# Mind Technology, Inc: Form 10-Q for the period ended Jul 31, 2024

- Company: [Mind Technology, Inc](/companies/mind.md) (CIK 926423)
- Form: 10-Q
- Filed: 2024-09-12
- Accepted by EDGAR: Sep 12, 2024, 16:15 ET
- Period: 2024-07-31
- Accession: 0001437749-24-029059
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/926423/000143774924029059/mind20240731_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/926423/000143774924029059/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-07-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-05-01 to 2024-07-31 | $10.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-02-01 to 2024-07-31 | $19.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2024-05-01 to 2024-07-31 | $4.8m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-02-01 to 2024-07-31 | $9.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-05-01 to 2024-07-31 | $328.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2024-02-01 to 2024-07-31 | $790.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-05-01 to 2024-07-31 | $2.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-02-01 to 2024-07-31 | $5.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-05-01 to 2024-07-31 | $1.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-02-01 to 2024-07-31 | $2.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-05-01 to 2024-07-31 | $0 | us-gaap:InterestExpenseNonoperating |
| Interest expense | 6 months, 2024-02-01 to 2024-07-31 | $0 | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-05-01 to 2024-07-31 | $672.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-02-01 to 2024-07-31 | $917.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-05-01 to 2024-07-31 | $798.0k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-02-01 to 2024-07-31 | $1.8m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2024-05-01 to 2024-07-31 | −$0.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-02-01 to 2024-07-31 | −$0.10 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 6 months, 2024-02-01 to 2024-07-31 | −$3.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-02-01 to 2024-07-31 | $146.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-07-31 | $1.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-07-31 | $32.6m | us-gaap:AssetsCurrent |
| Total assets | at 2024-07-31 | $37.8m | us-gaap:Assets |
| Current liabilities | at 2024-07-31 | $12.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-07-31 | $13.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-07-31 | $24.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,326 characters.

### Overview

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

Management believes that the performance of our Seamap 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 income (loss) to EBITDA and Adjusted EBITDA from continuing operations | For the Three Months Ended July 31, 2024 | 2023 | For the Six Months Ended July 31, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) | $798 | $(1,494) | $1,752 | $(1,734) |
| Interest expense, net | — | 163 | — | 367 |
| Depreciation and amortization | 236 | 459 | 503 | 940 |
| Provision for income taxes | 672 | 66 | 917 | 477 |
| EBITDA (1) | 1,706 | (806) | 3,172 | 50 |
| Stock-based compensation | 46 | 108 | 95 | 158 |
| Loss from discontinued operations net of depreciation and amortization | — | 578 | — | 546 |
| Adjusted EBITDA from continuing operations (1) | $1,752 | $(120) | $3,267 | $754 |
| **Reconciliation of Net Cash Provided by (Used in) Operating Activities to EBITDA** |  |  |  |  |
| Net cash provided by (used in) operating activities | $1,058 | $(490) | $(3,695) | $(3,477) |
| Stock-based compensation | (46) | (108) | (95) | (158) |
| Provision for inventory obsolescence | (22) | — | (45) | — |
| Changes in accounts receivable (current and long-term) | 111 | (244) | 2,957 | 3,207 |
| Interest paid, net | — | 203 | — | 407 |
| Taxes paid, net of refunds | 508 | 236 | 938 | 425 |
| Gross profit from sale of other equipment | — | 198 | 457 | 336 |
| Changes in inventory | 2,930 | 1,312 | 5,742 | 333 |
| Changes in accounts payable, accrued expenses and other current liabilities and deferred revenue | (1,813) | (1,825) | (1,970) | 357 |
| Changes in prepaid expenses and other current and long-term assets | (942) | (21) | (1,042) | (1,329) |
| Other | (78) | (67) | (75) | (51) |
| EBITDA (1) | $1,706 | $(806) | $3,172 | $50 |

(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 and other non-cash tax related items. 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 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.

We design, manufacture and sell a variety of products used primarily in seismic and marine survey 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 marine survey applications.

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, supply chain issues, labor or political issues, inclement weather, and global pandemics. See Part II, Item 1A- “Risk Factors.”

### Business Outlook

Our financial performance has improved significantly in recent periods. Although we have a history of operating losses, we generated positive operating income from continuing operations in fiscal 2024 and the first and second quarters of fiscal 2025. We believe this is due to increased demand within our primary markets and efforts to reduce costs and improve product margins.

On August 21, 2023, we completed the Sale of Klein for cash consideration of $11.5 million. In addition, in connection with the Sale of Klein, the Company granted the Buyer a license in its Spectral Ai software suite, 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 license and collaboration agreements provide opportunities for recurring licensing revenue and recovery of certain ongoing operating costs. The Sale of Klein served to streamline the Company’s operations and provided needed working capital to address the financial requirements associated with the continuing growth of our Seamap business.

As of July 31, 2024, our backlog of firm orders was approximately $26.2 million, as compared to approximately $38.4 million as of January 31, 2024, and $17.0 million as of July 31, 2023. We believe a significant portion of our current backlog will be completed and shipped by the end of fiscal 2025. Additionally, we have a significant pipeline of pending and potential orders that we are pursuing. There are more than $6 million of such orders that have been received subsequent to July 31, 2024 or that we believe are imminent. We believe these orders provide good visibility for the balance of this fiscal year and into the next year. However, the level of backlog at a particular point in time may not necessarily be indicative of results in subsequent periods as the size and delivery period of individual orders can vary significantly.

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

Our revenues tend to fluctuate from quarter to quarter due to delivery schedules and other factors. We currently expect revenue in fiscal 2025 to exceed that of fiscal 2024 and revenue in the second half of fiscal 2025 to somewhat exceed that for the first half of fiscal 2025. However, no assurances of such results can be made, and there are a number of risks which could cause results to be less than anticipated. Those risks include the following:

- Inability of our customers to accept delivery of orders as scheduled;
- Cancellation of orders;
- Production difficulties, including supply chain disruptions, which could delay the completion of orders as scheduled;
- Anticipated orders not being received as expected; and
- Other unanticipated delays beyond our control.

In our Seamap business we address the following primary markets:

- Marine Survey
- Marine Exploration

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

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

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:

- Demand for economical, commercially developed, technology for maritime security applications; and
- Increased activity within the marine exploration space, including applications for alternative energy projects such as offshore windfarms and carbon capture projects.

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

- Application of our Spectral Ai software suite technology to side scan sonar systems and potentially other sensor systems;
- Adaptation of our SeaLink solid streamer technology to alternative applications, such as hydrographic surveys for windfarm and carbon capture projects; and
- Application of our SeaLink solid streamer technology to passive sonar arrays for use in maritime security applications, such as domain awareness and anti-submarine warfare.

We believe that the above applications expand our addressable markets and provide opportunities for further growth in our revenues.

In fiscal 2024, we eliminated two executive management positions and certain other administrative positions in order to further control general and administrative costs. We have eliminated certain other positions in fiscal 2025. The Sale of Klein has allowed us to further streamline our operations and may provide opportunities to further reduce overhead costs. Should future financial results fall below our expectation, we may take further steps to reduce costs. We believe many of our costs are variable in nature, such as raw materials and labor-related costs. Accordingly, we believe we can reduce such costs commensurate with any declines in our business.

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.

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 Operations

Revenues for the three and six months ended July 31, 2024 were approximately $10.0 million and $19.7 million, respectively, compared to approximately $7.6 million and $18.2 million for the three and six months ended July 31, 2023 , respectively. The increase in the three and six month periods ended July 31, 2024, compared to the prior year period was primarily due to timing of completion of order shipments. For the three and six months ended July 31, 2024, we generated operating income of approximately $1.4 million and $2.2 million, respectively, compared to an operating loss of approximately $767,000 and $348,000 for the three and six months ended July 31, 2023. The increase in operating income in the current year was attributable to improved gross profit margins, decreased selling, general and administrative costs and reduced research and development costs during the three and six months ended July 31, 2024. A more detailed explanation of these variations follows.

### Revenues and Cost of Sales

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

*(in thousands)*

*(in thousands)*

| Revenues: | Three Months Ended July 31, 2024 | 2023 | Six Months Ended July 31, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Seamap | $10,036 | $7,561 | $19,714 | $18,158 |
| Cost of sales: |  |  |  |  |
| Seamap | 5,258 | 4,620 | 10,718 | 10,681 |
| Gross profit | $4,778 | $2,941 | $8,996 | $7,477 |
| **Gross profit margin** | 48% | 39% | 46% | 41% |

A significant portion of Seamap’s sales consist of large discrete orders, the timing of which is dictated by our customers. This timing generally relates to the availability of a vessel in port so that our products can be installed. Accordingly, there can be significant variation in sales from one period to another, which does not necessarily indicate a fundamental change in demand for these products. Revenue from the sale of Seamap products was approximately $10.0 million and $19.7 million for the three and six-month periods ended July 31, 2024, compared to revenue of approximately $7.6 million and $18.2 million for the three and six-month periods ended July 31, 2023. The gross profit and gross profit margins for Seamap were approximately $4.8 million and 48% and $9.0 million and 46% for the three and six-month periods ended July 31, 2024, respectively, compared to approximately $2.9 million and 39% and $7.5 million and 41% in the three and six-month periods ended July 31, 2023, respectively. The gross profit margins in fiscal 2025 improved from the comparable period in the prior fiscal year, due to price increases implemented in fiscal 2024 and increased production efficiencies. The increased production efficiencies were due primarily to higher overhead absorption from higher activity levels and production and procurement efficiencies facilitated by increased order backlog.

### Operating Expenses

General and administrative expenses for the three and six-months ended July 31, 2024, respectively, were approximately $2.8 million and $5.5 million, compared to approximately $2.9 million and $6.2 million for the three and six-months ended July 31, 2023, respectively. The decrease from the prior periods is primarily the result of lower compensation expense due to headcount reductions, and the impact of broader cost control measures.

Research and development costs were approximately $328,000 and $790,000, in the three and six-month periods ended July 31, 2024, respectively, compared to approximately $493,000 and $971,000, in the three and six-month period ended July 31, 2023, respectively. Costs in each of the periods are related primarily to our next generation towed streamer system and ongoing development of our Spectral Ai software suite.

Depreciation and amortization expense, which includes depreciation of equipment, furniture and fixtures and the amortization of intangible assets, decreased primarily attributable to assets becoming fully depreciated and amortized over the year. These costs were approximately $236,000 and $503,000 in the three and six-month periods ended July 31, 2024, respectively, as compared to approximately $302,000 and $635,000 in the three and six-month periods ended July 31, 2023, respectively.

### Interest Expense

Interest expense of approximately $163,000 and $367,000 in the three and six-months ended July 31, 2023, respectively, was primarily due to interest on the Loan. The Loan was repaid in fiscal 2024 in connection with the Sale of Klein (see note 10-"Notes Payable" and Note 2-"Sale of Subsidiary" for additional details).

### Other Expense

Other expense primarily relates to gains on the sale of certain ancillary equipment, scrap sales and other income.

### Provision for Income Taxes

For the three and six-months ended July 31, 2024, we reported tax expense of approximately $672,000 and $917,000, respectively, on pre-tax income from continuing operations of approximately $1.5 million and $2.7 million, respectively. For the three and six-month period ended July 31, 2023, our income tax expense was approximately $66,000 and $477,000, respectively, on pre-tax loss from continuing operations of approximately $692,000 and $405,000, respectively. These amounts differed from the result expected when applying the U.S. statutory rate of 21% to our income or loss from continuing operations before income taxes for the respective periods due primarily to the impact of income taxes accrued in certain foreign jurisdictions, primarily in Singapore, which do not have net operating losses available to offset taxable income, and because valuation allowances have been recorded against increases in our deferred tax assets. Valuation allowances have been provided against all deferred tax assets in the United States and several foreign jurisdictions.

### Liquidity and Capital Resources

The Company has a history of generating operating losses and negative cash from operating activities and has relied on cash from the sale of lease pool equipment and the sale of Preferred Stock and common stock for the past several years. However, the Company’s operating results improved significantly in fiscal 2024 as compared to fiscal 2023 and prior years, generating net income from operations and positive Adjusted EBITDA for the fiscal year ended January 31, 2024 and the three and six months ended July 31, 2024. In addition, the Company sold its Klein business on August 21, 2023, generating net proceeds of approximately $7.3 million after settlement of closing costs and all outstanding amounts due and owed, including principal, interest, and other charges, on the Company’s $3.75 million loan. The Sale of Klein increased the Company’s working capital and improved its liquidity situation.

As of July 31, 2024, the Company had working capital of approximately $20.3 million, including cash and cash equivalents of approximately $1.9 million, compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, as of January 31, 2024. The Company does not have a credit facility in place and depends on cash on hand, cash flows from operations, and potential sales of remaining lease pool equipment to satisfy its liquidity needs.

The Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, potential financing secured by company owned real property, disciplined working capital commitments, and potentially securing a credit facility or some other form of financing. In the three months ended July 31, 2024, the Company generated positive cash from operating activities in the amount of approximately $1.1 million.

In addition, management believes there are a number of other factors and actions available to the Company to address any liquidity needs, including the following:

- The Company has no obligations or agreements containing “maintenance type” financial covenants.
- The Company had working capital of approximately $20.3 million as of July 31, 2024, including cash of approximately $1.9 million.
- 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. In fiscal 2024, the Company eliminated two executive level positions and has made additional headcount reductions in fiscal 2025. Furthermore, additional reductions in operations, sales, and general and administrative headcount could be made, if deemed necessary by management.
- The Company had a backlog of orders related to the Seamap segment of approximately $26.2 million as of July 31, 2024, as well as a substantial pipeline of other prospects. Production for certain of these orders was in process and included in inventory as of July 31, 2024, thereby reducing the liquidity needed to complete the orders.
- On September 4, 2024 all outstanding shares of Preferred Stock were converted into common stock and retired. The Company issued approximately 6.6 million shares of common stock in connection with the conversion. Accordingly, the Company no longer has obligations regarding Preferred Stock dividends, including undeclared dividends from previous periods. The conversion of Preferred Stock into common stock was effected pursuant to an amendment to the Certificate of Designations, Preferences and Rights of the Preferred Stock. The amendment was approved by preferred stockholders at a virtual special meeting held on August 29, 2024 (see Note 16- “Subsequent Events” for additional details).
- In recent years, the Company has raised capital through the sale of common stock and Preferred Stock pursuant to the at-the-market program (the "ATM Offering Program") and underwritten offerings on Form S-1. Currently, the Company is not eligible to issue securities pursuant to Form S-3 and accordingly cannot sell securities pursuant to the ATM Offering Program. However, with the elimination of the Preferred Stock dividends in arrears, the Company may once again become eligible to utilize Form S-3. Additionally, the Company may sell securities pursuant to Form S-1 or in private transactions. Management expects to be able to raise further capital through these available means should the need arise.
- The Company owns unencumbered real estate near Huntsville, Texas which could be used to generate capital if needed through a mortgage or sale lease transaction. The Company demonstrated its ability to do this through a secured lending transaction in early fiscal 2024, which was repaid from the proceeds from the Sale of Klein. The appraised value of this property is approximately $5.0 million.

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 increase 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 additional investments such as in 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.

In order to fund future growth, we may explore sources of additional capital. Such sources include private or public issues of equity or debt securities, or a combination of such securities. Other sources could include secured debt financing, the sale of assets or investment from strategic industry participants.

The Company has deferred payment of quarterly dividends for seven fiscal quarters including the first and second quarters of fiscal 2025. Accumulated and undeclared dividends amount to approximately $7.6 million as of July 31, 2024. On September 4, 2024 all outstanding shares of the Company’s Series A Preferred Stock were exchanged for common stock and retired. The Company issued approximately 6.6 million shares of common stock in the transaction. Accordingly, the Company no longer has obligations regarding preferred stock dividends, including undeclared dividends from previous periods.

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

*(in thousands)*

|  | For the Six Months Ended July 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(3,695) | $(3,477) |
| Net cash provided by investing activities | 311 | 234 |
| Net cash provided by financing activities | — | 2,947 |
| Effect of changes in foreign exchange rates on cash and cash equivalents | (1) | 12 |
| Net decrease in cash and cash equivalents | $(3,385) | $(284) |

As of July 31, 2024, we had working capital of approximately $20.3

million, including cash and cash equivalents of approximately $1.9 million, as compared to working capital of approximately $18.1 million, including cash and cash equivalents of approximately $5.3 million, at January 31, 2024.

*Cash Flows from Operating Activities*. Net cash used in operating activities was approximately $3.7 million in the first six months of fiscal 2025 as compared to approximately $3.5 million in the first six months of fiscal 2024. The increase in net cash used in operating activities in the first six months of fiscal 2025 compared to the prior year period was due mainly to an increase in accounts receivable and inventories.

*Cash Flows from Investing Activities*. Cash provided by investing activities during the first six months of fiscal 2025 increased approximately $77,000 over the same period in fiscal 2024. The increase relates primarily to sales of other equipment.

*Cash Flows from Financing Activities*. Net cash provided by financing activities during the first six months of fiscal 2024 consisted of approximately $2.9 million of net proceeds related to short-term loans (see Note 10 - "Notes Payable" for additional details).

We have determined that the undistributed earnings of foreign subsidiaries are not deemed indefinitely reinvested outside of the United States as of July 31, 2024. Furthermore, we have concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial.

As of July 31, 2024, we had deposits in foreign banks equal to approximately $1.4 million, all of which we believe could be distributed to the United States without adverse tax consequences. However, in certain cases, the transfer of these funds may result in withholding taxes payable to foreign taxing authorities. If withholding taxes should become payable, we believe the amount of tax withheld would be immaterial.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

### Critical Accounting Estimates

Information regarding our critical accounting estimates is included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 31, 2024. There have been no material changes to our critical accounting estimates during the three- and six-month periods ended July 31, 2024.

## Market risk

As filed, 1,527 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 July 31, 2024, our consolidated cash and cash equivalents included foreign currency denominated amounts equivalent to approximately $511,000 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 $51,000 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 July 31, 2024, we had no debt.

## Controls and procedures

As filed, 2,305 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 July 31, 2024, due to a material weakness in our internal control over financial reporting relating to the existence of inventory that was disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

### Remediation

As previously described in Part II, Item 9A, "Controls and Procedures" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, we are implementing a remediation plan to address the material weakness in our internal controls over the existence of inventory. 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 July 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 763 characters.

*In addition to 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, 2024, 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, 2024. The risks described in our Annual Report on Form 10-K for the year ended January 31, 2024, 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 may also materially adversely affect our business, financial condition, or future results.*

Filed Sep 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-029059. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.