MIND TECHNOLOGY INC

1. Organization, Liquidity and Summary of Significant Accounting Policies

Organization—MIND Technology, Inc., a Delaware corporation (the “Company”), was incorporated in1987. 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 financial results reported as discontinued operations (see Note2* – “Sale of a Subsidiary” for additional details).

Liquidity—As of* April 30, 2024,the Company had working capital of approximately $19.3 million, including cash and cash equivalents of approximately $924,000, compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million as of January 31, 2024.The Company doesnot* 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.

Summary of Significant Accounting Policies—We describe our significant accounting policies in Note1* of the Notes to Consolidated Financial Statements in our Annual Report on Form10*-K for the fiscal year ended* January31,* 2024. During thethree months ended** April 30, 2024**, there wereno changes to those accounting policies.

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2. Sale of Subsidiary

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 $11.5 million, resulting in a gain of approximately $2.3 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 (as defined below) were repaid in full and the Loan was terminated, and all liens and security interests granted thereunder were released and terminated (see Note10 - "Notes Payable" for additional details).

3. Basis of Presentation

The condensed consolidated balance sheet as of* January 31, 2024*, 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 presentednot 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 Form10-K for the year ended* January 31, 2024* (“fiscal2024”). 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* April 30, 2024*, the results of operations for thethree months ended* April30,* 2024 and2023, the cash flows for thethree months ended* April30,* 2024 and2023, and the statement of stockholders’ equity for thethree-months ended* April 30, 2024and2023,* have been included in these condensed consolidated financial statements. The foregoing interim results arenot necessarily indicative of the results of operations to be expected for the full fiscal year ending* January**31,* 2025 (“fiscal2025”).

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4. Discontinued Operations

On* August**21,* 2023, the Company sold Klein pursuant to the SPA with the Buyer. As a result, its results of operations are reported as discontinued operations for thethree-month period ended* April 30, 2023.*

The results of operations from discontinued operations for thethree months ended* April 30, 2023*consist of the following:

The significant operating and investing noncash items and capital expenditures related to discontinued operations are summarized below:

5. New Accounting Pronouncements

In* November 2023,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")No. 2023-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures ("ASU2023-7"), 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. ASU2023-07 is effectivefour our annual periods beginning* February 1, 2024and interim periods within fiscal years beginning February 1, 2025.*The Company is evaluating the impacts of adoption.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures (“ASU2023-09”). ASU2023-09 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.

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6. Revenue from Contracts with Customers

The following table presents revenue from contracts with customers disaggregated by timing of revenue recognition:

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 recognized in equal monthly amounts over the life of the contract.

The following table presents revenue from contracts with customers disaggregated by geography, based on the shipping location of our customers:

As of* April 30, 2024*, and* January 31, 2024*, contract assets and liabilities consisted of the following:

Considering the products manufactured and sold by our Seamap business and the Company’s standard contract terms and conditions, we expect the Company's contract assets and liabilities to turn over, on average, within a period ofthree tonine months.

With respect to the disclosures above, sales and transaction-based taxes are excluded from revenue, and we donot disclose the value of unsatisfied performance obligations for contracts with an original expected duration ofone year or less. Also, we expense costs incurred to obtain contracts because the amortization period would beone year or less. These costs are recorded in selling, general and administrative expenses.

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7. Balance Sheet

As of* January 31, 2024*, the Company completed an annual review of property and equipment notingno indications that the recorded value of assets* may**not* be recoverable, andno impairment was recorded for fiscal2024. Since* January 31, 2024*, there have beenno changes to the market, economic or legal environment in which the Company operates or overall performance of the Company, that would, in the aggregate, indicate additional impairment analysis is necessary as of* April 30, 2024.*

8. Leases

The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in Texas, Singapore, Malaysia, and the United Kingdom.

Lease expense for thethree months ended* April 30, 2024* was approximately $207,000, respectively, and during thethree months ended* April 30, 2023was approximately $221,000, respectively, and was recorded as a component of operating income (loss). Included in these costs was short-term lease expense of approximately$1,000 for thethree* months ended* April 30, 2024*, and during thethree months ended* April**30,* 2023 wasapproximately$2,000.

Supplemental balance sheet information related to leases as of* April 30, 2024* and* January 31, 2024* was as follows:

Lease-term and discount rate details as of* April 30, 2024* and* January 31, 2024* were as follows:

The incremental borrowing rate was calculated using the Company's weighted average cost of capital.

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Supplemental cash flow information related to leases was as follows:

Maturities of lease liabilities at* April 30, 2024* were as follows:

9. Intangible Assets

On* January 31, 2024*, the Company completed an annual review of amortizable intangible assets. Based on a review of qualitative factors, it was determined that there wereno events or changes in circumstances indicating that the carrying value of amortizable intangible assets wasnot recoverable. During thethree months ended* April 30, 2024,there have beenno* substantive indicators of impairment.

Aggregate amortization expense was $185,000 and $224,000 for thethree months ended* April 30, 2024and2023*, respectively. As of* April 30, 2024*, future estimated amortization expense related to amortizable intangible assets was estimated to be:

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10. Notes Payable

On* February 2, 2023,we entered into a $3.75 million Loan and Security Agreement (“the Loan”). The Company 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 is the interest due through maturity. These costs were recorded as a reduction to the carrying value of our debt and amortized to interest expense straight-line over the term of the Loan. Approximately $204,000 of amortization of debt acquisition costs were recorded as interest expense for thethree* months ended* April 30, 2023.On August 22, 2023,in connection with the Sale of Klein, the Loan was repaid in full (see Note2*- "Sale of Subsidiary" for additional details).

11. Income Taxes

For thethree-month period ended* April 30, 2024*, the income tax expense from continuing operations was approximately $245,000, on pre-tax income from continuing operations of approximately $1.2 million. For thethree- month period ended* April 30, 2023,the income tax expense from continuing operations was approximately $411,000, on pre-tax income from continuing operations of $287,000. The variance between our actual provision and the expected provision when applying the U.S. statutory rate of21%* is due primarily to the impact of income taxes accrued in certain foreign jurisdictions, mainly Singapore, which donot have net operating losses available to offset taxable income, and because valuation allowances have been recorded against increases in our deferred tax assets. Valuation allowances have been provided against all deferred tax assets in the United States and several foreign jurisdictions.

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 31, 2019through2024.* The Company’s tax returns* mayalso be subject to examination by state and local tax authorities for fiscal years ending January 31, 2017through2024.* The Company's Singapore income tax returns are subject to examination by the Singapore tax authorities for the fiscal years ended* January 31, 2017,through2024.* The Company’s tax returns in other foreign jurisdictions are generally subject to examination for the fiscal years ended* January 31, 2018through2024.*

The Company has determined that the undistributed earnings of foreign subsidiaries arenot deemed to be indefinitely reinvested outside of the United States as of* April 30, 2024*. Furthermore, the Company has concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial. Therefore, the Company hasnot recorded a deferred tax liability associated with the undistributed foreign earnings as of* April 30, 2024*.

For thethree-month period ended* April 30, 2024and2023*, the Company didnot recognize any tax expense or benefit related to uncertain tax positions.

12. 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. For thethree months ended* April 30, 2024and April 30, 2023,dilutive potential common shares outstanding were immaterial and hadno* effect on the calculation of earnings per share because shares were anti-dilutive. The total basic weighted average common shares outstanding for thethree months ended* April 30, 2024and April**30,2023,* was approximately 1.4 million shares.

On* October 12, 2023,the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Charter (the “Charter Amendment”) to effect aone*-for-ten reverse stock split (the “Reverse Stock Split”). Prior periods shares have been restated to reflect the impact of the Reverse Stock Split in calculating earnings per share (see Note14- "Equity and Stock Based Compensation " for additional details).

13. Related Party Transaction

Ladenburg Thalmann & Co. Inc. (“Ladenburg”) provided advisor and arrangement services for the Loan (See Note10 - "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 former Co-Chief Executive Officer and Co-President of Ladenburg is the Non-Executive Chairman of our Board. Our Non-Executive Chairman of the Board receivedno portion of the above-mentioned compensation.

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14. Equity and Stock-Based Compensation

As of* April 30, 2024*, there are approximately 1,683,000 shares of Preferred Stock outstanding with an aggregate liquidation preference of approximately $48.7 million, which amount includes approximately $6.6 million in undeclared cumulative dividends. Holders of our Preferred Stock are entitled to receive, when and as declared by the Board out of funds of the Company available for the payment of distributions, quarterly cumulative preferential cash dividends of $0.5625 per share of the $25.00 per share stated liquidation preference on our Preferred Stock. Dividends on the Preferred Stock are payable quarterly in arrears, on* April30,* * July31,* * October 31,and January**31,* of each year.

On* September 28, 2023,the Board approved the Reverse Stock Split at a ratio ofone*-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, everyten shares of issued and outstanding Common Stock were combined intoone 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 werenot issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to receive a fractional share were entitled to receiveone 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 didnot 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.

Total compensation expense recognized for stock-based awards granted under the Company’s equity incentive plan during thethree-month period ended* April 30, 2024was approximately $48,000, and during thethree*-month period ended* April 30, 2023,*was approximately $50,000.

15. Segment Reporting

Prior to* August 22, 2023,the Company operated intwo segments, Seamap and Klein. On August 21, 2023,the Company completed the Sale of Klein. (see Note2*-"Sale of Subsidiary" for additional details). As a result, at* April 30, 2024,*Seamap is the Company’ssole operating segment.

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