Mind Technology, Inc: Form 10-Q for the period ended Apr 30, 2025

Overview

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)

(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, despite a decline in revenues in the quarter ended April 30, 2025 as compared to the previous quarter and the comparable period in the prior fiscal year. Although we had a history of generating operating losses prior to fiscal 2024, we generated operating income in fiscal 2024 and fiscal 2025. This was due to increased demand within our primary markets and efforts to reduce costs and improve product margins.

The decline in revenue in the current period was, we believe, due to certain expected and unexpected factors. Delivery and recognition of a significant order of approximately $4.5 million was delayed, even though the manufacturing and assembly had been completed, because of the delay of certain third-party components. We expect this order to be delivered in the second quarter of fiscal 2026. Additionally, a significant number of miscellaneous orders, totaling almost $1.0 million, were completed and awaiting shipment as of the end of the period. However, for various reasons, the customers were unable to arrange for shipment and acceptance of the orders. Also, during the period our facility in Huntsville, Texas was undergoing expansion in order to handle an expected increase in activity and, as a result, repair and production activities were suspended for the majority of the period. We expect the expansion of the facility to be completed in the second quarter of fiscal 2026 and for repair and production operation to recommence, with a corresponding increase in revenue from this facility.

As of April 30, 2025, our backlog of firm orders was approximately $21.1 million, which increased from our backlog of approximately $16.9 million as of January 31, 2025. We believe a significant portion of our current backlog will be completed and shipped by the end of fiscal 2026. Additionally, we have a significant pipeline of pending and potential orders tin addition to our backlog of firm orders. We believe these orders provide good visibility for the balance in fiscal 2026 and into the next year. We have seen at least one expected order delayed; however, based on information from the related customer, we expect the delayed order to be received later this fiscal year. In addition, we have recently identified new opportunities for later this fiscal year and subsequent periods. 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 11- “Equity and Stock-Based Compensation” 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 2026 to be consistent with the revenue reported in fiscal 2025, despite the decline in the first quarter of 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;
• 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 marine survey and exploration markets. 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.

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:

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

In response to these, and other, developments we have prioritized certain strategic initiatives to exploit the opportunities that we perceive. These initiatives include adaption of our SeaLink solid streamer technology to:

• Alternative applications, such as hydrographic surveys for windfarm and carbon capture projects; and
• Maritime security applications.

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

General inflation levels have increased in recent years 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. Although these factors have had a negative impact on our costs, our revenues and results of operations have not been materially impacted by inflation or changing prices in the past two fiscal years.

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 months ended April 30, 2025 were approximately $7.9 million, compared to approximately $9.7 million for the three months ended April 30, 2024. The revenue decrease was primarily due to the delayed delivery of a significant order and other factors discussed above. For the three months ended April 30, 2025, we generated an operating loss of approximately $658,000, compared to operating income of approximately $730,000 for the three months ended April 30, 2024. The decrease in operating income in the current year was attributable to decreased revenues, and increased selling, general and administrative costs during the three months ended April 30, 2025. A more detailed explanation of these variations follows.

Revenues and Cost of Sales

Revenues and cost of sales for our Seamap business were as follows:

(in thousands)

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 so that our products can be installed. Accordingly, sales can significantly vary from one period to another. During the three month period ended April 30, 2025, approximately 29% of our revenues related to the sale of new systems with the remaining 71% related to “after market” activity such as the sale of spare parts, repairs and services. The gross profit and gross profit margins for Seamap were approximately $3.3 million and 42%, respectively, and $4.2 million and 44%, respectively, for the three month periods ended April 30, 2025, and April 30, 2024, respectively. The gross profit margin in first quarter of fiscal 2026 decreased from the prior year comparable period primarily due to lower absorption of fixed costs from lower revenues.

Operating Expenses

General and administrative expenses for the three months ended April 30, 2025, were approximately $3.4 million, compared to approximately $2.8 million for the three months ended April 30, 2024. The current period included certain items we consider to be non-recurring, including costs related to a restructuring our Seamap operations in the United Kingdom and tax planning and analysis arising from the preferred stock conversion in fiscal 2025. Also contributing to the increase was higher stock-based compensation and franchise tax expense.

Research and development costs were approximately $380,000, in the three month period ended April 30, 2025, compared to approximately $462,000, in the three month period ended April 30, 2024. Costs in each of the periods are related primarily to development of our next generation towed streamer system.

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 $225,000 and $267,000 in the three month periods ended April 30, 2025, and April 30, 2024, respectively.

Other Income

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

Provision for Income Taxes

For the three months ended April 30, 2025, our income tax expense was approximately $294,000 on a pre-tax loss of approximately $676,000. For the three month period ended April 30, 2024, our income tax expense was approximately $245,000 on pre-tax income of approximately $1.2 million. These amounts differed from the result expected when applying the U.S. statutory rate of 21% to our income or loss before income taxes for the respective periods due primarily to the impact of income taxes accrued in certain foreign jurisdictions, primarily 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 certain foreign jurisdictions, including Malaysia and the United Kingdom.

Liquidity and Capital Resources

Until recently, the Company had a history of generating operating losses and negative cash from operating activities and relied on cash from the sale of lease pool equipment and the sale of preferred stock and common stock. However, the Company generated net income from operations and positive Adjusted EBITDA for fiscal 2025 and fiscal 2024. Although the Company generated a net loss from operations for the three months ended April 30, 2025, cash provided by operating activities was approximately $4.1 million. We anticipate generating net income for fiscal 2026.

As of April 30, 2025, the Company had working capital of approximately $22.8 million, including cash and cash equivalents of approximately $9.2 million, compared to working capital of approximately $23.5 million, including cash and cash equivalents of approximately $5.3 million, as of January 31, 2025. 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. During the twelve month period ended April 30, 2025, the Company generated positive cash from operating activities in the amount of approximately $9.5 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 $22.8 million as of April 30, 2025, including cash of approximately $9.2 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 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 $21.1 million as of April 30, 2025, as well as a substantial pipeline of other prospects. Production for certain of these orders was in process and included in inventory as of April 30, 2025, 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 11- “Equity and Stock-Based Compensation” 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. In April 2025 the Company filed a registration statement on Form S-3, which was declared effective on May 1, 2025. The Company believes it could sell debt or equity securities pursuant to this registration statement via a new ATM Offering Program, or other means. 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 appraised value of this property is approximately $5.0 million.

In order to fund future growth, we may explore sources of additional capital, which could include secured debt financing, the sale of assets or investment from strategic industry participants.

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

(in thousands)

As of April 30, 2025, we had working capital of approximately $22.8 million, including cash and cash equivalents of approximately $9.2 million, as compared to working capital of approximately $23.5 million, including cash and cash equivalents of approximately $5.3 million, at January 31, 2025.

Cash Flows from Operating Activities. Net cash provided by operating activities was approximately $4.1 million in the first three months of fiscal 2026 as compared to cash used in operating activities of approximately $4.8 million in the first three months of fiscal 2025. The increase in net cash provided by operating activities was due mainly to collections on accounts receivable.

Cash Flows from Investing Activities. Net cash used in investing activities during the first three months of fiscal 2026 relates primarily to the purchase of assets and investment related to the expansion of our facility in Huntsville, Texas as discussed above, compared to cash provided by investing activities in the prior year period, which related primarily to proceeds from the sale of other assets.

Cash Flows from Financing Activities. For the three months ended April 30, 2025, and April 30, 2024, there were no activities related to financing.

We have determined that the undistributed earnings of foreign subsidiaries are not deemed indefinitely reinvested outside of the United States as of April 30, 2025. Furthermore, we have concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial.

As of April 30, 2025, we had deposits in foreign banks equal to approximately $9.0 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, 2025. There have been no material changes to our critical accounting estimates during the three-month period ended April 30, 2025.

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. As of April 30, 2025, our consolidated cash and cash equivalents included foreign currency denominated amounts equivalent to approximately $1.2 million 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 $120,000 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, 2025, we had no debt.

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 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 April 30, 2025 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

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, 2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, 2025, 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, 2025. The risks described in our Annual Report on Form 10-K for the year ended January 31, 2025, 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.