MIND TECHNOLOGY INC

Previous wording

On August 21, 2023, the Company completed the Sale of Klein (see Note 2-"Sale of Subsidiary" in the accompanying financial statements for additional details). Effective with the Sale of Klein, we operate in one segment, Seamap. Seamap designs, produces and sells seismic exploration and survey equipment. Its customers include foreign and domestic commercial marine survey companies and various governmental institutions.

Current wording

On August 21, 2023, the Company completed the Sale of Klein (see Note 2-"Sale of Subsidiary" in the accompanying financial statements for additional details). Effective with the Sale of Klein, we operate in one segment, Seamap. Our Seamap business designs, produces and sells seismic exploration and survey equipment. Its customers include foreign and domestic commercial marine survey companies and various governmental institutions.

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 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.

Current wording

Our financial performance has improved significantly in recent periods. Although we had a history of generating operating losses prior to fiscal 2024, we generated operating income from continuing operations in fiscal 2024 and the first three 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

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.

Current wording

As of October 31, 2024, our backlog of firm orders was approximately $26.2 million, which is essentially flat with July 31, 2024. Our backlog totaled approximately $38.4 million as of January 31, 2024 and $37.4 million as of October 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 estimate total more than twice our backlog of firm orders. 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

On September 4, 2024, all outstanding shares of Preferred Stock were converted into common stock and retired. The Company issued approximately 6.6 million shares of common stock in connection with the conversion. Accordingly, the Company no longer has obligations regarding Preferred Stock dividends, including undeclared dividends from previous periods (see Note 14- “Subsequent Events” for additional details).

Current wording

On September 4, 2024, all outstanding shares of preferred stock were converted into common stock and retired. The Company issued approximately 6.6 million shares of common stock in connection with the conversion. Accordingly, the Company no longer has obligations regarding preferred stock dividends, including undeclared dividends from previous periods (see Note 14- “Equity and Stock-Based Compensation” for additional details).

Previous 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:

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. 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

We also continue to pursue initiatives to further expand our product offerings. These initiatives include new internally developed technology, introduction of new products based on our existing technology, technology obtained through partnering arrangements with others and a combination of all of these. There can be no assurance that any of these initiatives will ultimately have a material impact on our financial position or results of operations. Certain business opportunities that we are pursuing are with military or other governmental organizations. The sales cycle for these projects can be quite long and can be impacted by a variety of factors, including the level of competition and budget limitations. Therefore, the timing of contract awards is often difficult to predict. However, once awarded, programs of this type can extend for many years. To date, the majority of our revenues have been from commercial customers.

Current wording

We also continue to pursue initiatives to further expand our product offerings. These initiatives include new internally developed technology, introduction of new products based on our existing technology, technology obtained through partnering arrangements with others and a combination of all of these. There can be no assurance that any of these initiatives will ultimately have a material impact on our financial position or results of operations. The Company is also pursuing certain business opportunities with governmental organizations. Because the sales cycle for these projects can be quite long and can be impacted by a variety of factors, including the level of competition and budget limitations, the timing of contract awards is often difficult to predict.

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. 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.

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. 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

General inflation levels have increased recently due in part to supply chain issues, increased energy costs and geopolitical uncertainty. In addition, shortages of certain components, such as electronic components, have caused prices for available components to increase in some cases. These factors can be expected to have a negative impact on our costs; however, the magnitude of such impact cannot be accurately determined.

Current wording

General inflation levels have increased in recent years due in part to supply chain issues, increased energy costs and geopolitical uncertainty. In addition, shortages of certain components, such as electronic components, have caused prices for available components to increase in some cases. These factors have had a negative impact on our costs; however, the magnitude of such impact cannot be accurately determined.

Previous 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.

Current wording

Revenues for the three and nine months ended October 31, 2024 were approximately $12.1 million and $31.8 million, respectively, compared to approximately $5.0 million and $23.1 million for the three and nine months ended October 31, 2023, respectively. The revenue increase in the three and nine month periods ended October 31, 2024, compared to the prior year periods was primarily due to increased activity within the marine technology markets, including those activities related to energy exploration and alternative energy initiatives. For the three and nine months ended October 31, 2024, we generated operating income of approximately $1.9 million and $4.0 million, respectively, compared to an operating loss of approximately $1.5 million and $1.8 million for the three and nine months ended October 31, 2023. The increase in operating income in the current year was attributable to increased revenues, decreased selling, general and administrative costs and reduced research and development costs during the nine months ended October 31, 2024. A more detailed explanation of these variations follows.

Previous wording

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

Current wording

Revenues and cost of sales for our Seamap business were as 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 $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.

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 so that our products can be installed. Accordingly, there can be significant variation in sales from one period to another. During the three and nine month periods ended October 31, 2024 approximately 60% of our revenues related to the sale of new systems with the remaining 40% related to “after market” activity such as the sale of spare parts, repairs and training. The gross profit and gross profit margins for Seamap were approximately $5.4 million and 45% and $14.4 million and 45% for the three and nine-month periods ended October 31, 2024, respectively, compared to approximately $2.3 million and 45% and $9.7 million and 42% in the three and nine-month periods ended October 31, 2023, respectively. For the three month periods, the gross profit margins were comparable, despite significantly higher revenue in the fiscal 2025 period, due mainly to revenue mix. The gross profit margins in first nine-months of 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 incremental activity levels and production and procurement efficiencies facilitated by increased order backlog.

Previous 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.

Current wording

General and administrative expenses for the three and nine-months ended October 31, 2024, respectively, were approximately $2.8 million and $8.3 million, compared to approximately $2.9 million and $9.2 million for the three and nine-months ended October 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 $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.

Current wording

Research and development costs were approximately $562,000 and $1.4 million, in the three and nine-month periods ended October 31, 2024, respectively, compared to approximately $508,000 and $1.5 million, in the three and nine-month period ended October 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 $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.

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 $221,000 and $724,000 in the three and nine-month periods ended October 31, 2024, respectively, as compared to approximately $257,000 and $892,000 in the three and nine-month periods ended October 31, 2023, respectively.

Previous 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).

Current wording

Interest expense of approximately $169,000 and $536,000 in the three and nine-months ended October 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 2-"Sale of Subsidiary" and note 10-"Notes Payable" for additional details).

Previous 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.

Current wording

For the three and nine-months ended October 31, 2024, we reported tax expense of approximately $396,000 and $1.3 million, respectively, on pre-tax income from continuing operations of approximately $1.7 million and $4.4 million, respectively. For the three and nine-month period ended October 31, 2023, our income tax expense was approximately $112,000 and $590,000, respectively, on pre-tax loss from continuing operations of approximately $1.6 million and $2.0 million, 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 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 certain foreign jurisdictions, including Malaysia and the United Kingdom.

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 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.

Current wording

Until recently, the Company had a history of generating operating losses and negative cash from operating activities and relied on cash from the sale of lease pool equipment and the sale of preferred stock and common stock. However, the Company’s operating results improved significantly in fiscal 2024 as compared to fiscal 2023 and prior years. The Company generated net income from operations and positive Adjusted EBITDA for the fiscal year ended January 31, 2024 and the three and nine month periods ended October 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 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.

Current wording

As of October 31, 2024, the Company had working capital of approximately $21.2 million, including cash and cash equivalents of approximately $3.5 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 and cash flows from operations 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. In the three months ended July 31, 2024, the Company generated positive cash from operating activities in the amount of approximately $1.1 million.

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 six months ended October 31, 2024, the Company generated positive cash from operating activities in the amount of approximately $3.3 million.

Previous 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.

Current wording

As of October 31, 2024, we had working capital of approximately $21.2 million, including cash and cash equivalents of approximately $3.5 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 $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.

Current wording

Cash Flows from Operating Activities. Net cash used in operating activities was approximately $1.4 million in the first nine months of fiscal 2025 as compared to approximately $5.6 million in the first nine months of fiscal 2024. The decrease in net cash used in operating activities in the first nine months of fiscal 2025 compared to the prior year period was due mainly to an increase in net income.

Previous 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.

Current wording

Cash Flows from Investing Activities. Cash provided by investing activities during the first nine months of fiscal 2025 decreased approximately $10.8 million over the same period in fiscal 2024. The decrease relates primarily to proceeds from the sale of Klein in fiscal 2024, not recurring in fiscal 2025.

Previous 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).

Current wording

Cash Flows from Financing Activities. Net cash used in financing activities during the first nine months of fiscal 2025 consisted of approximately $619,000 of transaction costs associated with the conversion of preferred stock to common stock (see Note 14- "Equity and Stock-Based Compensation " for additional details). Net cash used in financing activities during the first nine months of fiscal 2024 consisted of approximately $589,000 of payments net of proceeds related to short-term loans (see Note 10 - "Notes Payable" for additional details).

Previous 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.

Current wording

As of October 31, 2024, we had deposits in foreign banks equal to approximately $3.3 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- and six-month periods ended July 31, 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 nine-month periods ended October 31, 2024.