MIND TECHNOLOGY INC

Previous wording

Our financial performance has improved significantly in recent periods. Although we have a history of operating losses, we generated positive operating income from continuing operations in fiscal 2024 and the first quarter of fiscal 2025. We believe this is due to increased demand within our primary markets and efforts to reduce costs and improve product margins.

Current wording

Our financial performance has improved significantly in recent periods. Although we have a history of operating losses, we generated positive operating income from continuing operations in fiscal 2024 and the first and second quarters of fiscal 2025. We believe this is due to increased demand within our primary markets and efforts to reduce costs and improve product margins.

Previous wording

On August 21, 2023, we completed the Sale of Klein for cash consideration of $11.5 million. In addition, in connection with the Sale of Klein, the Company granted the Buyer a license in its Spectral Ai software suite, 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 license and collaboration agreements provide opportunities for recurring licensing revenue and recovery of certain ongoing operating costs. We believe the Sale of Klein serves to streamline the Company’s operations and provides needed working capital to address the financial requirements associated with the continuing growth of our Seamap business.

Current wording

On August 21, 2023, we completed the Sale of Klein for cash consideration of $11.5 million. In addition, in connection with the Sale of Klein, the Company granted the Buyer a license in its Spectral Ai software suite, 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 license and collaboration agreements provide opportunities for recurring licensing revenue and recovery of certain ongoing operating costs. The Sale of Klein served to streamline the Company’s operations and provided needed working capital to address the financial requirements associated with the continuing growth of our Seamap business.

Previous wording

We have experienced increased inquiries and bid activity for our marine technology products. As of April 30, 2024, our backlog of firm orders was approximately $31.0 million, as compared to approximately $38.4 million as of January 31, 2024, and $18.1 million as of April 30, 2023. We believe that essentially all of our current backlog will be completed and shipped by the end of fiscal 2025. We believe that these firm orders provide good visibility for the balance of this fiscal year and into the next year. However, 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.

Current wording

As of July 31, 2024, our backlog of firm orders was approximately $26.2 million, as compared to approximately $38.4 million as of January 31, 2024, and $17.0 million as of July 31, 2023. We believe a significant portion of our current backlog will be completed and shipped by the end of fiscal 2025. Additionally, we have a significant pipeline of pending and potential orders that we are pursuing. There are more than $6 million of such orders that have been received subsequent to July 31, 2024 or that we believe are imminent. We believe these orders provide good visibility for the balance of this fiscal year and into the next year. However, 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.

Previous wording

Our revenues tend to fluctuate from quarter to quarter due to delivery schedules and other factors. We currently expect revenue in the fiscal year ending January 31, 2025 to exceed that of fiscal 2024. However, no assurances of such results can be made, and there are a number of risks which could cause results to be less than anticipated. Those risks include the following:

Current wording

Our revenues tend to fluctuate from quarter to quarter due to delivery schedules and other factors. We currently expect revenue in fiscal 2025 to exceed that of fiscal 2024 and revenue in the second half of fiscal 2025 to somewhat exceed that for the first half of fiscal 2025. However, no assurances of such results can be made, and there are a number of risks which could cause results to be less than anticipated. Those risks include the following:

Previous wording

In fiscal 2024, we eliminated two executive management positions and certain other administrative positions in order to further control general and administrative costs. The Sale of Klein has allowed us to further streamline our operations and may provide opportunities to further reduce overhead costs. Should future financial results fall below our expectation, we may take further steps to reduce costs. We believe many of our costs are variable in nature, such as raw materials and labor-related costs. Accordingly, we believe we can reduce such costs commensurate with any declines in our business.

Current wording

In fiscal 2024, we eliminated two executive management positions and certain other administrative positions in order to further control general and administrative costs. We have eliminated certain other positions in fiscal 2025. The Sale of Klein has allowed us to further streamline our operations and may provide opportunities to further reduce overhead costs. Should future financial results fall below our expectation, we may take further steps to reduce costs. We believe many of our costs are variable in nature, such as raw materials and labor-related costs. Accordingly, we believe we can reduce such costs commensurate with any declines in our business.

Previous wording

Revenues for the three months ended April 30, 2024 were approximately $9.7 million, compared to approximately $10.6 million for the three months ended April 30, 2023 The decrease in the first three months of fiscal 2025 compared to the prior year period was primarily due to timing of completion of projects. For the three months ended April 30, 2024, we generated operating income of approximately $730,000, compared to operating income of approximately $419,000 for the three months ended April 30, 2023. The increase in operating income in the current three month periods was primarily attributable to decreased selling, general and administrative costs during the three months ended April 30, 2024. A more detailed explanation of these variations follows.

Current wording

Revenues for the three and six months ended July 31, 2024 were approximately $10.0 million and $19.7 million, respectively, compared to approximately $7.6 million and $18.2 million for the three and six months ended July 31, 2023 , respectively. The increase in the three and six month periods ended July 31, 2024, compared to the prior year period was primarily due to timing of completion of order shipments. For the three and six months ended July 31, 2024, we generated operating income of approximately $1.4 million and $2.2 million, respectively, compared to an operating loss of approximately $767,000 and $348,000 for the three and six months ended July 31, 2023. The increase in operating income in the current year was attributable to improved gross profit margins, decreased selling, general and administrative costs and reduced research and development costs during the three and six months ended July 31, 2024. A more detailed explanation of these variations follows.

Previous wording

A significant portion of Seamap’s sales consist of large discrete orders, the timing of which is dictated by our customers. This timing generally relates to the availability of a vessel in port so that our products can be installed. Accordingly, there can be significant variation in sales from one period to another, which does not necessarily indicate a fundamental change in demand for these products. Revenue from the sale of Seamap products was approximately $9.7 million for the three-month period ended April 30, 2024, compared to revenue of approximately $10.6 million for three-month period ended April 30, 2023. The gross profit and gross profit margins remained consistent for Seamap and were approximately $4.2 million and 44% and approximately $4.5 million and 43% in the three-month periods ended April 30, 2024 and 2023, respectively. The gross profit margin in the first quarter of fiscal 2025 improved from the comparable period in the prior fiscal year, despite lower revenues, due to price increases implemented in fiscal 2024 and increased production efficiencies. The increased production efficiencies were due primarily to production and procurement efficiencies facilitated by increased order backlog.

Current wording

A significant portion of Seamap’s sales consist of large discrete orders, the timing of which is dictated by our customers. This timing generally relates to the availability of a vessel in port so that our products can be installed. Accordingly, there can be significant variation in sales from one period to another, which does not necessarily indicate a fundamental change in demand for these products. Revenue from the sale of Seamap products was approximately $10.0 million and $19.7 million for the three and six-month periods ended July 31, 2024, compared to revenue of approximately $7.6 million and $18.2 million for the three and six-month periods ended July 31, 2023. The gross profit and gross profit margins for Seamap were approximately $4.8 million and 48% and $9.0 million and 46% for the three and six-month periods ended July 31, 2024, respectively, compared to approximately $2.9 million and 39% and $7.5 million and 41% in the three and six-month periods ended July 31, 2023, respectively. The gross profit margins in fiscal 2025 improved from the comparable period in the prior fiscal year, due to price increases implemented in fiscal 2024 and increased production efficiencies. The increased production efficiencies were due primarily to higher overhead absorption from higher activity levels and production and procurement efficiencies facilitated by increased order backlog.

Previous wording

General and administrative expenses for the three months ended April 30, 2024, were approximately $2.8 million, compared to approximately $3.3 million for the three months ended April 30, 2023. The decrease from the prior periods is primarily the result of lower compensation expense due to headcount reductions, and the impact of broader cost control measures.

Current wording

General and administrative expenses for the three and six-months ended July 31, 2024, respectively, were approximately $2.8 million and $5.5 million, compared to approximately $2.9 million and $6.2 million for the three and six-months ended July 31, 2023, respectively. The decrease from the prior periods is primarily the result of lower compensation expense due to headcount reductions, and the impact of broader cost control measures.

Previous wording

Research and development costs were approximately $462,000 in the three-month period ended April 30, 2024, compared to approximately $478,000 in the three-month period ended April 30, 2023, respectively. Costs in each of the periods are related primarily to our next generation towed streamer system and ongoing development of our Spectral Ai software suite.

Current wording

Research and development costs were approximately $328,000 and $790,000, in the three and six-month periods ended July 31, 2024, respectively, compared to approximately $493,000 and $971,000, in the three and six-month period ended July 31, 2023, respectively. Costs in each of the periods are related primarily to our next generation towed streamer system and ongoing development of our Spectral Ai software suite.

Previous wording

Depreciation and amortization expense, which includes depreciation of equipment, furniture and fixtures and the amortization of intangible assets, decreased primarily attributable to assets becoming fully depreciated and amortized over the year. These costs were approximately $267,000 in the three -month period ended April 30, 2024, as compared to approximately $333,000 in the three-month period ended April 30, 2023.

Current wording

Depreciation and amortization expense, which includes depreciation of equipment, furniture and fixtures and the amortization of intangible assets, decreased primarily attributable to assets becoming fully depreciated and amortized over the year. These costs were approximately $236,000 and $503,000 in the three and six-month periods ended July 31, 2024, respectively, as compared to approximately $302,000 and $635,000 in the three and six-month periods ended July 31, 2023, respectively.

Previous wording

Interest expense of approximately $204,000 in the three months ended April 30, 2023, was primarily due to interest on the Loan. The Loan was repaid in fiscal 2024 in connection with the sale of Klein (see note 10-"Notes Payable" and Note 2-"Sale of Subsidiary" for additional details).

Current wording

Interest expense of approximately $163,000 and $367,000 in the three and six-months ended July 31, 2023, respectively, was primarily due to interest on the Loan. The Loan was repaid in fiscal 2024 in connection with the Sale of Klein (see note 10-"Notes Payable" and Note 2-"Sale of Subsidiary" for additional details).

Previous wording

For the three-months ended April 30, 2024, we reported tax expense of approximately $245,000 on pre-tax income from continuing operations of approximately $1.2 million. For the three-month period ended April 30, 2023, our income tax expense was approximately $411,000 on pre-tax Income from continuing operations of approximately $287,000. These amounts differed from the result expected when applying the U.S. statutory rate of 21% to our income or loss from continuing operations before income taxes for the respective periods due primarily to the impact of income taxes accrued in certain foreign jurisdictions, primarily in Singapore, which do not have net operating losses available to offset taxable income, and because valuation allowances have been recorded against increases in our deferred tax assets. Valuation allowances have been provided against all deferred tax assets in the United States and several foreign jurisdictions.

Current wording

For the three and six-months ended July 31, 2024, we reported tax expense of approximately $672,000 and $917,000, respectively, on pre-tax income from continuing operations of approximately $1.5 million and $2.7 million, respectively. For the three and six-month period ended July 31, 2023, our income tax expense was approximately $66,000 and $477,000, respectively, on pre-tax loss from continuing operations of approximately $692,000 and $405,000, respectively. These amounts differed from the result expected when applying the U.S. statutory rate of 21% to our income or loss from continuing operations before income taxes for the respective periods due primarily to the impact of income taxes accrued in certain foreign jurisdictions, primarily in Singapore, which do not have net operating losses available to offset taxable income, and because valuation allowances have been recorded against increases in our deferred tax assets. Valuation allowances have been provided against all deferred tax assets in the United States and several foreign jurisdictions.

Previous wording

The Company has a history of generating operating losses and negative cash from operating activities and has relied on cash from the sale of lease pool equipment and the sale of Preferred Stock and Common Stock for the past several years. However, the Company’s operating results improved significantly in fiscal 2024 as compared to fiscal 2023 and prior years, generating net income from operations and positive Adjusted EBITDA for the fiscal year ended January 31, 2024 and the three months ended April 30, 2024. In addition, the Company sold its Klein business on August 21, 2023, generating net proceeds of approximately $7.3 million after settlement of closing cost and all outstanding amounts due and owed, including principal, interest, and other charges, on the Company’s $3.75 million loan. The sale of Klein increased the Company’s working capital and improved its liquidity situation.

Current wording

The Company has a history of generating operating losses and negative cash from operating activities and has relied on cash from the sale of lease pool equipment and the sale of Preferred Stock and common stock for the past several years. However, the Company’s operating results improved significantly in fiscal 2024 as compared to fiscal 2023 and prior years, generating net income from operations and positive Adjusted EBITDA for the fiscal year ended January 31, 2024 and the three and six months ended July 31, 2024. In addition, the Company sold its Klein business on August 21, 2023, generating net proceeds of approximately $7.3 million after settlement of closing costs and all outstanding amounts due and owed, including principal, interest, and other charges, on the Company’s $3.75 million loan. The Sale of Klein increased the Company’s working capital and improved its liquidity situation.

Previous wording

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 does not have a credit facility in place and depends on cash on hand, cash flows from operations, and potential sales of remaining lease pool equipment to satisfy its liquidity needs.

Current wording

As of July 31, 2024, the Company had working capital of approximately $20.3 million, including cash and cash equivalents of approximately $1.9 million, 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 does not have a credit facility in place and depends on cash on hand, cash flows from operations, and potential sales of remaining lease pool equipment to satisfy its liquidity needs.

Previous wording

The Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, potential financing secured by company owned real property, disciplined working capital commitments, and potentially securing a credit facility or some other form of financing.

Current wording

The Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, potential financing secured by company owned real property, disciplined working capital commitments, and potentially securing a credit facility or some other form of financing. In the three months ended July 31, 2024, the Company generated positive cash from operating activities in the amount of approximately $1.1 million.

Previous wording

In addition, management believes there are a number of additional factors and actions available to the Company to address any liquidity needs, including the following:

Current wording

In addition, management believes there are a number of other factors and actions available to the Company to address any liquidity needs, including the following:

Previous wording

As of April 30, 2024, we had working capital of approximately $19.3 million, including cash and cash equivalents of approximately $924,000, as compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, at January 31, 2024.

Current wording

million, including cash and cash equivalents of approximately $1.9 million, as compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, at January 31, 2024.

Previous wording

Cash Flows from Operating Activities. Net cash used in operating activities was approximately $4.8 million in the first three months of fiscal 2025 as compared to approximately $3.0 million in the first three months of fiscal 2024. The increase in net cash used in operating activities in the first three months of fiscal 2025 compared to the prior year period was due mainly to an increase in accounts receivable and inventories.

Current wording

Cash Flows from Operating Activities. Net cash used in operating activities was approximately $3.7 million in the first six months of fiscal 2025 as compared to approximately $3.5 million in the first six months of fiscal 2024. The increase in net cash used in operating activities in the first six months of fiscal 2025 compared to the prior year period was due mainly to an increase in accounts receivable and inventories.

Previous wording

Cash Flows from Investing Activities. Cash provided by investing activities during the first three months of fiscal 2025 increased approximately $310,000 over the same period in fiscal 2024. The increase relates primarily to sales of other equipment.

Current wording

Cash Flows from Investing Activities. Cash provided by investing activities during the first six months of fiscal 2025 increased approximately $77,000 over the same period in fiscal 2024. The increase relates primarily to sales of other equipment.

Previous wording

Cash Flows from Financing Activities. Net cash provided by financing activities during the first three months of fiscal 2024 consisted of approximately $2.9 million of net proceeds related to short-term loans (see Note 10 - "Notes Payable" for additional details).

Current wording

Cash Flows from Financing Activities. Net cash provided by financing activities during the first six months of fiscal 2024 consisted of approximately $2.9 million of net proceeds related to short-term loans (see Note 10 - "Notes Payable" for additional details).

Previous wording

As of April 30, 2024, we had deposits in foreign banks equal to approximately $710,000, 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. If withholding taxes should become payable, we believe the amount of tax withheld would be immaterial.

Current wording

As of July 31, 2024, 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. However, in certain cases, the transfer of these funds may result in withholding taxes payable to foreign taxing authorities. If withholding taxes should become payable, we believe the amount of tax withheld would be immaterial.

Previous wording

Information regarding our critical accounting estimates is included in Part II, 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, 2024. There have been no material changes to our critical accounting estimates during the three-month period ended April 30, 2024.

Current wording

Information regarding our critical accounting estimates is included in Part II, 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, 2024. There have been no material changes to our critical accounting estimates during the three- and six-month periods ended July 31, 2024.