Item7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Our worldwide Seamap Marine Products business includes Seamap Pte Ltd, MIND Maritime Acoustics, LLC, Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd (collectively “Seamap”), which designs, manufactures and sells specialized marine seismic equipment.
Revenue from the Seamap Marine Products business relates to sales of Seamap products, which operates from locations near Bristol, United Kingdom; Huntsville, Texas; Johor, Malaysia and in Singapore. The majority of our revenues are contracted through our Singapore subsidiary, Seamap Pte Ltd. The majority of manufacturing activity is performed, and therefore the majority of our material purchases are made, by Seamap Pte Ltd or our Malaysian subsidiary, Seamap (Malaysia) Sdn Bhd.
The discontinued operations of the Klein Marine Products business related to sales of Klein products, which operated from Salem, New Hampshire.
Management believes that the performance of our continued operations is indicated by revenues from sales of products and by gross profit from those sales and the operating profit for those operations. 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 $ 46,863 $ 36,510
Cost of sales:
Sale of marine technology products $ 25,896 $ 20,539
Operating expenses:
Selling, general and administrative $ 11,291 $ 12,142
Depreciation and amortization $ 944 $ 1,178
Year Ended January 31,
(in thousands)
Interest expense, net — 634
Depreciation and amortization 944 1,516
Stock-based compensation 235 261
Adjusted EBITDA from continuing operations (1) $ 8,237 $ 2,311
Reconciliation of Net Cash Provided by (Used In) Operating Activities to EBITDA
Net cash provided by (used in) operating activities $ 651 $ (4,967 )
Stock-based compensation (235 ) (261 )
Provision for inventory obsolescence (68 ) (341 )
Changes in accounts receivable (current and long-term) 5,253 3,318
Interest paid — 634
Taxes paid, net of refunds 1,654 847
Gain on sale of other equipment 457 476
Gain on sale of Klein — 2,343
Changes in prepaid expenses and other current and long-term assets (1,897 ) 847
___________________________________________________________
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Within our Seamap business, we design, manufacture and sell a variety of products used primarily in oceanographic, hydrographic, seismic and maritime security industries. Seamap’s primary products include (i) the GunLink seismic source acquisition and control systems; (ii) the BuoyLink RGNSS positioning system used to provide precise positioning of seismic sources and streamers 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 survey and exploration applications.
The discontinued operations of our Klein business designed, manufactured, and sold side scan sonar and water-side security systems to commercial, governmental, and military customers throughout the world.
Business Outlook
Our financial results during fiscal year 2025 improved significantly when compared to fiscal 2024.
We have continued to experience significant inquiries and bid activity for our Seamap Marine products. As of January 31, 2025, our backlog of firm orders for Seamap Marine Products was approximately $16.9 million, which is a decrease of approximately 56% from the $38.4 million reported at January 31, 2024. In addition, we continue to pursue a number of other significant opportunities and expect to secure additional orders, primarily for delivery in fiscal 2026 and beyond. Subsequent to January 31, 2025 we received orders totaling approximately $15.9 million, which amounts are not included in our backlog as of January 31, 2025. 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. We believe our backlog as of January 31, 2024 provided visibility that allowed for improved production efficiency which in turn contributed to our improved results. Nonetheless, we believe there are other production efficiencies which can be obtained and could contribute to improved operating margins in fiscal 2026.
Despite improving results, our operations continue to be impacted by the following factors:
• Extended lead times for key components.
• Requirements for advanced payments from some vendors for key components.
Based on our current backlog of orders, pipeline of other prospects and continued product inquiries, and current production and delivery schedules, we expect revenue in fiscal 2026 to be comparable with fiscal 2025. If fiscal 2026 revenue is in-line with our expectations, we believe the Company will report net income and positive EBITDA for fiscal 2026. However, no assurances of such results can be made, and there are a number of risks which could cause results to be less than anticipated. Those risks include the following:
• Inability of our customers to accept delivery of orders as scheduled;
• Cancellation of orders;
• Higher than anticipated costs.
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We continue to address three primary markets through our continued operations businesses -
• Marine Survey;
• Marine Exploration; and
• Maritime Defense.
Specific applications within those markets include sea-floor survey, mineral and geophysical exploration and maritime security. We have existing technology and products that meet the needs in such markets -
• Marine seismic equipment, such as GunLink and BuoyLink; and
• Acoustic arrays, such as SeaLink
We see a number of opportunities to add to our technology and to apply existing technology and products to new applications.
In response, we have initiated certain strategic initiatives in order to exploit the perceived opportunities including the following:
• Enhanced capabilities for existing products.
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We believe that the above initiatives expand our addressable markets and provide opportunities for further growth in our revenues; however, none have produced material revenue to date.
As we grow our business, we are also looking to control our costs. During fiscal 2024, we eliminated several executive and management level positions to control general and administrative costs. Should future financial results fall below our expectation, we may take further steps to reduce costs. We believe many of our costs are variable in nature, such as raw materials and labor-related costs. Accordingly, we believe we can reduce such costs commensurate with any declines in our business.
General inflation levels have increased recently due in part to supply chain issues 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 an impact cannot be accurately determined. In response to these cost increases, in the first quarter of fiscal 2025, we increased the pricing for most of our products. The amount of the increase varied by product and ranged from approximately 5% to 10%.
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 2025 and 2024, we recorded operating income of approximately $6.8 million and $518,000, respectively. The improvement in operating results was driven primarily by significant increases in revenue for the Seamap product lines in addition to cost-saving efforts implemented in the current and prior fiscal year.
Revenues and cost of sales from continued operations were as follows:
Year Ended January 31,
(in thousands)
Sale of marine technology products $ 46,863 $ 36,510
Gross profit margin 45 % 44 %
A significant portion of Seamap’s sales consist of large discrete orders, the timing of which is dictated by our customers. This timing generally relates to the availability of a vessel in port so that our products can be installed. Accordingly, there can be significant variation in sales from one period to another, which does not necessarily indicate a fundamental change in demand for these products. A significant portion of our revenues result from “after market” activity such as spare parts, training, repairs and field service. In Fiscal 2025 and Fiscal 2024 approximately 37% and 45%, respectively of our revenue related to these activities. Our gross profit margin increased in fiscal 2025 as compared to fiscal 2024 due to higher overhead absorption from higher revenues and improved production efficiencies. This improvement was despite an increase in warranty costs in Fiscal 2025 to approximately $900,000 versus approximately $400,000 in Fiscal 2024.
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Operating Expenses
Selling, general and administrative expenses for fiscal 2025 amounted to approximately $11.3 million, compared to approximately $12.1 million in 2024. The year-over-year decrease of approximately 7% is primarily the result of reductions in headcount, compensation expense and other administrative costs due to cost reduction initiatives implemented throughout fiscal 2024 and fiscal 2025.
Research and development costs were approximately $1.9 million in fiscal 2025 as compared to approximately $2.1 million in fiscal 2024. The majority of these costs relate to the development of a next generation streamer system and related activities.
We did not record a provision for credit losses in fiscal 2025 or fiscal 2024. On January 31, 2025, and 2024, we had trade accounts and note receivables over 180 days past due of approximately $4,000 and $51,000, 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, 2025, 2024 and 2023, our allowance for credit losses receivable for continuing operations amounted to approximately $332,000.
Depreciation and amortization expense relates primarily to the depreciation of furniture and fixtures, office and manufacturing equipment and the amortization of intangible assets. Depreciation and amortization expense was approximately $944,000 and $1.2 million for fiscal 2025 and 2024, respectively. The decrease in depreciation and amortization expense in fiscal 2025 is due primarily to tangible and intangible assets becoming fully depreciated during the current fiscal year.
We periodically evaluate the recoverability of our long-lived assets. As of January 31, 2025, we performed a qualitative analysis of our long-lived assets and determined that there were no indicators of impairment for fiscal 2025.
Other Income and Expense
In fiscal 2025, we recorded other income of approximately $240,000, consisting primarily of gain from the sale of other assets. In fiscal 2024, we recorded other expense of approximately $280,000, consisting of interest expense of approximately $675,000 related to the $3.75 million loan that was repaid, in full, in conjunction with the sale of Klein, partially offset by gains from sale of assets.
Provision for Income Taxes
Our provision for income taxes for continuing operations for fiscal 2025 was approximately $2.0 million compared to approximately $1.3 million for fiscal 2024. These amounts differed from the result expected when applying the U.S. statutory rate of 21% to our income or loss from continuing operations before income taxes for the respective periods due primarily to the impact of income taxes accrued in certain foreign jurisdictions, primarily in Singapore, which do not have net operating losses available to offset taxable income, and because valuation allowances have been recorded against increases in our deferred tax assets. Valuation allowances have been provided against all deferred tax assets in the United States and several foreign jurisdictions.
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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,
(in thousands)
Revenues:
Sales of Klein Equipment — 3,315
Cost of sales:
Cost of sales — 1,979
Operating expenses:
Selling, general and administrative — 2,022
Depreciation and amortization — 338
Total operating expenses — 2,360
Operating loss — (1,024 )
Other income, including $2.3 million gain on sale of Klein — 2,415
Income before income taxes — 1,391
Provision for income taxes — (17 )
In the third quarter of fiscal 2024, we sold the Klein business and therefore present those operations as discontinued operations.
In fiscal 2024, we recognized approximately $2.3 million of gain on the sale of Klein.
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We recorded provision for income taxes of approximately $17,000 related to the discontinued operations of Klein in fiscal 2024. The tax provision for the discontinued operations of Klein relates to state income tax and varies from the expected provision based on the U.S. statutory rate due to the proration of profit and loss allocable to the state taxing jurisdiction.
Liquidity and Capital Resources
The Company had a history of generating operating losses and negative cash from operating activities and had relied on cash from the sale of lease pool equipment, Preferred Stock and Common Stock for the past several years. However, the Company’s operating results improved significantly in fiscal 2025 as compared to fiscal 2024 and prior years, generating net income from operations and positive Adjusted EBITDA for the fiscal year ended January 31, 2025. In addition, the Company sold its Klein business on August 21, 2023, generating net proceeds of approximately $7.3 million after settlement of closing cost and all outstanding amounts due and owed, including principal, interest, and other charges, on the Company’s $3.75 million loan. The sale of Klein increased the Company’s working capital and improved its liquidity situation.
As of January 31, 2025, the Company had working capital of approximately $23.5 million, including cash and cash equivalents of approximately $5.3 million, compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, as of January 31, 2024. The Company does not have a credit facility in place and depends on cash on hand and cash flows from operations to satisfy its liquidity needs.
The Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, potential financing secured by company owned real property, disciplined working capital commitments, and potentially securing a credit facility or some other form of financing.
In addition, management believes there are additional factors and actions available to the Company to address liquidity concerns, including the following:
As of April 23, 2025, under our Amended and Restated Certificate of Incorporation, we have 40,000,000 shares of Common Stock are authorized, of which 7,969,421 are currently outstanding and approximately 30,000 are reserved for issuance pursuant to our Amended and Restated Stock Awards Plan, leaving approximately 32,000,000 available for future issuance.
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Due to the rising level of sales and production activities, there are increasing requirements for purchases of inventory and other production costs. Additionally, due to component shortages and long-lead times for certain items there are requirements in some cases to purchase items well in advance. Furthermore, some suppliers require prepayments in order to secure some items. All of these factors combine to impact the Company’s working capital requirements. Furthermore, Management believes there are opportunities to increase production capacity and efficiencies. However, some of these opportunities may require investments such as production equipment or other fixed assets. If we are unable to meet suppliers demands, we may not be able to produce products and fulfill orders from our customers.
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 provided by (used in) operating activities $ 651 $ (4,967 )
Net cash provided by investing activities 20 11,018
Net cash used in financing activities (619 ) (1,535 )
Net increase in cash and cash equivalents $ 47 $ 4,511
Cash Provided by (Used In) Operating Activities. Cash provided by operating activities amounted to approximately $651,000 in fiscal 2025, compared to cash used in operations of approximately $5.0 million in fiscal 2024. In fiscal 2025, the primary source of cash provided by operating activities was the increase in net income of approximately $5.1 million.
Cash Flows From Investing Activities. Cash provided by investing activities during fiscal 2025 decreased approximately $11 million from fiscal 2024, due primarily to proceeds from the sale of Klein totaling approximately $11.5 million in fiscal 2024.
Cash Flows From Financing Activities. Net cash used in financing activities during fiscal 2025 consisted of approximately $619,000 of transaction costs associated with the conversion of the Preferred Stock. Net cash used in financing activities during fiscal 2024 consisted of approximately $946,000 of Preferred Stock dividend payments and approximately $589,000 of net outflows related to the borrowing and repayment of a short-term loan.
As of January 31, 2025, we have no funded debt and no obligations containing restrictive financial covenants. On February 2, 2023, we entered into a $3.75 million Loan and Security Agreement (“the Loan”). The Loan was due February 1, 2024, and bore interest at 12.9% per annum, payable monthly. However, the interest due through maturity and an origination fee equal to $240,000 were withheld from the proceeds issued by the Lender. The Loan was secured by mortgages on certain real estate owned by the Company and contained terms customary with this type of transaction, including representations, warranties, covenants, and reporting requirements. The terms of the Loan also allowed for prepayment at any time without penalty. On August 22, 2023, following the sale of Klein, all outstanding amounts due and owed, including principal, interest, and other charges, with respect to the Loan were repaid, in full.
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 may 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 are not deemed indefinitely reinvested outside of the United States as of January 31, 2025. Furthermore, we have concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial.
As of January 31, 2025, we had deposits in foreign banks equal to approximately $4.8 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 Estimates
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. Critical accounting estimates made by us in the accompanying consolidated financial statements relate to the allowances for inventory obsolescence.
Critical accounting estimates 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 estimates.
Inventory Obsolescence
We value our inventory based on our cost. We adjust the value of our inventory to the extent we determine that our cost cannot be recovered due to obsolescence or other factors. In order to make these determinations, we may use estimates of future demand for our products to determine appropriate inventory reserves and to make corresponding reductions in inventory values to reflect the lower of cost or market value. Our estimates related to inventory obsolescence are subject to uncertainty because we estimate future demand for our products based on historical activity which may not be an accurate indicator due to factors beyond our control and subject to change and variation. For fiscal 2025, we increased our inventory obsolescence reserve for continuing operations by approximately $6,000. In fiscal 2024 we increased our inventory obsolescence reserve for continuing operations by approximately $316,000.
Significant Accounting and Disclosure Changes
See Note 3 - “New Accounting Pronouncements” in the Notes to the 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, 2025, at the reasonable assurance level.
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 in 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 disclosed in Part II Item 9A Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, we had a material weakness in our controls over financial reporting because the Company performed less-than-complete physical inventory at year-end because it placed reliance on other compensating controls during the year, including cycle counts and controls involving receipt and disbursement of inventory. However, due to the material value of inventory items not counted at yearend, management determined that reliance on other compensating controls was insufficient to ensure there is not a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected in a timely manner.
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Remediation of the Prior Year Material Weakness in Internal Control over FinancialReporting
During fiscal 2025, management implemented our previously disclosed remediation plan that included conducting a complete, wall to wall, inventory count to ensure the existence of inventory as of January 31, 2025.
In connection with its assessment of the effectiveness of our internal control over financial reporting as of January 31, 2025, our management, including our principal executive officer and principal financial officer, concluded that the material weakness involving the Company’s control over the existence of inventory at its subsidiary location in Singapore has been remediated as of January 31, 2025.
Changes in Internal Control over Financial Reporting
Except for the changes in connection with our implementation of the remediation plan discussed above, there was no change in our system of internal control over financial reporting during the fiscal year ended January 31, 2025, 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
Not Applicable.
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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 2025 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2025.
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
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 2025 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2025.
Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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 2025 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2025.
Item13.Certain Relationships and Related Transactions and Director Independence
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 2025 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2025.
Item14.Principal Accountant Fees and Services
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 2025 Annual Meeting of Stockholders, which will be filed with the SEC within 120 business days of January 31, 2025.
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PART IV
Item15.Exhibit and 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.
Exhibit Number Document Description Form Exhibit Reference
4.1† Description of Securities
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Exhibit Number Document Description Form Exhibit Reference
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Exhibit Number Document Description Form Exhibit Reference
14.1† Code of Ethics.
19.1† Insider Trading Policy
21.1† Subsidiaries of MIND Technology, Inc.
23.1† Consent of Moss Adams LLP
97.1† Clawback Policy
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Exhibit Number Document Description Form Exhibit Reference
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 24th day of April 2025.
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)
/s/ MARK A. COX Vice President and Chief Financial Officer April 25, 2025
Mark A. Cox (Principal Financial Officer and Principal Accounting Officer)
Peter H. Blum
/s/ THOMAS S. GLANVILLE Director April 25, 2025
Thomas S. Glanville
/s/ WILLIAM H. HILARIDES Director April 25, 2025
William H. Hilarides
/s/ ALAN P. BADEN Director April 25, 2025
Alan P. Baden
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of January 31, 2025 and 2024 4
Notes to Consolidated Financial Statements 9
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Report of Independent Registered Public Accounting Firm
The Stockholders and the Board of Directors
MIND Technology, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MIND Technology, Inc. (the “Company”), as of January 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, changes in 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, 2025 and 2024, 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.
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 consolidatedfinancial 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 Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Moss Adams LLP
Houston, Texas
April 25, 2025
We have served as the Company’s auditor since 2017.
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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 $ 5,336 $ 5,289
Prepaid expenses and other current assets 1,217 3,113
Property and equipment, net 890 818
Operating lease right-of-use assets 1,320 1,324
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other current liabilities 1,245 2,140
Operating lease liabilities - current 577 751
Operating lease liabilities - non-current 743 573
Stockholders’ equity:
Accumulated other comprehensive gain 34 34
Total liabilities and stockholders’ equity $ 36,720 $ 33,491
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 $ 46,863 $ 36,510
Cost of sales:
Operating expenses:
Depreciation and amortization 944 1,178
Other income (expense) 240 (280 )
Income from continuing operations before income taxes 7,058 238
Provision for income taxes (1,984 ) (1,338 )
Income (loss) from continuing operations 5,074 (1,100 )
Income from discontinued operations, net of income taxes — 1,374
Gain on Preferred Stock conversion $ 14,785 $ —
Preferred stock dividends - declared — (946 )
Preferred stock dividends - undeclared (2,256 ) (2,842 )
Net income (loss) attributable to common stockholders $ 17,603 $ (3,514 )
Net (loss) income per common share - Basic and diluted
Continuing operations $ 4.32 $ (3.48 )
Discontinued operations $ — $ 0.98
Net income (loss) attributable to common stockholders $ 4.32 $ (2.50 )
The accompanying notes are an integral part of these consolidated financial statements.
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MIND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended January 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
Preferred stock dividends — — — — — — (946 ) — (946 )
Stock-based compensation — — — — 261 — — — 261
Stock-based compensation — — — — 235 — — — 235
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:
Depreciation and amortization 944 1,516
Stock-based compensation 235 261
Gain on sale of Klein — (2,343 )
Provision for inventory obsolescence 68 341
Gross profit from sale of other equipment (457 ) (476 )
Deferred tax expense (benefit) 35 (153 )
Changes in:
Unbilled revenue (7 ) 25
Income taxes receivable and payable 360 635
Accounts payable, accrued expenses and other current liabilities 45 (334 )
Prepaid expenses and other current and long-term assets 1,897 (847 )
Net cash provided by (used in) operating activities 651 (4,967 )
Cash flows from investing activities:
Purchases of property and equipment (437 ) (290 )
Proceeds from the sale of Klein, net — 10,832
Net cash provided by investing activities 20 11,018
Cash flows from financing activities:
Net proceeds from short-term loan — 2,947
Payment on short-term loan — (3,750 )
Refund of prepaid interest on short-term loan — 214
Preferred stock conversion transaction costs (619 ) —
Preferred stock dividends — (946 )
Net cash used in financing activities (619 ) (1,535 )
Net increase in cash and cash equivalents 47 4,511
Cash and cash equivalents, beginning of period 5,289 778
Cash and cash equivalents, end of period $ 5,336 $ 5,289
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, Liquidity and Summary of Significant Accounting Policies
Organization—MIND Technology, Inc., a Delaware corporation (the “Company”), was incorporated in 1987. The Company, through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC, Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd, collectively “Seamap”, designs, manufactures and sells a broad range of proprietary products for the oceanographic, hydrographic and marine seismic industries with product sales and support facilities based in Singapore, Malaysia, the United Kingdom and the state of Texas. Prior to August 21, 2023, the Company, through its wholly owned subsidiary Klein Marine Systems, Inc. (“Klein”), designed, manufactured and sold a broad range of proprietary products for the oceanographic, hydrographic, defense and maritime security industries from its facility in the state of New Hampshire. Effective August 21, 2023, the Company sold Klein and presented the financial results reported as discontinued operations (see Note 2 – “Sale of a Subsidiary and Discontinued Operations” for additional details).
As of January 31, 2025, the Company had working capital of approximately $23.5 million, including cash and cash equivalents of approximately $5.3 million, compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, as of January 31, 2024. The Company does not have a credit facility in place and depends on cash on hand and cash flows from operations to satisfy its liquidity needs. However, the Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, disciplined working capital management, potential financing secured by company owned real property, and potentially securing a credit facility or some other form of financing.
Revenue Recognition of Marine Product Sales—Revenues and cost of sales from the sale of marine 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 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 2025 and 2024 were not material and as a result are not presented separately in the financial statements.
Allowance for Credit Losses—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.
Inventories—Inventories are stated at the lower of cost or realizable value. The Company determines cost on the basis of Average or Standard Cost. An allowance for obsolescence is maintained to reduce the carrying value of any inventory items 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 estimated useful life or the life of the respective leases. No salvage value is assigned to property and equipment. Significant improvements are capitalized while maintenance and repairs are charged to expense as incurred.
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 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.
Product Warranties—Seamap provides its customers warranties against defects in materials and workmanship generally for a period of three months after delivery of the product. For fiscal 2025 and 2024, warranty expense was approximately $900,000 and $400,000, respectively.
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 to 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 credit losses, inventory obsolescence, lease liabilities, 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, assessment of warranty reserve balances 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 inventory reserve because the Company must make assumptions about the future use and fit for purposefulness of certain inventory items. As a result, the Company’s inventory reserves could change in the future, and such change could be material to the financial statements taken as a whole. The Company must also make judgments with respect to quantitative analysis prepared in conjunction with impairment analysis related to intangible assets.
Fair Value of Financial Instruments—The Company’s financial instruments consist of cash and cash equivalents, 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 does not have any assets or liabilities that it measures at fair value on a recurring basis. the Company measures the fair values of intangibles and other long-lived assets on a non-recurring basis if required by impairment tests applicable to these assets. Based on the results of our qualitative reviews, no quantitative tests were applicable during fiscal years 2025 and 2024.
Leases—The Company determines if an arrangement is a lease at inception. Operating leases are recorded as right-of-use assets and operating lease liabilities. The Company has not entered into any financing leases.
Operating lease right-of-use assets represent a right to use an underlying asset for the lease term and operating lease right-of-use liabilities represent an obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term and use an implicit rate when readily available. Since most of the Company’s leases do not provide an implicit rate the Company utilizes the incremental borrowing rate to determine the present value of lease payments. The rate will take into consideration the underlying asset’s economic environment, including the length of the lease term and currency that the lease is payable in. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
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. The fair value of stock-based compensation awards is amortized over the requisite service period of the award, which is the vesting period of the related awards.
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 2025 and 2024, 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)
Stock options — —
Restricted stock — —
Total dilutive shares — —
For fiscal 2025 and 2024, respectively, potentially dilutive common shares, were immaterial and did not change the calculation of diluted income (loss) per share for those periods.
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2. Sale of a Subsidiary and Discontinued Operations
On August 21, 2023, the Company sold Klein pursuant to a Stock Purchase Agreement (the “SPA”) with General Oceans AS (“the Buyer"). In connection with the SPA, the Company granted the Buyer a license to its Spectral Ai software suite (“Spectral Ai”). The license is exclusive to the Buyer as it relates to side scan sonar. The Company and the Buyer also entered into a collaboration agreement for the further development of Spectral Ai and potentially other software projects. The foregoing transactions contemplated by the SPA are referred to as the “Sale of Klein”. The aggregate consideration to the Company consisted of a cash payment of $10.8 million, resulting in a gain of approximately $2.3 million. The SPA contained customary representation and warranties. On August 22, 2023, following the closing of the Sale of Klein, all outstanding amounts due and owed, including principal, interest, and other charges, under the Loan were repaid in full and the Loan was terminated, and all liens and security interests granted thereunder were released and terminated (see Note 11 - "Notes Payable" for additional details). As a result of the sale, there are no assets or liabilities and the results of operations are reported as discontinued operations for the years ended January 31, 2024.
The results of operations from discontinued operations for the twelve months ended January 31, 2025 and 2024, consist of the following:
Twelve Months Ended January 31,
Revenues: (in thousands)
Revenue from discontinued operations $ — $ 3,315
Cost of sales:
Cost of discontinued operations — 1,979
Operating expenses:
Selling, general and administrative — 2,022
Depreciation and amortization — 338
Total operating expenses — 2,360
Operating loss — (1,024 )
Other income, including $2.3 million gain on sale of Klein — 2,415
Income before income taxes from discontinued operations — 1,391
Provision for income taxes from discontinued operations — (17 )
Net income from discontinued operations — 1,374
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The significant operating and investing noncash items and capital expenditures related to discontinued operations are summarized below:
Twelve Months Ended January 31,
(in thousands)
Depreciation and amortization $ — $ 338
Gain on sale of Klein $ — $ 2,343
3. New Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), to enhance the disclosures public entities provide regarding significant segment expenses so that investors can better understand an entity’s overall performance and assess potential future cash flows. ASU 2023-07 is effective for our annual periods beginning February 1, 2024 and interim periods within fiscal years beginning February 1, 2025. The adoption of this standard only impacted our disclosures. See Note 17- "Segment Reporting" for additional details.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 seeks to improve transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. The updated guidance is effective for the Company on February 1, 2025. The Company is currently evaluating the new guidance to determine the impact it will have on the disclosures to its consolidated financial statements.
In November 2024, the FASB issued ASU No.2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"), to enhance the disclosures public entities provide regarding specified information about certain costs and expenses at each interim and annual reporting period so that investors can better understand an entity’s overall performance, including its cost structure, and assess potential future cash flows. ASU 2024-03 is effective for our annual periods beginning February 1, 2027 and interim periods within fiscal years beginning February 1, 2028. The Company is evaluating the new guidance to determine the impact it will have on the disclosures to its consolidated financial statements.
4. Revenue from Contracts with Customers
The following table presents revenue from contracts with customers disaggregated by timing of revenue recognition:
Twelve Months Ended January 31,
(in thousands)
Total revenue recognized at a point in time $ 45,189 $ 35,556
Total revenue recognized over time $ 1,674 $ 954
Total revenue from contracts with customers $ 46,863 $ 36,510
The following table presents revenue from contracts with customers disaggregated by geography, based on the location of our customers:
Twelve Months Ended January 31,
Revenue from contracts with customers: (in thousands)
Total revenue from contracts with customers $ 46,863 $ 36,510
Performance Obligations
The revenue from products manufactured and sold by our Seamap business is generally recognized at a point in time, or when the customer takes possession of the product, based on the terms and conditions stipulated in our contracts with customers. However, from time to time our Seamap business provides repair and maintenance services, or performs upgrades, on customer-owned equipment in which case revenue is recognized over time. In addition, our Seamap business provides annual Software Maintenance Agreements (“SMA”) to customers who have an active license for software embedded in Seamap products. The revenue from SMA is recognized over time, with the total value of the SMA amortized in equal monthly amounts over the life of the contract. The duration of SMA contracts is one year or less. We do not have elements of variable consideration within these contracts.
As of January 31, 2025 and January 31, 2024, there were no significant outstanding liability balances for refunds or returns due to the nature of our contracts and the services and products we provide. Our warranties are limited to assurance warranties that are of a standard length and are not considered to be material rights. For fiscal 2025 and fiscal 2024, we did not recognize revenue from performance obligations satisfied in a prior periods.
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Contract Balances
Prepayments and deferred revenue on SMAs have a significant impact our contract liabilities. Considering the products manufactured and sold by our Seamap 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. We do not have any long-term service contracts or related long-term contract assets or liabilities. Costs to obtain and fulfill contracts are considered immaterial and are expensed during the period when incurred. At January 31, 2023, our trade accounts receivable was approximately $3.2 million net of approximately $332,000 of allowance for credit losses.
Contract liabilities decreased by approximately $1.9 million during fiscal 2025 due primarily to recognition of revenue during the year.
As of January 31, 2025 and 2024 contract assets and liabilities consisted of the following:
Contract Assets: (in thousands)
Contract assets, beginning balance $ 26 $ 2
Revenue accrued $ 20 $ 26
Amounts billed (26 ) (2 )
Total unbilled revenue $ 20 $ 26
Contract Liabilities:
Contract liabilities, beginning balance $ 3,649 $ 359
Deferred revenue and customer deposits $ 1,526 $ 3,614
Total deferred revenue & customer deposits $ 1,792 $ 3,649
With respect to the disclosures above, sales and transaction-based taxes are excluded from revenue. 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.
5. Supplemental Statements of Cash Flows Information
Supplemental disclosures of cash flows information for fiscal 2025 and 2024 were as follows (in thousands):
Year Ended January 31,
Interest paid $ — $ 634
6. Inventories
Inventories consisted of the following (in thousands):
As of January 31,
Less allowance for obsolescence (1,537 ) (1,531 )
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7. Property and Equipment
Property and equipment consisted of the following (in thousands):
As of January 31,
Less accumulated depreciation (9,580 ) (9,334 )
Net book value of property and equipment $ 890 $ 818
Depreciation expense on property, plant and equipment was approximately $306,000 for fiscal 2025, and approximately $383,000 for fiscal 2024.
Location of property and equipment (in thousands):
As of January 31,
Net book value of property and equipment $ 890 $ 818
8. Leases
The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in Texas, Singapore, Malaysia and The United Kingdom.
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Lease expense for the twelve months ended January 31, 2025 and 2024 was approximately $860,000 and $831,000, respectively, and was recorded as a component of operating income. Included in these costs was short-term lease expense of approximately $26,000 and $8,000 for the twelve months ended January 31, 2025 and 2024, respectively.
Supplemental balance sheet information related to leases as of January 31, 2025 and 2024 was as follows (in thousands):
As of January 31,
Assets
Operating lease right-of-use assets $ 1,320 $ 1,324
Liabilities
Operating lease liabilities $ 1,320 $ 1,324
Classification of lease liabilities
Current liabilities $ 577 $ 751
Non-current liabilities 743 573
Total Operating lease liabilities $ 1,320 $ 1,324
Lease-term and discount rate details as of January 31, 2025 and 2024 were as follows:
As of January 31,
Weighted average remaining lease term (years)
Weighted average discount rate:
Operating leases 14 % 13 %
Supplemental cash flow information related to leases on January 31, 2025 and 2024 was as follows (in thousands):
As of January 31,
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ (987 ) $ (831 )
Right-of-use assets obtained in exchange for lease liabilities:
Maturities of lease liabilities on January 31, 2025 and 2024 were as follows (in thousands):
As of January 31,
Thereafter — —
Total payments under lease agreements $ 1,554 $ 1,597
Less: imputed interest (234 ) (273 )
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9. Intangible Assets
Intangible assets consisted of the following:
Weighted
Average Gross Net Gross Net
Life at Carrying Accumulated Carrying Carrying Accumulated Carrying
1/31/2025 Amount Amortization Amount Amount Amortization Amount
(in thousands) (in thousands)
The Company did not record impairment of intangible assets during fiscal years 2025 and 2024.
Aggregate amortization expense was approximately $638,000 and $795,000 for fiscal 2025 and fiscal 2024, respectively. As of January 31, 2025, future estimated amortization expense related to amortizable intangible assets is estimated to be (in thousands):
For fiscal year ending January 31:
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10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
As of January 31,
Accrued commissions and professional fees 295 537
Accrued warranty costs 360 6
Accrued Expenses and Other Liabilities $ 1,245 $ 2,140
11. Notes Payable
On February 2, 2023, we entered into a $3.75 million Loan and Security Agreement (“the Loan”). The Company had incurred approximately $814,000 of debt acquisition costs associated with the loan including approximately $254,000 in origination and other transaction fees and approximately $484,000 of prepaid interest, which was the total interest due through maturity. These costs were recorded as a reduction to the carrying value of our debt and are amortized to interest expense straight-line over the term of the Loan. Approximately $601,000 of amortization of debt acquisition costs were recorded as interest expense for the twelve months ended January 31,2024. On August 22, 2023, in connection with the Sale of Klein, the Loan was repaid in full (see Note 2- "Sale of a Subsidiary and Discontinued Operations" for additional details).
12. Stockholders’ Equity
At the virtual Special Meeting of Preferred Stockholders held on August 29, 2024, our preferred stockholders approved an amendment to our Certificate of Designations, Preferences and Rights of 9.00% Series A Cumulative preferred stock, to provide that each share of 9.00% Series A Cumulative Preferred Stock, $1.00 par value per share (the “Preferred Stock”) shall be converted into 3.9 shares of common stock, $0.01 par value per share (the “common stock”) upon the election of our Board of Directors. On September 4, 2024, all outstanding shares of Preferred Stock were converted into common stock and retired. The Company issued approximately 6,600,000 shares of common stock in connection with the conversion. Accordingly, the Company no longer has obligations regarding Preferred Stock dividends, including undeclared dividends from previous periods. The common stock issued was recorded at its market value at the date of issuance less transaction costs related to the conversion. The excess of the carrying value of the preferred stock over the market value of the common stock issued, which amounted to approximately $14.8 million, was credited directly to accumulated deficit and is reflected in the calculation of earnings per share attributable to common stockholders.
On September 28, 2023, the Board approved a reverse stock split (the "Reverse Stock Split") of the Company's shares of common stock at a ratio of one-for-ten. On October 12, 2023, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Charter Amendment to effect the Reverse Stock Split. The Charter Amendment became effective on October 13, 2023.
As a result of the Charter Amendment and Reverse Stock Split, every ten shares of issued and outstanding Common Stock were combined into one issued and outstanding share of Common Stock, without any change in par value per share. Proportionate adjustments were also made to any outstanding securities or rights convertible into, or exchangeable or exercisable for, shares of Common Stock. Fractional shares were not issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to receive a fractional share were entitled to receive one full share of post-Reverse Stock Split Common Stock, in lieu of receiving such fractional shares. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s relative interest in the Company’s equity securities. The Reverse Stock Split reduced the number of shares of issued and outstanding Common Stock from approximately 13,788,738 shares to approximately 1,405,779 shares. Common stock and treasury stock shares have been retroactively adjusted to reflect the Reverse Stock Split in all periods presented. In connection with the Reverse Stock Split, the Company retired all treasury stock.
The Company has 40,000,000 shares of Common Stock authorized, of which 7,969,421 and 1,405,779 were issued as of January 31, 2025 and 2024, respectively.
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13. Related Party Transaction
Ladenburg Thalmann & Co. Inc. (“Ladenburg”) provided advisor and arrangement services for the Loan (See Note 11 - "Notes Payable" for additional details) and received $75,000 in fees for such services. Additionally, Ladenburg provided advisory services related to the Sale of Klein and received fees of $405,000 for such services. The former Co-Chief Executive Officer and Co-President of Ladenburg is the Non-Executive Chairman of our Board. Our Non-Executive Chairman of the Board received no portion of the above-mentioned compensation.
14. Income Taxes
Year Ended January 31,
(in thousands)
Current:
Domestic $ 2 $ —
Deferred:
Domestic — —
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The following is a reconciliation of expected to actual income tax expense for continuing operations:
Year Ended January 31,
(in thousands)
Global intangible low tax income ("GILTI") inclusion 2,449 1,653
Permanent differences 61 90
Foreign effective tax rate differential (429 ) (218 )
Valuation allowance on deferred tax assets (1,903 ) (528 )
Excess tax deficiency for share-based payments under ASU 2016-09 149 150
The components of the Company’s deferred taxes consisted of the following:
As of January 31,
(in thousands)
Deferred tax assets:
Tax credit carry forwards 334 944
Stock option book expense 581 766
Allowance for credit losses 98 107
Accruals not yet deductible for tax purposes 113 130
Disallowed interest expense 98 227
Deferred tax assets 87 122
Deferred tax liabilities:
Other — —
Deferred tax liabilities — —
Unrecognized tax benefits — —
Total deferred tax liabilities, net — $ —
The Company has determined that, due to the potential requirement for additional investment and working capital to achieve its objectives, the undistributed earnings of foreign subsidiaries as of January 31, 2025, are not deemed indefinitely reinvested outside of the United States. 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 January 31, 2025.
Included in deferred tax assets is approximately $581,000 related to stock-based compensation, including non-qualified stock options. Recent market prices for the Company’s Common Stock remain below the exercise price of a number of options outstanding as of January 31, 2025. Should the market price of the Company’s Common Stock remain below the exercise price of the options, these stock options will expire without exercise. In accordance with the provisions of ASC 718-740-10, a valuation allowance has not been computed based on the decline in stock price.
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As of January 31, 2025, the Company has recorded valuation allowances of approximately $28.2 million related to deferred tax assets . These deferred tax assets relate primarily to net operating loss carryforwards in the United States and other jurisdictions. These net operating loss carry forwards are subject to limitation and future expiration. The valuation allowances were determined based on management’s judgment as to the likelihood that the deferred tax assets would not be realized. The judgment was based on an evaluation of available evidence, both positive and negative.
On January 31, 2025, the Company had tax credit carry forwards of approximately $334,000, which amounts can be carried forward through at least 2027.
As of January 31, 2025, and 2024 the company had no unrecognized tax benefits attributable to uncertain tax positions.