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 16 - Corporate Restructuring, to the condensed consolidated financial statements.
The Company, through its wholly owned subsidiary, Seamap Pte, Ltd. (“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 New Hampshire, Singapore, Malaysia, the United Kingdom and Texas. Prior to July 31, 2020, the Company, together with 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. In February 2019 the Company sold its wholly owned Australian subsidiary Seismic Asia Pacific Pty Ltd (“SAP”). See Note 14 - Sale of Subsidiaries to the condensed consolidated financial statements for more information. All intercompany transactions and balances have been eliminated in consolidation.
During the second quarter of the fiscal year ending January 31, 2021 (“fiscal 2021”), management and the board of directors (the “Board”) of the Company determined to exit the land seismic leasing business (the “Leasing Business”), which comprises essentially all operations of the Equipment Leasing segment. Accordingly, the results of operations for this segment are excluded from the Company’s continuing operations for fiscal 2021 and all comparative periods and presented as discontinued operations in the Company’s condensed consolidated financial statements. See Note 3 - Assets Held for Sale and Discontinued Operations to the condensed consolidated financial statements for further details.
These condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company has a history of losses, has had negative cash from operating activities in the last two fiscal years and may not have access to sources of capital that were available in prior periods. In addition, the COVID-19 pandemic and the decline in oil prices during the first nine months of fiscal 2021 have created substantial doubt and could have a material adverse effect on the Company’s business, financial position, results of operations and liquidity. Accordingly, substantial doubt has arisen regarding the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company not be able to continue as a going concern.
2. Basis of Presentation
The condensed consolidated balance sheet as of January 31, 2020 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, 2020. 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 October 31, 2020, the results of operations for the three and nine months ended October 31, 2020 and 2019, the cash flows for the nine months ended October 31, 2020 and 2019, and the statement of shareholders’ equity for the three and nine months ended October 31, 2020 and 2019, 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, 2021.
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 Equipment Leasing segment are considered held for sale and the segment’s operations are reported as discontinued operations as of October 31, 2020 and for all comparative periods presented in these condensed consolidated financial statements. The Company anticipates selling the discontinued operations within twelve months from July 27, 2020 in a single transaction, or multiple transactions, which may involve the sale of legal entities or assets.
The assets reported as held for sale consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
Current assets of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
1,963
|
|
|
5,699
|
|
|
|
|
|
Inventories, net
|
359
|
|
|
605
|
|
|
|
|
|
Prepaid expenses and other current assets
|
141
|
|
|
227
|
|
|
|
|
|
|
|
|
|
Seismic equipment lease pool and property and equipment, net
|
2,977
|
|
|
8,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets of discontinued operations
|
$
|
5,440
|
|
|
$
|
14,913
|
|
The liabilities reported as held for sale consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
Current liabilities of discontinued operations:
|
|
|
|
Accounts payable
|
$
|
71
|
|
|
$
|
884
|
|
|
|
|
|
Deferred revenue
|
18
|
|
|
34
|
|
Accrued expenses and other current liabilities
|
1,044
|
|
|
1,886
|
|
Income taxes payable
|
—
|
|
|
(74)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
1,133
|
|
|
2,730
|
|
The results of operations from discontinued operations for the three and nine months ended October 31, 2020 and 2019, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended October 31,
|
|
For the Nine Months Ended October 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
|
|
|
|
|
Revenue from discontinued operations
|
|
$
|
313
|
|
|
$
|
2,488
|
|
|
$
|
5,731
|
|
|
$
|
8,379
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Cost of discontinued operations
|
|
263
|
|
|
1,752
|
|
|
4,389
|
|
|
6,266
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
1,146
|
|
|
1,305
|
|
|
4,322
|
|
|
4,195
|
|
Provision for doubtful accounts
|
|
—
|
|
|
—
|
|
|
470
|
|
|
—
|
|
Depreciation and amortization
|
|
43
|
|
|
41
|
|
|
128
|
|
|
136
|
|
Total operating expenses
|
|
1,189
|
|
|
1,346
|
|
|
4,920
|
|
|
4,331
|
|
Operating loss
|
|
(1,139)
|
|
|
(610)
|
|
|
(3,578)
|
|
|
(2,218)
|
|
Other income (expenses)
|
|
(75)
|
|
|
(8)
|
|
|
—
|
|
|
(114)
|
|
Loss on disposal (including $2,745 of cumulative translation loss)
|
|
—
|
|
|
—
|
|
|
(1,859)
|
|
|
—
|
|
Loss before income taxes
|
|
(1,214)
|
|
|
(618)
|
|
|
(5,437)
|
|
|
(2,332)
|
|
Provision for income taxes
|
|
(6)
|
|
|
(91)
|
|
|
(706)
|
|
|
(238)
|
|
Net loss
|
|
(1,220)
|
|
|
(709)
|
|
|
(6,143)
|
|
|
(2,570)
|
|
The significant operating and investing noncash items and capital expenditures related to discontinued operations are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended October 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
Depreciation and amortization
|
|
|
|
|
|
$
|
1,771
|
|
|
$
|
3,651
|
|
Gross profit from sale of lease pool equipment
|
|
|
|
|
|
$
|
(1,326)
|
|
|
$
|
(987)
|
|
Provisions for doubtful accounts
|
|
|
|
|
|
$
|
470
|
|
|
$
|
—
|
|
Loss on disposal of discontinued operations
|
|
|
|
|
|
$
|
1,859
|
|
|
$
|
—
|
|
Sale of used lease pool equipment
|
|
|
|
|
|
$
|
2,010
|
|
|
$
|
1,415
|
|
Sale of assets held for sale
|
|
|
|
|
|
$
|
734
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Purchase of seismic equipment held for lease
|
|
|
|
|
|
$
|
(110)
|
|
|
$
|
(1,938)
|
|
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. Certain amendments within this ASU are required to be applied on a retrospective basis for all periods presented; others are to be applied using a modified retrospective approach with a cumulative-effect adjustment to retained earnings, if any, as of the beginning of the first reporting period in which the guidance is adopted; and yet others are to be applied using either basis. All other amendments not specified in the ASU should be applied on a prospective basis. Early adoption is permitted. An entity that elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the new guidance to determine the impact it will have on its condensed consolidated financial statements.
In August 2018, the SEC adopted amendments to simplify certain disclosure requirements, as set forth in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which includes a requirement for entities to present the changes in shareholders’ equity in the interim financial statements in quarterly reports on Form 10-Q. This amendment is effective for all filings made on or after November 5, 2018. Considering the timing of effectiveness of the amendment and proximity to the filing date for most filers’ quarterly reports, the SEC has allowed for a filer’s first presentation of the changes in shareholders’ equity to be included in its Form 10-Q for the quarter that begins after the effective date. The Company adopted the SEC’s amendment to interim disclosures in the first quarter of fiscal 2020 and has presented the changes in shareholders’ equity on an interim basis.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) as modified by subsequently issued ASUs 2018-01, 2018-10, 2018-11 and 2018-20. The Company adopted the standard effective February 1, 2019. We have elected to apply the current period transition approach as introduced by ASU 2018-11 for our transition at February 1, 2019 and we have elected to apply several of the practical expedients in conjunction with accounting policy elections. See Note 7 - Leases to our condensed consolidated financial statements for additional details.
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.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees except for certain circumstances. The Company adopted this guidance in the first quarter of fiscal 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 October 31,
|
|
Nine Months Ended October 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenue recognized at a point in time:
|
|
(in thousands)
|
Seamap
|
|
$
|
5,196
|
|
|
$
|
5,694
|
|
|
$
|
11,066
|
|
|
$
|
14,648
|
|
Klein
|
|
1,150
|
|
|
2,380
|
|
|
3,152
|
|
|
5,778
|
|
SAP
|
|
—
|
|
|
—
|
|
|
—
|
|
|
101
|
|
Total revenue recognized at a point in time
|
|
$
|
6,346
|
|
|
$
|
8,074
|
|
|
$
|
14,218
|
|
|
$
|
20,527
|
|
Revenue recognized over time:
|
|
|
|
Seamap
|
|
$
|
195
|
|
|
$
|
238
|
|
|
$
|
596
|
|
|
$
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue recognized over time
|
|
195
|
|
|
238
|
|
|
596
|
|
|
512
|
|
Total revenue from contracts with customers
|
|
$
|
6,541
|
|
|
$
|
8,312
|
|
|
$
|
14,814
|
|
|
$
|
21,039
|
|
The revenue from products manufactured and sold by our Seamap and Klein businesses, as well as the revenue from products marketed and sold by our SAP 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. 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 Company sold SAP during the first quarter of fiscal 2020. See Note 14 to our condensed consolidated financial statements for more information.
The following table presents revenue from contracts with customers disaggregated by geography, based on shipping location of our customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
Nine Months Ended October 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
United States
|
|
$
|
282
|
|
|
$
|
1,453
|
|
|
$
|
2,068
|
|
|
$
|
3,293
|
|
Europe, Russia & CIS
|
|
2,001
|
|
|
3,769
|
|
|
4,981
|
|
|
8,936
|
|
Middle East & Africa
|
|
757
|
|
|
810
|
|
|
1,054
|
|
|
1,359
|
|
Asia-Pacific
|
|
3,342
|
|
|
1,308
|
|
|
5,841
|
|
|
4,417
|
|
Canada & Latin America
|
|
159
|
|
|
972
|
|
|
870
|
|
|
3,034
|
|
Total revenue from contracts with customers
|
|
$
|
6,541
|
|
|
$
|
8,312
|
|
|
$
|
14,814
|
|
|
$
|
21,039
|
|
As of October 31, 2020, and January 31, 2020, contract assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
Contract Assets:
|
|
(in thousands)
|
Unbilled revenue - current
|
|
$
|
7
|
|
|
$
|
13
|
|
|
|
|
|
|
Total unbilled revenue
|
|
$
|
7
|
|
|
$
|
13
|
|
Contract Liabilities:
|
|
|
Deferred revenue & customer deposits - current
|
|
$
|
304
|
|
|
$
|
220
|
|
Deferred revenue & customer deposits - non-current
|
|
—
|
|
|
12
|
|
Total deferred revenue & customer deposits
|
|
$
|
304
|
|
|
$
|
232
|
|
Considering the products manufactured and sold by the businesses in our Marine Technology Products segment 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 six months.
Pursuant to practical expedients and exemptions included in ASU 2014-09, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2020
|
|
As of January 31, 2020
|
|
Current
|
|
Long-term
|
|
Total
|
|
Current
|
|
Long-term
|
|
Total
|
Accounts receivable
|
$
|
6,653
|
|
|
$
|
—
|
|
|
$
|
6,653
|
|
|
$
|
9,001
|
|
|
$
|
—
|
|
|
$
|
9,001
|
|
Less allowance for doubtful accounts
|
(1,044)
|
|
|
—
|
|
|
(1,044)
|
|
|
(2,378)
|
|
|
—
|
|
|
(2,378)
|
|
Accounts receivable net of allowance for doubtful accounts
|
$
|
5,609
|
|
|
$
|
—
|
|
|
$
|
5,609
|
|
|
$
|
6,623
|
|
|
$
|
—
|
|
|
$
|
6,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
|
|
(in thousands)
|
Inventories:
|
|
|
|
|
Raw materials
|
|
$
|
7,019
|
|
|
$
|
7,388
|
|
Finished goods
|
|
3,436
|
|
|
3,758
|
|
Work in progress
|
|
2,698
|
|
|
2,720
|
|
|
|
13,153
|
|
|
13,866
|
|
Less allowance for obsolescence
|
|
(1,273)
|
|
|
(1,210)
|
|
Total inventories, net
|
|
$
|
11,880
|
|
|
$
|
12,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
|
|
(in thousands)
|
Property and equipment:
|
|
|
|
|
Marine seismic service equipment
|
|
$
|
6,970
|
|
|
$
|
8,341
|
|
Land and buildings
|
|
4,358
|
|
|
4,274
|
|
Furniture and fixtures
|
|
9,661
|
|
|
9,364
|
|
Autos and trucks
|
|
490
|
|
|
491
|
|
|
|
21,479
|
|
|
22,470
|
|
Accumulated depreciation and amortization
|
|
(16,525)
|
|
|
(17,051)
|
|
Total property and equipment, net
|
|
$
|
4,954
|
|
|
$
|
5,419
|
|
As of January 31, 2020, the Company completed an annual review of long-lived assets noting that the undiscounted future cash flows exceeded their carrying value and no impairment has been recorded. Subsequent to January 31, 2020, there was a significant deterioration in macroeconomic factors and a decline in the market value of the Company’s equity securities which indicated possible impairment of long-lived assets. However, an analysis of the estimated recoverable value of these long-lived assets indicated that there was no impairment.
7. Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which was modified by subsequently issued ASUs 2018-01, 2018-10, 2018-11 and 2018-20 (collectively, the “New Lease Standard”). The New Lease Standard requires organizations that lease assets ( “lessees”) to recognize the assets and liabilities of the rights and obligations created by leases with terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee remains dependent on its classification as a finance or operating lease. The New Lease Standard also requires additional disclosure of the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The New Lease Standard was effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provided additional relief in the comparative reporting requirements for initial adoption of the New Lease Standard. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 provided an additional transition method allowing entities to initially apply the New Lease Standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption.
The Company adopted the New Lease Standard effective February 1, 2019. We elected to apply the current period transition approach as introduced by ASU 2018-11 and we elected a package of transition expedients, which must be elected together, that allowed us to forgo reassessing certain conclusions reached under ASC 840. All expedients in this package were applied together for all leases that commenced before the effective date, February 1, 2019, of the adoption of the New Lease Standard. As a result, in transitioning to the New Lease Standard, for existing leases as of February 1, 2019, we continued to use judgments made under ASC 840 related to embedded leases, lease classification and accounting for initial direct costs. In addition, we have chosen, as an accounting policy election by class of underlying asset, not to separate non-lease components from the associated lease for all our leased asset classes, excluding for Real Estate related leases. As a result, for classes
of Automobiles, Office Equipment and Manufacturing Equipment, we account for each separate lease component and the non-lease components associated with that lease as a single lease component.
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.
Adoption of the New Lease Standard during first quarter of fiscal 2020 did have a material impact on our consolidated balance sheet as we recorded right-of-use assets and the corresponding lease liabilities related to our operating leases of approximately $3.0 million, each. The Company determined to treat lease costs with an original maturity of less than one year as short-term lease costs and did not record a right-of-use asset or related lease liability for these leases. The new standard did not have a material impact on our consolidated statements of operations or our statements of cash flows.
Lease expense for the three and nine months ended October 31, 2020 was approximately $313,000 and $828,000, respectively, and was recorded as a component of operating loss. Included in these costs was short-term lease expense of approximately $10,000 and $20,000, respectively, for the three and nine months ended October 31, 2020.
Supplemental balance sheet information related to leases as of October 31, 2020 was as follows (in thousands):
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Lease
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October 31, 2020
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January 31, 2020
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Assets
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Operating lease assets
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$
|
1,363
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|
|
$
|
2,300
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Liabilities
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Operating lease liabilities
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|
$
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1,363
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|
|
$
|
2,300
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Classification of lease liabilities
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Current liabilities
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$
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280
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$
|
1,339
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Non-current liabilities
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|
1,083
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|
961
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Total Operating lease liabilities
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$
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1,363
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$
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2,300
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|
Lease-term and discount rate details as of October 31, 2020 were as follows:
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Lease term and discount rate
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October 31, 2020
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January 31, 2020
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Weighted average remaining lease term (years)
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Operating leases
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|
1.27
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|
1.76
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|
Weighted average discount rate:
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Operating leases
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9.27
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%
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|
9.27
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%
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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):
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Lease
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Nine Months Ended October 31, 2020
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Nine Months Ended October 31, 2019
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Cash paid for amounts included in the measurement of lease liabilities:
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Operating cash flows from operating leases
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$
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(828)
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$
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(881)
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Right-of-use assets obtained in exchange for lease liabilities:
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Operating leases
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$
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828
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$
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592
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Maturities of lease liabilities at October 31, 2020 were as follows (in thousands):
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October 31, 2020
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2021
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$
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280
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2022
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831
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2023
|
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220
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2024
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97
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2025
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51
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Thereafter
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20
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Total payments under lease agreements
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$
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1,499
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Less: imputed interest
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(136)
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Total lease liabilities
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$
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1,363
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8. Goodwill and Other Intangible Assets
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Weighted Average Life at 10/31/2020
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|
October 31, 2020
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January 31, 2020
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Gross
Carrying
Amount
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Accumulated
Amortization
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Impairment
|
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Net
Carrying
Amount
|
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Gross
Carrying
Amount
|
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Accumulated
Amortization
|
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Impairment
|
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Net
Carrying
Amount
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Goodwill
|
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$
|
7,060
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|
|
$
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—
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|
|
$
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(7,060)
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|
$
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—
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|
|
$
|
7,060
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|
$
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—
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|
$
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(4,529)
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$
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2,531
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Proprietary rights
|
7.8
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$
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7,430
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|
$
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(3,547)
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|
$
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—
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|
|
$
|
3,883
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|
|
$
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9,247
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|
$
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(4,950)
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|
$
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—
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$
|
4,297
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Customer relationships
|
1.1
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5,024
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(4,344)
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—
|
|
|
680
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|
|
5,024
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|
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(3,831)
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|
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—
|
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|
1,193
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Patents
|
3.8
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|
2,440
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|
(1,463)
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|
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—
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|
|
977
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|
|
2,440
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|
(1,277)
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—
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|
1,163
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Trade name
|
5.6
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|
894
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(72)
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(760)
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62
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|
894
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(63)
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(760)
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|
71
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Developed technology
|
5.2
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1,430
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(691)
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—
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739
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1,430
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(584)
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—
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|
846
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Other
|
3.6
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|
666
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(176)
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—
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|
|
490
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|
|
653
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(87)
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—
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|
|
566
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Amortizable intangible assets
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|
$
|
17,884
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$
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(10,293)
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$
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(760)
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$
|
6,831
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|
|
$
|
19,688
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|
$
|
(10,792)
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|
$
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(760)
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|
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$
|
8,136
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On January 31, 2020, the Company completed an annual review of goodwill and other intangible assets. Based on a review of qualitative factors at that time, it was determined it was more likely than not that the fair value of our Seamap reporting unit was greater than its carrying value. Based on a review of qualitative and quantitative factors at that time, it was determined it was more likely than not that the fair value of our Klein reporting unit was less than it's carrying value. Accordingly, we recorded an impairment of approximately $760,000 related to indefinite lived intangible assets in the Klein reporting unit as of January 31, 2020.
Due to the economic impact of the COVID-19 pandemic, the decline in oil prices during the three months ended April 30, 2020 and a decline in the market value of the Company’s equity securities, the Company performed a quantitative review of the Seamap reporting unit and concluded that goodwill had been impaired. As a result, the Company recorded an impairment expense of approximately $2.5 million related to goodwill in the Seamap reporting unit during the quarter ended April 30, 2020. The impairment of goodwill indicated a possible impairment of other intangible assets. Accordingly, the Company completed a quantitative analysis of the other intangible assets as of April 30, 2020, noting that the undiscounted future cash flows exceeded their carrying value and no related impairment was recorded.
Subsequent to April 30, 2020 there have been no substantive indicators of additional impairment.
Aggregate amortization expense was $1.3 million and $1.3 million for the nine months ended October 31, 2020 and 2019, respectively. As of October 31, 2020, future estimated amortization expense related to amortizable intangible assets was estimated to be (in thousands):
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For fiscal years ending January 31
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|
2021
|
$
|
423
|
|
2022
|
1,232
|
|
2023
|
1,087
|
|
2024
|
1,003
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2025
|
730
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Thereafter
|
2,356
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Total
|
$
|
6,831
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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, mature on May 1, 2022 and bear interest at a rate of 1% per annum, payable monthly commencing on November 1, 2020. The Notes stipulate 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 may become obligated to repay all amounts outstanding under the Notes. The Borrowers may prepay the Notes at any time prior to maturity with no prepayment penalties.
Under the terms of the PPP, funds from the Loans may 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 Loan may be forgiven if the funds are used to pay qualifying expenses. The Company believes it has used the proceeds from the Loans to pay qualifying expenses and that a significant portion of the Loans will be forgiven pursuant to the terms of the PPP. The Company has submitted applications for the forgiveness of the Loans but cannot ensure that the Loans will be forgiven, in whole or in part.
10. Income Taxes
For the nine months ended October 31, 2020, the benefit for income taxes from continuing operations was approximately $79,000 on a pre-tax net loss from continuing operations of $10.8 million. For the nine months ended October 31, 2019, the benefit for income taxes from continuing operations was approximately $75,000 on a pre-tax net loss of $5.1 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, plus 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 and state income tax returns are subject to examination by the Internal Revenue Service and state tax authorities for fiscal years ended January 31, 2017 through 2020. In addition, the Company's tax returns filed in foreign jurisdictions are generally subject to examination for the fiscal years ended January 31, 2015 through 2020.
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 October 31, 2020. Furthermore, the Company has concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial. Therefore, the Company has not recorded a deferred tax liability associated with the undistributed foreign earnings as of October 31, 2020.
For the nine months ended October 31, 2020 and 2019, the Company did not 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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
Nine Months Ended October 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
(in thousands)
|
Basic weighted average common shares outstanding
|
|
12,313
|
|
|
12,158
|
|
|
12,223
|
|
|
12,135
|
|
Stock options
|
|
70
|
|
|
44
|
|
|
24
|
|
|
80
|
|
Unvested restricted stock
|
|
17
|
|
|
2
|
|
|
10
|
|
|
2
|
|
Total weighted average common share equivalents
|
|
87
|
|
|
46
|
|
|
34
|
|
|
82
|
|
Diluted weighted average common shares outstanding
|
|
12,400
|
|
|
12,204
|
|
|
12,257
|
|
|
12,217
|
|
For the three and nine months ended October 31, 2020 and 2019, 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 (the “Preferred Stock”), par value $1.00 per share through an at-the-market (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 the 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 which represent 100% of the Series A Preferred Stock available for sale through the 1st Equity Distribution Agreement. For the three and nine months ended October 31, 2019, the Company issued 70,282 and 86,938 shares of Preferred Stock under the 1st ATM offering program, respectively. Gross proceeds from these sales for the three and nine months ended October 31, 2019 were approximately $1.7 million and $2.1 million, respectively, and the Agent received compensation of approximately $34,000 and $42,000, respectively. The Non-Executive Chairman of the Board received no portion of this compensation.
In September 2020 we entered into a new equity distribution agreement (the “2nd Equity Distribution Agreement”) with the Agent with economic terms essentially identical to the initial agreement. Pursuant to the 2nd 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 (the “2nd ATM”) offering program. During the three months ended October 31, 2020 the Company sold 676,283 shares of Common Stock under the ATM program, resulting in net proceeds to the Company of approximately $1.3 million. Compensation to the Agent during this period was approximately $30,500, none of which was received by the Non-Executive Chairman of the Board.
13. Equity and Stock-Based Compensation
During the three months ended October 31, 2020, the Board declared quarterly dividends of $0.5625 per share for our Preferred Stock. The Board also approved the grant of 70,000 non-qualified stock options during the third quarter of fiscal 2021 at an average option price of $2.27 per share. Total compensation expense recognized for stock-based awards granted under the Company’s equity incentive plan during the three and nine months ended October 31, 2020 was approximately $113,000 and $562,000, respectively, and during the three and nine months ended October 31, 2019 was approximately $270,000 and $612,000, respectively.
14. Sale of Subsidiaries
In February 2019, the Company completed the sale of its wholly owned Australian subsidiary, Seismic Asia Pacific Pty Ltd. for total contractual proceeds of approximately $660,000 U.S. dollars of which the Company received approximately $240,000 in cash at closing and an unsecured, non-interest bearing two year note receivable in the amount of $420,000. The agreement also included a working capital adjustment of approximately $114,000 payable to the Company which was received in August of 2019. The note receivable was recorded as other current assets as of October 31, 2020 and as other non-current assets as of January 31, 2020. During the three months ended October 31, 2020 the Company received a prepayment of $125,000 related to the note.
15. 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. The Marine Technology Products segment 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.
16. 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 Shareholders held on July 27, 2020. As part of the reincorporation merger, the shareholders 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 have been 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.
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 sale;
•loss of significant customers;
•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
•demand for seismic data is not assured and depends on the level of spending by oil and gas companies for exploration, production and development activities, thereby potentially negatively impacted 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, 2020, (3) Part II,“Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended July 31, 2020 and (4) 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.