months Ended July 31, For the Six Months Ended July 31,
2021 2020 2021 2020
Revenues:
Sale of marine technology products
$ 6,807 $ 5,086 $ 11,001 $ 8,273
Total revenues 6,807 5,086 11,001 8,273
Cost of sales:
Sale of marine technology products
4,583 3,069 8,234 5,772
Total cost of sales 4,583 3,069 8,234 5,772
Gross profit
2,224 2,017 2,767 2,501
Operating expenses:
Selling, general and administrative 3,378 2,988 7,195 5,942
Research and development 888 755 1,741 1,165
Impairment of intangible assets — — — 2,531
Depreciation and amortization 557 700 1,223 1,430
Total operating expenses 4,823 4,443 10,159 11,068
Operating loss ( 2,599 ) ( 2,426 ) ( 7,392 ) ( 8,567 )
Other income:
Other, net 57 — 1,004 56
Total other income 57 — 1,004 56
Loss from continuing operations before income taxes ( 2,542 ) ( 2,426 ) ( 6,388 ) ( 8,511 )
(Provision) benefit for income taxes ( 197 ) 530 ( 52 ) 188
Loss from continuing operations ( 2,739 ) ( 1,896 ) ( 6,440 ) ( 8,323 )
Income (loss) from discontinued operations, net of income taxes 79 ( 4,708 ) ( 204 ) ( 4,923 )
Net loss $ ( 2,660 ) $ ( 6,604 ) $ ( 6,644 ) $ ( 13,246 )
Preferred stock dividends ( 682 ) ( 559 ) ( 1,266 ) ( 1,118 )
Net loss attributable to common stockholders $ ( 3,342 ) $ ( 7,163 ) $ ( 7,910 ) $ ( 14,364 )
Net loss per common share - Basic
Continuing operations $ ( 0.25 ) $ ( 0.20 ) $ ( 0.56 ) $ ( 0.78 )
Discontinued operations $ 0.01 $ ( 0.39 ) $ ( 0.01 ) $ ( 0.40 )
Net loss $ ( 0.24 ) $ ( 0.59 ) $ ( 0.57 ) $ ( 1.18 )
Net loss per common share - Diluted
Continuing operations $ ( 0.25 ) $ ( 0.20 ) $ ( 0.56 ) $ ( 0.78 )
Discontinued operations $ 0.01 $ ( 0.39 ) $ ( 0.01 ) $ ( 0.40 )
Net loss $ ( 0.24 ) $ ( 0.59 ) $ ( 0.57 ) $ ( 1.18 )
Shares used in computing net loss per common share:
Basic 13,774 12,182 13,767 12,177
Diluted 13,774 12,182 13,767 12,177
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MIND TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
For the Three Months Ended July 31, For the Six Months Ended July 31,
2021 2020 2021 2020
Net loss attributable to common stockholders $ ( 3,342 ) $ ( 7,163 ) $ ( 7,910 ) $ ( 14,364 )
Changes in cumulative translation adjustment ( 23 ) 82 34 ( 49 )
Comprehensive loss $ ( 3,365 ) $ ( 7,081 ) $ ( 7,876 ) $ ( 14,413 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MIND TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Six Months Ended July 31,
2021 2020
Cash flows from operating activities:
Net loss $ ( 6,644 ) $ ( 13,246 )
Adjustments to reconcile net loss to net cash used in operating activities:
PPP loan forgiveness ( 850 ) —
Depreciation and amortization 1,226 3,210
Stock-based compensation 236 449
Impairment of intangible assets — 2,531
Loss on disposal of discontinued operations — 1,859
(Recovery) provision for doubtful accounts, net of charge offs ( 453 ) 470
Provision for inventory obsolescence 350 234
Gross profit from sale of lease pool equipment — ( 1,326 )
Gross profit from sale of other equipment ( 155 ) —
Deferred tax expense — 263
Changes in:
Accounts receivable ( 140 ) 4,404
Unbilled revenue 21 ( 9 )
Inventories ( 542 ) ( 675 )
Prepaid expenses and other current and long-term assets ( 260 ) 766
Income taxes receivable and payable ( 63 ) —
Accounts payable, accrued expenses and other current liabilities 375 ( 1,583 )
Deferred revenue ( 292 ) 87
Net cash used in operating activities ( 7,191 ) ( 2,566 )
Cash flows from investing activities:
Purchases of seismic equipment held for lease — ( 110 )
Purchases of property and equipment ( 14 ) ( 302 )
Sale of used lease pool equipment — 2,010
Sale of assets held for sale 484 —
Sale of a business 761 —
Net cash provided by investing activities 1,231 1,598
Cash flows from financing activities:
Purchase of treasury stock ( 2 ) —
Net proceeds from preferred stock offering 4,502 —
Net proceeds from common stock offering 43 —
Preferred stock dividends ( 1,160 ) ( 1,118 )
Proceeds from PPP loans — 1,607
Net cash provided by financing activities 3,383 489
Effect of changes in foreign exchange rates on cash, cash equivalents and restricted cash 22 ( 117 )
Net decrease in cash, cash equivalents and restricted cash ( 2,555 ) ( 596 )
Cash, cash equivalents and restricted cash, beginning of period 4,611 3,234
Cash, cash equivalents and restricted cash, end of period $ 2,056 $ 2,638
Supplemental cash flow information:
Interest paid $ 18 $ 23
Income taxes paid $ 147 $ 246
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MIND TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common Stock Preferred Stock Accumulated
Other
Comprehensive
Loss
Shares Amount Shares Amount Additional
Paid-In
Capital Treasury
Stock
Accumulated
Deficit Total
Balances, January 31, 2021 15,681 $ 157 1,038 $ 23,104 $ 128,241 $ ( 16,860 ) $ ( 99,870 ) $ ( 4,356 ) $ 30,416
Net loss — — — — — — ( 3,984 ) — ( 3,984 )
Foreign currency translation — — — — — — — 57 57
Restricted stock issued 5 — — — 11 — — — 11
Restricted stock forfeited for taxes — — — — — ( 2 ) — — ( 2 )
Preferred stock offering — — 21 503 — — — — 503
Preferred stock dividends — — — — — — ( 584 ) — ( 584 )
Common stock offerings 18 — — — 42 — — — 42
Stock-based compensation — — — — 109 — — — 109
Balances, April 30, 2021 15,704 $ 157 1,059 $ 23,607 $ 128,403 $ ( 16,862 ) $ ( 104,438 ) $ ( 4,299 ) $ 26,568
Net loss — — — — — — ( 2,660 ) — ( 2,660 )
Foreign currency translation — — — — — — — ( 23 ) ( 23 )
Preferred stock offering — — 164 3,999 — — — — 3,999
Common stock offerings — — — — 1 — — — 1
Preferred stock dividends — — — — — — ( 682 ) — ( 682 )
Stock-based compensation — — — — 115 — — — 115
Balances, July 31, 2021 15,704 $ 157 1,223 $ 27,606 $ 128,519 $ ( 16,862 ) $ ( 107,780 ) $ ( 4,322 ) $ 27,318
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MIND TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common Stock Preferred Stock Accumulated Other Comprehensive Loss
Shares Amount Shares Amount Additional
Paid-In
Capital Treasury
Stock Accumulated Deficit Total
Balances, January 31, 2020 14,097 $ 141 994 $ 22,104 $ 123,964 $ ( 16,860 ) $ ( 77,310 ) $ ( 4,387 ) $ 47,652
Net loss — — — — — — ( 6,642 ) — ( 6,642 )
Foreign currency translation — — — — — — — ( 131 ) ( 131 )
Preferred stock dividends — — — — — — ( 559 ) — ( 559 )
Stock-based compensation — — — — 230 — — — 230
Balances, April 30, 2020 14,097 $ 141 994 $ 22,104 $ 124,194 $ ( 16,860 ) $ ( 84,511 ) $ ( 4,518 ) $ 40,550
Net loss — — — — — — ( 6,604 ) — ( 6,604 )
Foreign currency translation — — — — — — — 82 82
Preferred stock dividends — — — — — — ( 559 ) — ( 559 )
Stock-based compensation — — — — 219 — — — 219
Balances, July 31, 2020 14,097 $ 141 994 $ 22,104 $ 124,413 $ ( 16,860 ) $ ( 91,674 ) $ ( 4,436 ) $ 33,688
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MIND TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization
MIND Technology, Inc., a Delaware corporation (the “Company”), formerly Mitcham Industries, Inc., a Texas corporation, was incorporated in 1987. Effective August 3, 2020 the Company effectuated a reincorporation to the state of Delaware. Concurrent with the reincorporation the name of the Company was changed to MIND Technology, Inc. and the number of shares of common stock and preferred stock authorized for issuance was increased. See Note 15 - “Corporate Restructuring”, to the condensed consolidated financial statements.
The Company, through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC (formerly Seamap USA, LLC), Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd (collectively “Seamap”), and its wholly owned subsidiary, Klein Marine Systems, Inc. (“Klein”), designs, manufactures and sells a broad range of proprietary products for the seismic, hydrographic and offshore industries with product sales and support facilities based in Singapore, Malaysia, the United Kingdom and the states of New Hampshire and Texas. Prior to July 31, 2020, the Company, through its wholly owned Canadian subsidiary, Mitcham Canada, ULC (“MCL”), its wholly owned Hungarian subsidiary, Mitcham Europe Ltd. (“MEL”), and its branch operations in Colombia, provided full-service equipment leasing, sales and service to the seismic industry worldwide (the “Leasing Business”). Effective July 31, 2020, the Leasing Business has been classified as held for sale on the financial results reported as discontinued operations (see Note 3 – “Assets Held for Sale and Discontinued Operations” for additional details). All intercompany transactions and balances have been eliminated in consolidation.
The lingering impacts of the global pandemic and emerging supply chain disruptions have created uncertainty in the global economy which could have a material adverse effect on the Company’s business, financial position, results of operations and liquidity. In addition, the Company has a history of operating losses and has had negative cash from operating activities. However, as of July 31, 2021, the Company has no funded debt or obligations containing financial covenants, working capital of approximately $ 16.1 million, including cash of approximately $ 2.1 million, backlog of firm orders of approximately $ 11.7 million, the ability, and plans, to reduce costs to maintain positive cash flow, additional equity available to raise further capital, and lease pool equipment being actively marketed for sale. Based on these factors, management expects the Company to continue to meet its obligations as they arise over the next twelve months.
2. Basis of Presentation
The condensed consolidated balance sheet as of January 31, 2021 for the Company has been derived from audited consolidated financial statements. The unaudited interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2021 (“fiscal 2021”). In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position as of July 31, 2021, the results of operations for the three and six months ended July 31, 2021 and 2020, the cash flows for the six months ended July 31, 2021 and 2020, and the statement of stockholders’ equity for the three and six months ended July 31, 2021 and 2020, have been included in these condensed consolidated financial statements. The foregoing interim results are not necessarily indicative of the results of operations to be expected for the full fiscal year ending January 31, 2022 (“fiscal 2022”).
We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation. On the consolidated balance sheets, income taxes payable, not related to discontinued operations has been reclassified from “Current liabilities held for sale” to “Current income taxes payable.”
3. Assets Held for Sale and Discontinued Operations
On July 27, 2020, the Board determined to exit the Leasing Business, which comprises essentially all operations of the Equipment Leasing segment. As a result, the assets, excluding cash, and liabilities of the Leasing Business are considered held for sale and the operations of the business are reported as discontinued operations as of July 31, 2021 and for all comparative periods presented in these condensed consolidated financial statements. The Company originally anticipated selling the discontinued operations in multiple transactions, which may involve the sale of legal entities, assets, or a combination of both, within the twelve months ending July 31, 2021.
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The assets reported as held for sale consist of the following:
July 31, 2021 January 31, 2021
Current assets of discontinued operations:
Accounts receivable, net
1,151 1,668
Inventories, net 68 352
Prepaid expenses and other current assets 120 150
Seismic equipment lease pool and property and equipment, net 1,973 2,151
Total assets of discontinued operations $ 3,312 $ 4,321
The liabilities reported as held for sale consist of the following:
July 31, 2021 January 31, 2021
Current liabilities of discontinued operations:
Accounts payable $ 21 $ 59
Deferred revenue 73 73
Accrued expenses and other current liabilities 611 831
Total liabilities of discontinued operations 705 963
The results of operations from discontinued operations for the three and six months ended July 31, 2021 and 2020, consist of the following:
For the Three Months Ended July 31, For the Six Months Ended July 31,
2021 2020 2021 2020
Revenues:
Revenue from discontinued operations $ 757 $ 1,230 $ 787 $ 5,418
Cost of sales:
Cost of discontinued operations 332 1,642 705 4,126
Operating expenses:
Selling, general and administrative 378 1,476 720 3,176
Provision for doubtful accounts ( 2 ) 470 ( 445 ) 470
Depreciation and amortization 2 41 3 85
Total operating expenses 378 1,987 278 3,731
Operating income (loss) 47 ( 2,399 ) ( 196 ) ( 2,439 )
Other income (expenses) 35 72 ( 4 ) 75
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 income (loss) 79 ( 4,708 ) ( 204 ) ( 4,923 )
The significant operating and investing noncash items and capital expenditures related to discontinued operations are summarized below:
For the Six Months Ended July 31,
2021 2020
Depreciation and amortization $ — $ 1,771
Gross profit from sale of lease pool equipment $ — $ ( 1,324 )
(Recovery) provisions for doubtful accounts $ ( 445 ) $ 470
Loss on disposal of discontinued operations $ — $ 1,859
Sale of used lease pool equipment $ — $ 1,988
Sale of assets held for sale $ 1,245 $ —
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4. New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance to improve consistent application. This ASU is effective for the annual period beginning after December 15, 2020, including interim periods within that annual period. The Company adopted this ASU effective February 1, 2021, and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement by removing, modifying and adding certain disclosures. This ASU is effective for the annual period beginning after December 15, 2019, including interim periods within that annual period. The Company adopted this guidance effective February 1, 2020. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
5. Revenue from Contracts with Customers
The following table presents revenue from contracts with customers disaggregated by product line and timing of revenue recognition:
Three Months Ended July 31, Six Months Ended July 31,
2021 2020 2021 2020
Revenue recognized at a point in time: (in thousands)
Seamap $ 5,256 $ 3,881 $ 8,169 $ 5,870
Klein 1,406 1,004 2,556 2,002
Total revenue recognized at a point in time $ 6,662 $ 4,885 $ 10,725 $ 7,872
Revenue recognized over time:
Seamap $ 145 $ 201 $ 276 $ 401
Total revenue recognized over time 145 201 276 401
Total revenue from contracts with customers $ 6,807 $ 5,086 $ 11,001 $ 8,273
The revenue from products manufactured and sold by our Seamap and Klein businesses is generally recognized at a point in time, or when the customer takes possession of the product, based on the terms and conditions stipulated in our contracts with customers. Our Seamap business also provides Software Maintenance Agreements (“SMA”) to customers who have an active license for software embedded in Seamap products. The revenue from SMA’s is recognized over time, with the total value of the SMA amortized in equal monthly amounts over the life of the contract, which is typically twelve months.
The following table presents revenue from contracts with customers disaggregated by geography, based on shipping location of our customers:
Three Months Ended July 31, Six Months Ended July 31,
2021 2020 2021 2020
(in thousands)
United States $ 219 $ 686 $ 578 $ 1,786
Europe 3,520 1,604 6,102 2,980
Middle East & Africa 675 221 689 297
Asia-Pacific 2,188 2,222 2,893 2,499
Canada & Latin America 205 353 739 711
Total revenue from contracts with customers $ 6,807 $ 5,086 $ 11,001 $ 8,273
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As of July 31, 2021, and January 31, 2021, contract assets and liabilities consisted of the following:
July 31, 2021 January 31, 2021
Contract Assets: (in thousands)
Unbilled revenue - current $ 106 $ 85
Total unbilled revenue $ 106 $ 85
Contract Liabilities:
Deferred revenue & customer deposits - current $ 399 $ 691
Total deferred revenue & customer deposits $ 399 $ 691
Considering the products manufactured and sold by our Seamap and Klein businesses and the Company’s standard contract terms and conditions, we expect our contract assets and liabilities to turn over, on average, within a period of three to nine months .
Pursuant to our accounting policies and procedures related to revenue from contracts with customers, sales and transaction-based taxes are excluded from revenue. Also, we do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Additionally, we expense costs incurred to obtain contracts when incurred because the amortization period would have been one year or less. These costs are recorded in selling, general and administrative expenses.
6. Balance Sheet - Continuing Operations
As of July 31, 2021 As of January 31, 2021
(in thousands)
Accounts receivable $ 5,581 $ 5,695
Less allowance for doubtful accounts ( 481 ) ( 948 )
Accounts receivable net of allowance for doubtful accounts $ 5,100 $ 4,747
July 31, 2021 January 31, 2021
(in thousands)
Inventories:
Raw materials $ 7,468 $ 6,905
Finished goods 3,455 3,466
Work in progress 2,404 2,445
13,327 12,816
Less allowance for obsolescence ( 1,399 ) ( 1,363 )
Total inventories, net $ 11,928 $ 11,453
July 31, 2021 January 31, 2021
(in thousands)
Property and equipment:
Marine seismic service equipment $ 4,157 $ 5,969
Land and buildings 4,422 4,354
Furniture and fixtures 9,899 9,750
Autos and trucks 491 491
18,969 20,564
Accumulated depreciation and amortization ( 14,529 ) ( 15,813 )
Total property and equipment, net $ 4,440 $ 4,751
As of January 31, 2021, the Company completed an annual review of long-lived assets noting that the undiscounted future cash flows exceeded their carrying value and no impairment was recorded. Since January 31, 2021, there have been no significant changes to the market, economic or legal environment in which the Company operates that would indicate additional impairment analysis is necessary as of July 31, 2021.
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7. Leases
The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in Texas, Hungary, Singapore, Malaysia, Colombia, United Kingdom and Canada. We negotiated the termination of our Colombia lease obligation during the current period.
Lease expense for the three and six months ended July 31, 2021 was approximately $ 291,000 and $ 600,000 , respectively, and was recorded as a component of operating loss. Included in these costs was short-term lease expense of approximately $ 10,000 and $ 10,000 , respectively, for the three and six months ended July 31, 2021.
Supplemental balance sheet information related to leases as of July 31, 2021 and January 31, 2021 were as follows (in thousands):
Lease July 31, 2021 January 31, 2021
Assets
Operating lease assets
$ 1,568 $ 1,471
Liabilities
Operating lease liabilities
$ 1,568 $ 1,471
Classification of lease liabilities
Current liabilities
$ 567 $ 1,008
Non-current liabilities
1,001 463
Total Operating lease liabilities $ 1,568 $ 1,471
Lease-term and discount rate details as of July 31, 2021 and January 31, 2021 were as follows:
Lease term and discount rate July 31, 2021 January 31, 2021
Weighted average remaining lease term (years)
Operating leases
1.26 1.09
Weighted average discount rate:
Operating leases
9.36 % 10 %
The incremental borrowing rate was calculated using the Company's weighted average cost of capital.
Supplemental cash flow information related to leases was as follows (in thousands):
Lease Six Months Ended July 31, 2021 Six Months Ended July 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$ ( 600 ) $ ( 514 )
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases
$ 600 $ 514
Maturities of lease liabilities at July 31, 2021 were as follows (in thousands):
July 31, 2021
2022 $ 567
2023 667
2024 346
2025 134
2026 24
Thereafter —
Total payments under lease agreements $ 1,738
Less: imputed interest ( 170 )
Total lease liabilities $ 1,568
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8. Goodwill and Other Intangible Assets
Weighted Average Life at 7/31/2021 July 31, 2021 January 31, 2021
Gross
Carrying
Amount Accumulated
Amortization Accumulated Impairment Net
Carrying
Amount Gross
Carrying
Amount Accumulated
Amortization Impairment Net
Carrying
Amount
Goodwill $ 7,060 $ — $ ( 7,060 ) $ — $ 7,060 $ — $ ( 7,060 ) $ —
Proprietary rights 6.4 $ 8,220 $ ( 3,920 ) $ — $ 4,300 $ 7,781 $ ( 3,688 ) $ — $ 4,093
Customer relationships 0.4 5,024 ( 4,748 ) — 276 5,024 ( 4,513 ) — 511
Patents 3.1 2,440 ( 1,653 ) — 787 2,440 ( 1,528 ) — 912
Trade name 4.8 894 ( 80 ) ( 760 ) 54 894 ( 74 ) ( 760 ) 60
Developed technology 4.4 1,430 ( 798 ) — 632 1,430 ( 727 ) — 703
Other 2.8 684 ( 278 ) — 406 684 ( 213 ) — 471
Amortizable intangible assets $ 18,692 $ ( 11,477 ) $ ( 760 ) $ 6,455 $ 18,253 $ ( 10,743 ) $ ( 760 ) $ 6,750
As of January 31, 2021, the Company has recorded impairment expense equal to 100 % of the gross carrying amount of goodwill. As a result, no further review of goodwill is required. On January 31, 2021, the Company completed an annual review of amortizable intangible assets. Based on a review of qualitative factors it was determined it was more likely than not that the fair market value of intangible assets was greater than its carrying value. During the six months ended July 31, 2021, there have been no substantive indicators of impairment.
Aggregate amortization expense was $ 618,000 and $ 794,000 for the six months ended July 31, 2021 and 2020, respectively. As of July 31, 2021, future estimated amortization expense related to amortizable intangible assets was estimated to be (in thousands):
For fiscal years ending January 31
2022 $ 588
2023 1,167
2024 1,032
2025 837
2026 700
Thereafter 2,131
Total $ 6,455
9. Notes Payable
On May 5, 2020, the Company, and its wholly owned subsidiary, Klein (collectively, the “Borrowers”), were granted loans (the “Loans”) from Bank of America, N.A. in the aggregate amount of approximately $ 1.6 million, pursuant to the Small Business Association's Paycheck Protection Program (the “PPP”), a component of the Coronavirus Aid, Relief, and Economic Security Act which was enacted on March 27, 2020.
The Loans, in the form of promissory notes (the “Notes”) dated May 1, 2020 issued by the Borrowers, were set to mature on May 1, 2022 and bore interest at a rate of 1 % per annum, payable monthly commencing on November 1, 2020. The Notes stipulated various restrictions customary with this type of transaction including representations, warranties, and covenants, in addition to events of default, breaches of representation and warranties or other provisions of the Notes. In the event of default, the Borrowers would have become obligated to repay all amounts outstanding under the Notes. The Borrowers were permitted to prepay the Notes at any time prior to maturity with no prepayment penalties.
Under the terms of the PPP, funds from the Loans could only be used for payroll costs, rent, utilities and interest on other debt obligations incurred prior to February 15, 2020. In addition, certain amounts of the Loans could be forgiven if the funds were used to pay qualifying expenses.
In January 2021, the Loan granted to the Company in the amount of approximately $ 757,000 was forgiven resulting in other income of that amount. In February 2021, the Loan granted to Klein in the amount of approximately $ 850,000 was also forgiven, resulting in other income of that amount. As of July 31, 2021, the Company had no outstanding balance under the Loans.
10. Income Taxes
For the six months ended July 31, 2021, the income tax expense from continuing operations was approximately $ 52,000 on a pre-tax net loss from continuing operations of $ 6.4 million. For the six months ended July 31, 2020, the benefit for income taxes from continuing operations was approximately $ 188,000 on a pre-tax net loss from continuing operations of $ 8.5 million. The variance between our actual provision and the expected provision based on the U.S. statutory rate is due primarily to recording valuation allowances against the increase in our deferred tax assets in the respective periods, permanent differences between book income and taxable income, and the effect of foreign withholding taxes.
The Company files U.S. federal and state 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 Internal Revenue Service for fiscal years ended January
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31, 2018 through 2021. The Company’s tax returns may also be subject to examination by state and local tax authorities for fiscal years ended January 31, 2016 through 2021. In addition, the Company's tax returns filed in foreign jurisdictions are generally subject to examination for the fiscal years ended January 31, 2016 through 2021.
The Company has determined that the undistributed earnings of foreign subsidiaries are not deemed to be indefinitely reinvested outside of the United States as of July 31, 2021. Furthermore, the Company has concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial. Therefore, the Company has no t recorded a deferred tax liability associated with the undistributed foreign earnings as of July 31, 2021.
For the six months ended July 31, 2021 and 2020, the Company did no t recognize any tax expense or benefit related to uncertain tax positions.
11. Earnings per Share
Net income per basic common share is computed using the weighted average number of common shares outstanding during the period, excluding unvested restricted stock. Net income per diluted common share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the period using the treasury stock method. Potential common shares result from the assumed exercise of outstanding common stock options having a dilutive effect and from the assumed vesting of unvested shares of restricted stock.
The following table presents the calculation of basic and diluted weighted average common shares used in the earnings per share calculation:
Three Months Ended July 31, Six Months Ended July 31,
2021 2020 2021 2020
(in thousands) (in thousands)
Basic weighted average common shares outstanding 13,774 12,182 13,767 12,177
Stock options 79 3 58 1
Unvested restricted stock 29 10 18 5
Total weighted average common share equivalents 108 13 76 6
Diluted weighted average common shares outstanding 13,882 12,195 13,843 12,183
For the three and six months ended July 31, 2021 and 2020, potentially dilutive common shares underlying stock options and unvested restricted stock were anti-dilutive and were therefore not considered in calculating diluted loss per share for those periods.
12. Related Party Transaction
On October 7, 2016, the Company entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc. (the “Agent”). On December 18, 2019, the Company and Agent entered into an Amended and Restated equity distribution agreement (the “1st Equity Distribution Agreement”). Pursuant to the 1st Equity Distribution Agreement, the Company may sell up to 500,000 shares of 9.00 % Series A Cumulative Preferred Stock, par value $ 1.00 per share (the “Preferred Stock”), through an at-the-market offering program (the “1st ATM Offering Program”) administered by the Agent. The Co-Chief Executive Officer and Co-President of the Agent is the Non-Executive Chairman of our Board. Under the 1st Equity Distribution Agreement, the Agent was entitled to compensation of up to 2.0 % of the gross proceeds from the sale of Preferred Stock under the 1st ATM Offering Program. As of January 31, 2020, we had issued 994,046 shares of Series A Preferred for which the Agent was entitled to compensation, including 100 % of the Preferred Stock available for sale through the 1st Equity Distribution Agreement.
In September 2020 we entered into a new equity distribution agreement (the “2 nd Equity Distribution Agreement”) with the Agent with economic terms essentially identical to the initial agreement. Pursuant to the 2 nd Equity Distribution Agreement, the Company may sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of $ 0.01 par value common stock (“Common Stock”) through a new at-the-market offering program (the “2 nd ATM Offering Program”).
During the three- and six-month periods ended July 31, 2021, the Company sold 163,780 and 184,740 shares of Preferred Stock under the 2 nd ATM Offering Program, respectively. Net proceeds from these sales for the three and six months ended July 31, 2021, were approximately $ 4.0 million and $ 4.5 million, respectively, and the Agent received compensation of approximately $ 82,000 and 92,000 ,respectively. The Non-Executive Chairman of the Board received no portion of this compensation.
During the three- and six-month periods ended July 31, 2021, the Company sold 362 and 18,415 shares of Common Stock under the 2 nd ATM Offering Program, respectively. Net proceeds from these sales for the three and six months ended July 31, 2021, were approximately $ 1,000 and $ 43,000 . Compensation to the Agent during this period was approximately $ 1,000 , none of which was received by the Non-Executive Chairman of the Board.
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13. Equity and Stock-Based Compensation
During the three months ended July 31, 2021, the Board declared quarterly dividends of $ 0.5625 per share for our Preferred Stock. As of July 31, 2021, there are 1,223,000 shares of Preferred Stock outstanding with an aggregate liquidation preference of approximately $ 30.6 million. Total compensation expense recognized for stock-based awards granted under the Company’s equity incentive plan during the three and six months ended July 31, 2021 was approximately $ 115,000 and $ 224,000 , respectively, and during the three and six months ended July 31, 2020 was approximately $ 219,000 and $ 449,000 , respectively.
14. Segment Reporting
With the designation of the Equipment Leasing segment as discontinued operations as of July 31, 2020, the Company operates in one segment, Marine Technology Products. As a result, no segment reporting is required. The Marine Technology Products business is engaged in the design, manufacture and sale of state-of-the-art seismic and offshore telemetry systems. Manufacturing, support and sales facilities are maintained in the United Kingdom, Singapore, Malaysia and the states of New Hampshire and Texas.
15. Corporate Restructuring
On August 3, 2020, the Company, formerly Mitcham Industries, Inc., completed the reincorporation from the State of Texas to the State of Delaware, including a name change to MIND Technology, Inc. The change in legal domicile and company name were approved by the affirmative vote of the holders of more than two-thirds of the votes of the Company’s Common Stock and Preferred Stock, voting separately, at the Annual Meeting of Stockholders held on July 27, 2020. As part of the reincorporation merger, the stockholders approved an increase in the number of authorized shares of capital stock from 21,000,000 shares to 42,000,000 shares, consisting of (i) 40,000,000 shares of Common Stock (up from 20,000,000 shares), and (ii) 2,000,000 shares of Preferred Stock (up from 1,000,000 shares).
Pursuant to the terms of the reincorporation merger, each outstanding share of Common Stock and each share of Preferred Stock of Mitcham Industries, Inc., the Texas corporation, automatically converted into one share of Common Stock and one share of Series A Preferred Stock, respectively, of MIND Technology, Inc., the Delaware corporation. Stockholders who hold physical stock certificates are not required to, but may, exchange stock certificates as a result of the reincorporation. The Company’s Common Stock and Preferred Stock continued to trade on the NASDAQ Global Select Market under their ticker symbols, “MIND” and “MINDP”, respectively. The Company’s Common Stock was assigned a new CUSIP number of 602566 101 and the Company’s Preferred Stock was assigned a new CUSIP number of 602566 200.
No changes were made to the Board, management, business or operations of the Company as a result of the reincorporation. The Company’s corporate headquarters remains in Texas.
16. Subsequent Event
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.
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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “expect,” “may,” “will,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward-looking statements, which are not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts of our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below :
• risks associated with our manufacturing operations including availability and reliability of materials and components as well the reliability of the products that we manufacture and sell;
• loss of significant customers;
• the impact of disruptions in global supply chains due to the COVID-19 pandemic and other factors, including certain components and materials becoming unavailable, increased lead times for components and materials, as well as increased costs for such items;
• increased competition;
• loss of key suppliers;
• intellectual property claims by third parties;
• the effect of uncertainty in financial markets on our customers’ and our ability to obtain financing;
• our ability to successfully execute strategic initiatives to grow our business;
• local and global impacts of the COVID-19 virus, including effects of responses of governmental authorities and companies to reduce the spread of COVID-19, such as shutdowns, travel restrictions and work-from-home mandates;
• uncertainties regarding our foreign operations, including political, economic, currency environmental regulation and export compliance risks;
• seasonal fluctuations that can adversely affect our business;
• fluctuations due to circumstances beyond our control or that of our customers;
• defaults by customers on amounts due us;
• possible further impairment of our long-lived assets due to technological obsolescence or changes in anticipated cash flow generated from those assets;
• inability to obtain funding or to obtain funding under acceptable terms; and
• fluctuations in demand for seismic data, which is dependent on the level of spending by oil and gas companies for exploration, production and development activities, and may potentially negatively impact the value of our assets held for sale.
For additional information regarding known material factors that could cause our actual results to differ materially from our projected results, please see (1) Part II, “Item 1A. Risk Factors” of this Form 10-Q, (2) Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, and (3) the Company’s other filings filed with the SEC from time to time.
There may be other factors of which the Company is not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement after the date they are made, whether as the result of new information, future events or otherwise, except as required by law. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
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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.