Note 1 - Organization and Liquidity

9 Months Ended

Oct. 31, 2023

Notes to Financial Statements

Nature of Operations [Text Block]

1. Organization and Liquidity

MIND Technology, Inc., a Delaware corporation (the “Company”), through its wholly owned subsidiaries, Seamap Pte Ltd, MIND Maritime Acoustics, LLC, Seamap (Malaysia) Sdn Bhd and Seamap (UK) Ltd (collectively “Seamap”), designs, manufactures and sells a broad range of proprietary products for the seismic, hydrographic and offshore industries with product sales and support facilities based in Singapore, Malaysia, the United Kingdom and the state of Texas. Prior to July 31, 2020, the Company, through its wholly owned Canadian subsidiary, Mitcham Canada, ULC (“MCL”), its wholly owned Hungarian subsidiary, Mitcham Europe Ltd. (“MEL”), and its branch operations in Colombia, provided full-service equipment leasing, sales and service to the seismic industry worldwide (the “Leasing Business”). Effective July 31, 2020, the Leasing Business has been classified as held for sale and the financial results reported as discontinued operations (see Note 4 – “Discontinued Operations” for additional details). On August 21, 2023, the Company completed the sale of our Klein Marine Systems, Inc. subsidiary (“Klein”) (see Note 2-"Sale of Subsidiary" and Note 4-"Discontinued Operations" for additional details). The operations of Klein are included as part of the accompanying financial statements and are considered discontinued operations for the three- and nine-month periods ended  October 31, 2023 and 2022. Balance sheet amounts related to Klein as of January 31, 2023, have been presented as current and long-term assets of discontinued operations, Long-term assets of discontinued operations, and current liabilities of discontinued operations. All intercompany transactions and balances have been eliminated in consolidation.

These condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company has a history of generating losses and negative cash from operating activities and may not have access to sources of capital that were available in prior periods. In addition, emerging supply chain disruptions and recent volatility in oil prices have created significant uncertainty in the global economy which could have a material adverse effect on the Company’s business, financial position, results of operations and liquidity. Accordingly, substantial doubt has arisen regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company not be able to continue as a going concern.

Management has identified the following mitigating factors regarding adequate liquidity and capital resources to meet its obligations:

• The Company has no obligations or agreements containing “maintenance type” financial covenants.

• The Company had working capital of approximately $16.5 million as of October 31, 2023, including cash of approximately $5.6 million.

• Should revenues be less than projected, the Company believes it is able, and has plans in place, 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 other administrative positions, and 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 of approximately $37.4 million as of October 31, 2023. Production for certain of these orders was in process and included in inventory as of October 31, 2023, thereby reducing the liquidity needed to complete the orders.

• Although the Company declared a dividend on its Series A Preferred Stock ("Preferred Stock") in the third quarter of fiscal 2024, there were no dividends declared or paid on the Company’s Preferred Stock for the first or second quarter of fiscal 2024.The Company declared and paid the quarterly dividend on its Preferred Stock for the first quarter of fiscal 2023 but deferred all dividend payments for the subsequent quarters of fiscal 2023. The Company has the option to defer future quarterly dividend payments if deemed necessary. The dividends are cumulative and deferred dividends accrue for payment in the future. During a deferral period, the Company is prohibited from paying dividends or distributions on its common stock or redeeming any of those shares. Further, if the Company does not pay dividends on its Preferred Stock for six or more quarters, the holders of Preferred Stock will have the right to appoint two directors to the Company's board.

• In recent years, the Company has raised capital through the sale of Common Stock and Preferred Stock pursuant to the ATM Offering Program (as defined herein) 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, 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.

• Based on publicized transactions and preliminary discussions with potential funding sources, management believes that other sources of debt and equity financing are available.  Such sources could include private or public issues of equity or debt securities, or a combination of such securities. Other sources could include secured debt financing, sale-leaseback transactions on owned real estate or investment from strategic industry participants. There can be no assurance that any of these sources will be available to the Company, available in adequate amounts, or available under acceptable terms should the need arise.

• On August 21, 2023, the Company completed the Sale of Klein for consideration of $11.5 million in cash. 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 (see Note 10 - "Notes Payable" for additional details).  After transaction costs and repayment of the Loan, the Company received net proceeds from the Sale of Klein totaling approximately $7.3 million. The Sale of Klein increased the Company’s working capital and significantly improved its liquidity situation.

Notwithstanding the mitigating factors identified by management, substantial doubt remains regarding the Company's ability to meet its obligations as they arise over the next twelve months.