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Item7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Historically, we have operated in two segments, Marine Technology Products and Equipment Leasing. During the second quarter of fiscal 2021, our Board decided to exit the Leasing Business and instructed management to develop and implement a plan to dispose of those operations. Accordingly, the assets, excluding cash, and liabilities of the Leasing Business are considered held for sale and the Leasing Business operations are presented as discontinued operations. See Note 2 - “Assets Held for Sale and Discontinued Operations” to our consolidated financial statements for more details.

Revenue from the Marine Technology Products business includes sales of Seamap equipment and sales of Klein equipment. This business operates from locations near Bristol, United Kingdom; Salem, New Hampshire; Huntsville, Texas; Johor, Malaysia and in Singapore.

The discontinued operations of the Leasing Business includes all land leasing activity, sales of lease pool equipment and certain other equipment sales and services related to those operations. This business has been conducted from our locations in Huntsville, Texas; Calgary, Canada; Bogota, Colombia; and Budapest, Hungary. This included the operations of our subsidiaries MCL, MEL and our branch in Colombia.

Management believes that the performance of our Marine Technology Products business is indicated by revenues from sales of products and by gross profit from those sales. Management monitors EBITDA and Adjusted EBITDA, both as defined and reconciled to the most directly comparable financial measures calculated and presented in accordance with United States generally accepted accounting principles (“GAAP”), in the following table, as key indicators of our overall performance and liquidity.

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The following table presents certain operating information of our continuing operations:

Year Ended January 31,

(in thousands)

Revenues:

Sale of marine technology products $ 23,107 $ 21,215

Cost of sales:

Sale of marine technology products $ 17,085 $ 13,906

Operating expenses:

Selling, general and administrative $ 14,761 $ 12,648

Provision for doubtful accounts $ — $ 659

Impairment of intangible assets $ — $ 2,531

Depreciation and amortization $ 2,209 $ 2,796

Year Ended January 31,

(in thousands)

Net loss from continuing operations $ (13,579 ) $ (14,002 )

Depreciation and amortization 2,209 2,796

(Benefit) provision for income taxes (39 ) 536

EBITDA from continuing operations (1) (11,409 ) (10,670 )

Non-cash foreign exchange losses 163 110

Stock-based compensation 643 708

Impairment of intangible assets — 2,531

Adjusted EBITDA from continuing operations (1) $ (10,603 ) $ (7,321 )

Reconciliation of Net Cash Used In Operating Activities to EBITDA

Net cash used in operating activities $ (17,134 ) $ (6,360 )

Stock-based compensation (643 ) (708 )

Provision for doubtful accounts — (659 )

Provision for inventory obsolescence (616 ) (132 )

Changes in accounts receivable (current and long-term) 4,316 (3,077 )

Interest paid — 40

Taxes paid, net of refunds 355 336

Loss on sale of other equipment 155 357

Impairment of intangible assets — (2,531 )

Changes in prepaid expenses and other current and long-term assets 606 (154 )

EBITDA from continuing operations (1) $ (11,409 ) $ (10,670 )

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Within our Marine Technology Products business, we design, manufacture and sell a variety of products used primarily in oceanographic, hydrographic, defense, seismic and maritime security industries. Seamap’s primary products include (i) the GunLink seismic source acquisition and control systems; (ii) the BuoyLink RGPS tracking system used to provide precise positioning of seismic sources and streamers (marine recording channels that are towed behind a vessel) and (iii) SeaLink marine sensors and solid streamer systems (collectively, the “SeaLink” product line or “towed streamer products”). These towed streamer products are primarily designed for three-dimensional, high-resolution marine surveys in hydrographic industry applications. Klein designs, manufactures and sells side scan sonar and water-side security systems to commercial, governmental and military customers throughout the world.

Our discontinued operations consisted primarily of leasing seismic data acquisition equipment mainly to seismic data acquisition companies conducting land surveys worldwide. Historically, we provided short-term leasing, typically for a term of less than one year, of seismic equipment to meet a customer’s requirements. From time to time, we sold lease pool equipment. These sales were transacted when we had equipment for which we did not have near term needs in our leasing business or which was otherwise considered excess. Additionally, when equipment that had been leased to a customer was lost or destroyed, the customer was charged for such equipment at amounts specified in the underlying lease agreement.

Our results of operations can experience fluctuations in activity levels due to a number of factors outside of our control. These factors include budgetary or financial concerns, difficulties in obtaining licenses or permits, security problems, labor or political issues, inclement weather, and global pandemics. See Item 1A- “Risk Factors.”

Business Outlook

Our financial results in recent periods, particularly fiscal 2022, have been less than anticipated. We believe this is the result of several factors including the following:

The above factors notwithstanding, in recent weeks we have seen a significant increase in order activity (as discussed below) and we believe general economic and geopolitical trends are now favorable for much of our business. Global energy prices have increased significantly in recent weeks. We believe this is a positive development for our marine seismic customers. Higher energy prices and the global movement towards renewable energy is, we believe, positive for our customers in the marine survey industry. Additionally, the current geopolitical unrest, especially in Europe and Asia, is driving demand for defense and maritime security solutions.

In recent months, we have continued to experience significant inquiries and bid activity for our other marine technology products. As of January 31, 2022, our backlog of firm orders for our Marine Technology Products business was approximately $13.1 million, as compared to approximately $14.2 million as of January 31, 2021. Subsequent to January 31, 2022 we have received firm orders totaling approximately $5.7 million for seismic and multi-beam sonar systems. Additionally, we have responded to requests for proposals (“RFQ”s) for multi-beam sonar systems totaling approximately $4.8 million. These RFQ’s specifically require our products. Based on discussions with the end-users for these orders and our experience with the governmental procurement process, we are confident we will receive firm orders for these items. Accordingly, our backlog and other firm and highly confident orders total approximately $23.6 million. We expect essentially all of these orders to be completed within fiscal 2023 and currently expect revenues from continuing operation in fiscal 2023 to exceed those of fiscal 2022. 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.

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Going forward we intend to address three primary markets in our Marine Technology Products business -

• Marine Survey;

• Marine Exploration; and

• Maritime Defense.

Specific applications within those markets include sea-floor survey, search and recovery, mineral and geophysical exploration, mine counter measures and anti-submarine warfare. We have existing technology and products that meet needs across all these markets such as -

• Side-scan sonar;

• Bathymetry systems;

• Acoustic arrays, such as SeaLink; and

• Marine seismic equipment, such as GunLink and BuoyLink.

We see a number of opportunities to add to our technology and to apply existing technology and products to new applications.

We are also pursuing a number of 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 of the 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; however, we expect the proportion of revenue related to military or governmental customers will increase in the future.

We believe there are certain developments within the marine technology industry which can have a significant impact on our business. These developments include the following:

In response to these, and other, developments we have initiated certain strategic initiatives in order to exploit the opportunities that we perceive. These initiatives include the following:

• Application of our ATR technology to our sonar systems;

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In response to the effects of the global pandemic and the current economic environment we took steps to reduce expenses including the layoff or furloughing of certain employees and contractors and the deferral of other expenditures. Additionally, subsequent to January 31, 2022, we eliminated two executive management positions in order to further control general and administrative costs. Should the effects of the global pandemic and uncertainty about global economic conditions continue, we may take further steps to reduce costs. We believe the majority 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.

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. In response to these cost increases, in the first quarter of fiscal 2023, we increased the pricing for the majority of our products. The amount of the increase varies by product and ranged from approximately 5% to 20%.

During fiscal 2022 and fiscal 2021, the Company received Singapore government grant pursuant to its Job Support Scheme. The primary objective of the Job Support Scheme is to assist companies in retaining local employees during the global pandemic. Grants from the Job Support Scheme in fiscal 2022 and fiscal 2021 totaled approximately $93,000 and $372,000, respectively. Our operations in the United Kingdom also received grants from the government backed Job Retention Scheme. During fiscal 2021, the Company received grants from the Job Retention Scheme totaling approximately $119,000. Future benefit from these government job schemes will be dependent on availability and our ability to qualify for the assistance. We cannot be certain future benefits will be obtained.

Our revenues and results of operations have not been materially impacted by inflation or changing prices in the past two fiscal years, except as described below.

Results of Continuing Operations

For fiscal 2022 and 2021, we recorded operating losses of approximately $14.5 million and $14.3 million, respectively. Although we incurred relatively similar operating losses in fiscal 2022 and 2021, the primary factors driving the losses were different. In fiscal 2021 we faced the direct impacts of the global pandemic, including lockdowns, facility closings, restrictions limiting our employee’s ability to work, travel or visit customers. In fiscal 2022 we experienced the indirect effects of the global pandemic, including supply chain disruptions, longer lead times, and delivery delays, culminating in rising costs.

Marine Technology Products

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

Year Ended January 31,

($ in thousands)

Revenues:

Intra-segment sales (12 ) (276 )

Cost of sales:

Intra-segment sales (12 ) (276 )

Gross profit margin 26 % 34 %

A significant portion of Seamap’s sales consists 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. Although a marginal increase in revenues exists, we believe our full potential was hindered, in large part, to temporary delays and disruptions caused by the lingering effects of the global pandemic, including shipping delays, limited availability and longer lead times for certain products, and disruptions to our product delivery schedules. The gross profit and gross profit margins generated by sales of Seamap products were approximately $5.6 million and 32% during fiscal 2022 and approximately $6.9 million and 40% in fiscal 2021. The decrease in gross profit margins between the periods is primarily due to revenue mix, but also reflects inefficiencies as a result of supply chain disruptions and product delivery delays.

Revenue from the sale of Klein products was approximately $5.8 million during fiscal 2022 versus approximately $4.4 million in the prior year period. We believe the increase in revenue is primarily due to the increased interest and demand for our single beam sonar products. Gross profit was approximately $463,000 and $416,000, with gross profit margins of 8% and 9%, during fiscal 2022 and 2021, respectively. The decline in year over year gross profit margin is due mainly to higher product testing and sustaining engineering activity during fiscal 2022.

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Operating Expenses

Selling, general and administrative expenses for fiscal 2022 amounted to approximately $14.8 million, compared to approximately $12.6 million in 2021, respectively. Selling, general and administrative expenses increased in fiscal 2022 due to higher legal and professional fees related to our previously reported contingent liability matter, plus incremental travel, entertainment, and convention expenses as pandemic related restrictions eased and we reengaged with customers. In addition, our fiscal 2022 selling, general and administrative expenses include certain recurring operating expenses, including but not limited to, property and casualty insurance premiums, facility maintenance expenses, communications costs, etc., reported in discontinued operations in fiscal 2021. As of January 31, 2022, our contingent liability has been resolved through a mutual, no-fault settlement with the other party.

Research and development costs increased in fiscal 2022 as compared to fiscal 2021 due to incremental product development activity, including SAS, automatic target recognition, passive arrays and sensor systems for unmanned platforms, and our other strategic product initiatives.

In fiscal 2022, no provision for doubtful accounts was recorded compared to approximately $659,000 in fiscal 2021. The fiscal 2021 provision was recorded to reflect the revaluation of bonds received during the period in settlement of an outstanding accounts receivable balance. Due to the deteriorating financial position of the issuer, it was determined that the value of the bonds had been impaired. At January 31, 2022, and 2021, we had trade accounts and note receivables over 180 days past due of approximately $36,000 and $1.1 million, respectively. Contractual payment terms vary by customer and by contract and, under certain circumstances, we may grant extended payment terms to our customers. In our industry, and in our experience, it is not unusual for accounts to become delinquent from time to time and this is not necessarily indicative of an account becoming uncollectable. As of January 31, 2022, and 2021, our allowance for doubtful accounts receivable amounted to approximately $484,000 and $948,000, respectively.

Depreciation and amortization expense relates primarily to the depreciation of furniture, fixtures and office equipment and the amortization of intangible assets. The decrease in depreciation and amortization expense in fiscal 2022 is due primarily to intangible assets becoming fully depreciated during the current fiscal year.

We periodically evaluate the recoverability of our intangible assets, including goodwill. As of January 31, 2022, we performed a qualitative analysis of our intangible assets and determined that there were no indicators of impairment for fiscal 2022. In the first quarter of fiscal 2021 due to the uncertain economic environment and declines in the trading prices of the Company’s equity securities, we determined that our remaining goodwill had been impaired, resulting in a charge of approximately $2.5 million.

Other Income and Expense

Included in other expense in fiscal 2022 is approximately $850,000 related to forgiveness of the loan (the “PPP Loan”) granted to Klein pursuant to the Paycheck Protection Program administered by the Small Business Administration in response to the global pandemic. In February 2021 we received confirmation that 100% of the PPP Loan granted to Klein had been forgiven.

Provision for Income Taxes

Our benefit for income taxes for continuing operations for fiscal 2022 was approximately $39,000. This amount differed from the result expected when applying the U.S. statutory rate of 21% to our loss before income taxes due primarily to the impact of valuation allowances against the increase in our deferred tax assets, permanent differences between book income and taxable income, and the impact of foreign withholding taxes.

In fiscal 2021, our provision for income taxes for continuing operations was approximately $536,000. This amount differed from the expected income tax benefit at the U.S. statutory rate of 21% due primarily valuation allowances against the increase in our deferred tax assets, permanent differences between book income and taxable income, and the effect of foreign withholding taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the global pandemic. The CARES Act did not have a material impact on the Company’s provision for income taxes in fiscal 2022 or fiscal 2021.

Internal Controls

As of January 31, 2022, the Company’s executive officers determined that the Company’s internal control over financial reporting was not effective due to an identified material weakness. The material weakness involved the Company’s review controls to ensure proper application of generally accepted accounting principles (ASC 606, Revenue from Contracts with Customers) related to assessment of whether control has transferred to a customer in a point in time revenue transaction, more specifically in a bill-and-hold transaction. The Company failed to properly determine whether control had transferred to a customer in a bill-and-hold transaction and recognized revenue in error as identified by the Company’s auditors during the audit of our financial statements for the fiscal year ended January 31, 2022. We are evaluating our controls related to accounting estimates and have identified changes to our existing controls and additional controls we intend to implement in an effort to strengthen our control environment. We can give no assurance that these actions will remediate this deficiency in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements and cause us to fail to meet our reporting obligations.

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Results of Discontinued Operations

Revenues and cost of sales from discontinued operations were comprised of the following:

Year Ended January 31,

Revenues:

Lease pool equipment sales — 2,010

Other equipment sales — 211

Cost of sales:

Direct costs-equipment leasing 993 2,018

Lease pool depreciation — 1,698

Cost of lease pool equipment sales — 684

Cost of other equipment sales — 137

Operating expenses:

Selling, general and administrative 1,622 4,589

Recovery of doubtful accounts (450 ) 470

Depreciation and amortization 5 132

Loss on disposal (including $2,745 of cumulative translation loss) — (1,859 )

Loss before income taxes (1,199 ) (5,639 )

Provision for income taxes (307 ) (665 )

Following the decision to exit the Leasing Business and present those operations as discontinued operations, we no longer recognize depreciation expense related to our lease pool of seismic equipment, but rather reassess, on a quarterly basis, the recoverability of the remaining carrying value of those assets. Similarly, we no longer recognize gain or loss from the sale of individual lease pool assets but present any net gain or loss from such transactions as a reduction in the carrying value of the lease pool.

Revenue from discontinued operations during fiscal 2022 decreased approximately 85% to $878,000 compared to $5.7 million for fiscal 2021. The reduction in revenue is due to lower equipment leasing activity. We complete our last equipment leasing contract and ceased all equipment leasing activity as of July 31, 2022.

Direct costs related to the Leasing Business dropped to approximately $1.0 million for fiscal year 2022 from approximately $4.5 million reported in fiscal 2021. The reduction in direct costs is commensurate with the decline in revenue. Also, we no longer record lease pool depreciation on discontinued operations, resulting in a decrease of approximately $1.7 million in fiscal 2022.

Selling, general and administrative costs related to the Leasing Business amounted to approximately $1.6 million, compared to $4.6 million during fiscal 2021. The decrease was due primarily to lower compensation and other administrative expenses resulting from headcount reductions and the decline in business activity. In addition, certain recurring operating expenses, including but not limited to, property and casualty insurance premiums, facility maintenance expenses, communications costs, etc., reported in discontinued operations in fiscal 2021 have been reported in continuing operations in fiscal 2022 as the Leasing Business is winding down.

In fiscal 2022, we recorded a recovery for doubtful accounts of approximately $450,000 in discontinued operations. In fiscal 2021 we recorded a provision for doubtful accounts of approximately $470,000 related to discontinued operations. The provision recorded in fiscal 2021 was due to a revaluation of the collectability of our accounts receivable prompted by the detrimental impact of the global pandemic, a decline in commodity prices, and our decision to exit the Leasing Business. Under the circumstances, we deemed it more likely than not that certain of our customers would encounter financial difficulties and potentially be unable to fully satisfy their financial obligations to us.

In fiscal 2021 we recorded a loss on disposal of Assets Held for Sale of approximately $1.9 million which reflects the amount by which the unadjusted carrying value of the net assets of the Leasing Business exceeded the estimated proceeds of the planned sale of the business. The unadjusted carrying value of the Leasing Business included approximately $2.7 million of cumulative translation adjustment which had historically been recorded in Accumulated Other Comprehensive Loss, a component of equity. In fiscal 2022 we recognized approximately $2.5 million of cumulative translation adjustment against the accrued loss on disposal recorded in fiscal 2021.

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Subsequent to July 31, 2020, sales of lease pool equipment totaling approximately $7.0 million have been reflected as a reduction in the carrying value of assets held for sale, with no gain or loss recognized from these transactions.

Our provision for income taxes related to our discontinued operations for fiscal 2022 was approximately $307,000 on a loss before income taxes of approximately $1.2 million. Our provision varies from the expected provision based on the U.S. statutory rate due primarily to the impact of permanent differences between book and taxable income, local taxes in a foreign jurisdiction, and the effect of foreign withholding taxes.

Liquidity and Capital Resources

As discussed above, the lingering impacts of the global pandemic, emerging supply chain disruption and recent volatility in oil prices have created significant uncertainty in the global economy which could have an adverse effect on our business, financial position, results of operations and liquidity. The period for which impacts of the global pandemic, supply chain disruptions and volatility in oil prices will continue is uncertain as is the magnitude of any adverse impacts. We believe that any negative impacts have begun to subside but there can be no assurance of that.

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 pursuant to its at the market (the “ATM”) offering programs for the past several years. As of January 31, 2022, the net book value of remaining lease pool equipment available for sale is approximately $700,000 and the Company has approximately 317,000 shares of Preferred Stock and approximately 13.8 million shares of Common Stock available for issuance. Nevertheless, there can be no assurance the remaining lease pool equipment will be sold or that the Preferred Stock or Common Stock can be sold at a market price acceptable to the Company.

Due to the above factors, there is substantial doubt about the Company’s ability to meet its obligations as they arise over the next twelve months. However, management believes there are compensating factors and actions available to the Company to address liquidity concerns, including the following:

Our principal sources of liquidity and capital over the past two fiscal years have been proceeds from issuances of Preferred Stock, Common Stock and from the sale of lease pool equipment.

As of this date, under our Amended and Restated Certificate of Incorporation, we have 2,000,000 shares of Preferred Stock authorized, of which 1,682,985 are currently outstanding, leaving 317,015 available for future issuance. In addition, 40,000,000 shares of Common Stock are authorized, of which 13,774,104 are currently outstanding and 3,446,999 are reserved for issuance pursuant to our Amended and Restated Stock Awards Plan, leaving 22,778,897 available for future issuance. We believe these factors provide capacity for subsequent issues of Common Stock or Preferred Stock.

The Series A Preferred Stock has been issued in a June 2016 public offering, as consideration to Mitsubishi Heavy Industries, Ltd (“MHI”), and in the 1st and 2nd ATM offering programs. The Series A Preferred Stock (i) allows for redemption on at our option (even in the event of a change of control), (ii) does not grant holders with voting control of our Board of Directors, and (iii) provides holders with a conversion option (into Common Stock) only upon a change of control which, upon conversion, would be subject to a limit on the maximum number of shares of Common Stock to be issued. Through January 31, 2022, we have issued 1,682,985 shares of our Series A Preferred Stock.

During the twelve months ended January 31, 2022, under the 2nd ATM program, the Company sold (i) 18,415 shares of Common Stock, resulting in net proceeds to the Company of approximately $43,000, after deducting underwriting discounts and offering costs and (ii) 212,753 shares of Series A Preferred Stock, resulting in net proceeds to the Company of approximately $5.2 million.

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On November 12, 2021, the Company issued 432,000 shares of Series A Preferred Stock pursuant to an underwritten public offering. The Company has received net proceeds of approximately $9.5 million after underwriting discounts and other costs.

The following table sets forth selected historical information regarding cash flows from our Consolidated Statements of Cash Flows:

Year Ended January 31,

(in thousands)

Net cash used in operating activities $ (17,134 ) $ (6,360 )

Net cash provided by investing activities 5,364 3,207

Net cash provided by financing activities 12,187 4,514

Effect of changes in foreign exchange rates on cash and cash equivalents 86 16

Net increase in cash and cash equivalents $ 503 $ 1,377

As of January 31, 2022, we had working capital of approximately $18.5 million, including cash and cash equivalents of approximately $5.1 million, as compared to working capital of approximately $19.0 million, including cash and cash equivalents of approximately $4.6 million at January 31, 2021. Our working capital remained relatively flat between fiscal 2022 and fiscal 2021.

Cash Used In Operating Activities. Cash used in operating activities amounted to approximately $17.1 million in fiscal 2022 compared to approximately $6.4 million in fiscal 2021. In fiscal 2022, the primary sources of cash used in operating activities was our net loss of approximately $15.1 million, plus the net change in working capital items, such as accounts receivable and inventories, totaling approximately $4.2 million.

Cash Flows From Investing Activities. Cash provided from investing activities during fiscal 2022 increased approximately $2.2 million over fiscal 2021. The increase is primarily due to proceeds from the sale of Assets Held for Sale and lease pool equipment totaling approximately $5.4 million and zero, respectively, in fiscal 2022 as compared to approximately $1.5 million and $2.0 million, respectively, in fiscal 2021.

Cash Flows From Financing Activities. Net cash provided by financing activities during fiscal 2022 consisted of approximately $43,000 of proceeds from sales of Common Stock and approximately $14.7 million of proceeds from sales of Preferred Stock, partially offset by approximately $2.5 million of Preferred Stock dividend payments. In the third quarter of fiscal 2021 we launched the 2nd ATM Offering Program under which we were authorized to sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock.

As of January 31, 2022, we have no funded debt and no obligations containing restrictive financial covenants.

We regularly evaluate opportunities to expand our business through the acquisition of other companies, businesses or product lines. If we were to make any such acquisitions, we believe they could generally be financed with a combination of cash on hand and cash flows from operations. However, should these sources of financing not be adequate, we may seek other sources of capital to fund future acquisitions. These additional sources of capital include bank credit facilities or the issuance of debt or equity securities.

We have determined that, due to the potential requirement for additional investment and working capital to achieve our objectives, the undistributed earnings of foreign subsidiaries is not deemed indefinitely reinvested outside of the United States as of January 31, 2022. Furthermore, we have concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial.

As of January 31, 2022, we had deposits in foreign banks equal to approximately $2.6 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. These factors could limit our ability to pay cash dividends in the future.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.

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Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in determining the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant estimates made by us in the accompanying consolidated financial statements relate to the allowances for uncollectible accounts receivable and inventory obsolescence, the useful lives, and the impairment assessments of our various intangible assets. Other areas where we have made significant estimates include the valuation of stock options, the assessment of the need for a valuation allowance related to deferred tax assets and the assessment of uncertain tax positions.

Critical accounting policies are those that are most important to the portrayal of a company’s financial position and results of operations and require management’s subjective judgment. Below is a brief discussion of our critical accounting policies.

Revenue Recognition

Allowance for Doubtful Accounts

We make provisions to the allowance for doubtful accounts based on a detailed review of outstanding receivable balances. Factors considered include the age of the receivable, the payment history of the customer, the general financial condition of the customer, any financial or operational leverage we may have in a particular situation and general industry conditions. We typically do not charge fees on past due accounts, although we reserve the right to do so in most of our contractual arrangements with our customers and have done so from time to time. No allowance for doubtful accounts related to continuing operations was recorded during fiscal 2022 compared to $659,000 in 2021. A recovery of $450,000 and a provision for doubtful accounts of $470,000 related to discontinued operations were recorded in fiscal 2022 and 2021, respectively.

Goodwill and Other Intangible Assets

As of January 31, 2022, all intangible assets, relate to our Marine Technology Products business, which includes the operations of Seamap and Klein. For purposes of evaluating impairment pursuant to FASB Accounting Standards Codification Topic (ASC) 350, we established Seamap and Klein as reporting units. In accordance with ASC 350 we are required to evaluate the carrying value of our goodwill at least annually for impairment, or more frequently if facts and circumstances indicate it is more likely than not impairment has occurred. In the first quarter of fiscal 2021, due to the impact of the global pandemic, significant uncertainty regarding near-term or long-term projections, and a significant drop in the value of the Company’s Common Stock, we performed qualitative analysis that indicated full impairment of our remaining goodwill. As a result, we recorded an impairment charge against the remaining $2.5 million of goodwill recorded in our Seamap reporting unit. Therefore, as of January 31, 2022, we no longer have a net carrying value of goodwill recorded on our books and will no longer perform or make future disclosures with respect to testing for goodwill impairment.

As of January 31, 2022 and 2021 we concluded, based on an assessment of qualitative factors, that it was more likely than not that the carrying value of the Seamap reporting unit was not more than its fair value. As a result, no charge for impairment was recorded in fiscal 2022 or fiscal 2021 related to the Seamap reporting unit

As of January 31, 2022, we concluded, based on an assessment of qualitative factors, that it was more likely than not that the carrying value of the Klein reporting unit was not more than its fair value. As of January 31, 2021, we performed an assessment of qualitative factors and concluded that a quantitative assessment was required to determine if it was more likely than not that the carrying value of the Klein reporting unit exceeded fair value. We therefore conducted a quantitative assessment which indicated it was more likely than not that the carrying did not exceed the fair market value. As a result, no charge for impairment was recorded for fiscal 2022 or fiscal 2021 related to the Klein reporting unit.

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Our quantitative assessment requires significant judgment and is based upon our internal forecasts and comparisons to the publicly available valuations of what we believe to be comparable companies. Our internal forecasts include assumptions about market and economic conditions. If our estimates or related projections associated with the reporting units significantly change in the future, or if we use different comparable companies, we may be required to record further impairment charges. If the operational results of our reporting units are worse than expected or if economic conditions deteriorate, the fair value of our reporting units will be adversely affected.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. We assessed, using all available positive and negative evidence, the likelihood that the deferred tax assets, including deferred tax assets associated with tax loss carryovers and tax credit carryforwards, will be recovered from future taxable income. The analysis is performed on a jurisdiction by jurisdiction basis.

The weight we give to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists (i) the more positive evidence is necessary and (ii) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion, or all, of the deferred tax asset. Among the more significant types of evidence that we consider are:

• projected taxable income in future years;

• our history of taxable income within a particular jurisdiction;

• any history of deferred tax assets expiring without realization;

• other limitations on the utilization of tax benefits;

• tax planning strategies that will create additional taxable income.

In determining the valuation allowance to be recorded, we considered the following positive indicators:

• our history of taxable income in certain jurisdictions;

• specific tax planning strategies that will produce additional taxable income;

• the carryover period for U.S. foreign tax credit carryforwards is 10 years;

• our existing customer relationships.

We also considered the following negative indicators:

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Based on our evaluation of the evidence, as of January 31, 2022, we have provided the following approximate valuation allowances against deferred tax assets of continuing operations in various jurisdictions (in thousands):

Deferred Tax Valuation Net Deferred

Jurisdiction Assets Allowance Tax Asset

(1) includes federal and state deferred tax assets

The deferred tax asset in the United States relates primarily to net operation loss carryovers. Although we do not have a history of loss carryovers expiring without being utilized and the earliest expiration of a loss carryforward is in 2033, we have a recent history of taxable losses in the United States and future earnings in this jurisdiction are uncertain. In order to fully utilize the deferred tax assets in the United States we would need to generate taxable income of approximately $113.3 million.

We evaluate tax positions taken through a two-step process. In the first step, we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. In the second step, a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in (1) an increase in a liability for income taxes payable or (2) a reduction of an income tax refund receivable or a reduction in a deferred tax asset or an increase in a deferred tax liability or both (1) and (2). The evaluation of tax positions and the measurement of the related benefit require significant judgment on the part of management.

Stock-Based Compensation

Stock-based compensation expense is recorded based on the grant date fair value of share-based awards. Determining the grant date fair value requires management to make estimates regarding the variables used in the calculation of the grant date fair value. Those variables are the future volatility of our Common Stock price, the length of time an optionee will hold their options until exercising them (the “expected term”), and the number of options or shares that will be forfeited before they are exercised (the “forfeiture rate”). We utilize various mathematical models in calculating the variables. Stock-based compensation expense could be different if we used different models to calculate the variables.

Significant Accounting and Disclosure Changes

See Note 3 - “New Accounting Pronouncements” in the Notes to the Condensed Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Item7A.Quantitative and Qualitative Disclosures about Market Risk

Not required under Item 305 Regulation S-K for smaller reporting companies.

Item8.Financial Statements and Supplementary Data

The information required by this Item appears beginning on page F-1 and is incorporated herein by reference.

Item9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item9A.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officers and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-K. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our principal executive officer and principal financial officer have concluded that our current disclosure controls and procedures were effective as of January 31, 2022,at the reasonable assurance level.

As described below, the Company will implement changes to internal control procedures intended to ensure that cut-off related to sales transactions will be based on relevant, sufficient and reliable data which is adequately reviewed and approved by appropriate levels of authority to ensure sales transactions recorded are reasonable and appropriate. Notwithstanding the material weakness described above, the Company's management, including our principal executive officers and principal financial officer, have concluded that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company's financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As required by Rule 13a-15(c) under the Exchange Act, our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of January 31, 2022. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework in 2013. Based on this assessment, our management, including our principal executive officers and principal financial officer, identified a material weakness involving the Company's review controls to ensure the proper application of generally accepted accounting principles (ASC 606, Revenue from Contracts with Customers) related to assessment of whether control has transferred to a customer in a point in time revenue transaction, more specifically a bill-and-hold revenue transaction. The Company failed to properly determine whether control had transferred to a customer in a bill-and-hold transaction and recognized revenue in error as identified by the Company’s auditors during the audit of our financial statements for the fiscal year ended January 31, 2022. Solely as a result of such material weakness, the Company’s executive officers determined that the Company’s internal control over financial reporting was not effective at the reasonable assurance level as of January 31, 2022.

Remediation Plan for the Material Weakness in Internal Control over FinancialReporting

To address the material weakness regarding the failure to detect an error in cut-off related to sales transactions recorded prior to transfer of control to customers, the Company will do the following:

The Company anticipates the actions described above and resulting improvements in controls will strengthen the Company's processes, procedures and controls related to significant estimates and will address the related material weakness described above. However, the material weakness cannot be considered fully remediated until the remediation processes have been in operation for a period of time and successfully tested.

Changes in Internal Control over Financial Reporting

Except for the material weakness discussed above, there was no change in our system of internal control over financial reporting during the quarter ended January 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item9B.Other Information

None.

Item9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspection

None.

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PART III

Item10.Directors, Executive Officers and Corporate Governance

Pursuant to General Instruction G to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2022 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2022.

We have adopted a Code of Business Conduct and Ethics, which covers a wide range of business practices and procedures. The Code of Business Conduct and Ethics represents the code of ethics applicable to our principal executive officer, principal financial officer, and principal accounting officer or controller and persons performing similar functions (“senior financial officers”). A copy of the Code of Business Conduct and Ethics is available on our website, https://www.mind-technology.com, and a copy will be mailed without charge, upon written request, to MIND Technology, Inc., 2002 Timberloch Place, Suite 550, The Woodlands, Texas, 77380, Attention: Robert P. Capps. We intend to disclose any amendments to or waivers of the Code of Business Conduct and Ethics on behalf of our senior financial officers on our website, at https://www.mind-technology.com promptly following the date of the amendment or waiver.

Item11.Executive Compensation

Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item13.Certain Relationships and Related Transactions and Director Independence

Item14.Principal Accounting Fees and Services

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PART IV

Item15.Exhibits, Financial Statement Schedules

(a) List of Documents Filed

(i) Financial Statements

(ii) Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts

(iii) Exhibits

(b) Exhibits

The exhibits marked with the cross symbol (†) are filed (or furnished in the case of Exhibits 32.1 and 32.2) with this Form 10-K. The exhibits marked with the asterisk symbol (*) are management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.

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10.15†* Summary of Non-Employee Director Compensation Filed herewith.

21.1† Subsidiaries of MIND Technology, Inc. Filed herewith.

23.1† Consent of Moss Adams LLP Filed herewith.

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101.INS† Inline XBRL Instance Document

101.SCH† Inline XBRL Taxonomy Extension Schema Document

101.CAL† Inline XBRL Taxonomy Extension Calculation of Linkbase Document

101.DEF† Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB† Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE† Inline XBRL Taxonomy Extension Presentation Linkbase Document

Item 16. Form 10-K Summary

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of April 2022.

MIND TECHNOLOGY, INC.

By: /s/ ROBERT P. CAPPS

Robert P. Capps

President, Chief Executive Officer and Director

(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature Title/Capacity Date

Robert P. Capps (Principal Executive Officer)

Mark A. Cox (Principal Financial Officer and Principal Accounting Officer)

Peter H. Blum

/s/ THOMAS S. GLANVILLE Director April 29, 2022

Thomas S. Glanville

/s/ WILLIAM H. HILARIDES Director April 29, 2022

William H. Hilarides

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Consolidated Balance Sheets as of January 31, 2022 and 2021 4

Notes to Consolidated Financial Statements 9

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

MIND Technology, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MIND Technology, Inc. and subsidiaries (the “Company”) as of January31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years then ended, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of January 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated financial statements, the Company has suffered recurring losses from operations and has continued to rely on sale of preferred stock and leasepool equipment to sustain operations. The Company’s inability to generate positive cash flows from operations combined with the limited amount of leasepool equipment remaining to be sold raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits providea reasonable basis for our opinion.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory Reserves - Seamap

The Company's inventories totaled $14,006,000 net of inventory reserves of $2,417,000, as of January 31, 2022. Included in these amounts related to Seamap were $9,507,000, net of inventory reserves of $1,530,000. As explained in Note 1 to the consolidated financial statements, the Company assesses the value of all inventories including raw materials, work-in-process, and finished goods in each reporting period. Obsolete inventory is written down to its estimated market value if those amounts are determined to be less than cost.

Auditing management's estimates for obsolete and excess inventory involved subjective auditor judgement because the estimates rely on a number of factors that are affected by market and economic conditions outside the Company's control.

The primary procedures we performed to address this critical audit matter included:

/s/ Moss Adams LLP

Houston, Texas

April 29, 2022

We have served as the Company’s auditor since 2017.

F-3

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MIND TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

January 31,

ASSETS

Current assets:

Cash and cash equivalents $ 5,114 $ 4,611

Prepaid expenses and other current assets 1,840 1,659

Operating lease right-of-use assets 1,835 1,471

Other assets 650 —

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accrued expenses and other current liabilities 5,762 2,912

Operating lease liabilities - current 869 1,008

Operating lease liabilities - non-current 966 463

Notes payable — 850

Deferred tax liability 92 198

Stockholders’ equity:

Accumulated other comprehensive loss (1,881 ) (4,356 )

Total liabilities and stockholders’ equity $ 42,020 $ 39,763

The accompanying notes are an integral part of these consolidated financial statements.

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MIND TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Year Ended January 31,

Revenues:

Sale of marine technology products $ 23,107 $ 21,215

Cost of sales:

Operating expenses:

Provision for doubtful accounts — 659

Impairment of intangible assets — 2,531

Depreciation and amortization 2,209 2,796

Other income:

Loss from continuing operations before income taxes (13,618 ) (13,466 )

Benefit (provision) for income taxes 39 (536 )

Loss from continuing operations (13,579 ) (14,002 )

Loss from discontinued operations, net of income taxes (1,506 ) (6,304 )

Preferred stock dividends (2,901 ) (2,254 )

Net loss attributable to common stockholders $ (17,986 ) $ (22,560 )

Net loss per common share - Basic

Continuing operations $ (1.20 ) $ (1.30 )

Discontinued operations $ (0.11 ) $ (0.50 )

Net loss per common share - Diluted

Continuing operations $ (1.20 ) $ (1.30 )

Discontinued operations $ (0.11 ) $ (0.50 )

Shares used in computing loss per common share:

The accompanying notes are an integral part of these consolidated financial statements.

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MIND TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

Year Ended January 31,

Net loss attributable to common stockholders $ (17,986 ) $ (22,560 )

Other changes in cumulative translation adjustment 24 31

The accompanying notes are an integral part of these consolidated financial statements.

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MIND TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

Common Stock Preferred Stock

Retained Accumulated

Additional Earnings Other

Paid-In Treasury (Accumulated Comprehensive

Shares Amount Shares Amount Capital Stock Deficit) Income (Loss) Total

Foreign currency translation — — — — — — — 31 31

Preferred stock offering — — 44 1,000 — — — — 1,000

Preferred stock dividends — — — — — — (2,254 ) — (2,254 )

Stock-based compensation — — — — 708 — — — 708

Foreign currency translation — — — — — — — 2,475 2,475

Restricted stock forfeited for taxes — — — — — (2 ) — — (2 )

Restricted stock issued 5 — — — 11 — — — 11

Preferred stock dividends — — — — — — (2,901 ) — (2,901 )

Common stock offerings — — — — 42 — — — 42

Stock-based compensation — — — — 632 — — — 632

The accompanying notes are an integral part of these consolidated financial statements.

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MIND TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended January 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

PPP loan forgiveness (850 ) (757 )

Depreciation and amortization 2,214 4,627

Stock-based compensation 643 708

Impairment of intangible assets — 2,531

Loss on disposal of discontinued operations — 1,859

(Recovery) provision for doubtful accounts, net of charge offs (453 ) 1,129

Provision for inventory obsolescence 921 321

Gross profit from sale of lease pool equipment — (1,326 )

Gross profit from sale of other equipment (155 ) (357 )

Deferred tax expense (106 ) 32

Changes in:

Unbilled revenue (57 ) 72

Income taxes receivable and payable 37 767

Accounts payable, accrued expenses and other current liabilities 713 (2,510 )

Prepaid expenses and other current and long-term assets (565 ) 581

Net cash used in operating activities (17,134 ) (6,360 )

Cash flows from investing activities:

Purchases of seismic equipment held for lease — (110 )

Purchase of technology — (366 )

Purchases of property and equipment (834 ) (90 )

Sale of used lease pool equipment — 2,010

Sale of business, net of cash sold 761 257

Net cash provided by investing activities 5,364 3,207

Cash flows from financing activities:

Net proceeds from preferred stock offering 14,676 1,000

Net proceeds from common stock offering 43 3,584

Repurchase of common stock (2 ) —

Preferred stock dividends (2,530 ) (1,677 )

Proceeds from PPP loans — 1,607

Net cash provided by financing activities 12,187 4,514

Net increase in cash, cash equivalents and restricted cash 503 1,377

Cash, cash equivalents and restricted cash, beginning of period 4,611 3,234

Cash, cash equivalents and restricted cash, end of period $ 5,114 $ 4,611

The accompanying notes are an integral part of these consolidated financial statements.

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MIND Technology, Inc.

Notes to Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies

Going Concern—These 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. As discussed in Note 4, the Company has a history of generating losses and negative cash from operating activities and may not have access to sources of capital that were available in prior periods. In addition, the lingering impacts of the global pandemic, emerging supply chain disruptions and recent volatility in oil prices have created significant uncertainty in the global economy which 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 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.

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 reincorporated in 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 20 – Corporate Restructuring.

The Company, through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC (formerly Seamap USA, LLC), Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd, collectively “Seamap”, and its wholly owned subsidiary, Klein Marine Systems, Inc. (“Klein”), designs, manufactures and sells a broad range of proprietary products for the seismic, hydrographic and offshore industries with product sales and support facilities based in Singapore, Malaysia, the United Kingdom and the states of New Hampshire and Texas. Prior to July 31, 2020, the Company, through its wholly owned Canadian subsidiary, Mitcham Canada, ULC (“MCL”), its wholly owned Hungarian subsidiary, Mitcham Europe Ltd. (“MEL”), and its branch operations in Colombia, provided full-service equipment leasing, sales and service to the seismic industry worldwide. Effective July 31, 2020, the Leasing Business has been classified as held for sale and the financial results reported as discontinued operations (see Note 2 – “Assets Held for Sale and Discontinued Operations” for additional details). All intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition of Marine Technology Product Sales—Revenues and cost of sales from the sale of marine technology products are recognized upon acceptance of terms and completion of our performance obligations, which is typically when delivery has occurred, or in the case of bill-and-hold arrangements, when control has been transferred.

Revenue Recognition of Long-term Projects—From time to time the Company enters into contracts whereby certain marine equipment is assembled or manufactured and sold, primarily to governmental entities. Performance under these contracts generally occurs over a period of three to twelve months. Revenue and costs related to these contracts are recognized “over time”, as each separately identified performance obligation is satisfied.

Revenue Recognition of Repair Services and Equipment Upgrades—Revenue and cost of sales from the provision of repair services and equipment upgrades are recognized “over time” pursuant to the practical expedient under which revenue is recognized when invoiced.

Revenue Recognition of Service Agreements—In some cases the Company provides on-going support services pursuant to contracts that generally have a term of 12 months. The Company recognizes revenue from these contracts ratably over the term of the contract. The Company may also provide support services on a time and material basis. Revenue from these arrangements is recognized as the services are provided. For certain new systems, the Company provides support services for up to 12 months at no additional charge. Any amounts attributable to these support obligations are immaterial. Revenues from service contracts for fiscal 2022 and 2021 were not material and as a result are not presented separately in the financial statements.

Revenue Recognition of Leasing Arrangements—The Company has historically leased various types of seismic equipment to seismic data acquisition companies. There are no active leases as of January 31, 2022, and all leases in effect at January 31, 2021 were for a term of one year or less. Lease revenue is recognized ratably over the term of the lease. The Company does not enter into leases with embedded maintenance obligations. The standard lease provides that the lessee is responsible for maintenance and repairs to the equipment, excluding normal wear and tear. The Company occasionally provides technical advice to its customers without additional compensation as part of its customer service practices. Repairs or maintenance performed by the Company is charged to the lessee, generally on a time and materials basis. Repair and maintenance revenues are recognized as incurred. Effective July 31, 2020, the Leasing Business has been classified as held for sale on the financial results reported as discontinued operations (see Note 2 – “Assets Held for Sale and Discontinued Operations” for additional details).

Allowance for Doubtful Accounts—Trade receivables are uncollateralized customer obligations due under normal trade terms. The carrying amount of trade receivables and contracts receivable is reduced by a valuation allowance that reflects management’s estimate of the amounts that will not be collected, based on the age of the receivable, payment history of the customer, general industry conditions, general financial condition of the customer and any financial or operational leverage the Company may have in a particular situation. Amounts are written-off when collection is deemed unlikely. Past due amounts are determined based on contractual terms. The Company generally does not charge interest on past due accounts.

Cash and Cash Equivalents—The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Short-term Investments—The Company considers all highly liquid investments with an original maturity greater than three months, but less than twelve months, to be short-term investments.

Inventories—Inventories are stated at the lower of cost or market. An allowance for obsolescence is maintained to reduce the carrying value of any materials or parts that may become obsolete. Inventories are periodically monitored to ensure that the allowance for obsolescence covers any obsolete items.

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Property and Equipment—Property and equipment is carried at cost, net of accumulated depreciation. Depreciation is computed on the straight-line method over the related estimated useful lives. The estimated useful lives of equipment range from three to seven years. Buildings are depreciated over 30 years and property improvements are amortized over 10 years or the shorter of their useful life. Leasehold improvements are amortized over the shorter of the realized estimated useful life or the life of the respective leases. No salvage value is assigned to property and equipment.

Intangible Assets—Intangible assets are carried at cost, net of accumulated amortization. Amortization is computed on the straight-line method (for customer relationships, the straight-line method is not materially different from other methods that estimate run off of the underlying customer base) over the estimated life of the asset. Proprietary rights, developed technology and amortizable tradenames are amortized over a 10 to 15-year period. Customer relationships are amortized over an eight-year period. Patents are amortized over an eight to ten-year period.

Impairment—The Company reviews its long-lived assets, including its amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates on the part of management. The Company performs an impairment test on goodwill and indefinite lived assets on an annual basis. The Company performs a qualitative review to determine if it is more likely than not that the fair value of our reporting units is greater their carrying value. If the Company is unable to conclude qualitatively that it is more likely than not that a reporting unit’s fair value exceeds its carrying value, then the Company performs a quantitative assessment of fair value of the reporting unit. The quantitative reviews involve significant estimates on the part of management.

Product Warranties—Seamap provide its customers warranties against defects in materials and workmanship generally for a period of three months after delivery of the product. Klein also provides its customers with similar warranties against defects in material and workmanship for an approximate twelve months period subsequent to delivery of the product. The Company maintains an accrual for potential warranty costs based on historical warranty claims. For fiscal 2022 and 2021, warranty expense was not material.

Income Taxes—The Company accounts for income taxes under the liability method, whereby the Company recognizes deferred tax assets and liabilities which represent differences between the financial and income tax reporting basis of its assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. The Company has assessed, using all available positive and negative evidence, the likelihood that the deferred tax assets will be recovered from future taxable income.

The weight given to the potential effect of positive and negative evidence is commensurate with the extent to which it can be objectively verified. The preponderance of negative or positive evidence supports a conclusion regarding the need for a valuation allowance for some portion, or all, of the deferred tax asset. The more significant types of evidence considered include the following:

• projected taxable income in future years;

• our history of taxable income within a particular jurisdiction;

• any history of deferred tax assets expiring prior realization;

• other limitations on the utilization of tax benefits;

• tax planning strategies that will create additional taxable income.

Use of Estimates—The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, the allowance for doubtful accounts, inventory obsolescence, lease pool valuations, valuation allowance on deferred tax assets, the evaluation of uncertain tax positions, estimated depreciable lives of fixed assets and intangible assets, impairment of fixed assets and intangible assets, valuation of assets acquired and liabilities assumed in business combinations and the valuation of stock options. Future events and their effects cannot be perceived with certainty. Accordingly, these accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results could differ from these estimates.

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Substantial judgment is necessary in the determination of the appropriate levels for the Company’s allowance for doubtful accounts because of the extended payment terms the Company offers to its customers on occasion and the limited financial wherewithal of certain of these customers. As a result, the Company’s allowance for doubtful accounts could change in the future, and such change could be material to the financial statements taken as a whole. The Company must also make substantial judgments regarding the valuation allowance on deferred tax assets and with respect to quantitative analysis prepared in conjunction with impairment analysis related to goodwill and other intangible assets.

Fair Value of Financial Instruments—The Company’s financial instruments consist of accounts and contracts receivable and accounts payable.

The Financial Accounting Standards Board (“FASB”) has issued guidance on the definition of fair value, the framework for using fair value to measure assets hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:

The Company measures the fair values of intangibles and other long-lived assets on a recurring basis if required by impairment tests applicable to these assets. The Company utilized Level 3 inputs to value intangibles and other long-lived assets as of January 31, 2022. See Note 11 to our consolidated financial statements.

Foreign Currency Translation—All balance sheet accounts of the Canadian resident subsidiary for fiscal 2022 and 2021 have been translated at the current exchange rate as of the end of the accounting period. Statements of operations items have been translated at average currency exchange rates. The resulting translation adjustment is recorded as a separate component of comprehensive income within stockholders’ equity.

Stock-Based Compensation—Stock-based compensation expense is recorded based on the grant date fair value of share-based awards. Restricted stock awards are valued at the closing price on the date of grant. Determining the grant date fair value for options requires management to make estimates regarding the variables used in the calculation of the grant date fair value. Those variables are the future volatility of our Common Stock price, the length of time an optionee will hold their options until exercising them (the “expected term”), and the number of options that will be forfeited before they are exercised (the “forfeiture rate”). We utilize various mathematical models in calculating the variables. Share-based compensation expense could be different if we used different models to calculate the variables.

Earnings Per Share—Net income (loss) per basic common share is computed using the weighted average number of common shares outstanding during the period. Net income (loss) per diluted common share is computed using the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares result from the assumed exercise of outstanding Common Stock options having a dilutive effect using the treasury stock method, from unvested shares of restricted stock using the treasury stock method and from outstanding Common Stock warrants. For fiscal 2022 and 2021, the following table sets forth the number of potentially dilutive shares that may be issued pursuant to options, restricted stock and warrants outstanding used in the per share calculations.

Year Ended

January 31,

(in thousands)

Restricted stock 13 17

Total dilutive shares 50 65

For fiscal 2022 and 2021, respectively, 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.

Reclassifications—Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on the results of operations or comprehensive income.

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2. Assets Held for Sale and Discontinued Operations

On July 27, 2020, the Board determined to exit the Leasing Business. As a result, the assets, excluding cash, and liabilities of the Leasing Business are considered held for sale and its results of operations are reported as discontinued operations as of January 31, 2022 and for all comparative periods presented in these condensed consolidated financial statements. The Company originally anticipated selling the discontinued operations in multiple transactions, potentially involving the sale of legal entities, assets, or a combination of both, within the twelve months ending July 31,2021. The Company now believes it will complete the process by July 31,2022.

The assets reported as held for sale consist of the following:

As of January 31,

Current assets of discontinued operations:

Inventories, net 2 352

Prepaid expenses and other current assets 167 150

Seismic equipment lease pool and property and equipment, net 738 4,478

Loss recognized on classification as held for sale (925 ) (2,327 )

Total assets of discontinued operations $ 159 $ 4,321

The liabilities reported as held for sale consist of the following:

As of January 31,

Current liabilities of discontinued operations:

Accounts payable $ 132 $ 59

Deferred revenue 73 73

Accrued expenses and other current liabilities 507 831

Total liabilities of discontinued operations $ 953 $ 1,442

The results of operations from discontinued operations for the twelve months ended January 31, 2022 and 2021, consist of the following:

Twelve Months Ended January 31,

Revenues:

Revenue from discontinued operations $ 878 $ 5,747

Cost of sales:

Cost of discontinued operations 993 4,537

Operating expenses:

Selling, general and administrative 1,622 4,589

(Recovery) provision for doubtful accounts (450 ) 470

Depreciation and amortization 5 132

Loss on disposal (including $2,745 of cumulative translation loss) — (1,859 )

Loss before income taxes from discontinued operations (1,199 ) (5,639 )

Provision for income taxes from discontinued operations (307 ) (665 )

Net loss from discontinued operations (1,506 ) (6,304 )

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

As of January 31,

Depreciation and amortization $ 5 $ 1,830

Gross profit from sale of lease pool equipment $ — $ (1,326 )

(Recovery) provisions for doubtful accounts $ (450 ) $ 470

Loss on disposal of discontinued operations $ — $ 1,859

Sale of used lease pool equipment $ — $ 2,010

Sale of assets held for sale $ 6,198 $ 1,506

Purchase of seismic equipment held for lease $ — $ (110 )

3. New Accounting Pronouncements

New accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.

4. Liquidity

The lingering impacts of the global pandemic, emerging supply chain disruptions and recent volatility in oil prices have created significant uncertainty in the global economy which could have a material adverse effect on the Company’s business, financial position, results of operations and liquidity. The time frame for which effects of the global pandemic, supply chain disruptions and volatility in oil prices will continue is uncertain as is the magnitude of any adverse impacts. Management believes that any negative impacts will be temporary, but there can be no assurance of that.

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 pursuant to its at the market (the “ATM”) offering programs for the past several years. As of January 31, 2022, the net book value of remaining lease pool equipment available for sale is approximately $700,000 and the Company has approximately 317,000 shares of Preferred Stock and approximately 13.8 million shares of Common Stock available for issuance. However, there can be no assurance the remaining lease pool equipment will be sold or that the Preferred Stock or Common Stock can be sold at a market price acceptable to the Company.

The above factors create substantial doubt regarding the Company’s future financial results and liquidity. As such, there is substantial doubt as to the Company's ability to continue as a going concern.

Management has identified the following mitigating factors regarding adequate liquidity and capital resources to meet its obligations.:

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Notwithstanding the mitigating factors identified by management, there remains substantial doubt regarding the Company's ability to meet its obligations as they arise over the next twelve months.

5. Revenue from Contracts with Customers

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

Twelve Months Ended January 31,

Revenue recognized at a point in time: (in thousands)

Total revenue recognized at a point in time $ 21,850 $ 20,449

Revenue recognized over time:

Total revenue recognized over time 1,257 766

Total revenue from contracts with customers $ 23,107 $ 21,215

The revenue from products manufactured and sold by our Seamap and Klein businesses, is generally recognized at a point in time, or when the customer takes possession of the product, based on the terms and conditions stipulated in our contracts with customers. However, from time to time our Seamap and Klein businesses provide repair and maintenance services, or perform upgrades, on customer owned equipment in which case revenue is recognized over time. In addition, our Seamap business provides annual Software Maintenance Agreements (“SMA”) to customers who have an active license for software imbedded in Seamap products. The revenue from SMA is recognized over time, with the total value of the SMA amortized in equal monthly amounts over the life of the contract.

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

Twelve Months Ended January 31,

Revenue from contracts with customers: (in thousands)

Total revenue from contracts with customers $ 23,107 $ 21,215

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As of January 31, 2022, contract assets and liabilities consisted of the following:

Contract Assets: (in thousands)

Unbilled revenue-current $ 28 $ 85

Total unbilled revenue $ 28 $ 85

Contract Liabilities:

Deferred revenue & customer deposits - current $ 2,569 $ 691

Total deferred revenue & customer deposits $ 2,569 $ 691

Considering the products manufactured and sold by our Marine Technology Products business and the Company’s standard contract terms and conditions, we expect our contract assets and liabilities to turn over, on average, within a three to six-month period.

With respect to the disclosures above, sales and transaction-based taxes are excluded from revenue, and we do not disclose the value of unsatisfied performance obligations for contacts with an original expected duration of one year or less. Also, we expense costs incurred to obtain contracts because the amortization period would be one year or less. These costs are recorded in selling, general and administrative expenses.

6. Supplemental Statements of Cash Flows Information

Supplemental disclosures of cash flows information for fiscal 2022 and 2021 were as follows (in thousands):

Year Ended January 31,

Interest paid $ 31 $ 40

7. Inventories

Inventories from continuing operations consisted of the following (in thousands):

As of January 31,

Less allowance for obsolescence (1,878 ) (1,363 )

8. Accounts Receivables

Accounts receivables from continuing operations consisted of the following (in thousands):

Current Long-term Total Current Long-term Total

Less allowance for doubtful accounts (484 ) — (484 ) (948 ) — (948 )

* the long-term balance of accounts receivable is recorded in Other Assets.

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9. Property and Equipment

Property and equipment from continuing operations consisted of the following (in thousands)

As of January 31,

Marine seismic service equipment 3,880 5,969

Net book value of property and equipment $ 4,272 $ 4,751

Location of property and equipment (in thousands):

As of January 31,

Net book value of property and equipment $ 4,272 $ 4,751

10. Leases

The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in Texas, Hungary, Singapore, Malaysia and United Kingdom. We negotiated the termination of our Colombia lease obligation during the current fiscal year and our lease obligation in Canada was terminated as of March 31, 2022.

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Mind Technology, Inc MIND US Equity

MIND · 10-K · period ended 2022-01-31

Item7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item7A.Quantitative and Qualitative Disclosures about Market Risk

Item8.Financial Statements and Supplementary Data

Item9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item9A.Controls and Procedures

Item9B.Other Information

Item9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspection

Item10.Directors, Executive Officers and Corporate Governance

Item11.Executive Compensation

Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item13.Certain Relationships and Related Transactions and Director Independence

Item14.Principal Accounting Fees and Services

Item15.Exhibits, Financial Statement Schedules

Item 16. Form 10-K Summary

Mind Technology, Inc MIND US Equity☆

MIND · 10-K · period ended 2022-01-31

Item7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item7A.Quantitative and Qualitative Disclosures about Market Risk

Item8.Financial Statements and Supplementary Data

Item9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item9A.Controls and Procedures

Item9B.Other Information

Item9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspection

Item10.Directors, Executive Officers and Corporate Governance

Item11.Executive Compensation

Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item13.Certain Relationships and Related Transactions and Director Independence

Item14.Principal Accounting Fees and Services

Item15.Exhibits, Financial Statement Schedules

Item 16. Form 10-K Summary

Mind Technology, Inc MIND US Equity