# Mind Technology, Inc: Form 10-Q for the period ended Apr 30, 2022

- Company: [Mind Technology, Inc](/companies/mind.md) (CIK 926423)
- Form: 10-Q
- Filed: 2022-06-09
- Accepted by EDGAR: Jun 9, 2022, 16:15 ET
- Period: 2022-04-30
- Accession: 0001437749-22-014677
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/926423/000143774922014677/mind20220430_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/926423/000143774922014677/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-04-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-02-01 to 2022-04-30 | $9.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2022-02-01 to 2022-04-30 | $3.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-02-01 to 2022-04-30 | $1.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-02-01 to 2022-04-30 | $4.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-02-01 to 2022-04-30 | −$2.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-02-01 to 2022-04-30 | $211.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-02-01 to 2022-04-30 | −$2.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-02-01 to 2022-04-30 | −$0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-02-01 to 2022-04-30 | −$0.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-02-01 to 2022-04-30 | 13,775,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-02-01 to 2022-04-30 | −$3.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-02-01 to 2022-04-30 | $107.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2022-02-01 to 2022-04-30 | $1.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-04-30 | $817.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-04-30 | $26.0m | us-gaap:AssetsCurrent |
| Total assets | at 2022-04-30 | $37.8m | us-gaap:Assets |
| Current liabilities | at 2022-04-30 | $9.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-04-30 | $10.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-04-30 | $27.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,817 characters.

### 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 3 - “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 include 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.

*(in thousands)*

| Reconciliation of Net loss from Continuing Operations to EBITDA and Adjusted EBITDA | For the Three Months Ended April 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net loss from continuing operations | $(2,805) | $(3,701) |
| Interest expense, net | — | 9 |
| Depreciation and amortization | 479 | 666 |
| Provision (benefit) for income taxes | 211 | (145) |
| EBITDA loss from continuing operations (1) | (2,115) | (3,171) |
| Non-cash foreign exchange losses | — | 49 |
| Stock-based compensation | 236 | 121 |
| Adjusted EBITDA loss from continuing operations (1) | $(1,879) | $(3,001) |
| **Reconciliation of Net Cash Used in Operating Activities to EBITDA** |  |  |
| Net cash used in operating activities | $(3,522) | $(2,807) |
| PPP loan forgiveness | — | 850 |
| Stock-based compensation | (236) | (121) |
| Provision for inventory obsolescence | (23) | (22) |
| Changes in accounts receivable (current and long-term) | 1,037 | (1,104) |
| Interest paid | 4 | — |
| Taxes paid, net of refunds | 277 | 31 |
| Gross (loss) profit from sale of other equipment | (113) | 80 |
| Changes in inventory | 260 | 741 |
| Changes in accounts payable, accrued expenses and other current liabilities and deferred revenue | 397 | (920) |
| Changes in prepaid expenses and other current and long-term assets | (175) | 168 |
| Other | (21) | (67) |
| EBITDA loss from continuing operations (1) | $(2,115) | $(3,171) |

(1) EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA is defined as net income before (a) interest income and interest expense, (b) provision for (or benefit from) income taxes and (c) depreciation and amortization. Adjusted EBITDA excludes non-cash foreign exchange gains and losses, stock-based compensation, impairment of intangible assets, other non-cash tax related items and non-cash costs of lease pool equipment sales. We consider EBITDA and Adjusted EBITDA to be important indicators for the performance of our business, but not measures of performance or liquidity calculated in accordance with GAAP. We have included these non-GAAP financial measures because management utilizes this information for assessing our performance and liquidity, and as indicators of our ability to make capital expenditures, service debt and finance working capital requirements and we believe that EBITDA and Adjusted EBITDA are measurements that are commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us. In particular, we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP and should not be considered in isolation or as alternatives to cash flow from operating activities or as alternatives to net income as indicators of operating performance or any other measures of performance derived in accordance with GAAP. In evaluating our performance as measured by EBITDA, management recognizes and considers the limitations of this measurement. EBITDA and Adjusted EBITDA do not reflect our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures. Accordingly, EBITDA and Adjusted EBITDA are only two of the measurements that management utilizes. Other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do and EBITDA and Adjusted EBITDA may not be comparable with similarly titled measures reported by other companies.

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 Part II, 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 ongoing effects of the global pandemic, such as delayed customer activity, inability to interact directly with many customers and restrictions on the activities of our employees.
- Disruptions in the global supply chain which have resulted in delays in development and production activities.
- Uncertainty in the global economic and geopolitical situation, resulting in delayed expenditures or changes in project priorities.

However, 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 experienced and continue to experience increased inquiries and bid activity for our other marine technology products. As of April 30, 2022, our backlog of firm orders for our Marine Technology Products business was approximately $13.4 million, as compared to approximately $13.1 million as of January 31, 2022, and $11.0 million at April 30, 2021. Subsequent to April 30, 2022 we have received firm orders totaling approximately $2.2 million for seismic and multi-beam sonar systems. Additionally, we have responded to requests for proposals (“RFQ”s) for seismic source controller and multi-beam sonar systems totaling approximately $7.3 million. These RFQ’s specifically require our products. Based on discussions with the end-users for these orders we are confident we will receive firm orders for these items. Accordingly, our backlog and other firm and highly confident orders total is approximately $22.9 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.

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

- Marine Survey
- Marine Exploration
- 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
- 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 that can have a significant impact on our business. These developments include the following:

- The increase in the use of unmanned, or uncrewed, marine vessels, both surface vehicles and underwater vehicles, and the need for a variety of sensor packages designed for these applications.
- Demand for higher resolution sonar images, such as for mine countermeasure applications.
- Demand for economical, commercially developed, technology for anti-submarine warfare and maritime security applications.

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:

- Development of side-scan sonar and other sensor systems specifically for unmanned vehicles, including integration of our MA-X technology;
- Application of our ATR technology to our sonar systems;
- Development of SAS sonar systems in cooperation with a major European defense contractor; and
- Application of our SeaLink solid streamer technology to passive sonar arrays for use in maritime security applications, such as anti-submarine warfare.

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, 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 totaled approximately $93,000. Future benefit from the government job scheme 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 above.

### Results of Continuing Operations

Revenues for the three months ended April 30, 2022 were approximately $9.1 million compared to approximately $4.2 million for the three months ended April 30, 2021. We believe the increase in the first quarter of fiscal 2023 is due in large part to lifting of restrictions on commerce that were present in the prior period as a result of the global pandemic. Additionally, positive trends within our primary markets, as discussed above, are contributing to increased activity. For the three months ended April 30, 2022, we generated an operating loss of approximately $2.5 million, compared to an operating loss of approximately $4.8 million for the three months ended April 30, 2021. The decrease in operating loss during the three-month period ended April 30, 2022 is primarily attributable to an increase in revenues. A more detailed explanation of these variations follows.

### Revenues and Cost of Sales

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

*(in thousands)*

| Revenues: | Three Months Ended April 30, 2022 | 2021 |
| --- | ---: | ---: |
| Seamap | $8,079 | $3,044 |
| Klein | 1,122 | 1,156 |
| Intra-business sales | (114) | (6) |
|  | 9,087 | 4,194 |
| Cost of sales: |  |  |
| Seamap | 5,057 | 2,597 |
| Klein | 855 | 1,060 |
| Intra-business sales | (114) | (6) |
|  | 5,798 | 3,651 |
| Gross profit | $3,289 | $543 |
| **Gross profit margin** | 36% | 13% |

19

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. The gross profit and gross profit margins generated by sales of Seamap products were approximately $3.0 million and 37% in the first quarter of fiscal 2023 and approximately $447,000 and 15% in the first quarter of fiscal 2022. The increase in gross profit margins between the periods is due primarily to the mix of products and services sold in the respective periods.

Revenue from the sale of Klein products was approximately $1.1 million for the first quarter of fiscal 2023 versus approximately $1.2 million in the prior year period. Gross profit was approximately $267,000 and $96,000 for the first quarter of fiscal 2023 and 2022, respectively. Despite relatively flat revenue for the comparative periods, gross profit increased in the first quarter of fiscal 2023 due to higher product testing and sustaining engineering activity in the first quarter of fiscal 2022, not recurring in the current period.

### Operating Expenses

General and administrative expenses for the three months ended April 30, 2022, increased to approximately $4.3 million from approximately $3.8 million for the three-months ended April 30, 2021. The increase is primarily due to accrued severance expense for the Company’s former Chief Operating Officer, plus higher convention, travel and entertainment expenses incurred as the Company reengages with customers following easing of global pandemic related restrictions on travel and larger group gatherings. In addition, the increase reflects certain recurring general and administrative operating expenses, including but not limited to, property and casualty insurance premiums, facility maintenance expenses, and communications costs, etc., which were directly attributable to our discontinued operations and reported as such in the prior year comparative period, but are reported in continuing operations in the current period as management has concluded that these costs will be retained going forward.

Research and development costs were approximately $1.0 million in the three-month period ended April 30, 2022, compared to approximately $853,000 in the three months ended April 30, 2021. The increase in year-to-year costs reflects incremental product development activity, including SAS, automatic target recognition, passive arrays and sensor systems for unmanned platforms.

Depreciation and amortization expense include depreciation of equipment, furniture and fixtures and the amortization of intangible assets. These costs were approximately $479,000 in the three-month period ended April 30, 2022, as compared to approximately $666,000 in the three-month period ended April 30, 2021. The lower depreciation and amortization expense in the first quarter of fiscal 2023 is due primarily to assets becoming fully depreciated over time.

During the three months ended April 30, 2022, there were no substantive indicators of impairment of long-lived or intangible assets.

### Provision for Income Taxes

For the three months ended April 30, 2022, we reported tax expense of approximately $211,000 on pre-tax loss of approximately $2.6 million from continuing operations, and for the three months ended April 30, 2021, we reported tax benefit of approximately $145,000 on pre-tax loss of approximately $3.8 million from continuing operations. Our recorded tax expense and benefit for the three-month period ended April 30, 2022, and 2021, respectively, are less than the expense and benefit that would be derived by applying the applicable statutory rate to the net loss before tax from continuing operations in each of these periods. The variance for each of these periods is due mainly to the effect of permanent differences between book and taxable income, foreign withholding taxes, and recording valuation allowances against increases in our deferred tax assets.

### Results of Discontinued Operations

Revenues and cost of sales from our Equipment Leasing business were comprised of the following:

*(in thousands)*

| Revenues: | For the Three Months Ended April 30, 2022 | 2021 |
| --- | ---: | ---: |
| Equipment leasing | — | 30 |
|  | — | 30 |
| Cost of sales: |  |  |
| Direct costs-equipment leasing | 25 | 373 |
|  | 25 | 373 |
| Gross profit (loss) | (25) | (343) |
| Operating expenses: |  |  |
| Selling, general and administrative | 113 | 342 |
| Recovery of doubtful accounts | — | (443) |
| Depreciation and amortization | — | 1 |
| Total operating expenses (income) | 113 | (100) |
| Operating loss | (138) | (243) |
| Other income (expenses) | 524 | (39) |
| Income (loss) before income taxes | 386 | (282) |
| Provision for income taxes | — | (1) |
| Net Income (loss) | 386 | (283) |

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 lease pool assets, but record proceeds from such transactions as a reduction in the carrying value of our lease pool assets.

We recorded no revenue from discontinued operations during the first quarter of fiscal 2023, compared to $30,000 for the first quarter of fiscal 2022. Our revenue decreased because we ceased all equipment leasing activity in fiscal 2022.

Direct costs related to Equipment Leasing dropped to approximately $25,000 for the first quarter of fiscal year 2023 from approximately $373,000 reported in the same period of fiscal 2022. Direct costs were higher in the first quarter of fiscal 2022 because we had active lease contracts during the period.

Selling, general and administrative costs related to the Leasing Business decreased to approximately $113,000 in the three months ended April 30, 2022, from approximately $342,000 in the same period one year ago. 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., which were directly attributable to our discontinued operations and reported as such in fiscal 2022, are reported in continuing operations in the current period as management has concluded these costs will be retained going forward. See Note 3 - “Assets Held for Sale and Discontinued Operations” to our consolidated financial statements for more details.

For the three months ended April 30, 2022, we recorded zero tax expense on approximately $386,000 of pre-tax income from discontinued operations. For the three months ended April 30, 2021, we reported tax expense of approximately $1,000 on pre-tax loss from discontinued operations. Our tax provisions in the three-month periods ended April 30, 2022, and 2021, are less than the expense or benefit that would be derived by applying the applicable statutory rate to the income or loss before tax from discontinued operations for each respective period. The variance for each of these periods is due mainly to the effect of foreign withholding taxes and recording valuation allowances against increases in our deferred tax assets.

### Liquidity and Capital Resources

As discussed above, the global pandemic and volatility in oil prices have created significant uncertainty in the global economy, which has had, and may continue to have, an adverse effect on our business, financial position, results of operations and liquidity. The period for which disruptions related to the global pandemic 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 and Common Stock for the past several years. As of April 30, 2022, the Company has a small amount of remaining lease pool equipment available for sale and has approximately 317,000 shares of Preferred Stock and approximately 22.9 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 prices 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:

- The Company has no funded debt or other outstanding obligations, outside of normal trade obligations.
- The Company has no obligations or agreements containing “maintenance type” financial covenants.
- The Company has working capital of approximately $16.4 million as of April 30, 2022, including cash of approximately $817,000.
- Should revenues be less than projected, the Company believes it is able, and has plans, to reduce costs proportionately in order to maintain positive cash flow.
- The majority of the Company’s costs are variable in nature, such as raw materials and personnel related costs. The Company has recently eliminated two executive level positions, and additional reductions in operations, sales, and general and administrative headcount could be made, if deemed necessary by management.
- The Company has a backlog of orders of approximately $13.4 million as of April 30, 2022, which is a slight increase from the $13.1 million reported at January 31, 2022, and an increase of approximately 22% from the amount reported at April 30, 2021. Production for certain of these orders was in process and included in inventory as of April 30, 2022, thereby reducing the liquidity needed to complete the orders. Subsequent to April 30, 2022 we received firm orders of approximately $2.2 million and responded to requests for proposals (“RFQ”s) of approximately $7.3 million. Accordingly, the combination of our backlog, subsequent orders and RFQ’s, which management believes will be confirmed and completed in fiscal 2023, currently total is approximately $22.9 million.
- Despite difficulties in world energy markets, the Company has been able to generate cash from the sale of lease pool equipment and collection of accounts receivable related to its discontinued operations. Management expects to generate additional liquidity from the sale of lease pool equipment in fiscal 2023.
- The Company declared and paid the quarterly dividend on its Preferred Stock for the first quarter of fiscal 2023, and each quarter in fiscal 2022, but such quarterly dividends could be suspended in the future.
- Despite challenging economic conditions in fiscal 2022, the Company successfully raised approximately $5.2 million in new capital through the sale of Common Stock and Preferred Stock pursuant to the ATM Offering Program and $9.5 million in net proceeds through a public offering of Preferred Stock. Management believes it could raise further capital through the ATM Offering Program should the need arise.
- Based on publicized transactions and preliminary discussions with potential funding sources, management believes that other sources of debt and equity financing are available should the need arise.

Our principal sources of liquidity and capital over the past two fiscal years have been proceeds from issuances of Preferred 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 13,781,904 are currently outstanding and 3,302,001 are reserved for issue under outstanding stock options, leaving 22,916,095 available for future issuance. We believe these factors provide capacity for subsequent issues of common stock or preferred stock.

The Preferred Stock has been issued in public offerings in June 2016 and November 2021, as consideration to Mitsubishi Heavy Industries, Ltd (“MHI”), and in two ATM offering programs. The 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 April 30, 2022, we have issued 1,682,985 shares of our Preferred Stock.

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

During the three months ended April 30, 2022, the Company did not sell any shares of Common Stock or Series A Preferred Stock under the ATM Offering Program.

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

*(in thousands)*

|  | For the Three Months Ended April 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(3,522) | $(2,807) |
| Net cash provided by investing activities | 176 | 179 |
| Net cash used in financing activities | (948) | (33) |
| Effect of changes in foreign exchange rates on cash and cash equivalents | (3) | 51 |
| Net decrease in cash and cash equivalents | $(4,297) | $(2,610) |

As of April 30, 2022, we had working capital of approximately $16.4 million, including cash and cash equivalents of approximately $817,000, as compared to working capital of approximately $18.5 million, including cash and cash equivalents of approximately $5.1 million, at January 31, 2022. Our working capital decreased during the first three months of fiscal 2023 as compared to January 31, 2022 due primarily to reductions in cash, prepaid assets, and other current assets.

*Cash Flows from Operating Activities*. Net cash used in operating activities was approximately $3.5 million in the first three months of fiscal 2023 as compared to approximately $2.8 million in the first three months of fiscal 2022. For the three months ended April 30, 2022, the primary sources of cash used in operating activities was our net loss of approximately $2.4 million, plus the net change in working capital items, such as accounts receivable, prepaid expenses and accounts payable, totaling approximately $1.7 million, partially offset by net non-cash charges, including depreciation and amortization of approximately $479,000.

*Cash Flows from Investing Activities*. Cash provided from investing activities were relatively flat during the first three months of fiscal 2023 compared to the same period in the prior year.

Due to the decision to exit the Leasing Business we are currently seeking to sell the remaining equipment from our lease pool, which is currently classified as Assets Held for Sale. However, there is no guarantee additional sales of Assets Held for Sale will occur. Accordingly, cash flow from the sale of Assets Held for Sale is unpredictable. Proceeds from any additional sales of Assets Held for Sale will be deployed in other areas of our business or used for general corporate purposes.

*Cash Flows from Financing Activities*. Net cash used in financing activities during the first three months of fiscal 2023 consisted of approximately $947,000 of Preferred Stock dividend payments. In the third quarter of fiscal 2021, we launched the ATM Offering Program to sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock.

As of April 30, 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 may include bank credit facilities or the issuance of debt or equity securities.

We have determined that the undistributed earnings of foreign subsidiaries are not deemed indefinitely reinvested outside of the United States as of April 30, 2022. Furthermore, we have concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial.

As of April 30, 2022, we had deposits in foreign banks equal to approximately $762,000, all of which we believe could be distributed to the United States without adverse tax consequences. However, in certain cases the transfer of these funds may result in withholding taxes payable to foreign taxing authorities. In the event that withholding taxes should become payable, we believe the amount of tax withheld would be immaterial.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

### Critical Accounting Policies

Information regarding our critical accounting policies and estimates is included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 31, 2022. There have been no material changes to our critical accounting policies and estimates during the three-month period ended April 30, 2022.

## Market risk

As filed, 1,573 characters.

We are exposed to market risk, which is the potential loss arising from adverse changes in market prices and rates. We have not entered, and do not intend to enter, into derivative financial instruments for hedging or speculative purposes.

### Foreign Currency Risk

We operate in several foreign locations, which gives rise to risk from changes in foreign currency exchange rates. To the extent possible, we attempt to denominate our transactions in foreign locations in U.S. dollars. For those cases in which transactions are not denominated in U.S. dollars, we are exposed to risk from changes in exchange rates to the extent that non-U.S. dollar revenues exceed non-U.S. dollar expenses related to those transactions. Our non-U.S. dollar transactions are denominated primarily in British pounds, Singapore dollars and European Union euros. As a result of these transactions, we generally hold cash balances that are denominated in these foreign currencies. At April 30, 2022, our consolidated cash and cash equivalents included foreign currency denominated amounts equivalent to approximately $321,000 in U.S. dollars. A 10% increase in the U.S. dollar as compared to each of these currencies would result in a loss of approximately $32,000 in the U.S. dollar value of these deposits, while a 10% decrease would result in an equal amount of gain. We do not currently hold or issue foreign exchange contracts or other derivative instruments to hedge these exposures.

### Interest Rate Risk

As of April 30, 2022, we have no interest-bearing bank debt on our balance sheet.

## Controls and procedures

As filed, 2,241 characters.

### 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-Q. 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 officers 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 not effective as of April 30, 2022, due to a material weakness in our internal control over financial reporting that was disclosed on our Annual Report on Form 10-K for the fiscal year ended January 31, 2022.

### Remediation

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended January 30, 2022, we commenced implementing a remediation plan to address the material weakness in our internal controls over financial reporting. The weakness will remain unresolved, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

### Changes in Internal Control over Financial Reporting

Other than changes in connection with the remediation plan discussed above, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended April 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 759 characters.

*In addition the other information set forth elsewhere in this Form 10-Q, you should carefully consider the risks discussed in our Annual Report on Form 10-K for the year ended January 31, 2022, which risks could materially affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the year ended January 31, 2022. The risks described in our Annual Report on Form 10-K for the year ended January 31, 2022 are not the only risks the Company faces. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.*

Filed Jun 9, 2022.
Source: SEC EDGAR, the filing index for accession 0001437749-22-014677. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.