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Note 2 - Sale of Subsidiaries and Subsequent Events

6 Months Ended

Jul. 31, 2023

Sale of Subsidiaries and Subsequent Events [Text Block]

2. Sale of Subsidiary and Subsequent Events

On August 21, 2023, the Company sold its Klein Marine Services, Inc. subsidiary (“Klein”) pursuant to a Stock Purchase Agreement (the “SPA”) with General Oceans AS (“the Buyer"). In connection with the SPA, the Company granted the Buyer a license in its Spectral Ai software suite (“Spectral Ai”). The license is exclusive to the Buyer as it relates to side scan sonar. The Company and the Buyer also entered into a collaboration agreement for the further development of Spectral Ai and potentially other software projects. The foregoing transactions contemplated by the SPA are referred to as the “Sale of Klein”. The aggregate consideration to the Company consisted of a cash payment of $11.5 million, resulting in a gain of approximately $2.0 million that will be recorded in the quarter ended October 31, 2023. The SPA contains customary representation and warranties.

On August 22, 2023, following the closing of the Sale of Klein, all outstanding amounts due and owed, including principal, interest, and other charges, under the Loan were repaid in full and the Loan was terminated, and all liens and security interests granted thereunder were released and terminated (see Note 10 - "Notes Payable" for additional details).

The following unaudited pro forma condensed consolidated financial statements are intended to show how the Sale of Klein might have affected the historical financial statements of the Company if the Sale of Klein had been completed at an earlier time as indicated therein. The unaudited pro forma condensed consolidated balance sheet as of July 31, 2023, assumes that the transaction had occurred on July 31, 2023. The unaudited pro forma condensed consolidated statements of operations for the three and six months ended July 31, 2023, give effect to the transaction as if it had occurred as of February 1, 2023.The unaudited pro forma condensed consolidated financial information of the Company as of and for the three and six months ended July 31, 2023, and the notes related thereto, in each case giving effect to the Sale of Klein are as follows:

MIND Technology, Inc

Unaudited Pro Forma Condensed Consolidated Balance Sheet As of July 31, 2023

(in thousands, except per share data)

ASSETS	Historical MIND Technology (a)			Operations of Klein (b)				Pro Forma Adjustments				Pro-forma MIND Technology
Current assets:
Cash and cash equivalents		494			-				7,304		(e)		7,798
Accounts receivable, net of allowance for doubtful accounts of $ 504 as of July 31, 2023		7,143			(944	)	(c)		-				6,199
Inventories, net		15,651			(5,031	)	(c)		-				10,620
Prepaid expenses and other current assets		1,273			(312	)	(c)						961
Total current assets		24,561			(6,287	)			7,304				25,578
Property and equipment, net		3,620			(2,784	)	(c)		-				836
Operating lease right-of-use assets		1,626			-				-				1,626
Intangible assets, net		4,418			(1,193	)	(c)		-				3,225
Total assets		34,225			(10,264	)			7,304				31,265
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		2,459			(866	)	(c)		-				1,593
Deferred revenue		309			(10	)	(c)		-				299
Accrued expenses and other current liabilities		3,386			(690	)	(c)		-				2,696
Income taxes payable		1,585			-				-				1,585
Operating lease liabilities - current		903			-				-				903
Note payable, net		3,343			-				(3,343	)	(f)		-
Total current liabilities		11,985			(1,566	)			(3,343	)			7,076
Operating lease liabilities - non-current		723			-				-				723
Deferred tax liability		41			-				-				41
Total liabilities		12,749			(1,566	)			(3,343	)			7,840
Stockholders’ equity:
Preferred stock, $ 1.00 par value; 2,000 shares authorized; 1,683 shares issued and outstanding as of July 31, 2023		37,779			-				-				37,779
Common stock, $ 0.01 par value; 40,000 shares authorized; 15,721 shares issued as of July 31, 2023		157			-				-				157
Additional paid-in capital		129,738			-				-				129,738
Treasury stock, at cost ( 1,933 shares as of July 31, 2023)		(16,863	)		-				-				(16,863	)
Accumulated deficit		(129,369	)		(8,698	)	(g)		10,647		(g)		(127,420	)
Accumulated other comprehensive gain		34			-				-				34
Total stockholders’ equity		21,476			(8,698	)			10,647				23,425
Total liabilities and stockholders’ equity		34,225			(10,264	)			7,304				31,265

MIND Technology, Inc

Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six Months Ended July 31, 2023

(in thousands, except per share data)

	Historical MIND Technology (a)			Operations of Klein (b)				Pro Forma Adjustments			Pro-forma MIND Technology
Revenues:
Sale of marine technology products		21,336			(3,178	)	(d)					18,158
Total revenues		21,336			(3,178	)			-			18,158
Cost of sales:
Sale of marine technology products		12,652			(1,972	)	(d)		-			10,680
Total cost of sales		12,652			(1,972	)						10,680
Gross profit		8,684			(1,206	)			-			7,478
Operating expenses:
Selling, general and administrative		7,388			(1,199	)	(d)		-			6,189
Research and development		1,615			(737	)	(d)		-			878
Depreciation and amortization		940			(306	)	(d)					634
Total operating expenses		9,943			(2,242	)			-			7,701

Operating income (loss)		(1,259	)		1,036				-			(223	)
Other expense:
Other, net		20			(77	)	(d)		407	(h)		350
Total other income (expense)		20			(77	)			407			350
Income (loss) from continuing operations before income taxes		(1,239	)		959				407			127
Provision for income taxes		(495	)		(17	)	(d)					(512	)
Net (loss) income from continuing operations		(1,734	)		942				407			(385	)
Preferred stock dividends - declared		-										-
Preferred stock dividends - undeclared		(1,894	)		-				-			(1,894	)
Net loss attributable to common stockholders		(3,628	)		-				-			(2,279	)
Net loss per common share - Basic and Diluted		(0.26	)									(0.17	)
Shares used in computing net loss per common share:
Basic		13,791										13,791
Diluted		13,791										13,791

MIND Technology, Inc

Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Three Months Ended July 31, 2023

(in thousands, except per share data)

	Historical MIND Technology (a)			Operations of Klein (b)				Pro Forma Adjustments			Pro-forma MIND Technology
Revenues:
Sale of marine technology products		8,750			(1,190	)	(d)		-			7,560
Total revenues		8,750			(1,190	)			-			7,560
Cost of sales:
Sale of marine technology products		5,483			(864	)	(d)		-			4,619
Total cost of sales		5,483			(864	)						4,619
Gross profit		3,267			(326	)			-			2,941
Operating expenses:
Selling, general and administrative		3,514			(616	)	(d)		-			2,898
Research and development		842			(395	)	(d)		-			447
Depreciation and amortization		459			(157	)	(d)		-			302
Total operating expenses		4,815			(1,168	)			-			3,647

Operating income (loss)		(1,548	)		842				-			(706	)
Other expense:
Other, net		131			(98	)	(d)		204	(h)		237
Total other income (expense)		131			(98	)			204			237
Income (loss) from continuing operations before income taxes		(1,417	)		744				204			(469	)
Provision for income taxes		(77	)		(24	)	(d)		-			(101	)
Net loss from continuing operations		(1,494	)		720				204			(570	)
Preferred stock dividends - declared		-										-
Preferred stock dividends - undeclared		(947	)		-				-			(947	)
Net loss attributable to common stockholders		(2,441	)		-				-			(1,517	)
Net loss per common share - Basic and Diluted		(0.18	)									(0.11	)
Shares used in computing net loss per common share:
Basic		13,792										13,792
Diluted		13,792										13,792

The unaudited pro forma condensed consolidated financial statements reflect the following notes and adjustments:

(a) Reflects the condensed consolidated balance sheet as of July 31, 2023 and condensed consolidated statement of operations for the three and six months ended July 31, 2023 in the Form 10-Q.

(b) Reflects the consummation of the Sale of Klein in accordance with the terms of the SPA.

(c) Adjustments represent the disposition of assets and liabilities of the Klein operations.

(d) Adjustments represent the elimination of income and expenses of the Klein operations.

(e) To record the net cash proceeds from the Sale of Klein paid on the Closing Date of $11.5 million, less estimated closing costs, estimated pay-off of the Note Payable, and estimated transaction costs, primarily legal expenses and investment broker fees, associated with the sale, all of which were incurred as part of the consummation of the Sale of Klein.

(f) To record the pay-off of the Note Payable, net of prepaid interest and debt acquisition costs, due to Sachem Capital.

(g) Adjustments to accumulated deficit reflect the estimated gain on Sale of Klein. The estimated gain has not been reflected in the accompanying statements of operations as it is not related to continuing operations. The actual gain or loss on Sale of Klein will be recorded in the Company's financial statements for the quarter ending October 31, 2023, and will differ from this estimate.

(h) Reflects removal of interest expense that would not have been incurred if the Sale of Klein had been completed February 1, 2023.