MIND TECHNOLOGY, INC. Overview
MIND Technology, Inc. , aDelaware corporation, formerlyMitcham Industries, Inc. , aTexas corporation, was incorporated in 1987. EffectiveAugust 3, 2020 we effectuated a reincorporation to the state ofDelaware , name change toMIND Technology, Inc. and increase in the number of shares of Common Stock and Preferred Stock authorized for issuance. See Note 16 - "Corporate Restructuring" to our condensed consolidated financial statements for additional details. Historically, we have operated in two segments,Marine Technology Products and Equipment Leasing . During the second quarter of fiscal 2021, our Board determined 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 condensed consolidated financial statements for more details. Revenue from the Marine Technology Products segment includes sales ofSeamap equipment and sales of Klein equipment. This segment operates from locations nearBristol, United Kingdom ,Salem, New Hampshire ,Huntsville, Texas ,Johor, Malaysia and inSingapore . DuringFebruary 2019 , the Company completed the sale of its Australian operations inBrisbane, Australia . See Note 14 - "Sale of Subsidiaries" to our condensed consolidated financial statements for additional details. The discontinued operations of theEquipment Leasing segment includes all leasing activity, sales of lease pool equipment and certain other equipment sales and services related to those operations. This business had been conducted from our locations inHuntsville, Texas ;Calgary, Canada ;Bogota, Colombia ; andBudapest, Hungary . This included the operations of our subsidiaries MCL, MEL and our branch inColombia . Management believes that the performance of our Marine Technology Products segment is indicated by revenues from equipment sales 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 withUnited States generally accepted accounting principles ("GAAP"), in the following table, as key indicators of our overall performance and liquidity. For the Three Months Ended For the Nine Months Ended October 31, October 31, 2020 2019 2020 2019
Reconciliation of Net loss from Continuing Operations to EBITDA and Adjusted EBITDA Net loss from Continuing Operations
$ (2,370)
Depreciation and amortization 662 639 2,092 1,914 Provision (benefit) for income taxes 109 (31) (79) (75) EBITDA from continuing operations (1) (1,599) (711) (8,680) (3,170) Non-cash foreign exchange losses 35 18 79 86 Stock-based compensation 113 270 562 612 Impairment of intangible assets - - 2,531 - Adjusted EBITDA from continuing operations (1)$ (1,451) $ (423) $ (5,508) $ (2,472) Reconciliation ofNet Cash Used in Operating Activities to EBITDA Net cash used in operating activities$ (2,237)
(113) (270) (562) (612)
Provision for inventory obsolescence (22) (23) (67) (23)
Changes in accounts receivable (current and
long-term) 1,003 2,396 (2,178) 916
Interest paid 11 13 34 40
Taxes paid, net of refunds (27) 143 219 325
Gross profit from sale of other equipment 303 - 303 -
Changes in inventory (1,462) 494 (762) 3,162
Changes in accounts payable, accrued expenses and
other current liabilities and deferred revenue 685 (1,051) 1,441 (1,935)
Impairment of intangible assets - - (2,531) -
Changes in prepaid expenses and other current and
long-term assets (162) (240) (631) (145)
Foreign exchange (gains) losses, net - (241) - (230)
Reserve against non-current prepaid income taxes - 137 - -
Other 422 (1,324) 857 (421)
EBITDA from continuing operations (1) $ (1,599) $ (711) $ (8,680) $ (3,170)
18-------------------------------------------------------------------------------- Table of Contents (1)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, non-cash costs of lease pool equipment sales, impairment of intangible assets, stock-based compensation 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. These non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, 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 and finance working capital requirements. 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 segment, 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, which provide marine operators more precise control of exploration tools; (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 consist primarily of leasing seismic data acquisition equipment primarily to seismic data acquisition companies conducting land surveys worldwide. 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 sell lease pool equipment. These sales are transacted when we have equipment for which we do not have near term needs in our leasing business or which is otherwise considered excess. Additionally, when equipment that has been leased to a customer is lost or destroyed, the customer is 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 Item 1A-- "Risk Factors." Business Outlook The COVID-19 pandemic has created significant uncertainty in the global economy, which could have an adverse effect on the Company's business, financial position, results of operations and liquidity. The time frame for which disruptions related to the pandemic will continue is uncertain, as is the magnitude of any adverse impacts. We were required to temporarily shut-down our facilities inMalaysia andSingapore onMarch 17 andApril 7 , respectively. TheMalaysia facility was reopened onApril 21, 2020 with approximately 50% of its normal staff and resumed operations with 100% of its employees onMay 4, 2020 . InSingapore , we were able to continue limited shipping and receiving operations during the shutdown and were able to resume manufacturing operations onJune 1, 2020 . Our other facilities have been allowed to operate, although at reduced efficiencies as certain employees have worked remotely. Furthermore, travel restrictions resulting from the COVID-19 pandemic have impacted our ability to visit customers, conduct product demonstrations and visit our various operating locations. These disruptions have had, and we expect they will continue to have, a negative effect on our business; however, the duration and magnitude of these disruptions are uncertain. Management believes that the negative impact will be temporary, but there can be no assurance of that. Additionally, oil prices declined sharply during the first quarter of fiscal 2021 in response to the economic effects of the COVID-19 pandemic and the announcement ofSaudi Arabia's abandonment of output restraints. Oil prices have partially recovered recently, but the decline could have an adverse effect on our customers in the energy industry, which could in turn cause them to cancel or delay projects and orders with us and could impair their ability to make payments to us. However, to date we have had no significant orders cancelled and continue to respond to inquiries from customers in all market segments, including energy related. Many of our marine customers have recently indicated increases in backlog, which we believe is a positive indication of a recovery later in fiscal 2021 and beyond. The general economic environment concerning the energy industry could also impact our ability to realize value from our discontinued land seismic leasing operations. In recent months, we have continued to experience significant inquiries and bid activity and have conducted a number of demonstrations for various customers, including theU.S. Navy . However, we believe many customers have delayed purchase commitments due to the uncertainty in the global economy. Accordingly, we have not experienced the number of firm orders that we would have normally expected 19 -------------------------------------------------------------------------------- Table of Contents from the current level of inquiries and bid activity. Recently we have received orders for new seismic source controllers or upgrades of systems that we previously sold. Our GunLink seismic source controllers have certain capabilities that we believe are unique and that increasingly certain of these capabilities are required of operators of seismic exploration vessels. Based on this, and on discussions with current and potential customers, we believe demand for our GunLink source controllers will increase in coming months, although there can be no assurance of this. As ofOctober 31, 2020 , our backlog of firm orders for our Marine Technology Products segment was approximately$8.2 million , as compared to approximately$7.6 million as ofJuly 31, 2020 and$8.9 million as ofJanuary 31, 2020 . We expect a significant number of these orders to be completed within fiscal 2021 and therefore expect revenues from continuing operation in the fourth quarter of fiscal 2021 to exceed those of the third quarter of this year. 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 segment - •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. In fiscal 2020, we introduced new sonar technology that we refer to as "MA-X". We believe this to be revolutionary sonar technology that will significantly expand the opportunities available to us. We have received and delivered orders related to this new technology and continue to respond to orders and inquiries related to this technology, including some for military related applications. While the MA-X technology has not had a material impact on our results of operations to date, we believe this technology will result in significant new opportunities for us. Also, in fiscal 2020, we received an order from a manufacturer of unmanned underwater vehicles ("UUV's") for a MA-X related product to be installed on one of their UUV's. This request relates to a potentially significant program for theU.S. Navy . While this specific order may not have a material impact on our results of operations, we believe this, and similar opportunities could have a material impact on our operations. During the current fiscal year we also introduced technology based on MA-X specifically focused on the rapidly growing autonomous vehicle market and entered into an agreement with a major European defense contractor for the joint offering of synthetic aperture sonar ("SAS"). We believe that each of these initiatives can significantly expand our serviceable market. We also are 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 number 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 a number of years. In addition, we are pursuing a number of opportunities related to activity within the marine seismic industry. Certain projects, for which we anticipate providing equipment, including source controllers, have not progressed as rapidly as we had anticipated and had been indicated by our customers. Based on information from our customers, we believe these projects remain viable and will proceed. However, the timing of orders and delivery of products remain uncertain. We believe there are certain developments within the marine technology industry which 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 systems specifically for unmanned vehicles, including integration of our MA-X technology. 20 -------------------------------------------------------------------------------- Table of Contents •Development of SAS sonar systems in cooperation with a major European defense contractor. •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 COVID-19 pandemic and the current economic environment we have taken steps to reduce expenses including the layoff or furloughing of certain employees and contractors and the deferral of other expenditures. Should the effects of the pandemic and low commodity prices 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. During fiscal 2021, the Company received aSingapore 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 COVID-19 pandemic. Similar to theSingapore government grant our operations in theUnited Kingdom were also recipients of the government backed Job Retention Scheme. Proceeds from the Job Support Scheme and the Job Retention Scheme were approximately$372,000 and approximately$119,000 , respectively. Continued use of these government job schemes will be dependent on availability and our ability to qualify for the assistance. Our revenues and results of operations have not been materially impacted by inflation or changing prices in the past three fiscal years, except as described above. Results of Continuing Operations Revenues for the three months endedOctober 31, 2020 were approximately$6.6 million compared to approximately$8.1 million for the three months endedOctober 31, 2019 . For the nine months endedOctober 31, 2020 , revenues were approximately$14.8 million , compared to approximately$21.0 million for the nine months endedOctober 31, 2019 . We believe the decrease in fiscal 2021 periods is due in large part to restrictions on commerce as a result of the global pandemic. For the three months endedOctober 31, 2020 , we generated an operating loss of approximately$2.3 million , compared to an operating loss of approximately$1.3 million for the three months endedOctober 31, 2019 . For the nine months endedOctober 31, 2020 , we generated an operating loss of approximately$10.8 million , compared to an operating loss of approximately$5.2 million for the nine months endedOctober 31, 2019 . The increase in operating loss during the three and nine month periods endedOctober 31, 2020 is primarily attributable to lower revenue contribution and an increase in research and development costs and in the nine-month period, goodwill impairment related to ourSeamap reporting unit. A more detailed explanation of these variations follows. 21 -------------------------------------------------------------------------------- Table of Contents Revenues and Cost of Sales Revenues and cost of sales for our Marine Technology Products segment were as follows: Three Months Ended Nine Months Ended October 31, October 31, 2020 2019 2020 2019 (in thousands) (in thousands) Revenues: Seamap$ 5,400 $ 5,801 $ 11,693 $ 15,198 Klein 1,150 2,381 3,394 5,783 SAP - - - 101 Intra-segment sales - (39) (242) (43) 6,550 8,143 14,845 21,039 Cost of sales: Seamap 3,179 3,291 7,354 8,148 Klein 1,097 1,576 2,958 4,278 SAP - - - 95 Intra-segment sales - (39) (242) (43) 4,276 4,828 10,070 12,478 Gross profit$ 2,274 $ 3,315 $ 4,775 $ 8,561 Gross profit margin 35 % 41 % 32 % 41 % A significant portion ofSeamap'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. We believe the decline inSeamap revenues is due in large part to temporary delays caused by the COVID-19 pandemic, including the temporary shutdown of our production facilities. As discussed in previous periods, a particular order of approximately$1.8 million was delayed from the first quarter of fiscal 2021 as due to travel restrictions, the customer was unable to arrange shipment and take delivery of the equipment. This order was shipped and recognized in the third quarter of fiscal 2021. The gross profit and gross profit margins generated by sales ofSeamap products were approximately$2.2 million and 41% in the third quarter of fiscal 2021 and approximately$2.5 million and 43% in the third quarter of fiscal 2020. The decrease in gross profit margins between the periods is due primarily to lower manufacturing activity, which resulted in lower overhead absorption during the period. Revenue from the sale of Klein products was approximately$1.2 million for the third quarter of fiscal 2021 versus approximately$2.4 million in the prior year period. We believe the decline in revenue is partially due to the effects of the COVID-19 pandemic. Gross profit was approximately$53,000 and$805,000 for the third quarter of fiscal 2021 and 2020, respectively. The decline in gross profit margin in the third quarter of fiscal 2021 was due mainly to lower absorption of overhead costs and higher product testing and sustaining engineering activity during the period. Operating Expenses General and administrative expenses for the three months endedOctober 31, 2020 decreased to approximately$3.0 million from approximately$3.4 million for the three months endedOctober 31, 2019 . General and administrative expenses for the nine months endedOctober 31, 2020 decreased approximately$1.6 million to$8.9 million , compared to$10.5 million for the nine months endedOctober 31, 2019 . The decrease in general and administrative expenses is primarily due to reduced travel and entertainment expense as a result of restrictions due 22 -------------------------------------------------------------------------------- Table of Contents to the global pandemic, reductions in salary and rent costs due to the offset of government subsidies received in several international locations and the impact of various strategic restructuring activities implemented in fiscal 2020. In recognition of the need to control costs in the current environment, effectiveMay 1, 2020 ,Robert P. Capps , Co-Chief Executive Officer, Executive Vice President of Finance and Chief Financial Officer, andGuy Malden , Co-Chief Executive Officer and Executive Vice President of Marine Systems, both agreed to a temporary 20% reduction in base salary. In addition, our Board has agreed to a temporary 25% reduction in cash compensation. Research and development costs in the third quarter and first nine months of fiscal 2021 increased to approximately$912,000 and$2.1 million , respectively, compared to approximately$629,000 and$1.4 million in the three and nine months endedOctober 31, 2019 , respectively. The increase in these costs reflects activity in the strategic initiatives noted above, including the deployment of a passive array test system during the third quarter of fiscal 2021. Depreciation and amortization expenses include depreciation of equipment, furniture and fixtures and the amortization of intangible assets. These costs were approximately$662,000 and$2.1 million in the three and nine month periods endedOctober 31, 2020 , respectively, as compared to approximately$604,000 and$1.8 million in the three and nine month periods endedOctober 31, 2019 , respectively. The higher depreciation and amortization expense in the three and nine month periods of fiscal 2021 is due primarily to asset additions associated with the start-up of our Malaysian manufacturing facility and the amortization of intangible assets related to a recent software upgrade. Due to deterioration in macroeconomic factors and a decline in the market value of our equity securities subsequent toJanuary 31, 2020 , we concluded that goodwill was impaired and recorded an impairment charge of approximately$2.5 million in the first quarter of fiscal 2021. The goodwill impairment indicated that there was potential impairment of our other intangible and long-lived assets. Accordingly, we performed an analysis of the undiscounted future cash flow from those assets and concluded that there was no impairment. Subsequent toApril 30, 2020 there have been no substantive indicators of additional impairment. Provision for Income Taxes For the three months endedOctober 31, 2020 , we reported tax expense of approximately$109,000 , and for the three months endedOctober 31, 2019 we reported a tax benefit of approximately$31,000 . For the nine month periods endedOctober 31, 2020 andOctober 31, 2019 we reported a tax benefit of approximately$79,000 and$75,000 , respectively. Our recorded tax expense and benefit in the three and nine-month periods endedOctober 31, 2020 and 2019, are less than the expense or benefit that would be derived by applying the applicable statutory rate to loss before tax from continuing operations in each of these periods, due mainly to the effect of permanent differences between book and taxable income, including impairment expense, and recording valuation allowances against increases in our deferred tax assets. 23 -------------------------------------------------------------------------------- Table of Contents Results of Discontinued Operations Revenues and cost of sales from ourEquipment Leasing segment were comprised of the following: For the Three Months Ended October 31, For the Nine Months Ended October 31, 2020 2019 2020 2019 Revenues: Equipment leasing 313 2,202 3,510 6,757 Lease pool equipment sales - 220 2,010 1,095 Other equipment sales - 66 211 527 313 2,488 5,731 8,379 Cost of sales: Direct costs-equipment leasing 263 568 1,870 2,221 Lease pool depreciation - 1,091 1,698 3,503 Cost of lease pool equipment sales - 16 684 109 Cost of other equipment sales - 77 137 433 263 1,752 4,389 6,266 Gross profit (loss) 50 736 1,342 2,113 Operating expenses: Selling, general and administrative 1,146 1,305 4,322 4,195 Provision for doubtful accounts - - 470 - Depreciation and amortization 43 41 128 136 Total operating expenses 1,189 1,346 4,920 4,331 Operating loss (1,139) (610) (3,578) (2,218) Other income (expenses) (75) (8) - (114) Loss on disposal (including$2,745 of cumulative translation loss) - - (1,859) - Loss before income taxes (1,214) (618) (5,437) (2,332) Provision for income taxes (6) (91) (706) (238) Net loss (1,220) (709) (6,143) (2,570) 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 individual lease pool assets, but treat any proceeds from such transactions as a reduction in the carrying value of the lease pool. Revenue from discontinued operations during the third quarter of fiscal 2021 decreased approximately 87% to$313,000 compared to$2.5 million for the third quarter of fiscal 2020 and decreased approximately$2.6 million , or 32% in the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020. The reduction in revenue is due to lowerEquipment Leasing activity, primarily we believe as a result of the global pandemic, the decision to exit the Leasing Business and the change in treatment of lease pool sales as discussed above. Direct costs related toEquipment Leasing dropped to approximately$263,000 for the third quarter of fiscal year 2021 from approximately$568,000 reported in the same period for 2019. A significant portion of direct costs are generally fixed and therefore do not fluctuate with the level of leasing revenue. However, these costs also include sub-lease payments to certain OEM's under revenue sharing arrangements which do fluctuate with the level of leasing revenue. For the three month period endedOctober 31, 2020 lease pool depreciation decreased approximately$1.1 million from the three months endedOctober 31, 2021 due to the fact that we are no longer recording lease pool depreciation on discontinued operations. Selling, general and administrative costs related to the Leasing Business decreased in the three months endedOctober 31, 2020 as compared to the same period one year ago due to cost reduction efforts and a decline in activity. These costs increased during the nine months endedOctober 31, 2020 as compared to the prior year period. The increase in the nine-month period was due primarily to accrued severance and other costs related to the decision to exit the Leasing Business The loss on disposal of approximately$1.9 million reflects the amount by which the unadjusted carrying value of the net assets of the Leasing Business exceed the estimated proceeds of the planned sale of the business. The unadjusted carrying value of the Leasing Business includes approximately$2.7 million of cumulative translation adjustment which has historically been recorded in Accumulated Other Comprehensive Loss, a component of equity. Our provision for income taxes for the three and nine months endedOctober 31, 2020 are approximately$6,000 and$706,000 , respectively, on loss before income tax of approximately$1.2 million and$5.4 million for the three and nine month periods, respectively. Our provision varies from the expected provision based on theU.S. statutory rate due primarily to the effect of foreign withholding taxes, and because we have recorded valuation allowances against the increase in our deferred tax assets in the respective periods. 24 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources As discussed above, the COVID-19 pandemic and the decline in oil prices has created significant uncertainty in the global economy, which could have an adverse effect on our business, financial position, results of operations and liquidity. The period of time for which pandemic related disruptions will continue remains uncertain, as does the magnitude of any adverse impacts. We believe that any negative impacts will be temporary, but there can be no assurance of that. The Company has a history of losses, has had negative cash from operating activities in each of the last two fiscal years and its cash balance as ofOctober 31, 2020 is lower than atJanuary 31, 2020 . For the past three years, the Company has generated significant cash from the sale of preferred stock pursuant to the 1st ATM program. The 1st ATM program has been completed and no further preferred shares can be sold pursuant to it. However, the Company has established a 2nd ATM program under which we may sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock. 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 that can be taken to address these uncertainties, 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$20.7 million as ofOctober 31, 2020 , including cash of approximately$2.7 million , which is a decrease from approximately$3.1 million of cash atJanuary 31, 2020 . •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. Certain cost reduction measures have been implemented, the effects of which are expected to be reflected in future periods. •The majority of the Company's costs are variable in nature, such as raw materials and personnel related costs. The Company has terminated or furloughed certain employees and contractors. •Despite the temporary suspension of operations inMalaysia andSingapore earlier this year, operations have continued uninterrupted at other locations. Certain of these operations have been deemed "essential businesses" by authorities. However, there can be no assurance that further suspensions will not occur in the future. •The Company has a backlog of orders of approximately$8.2 million as ofOctober 31, 2020 . •The Company received approximately$1.6 million inU.S. government sponsored loans pursuant to the PPP and has received lesser amounts of government grants in several foreign jurisdictions. The PPP loans are in the form of two-year promissory notes. The Company has submitted an application for the forgiveness of the loans and management believes a significant portion of the$1.6 million PPP loan will be forgiven under the terms of the PPP. •Management expects to generate cash from the sale of the Leasing Business or the related underlying assets and has done so in recent periods. •The Company has declared and paid the quarterly dividend on its Preferred Stock for the quarter endingOctober 31, 2020 , but such quarterly dividends could be suspended in the future. •InJuly 2020 , the Company received shareholder approval and effectiveAugust 2020 increased the authorized number shares of common and preferred shares available for issuance. During the third quarter of fiscal 2021 we initiated the 2nd ATM program providing for the sale of up to 500,000 shares of Preferred Stock and 5,000,000 shares of Common Stock. During the third quarter of fiscal 2021, we sold and received net proceeds of approximately$1.3 million from the sale of Common Stock pursuant to the 2nd ATM program. •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 three fiscal years have been proceeds from issuances of preferred stock and from the sale of lease pool equipment. Our Preferred Stock has been issued in theJune 2016 offering, as consideration to MHI and in the 1st ATM program. 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. ThroughJanuary 31, 2020 , we have issued 994,046 shares of our Preferred Stock. The 994,046 shares represent 100% of the Preferred Stock available for sale under the 1st ATM program. Under our Amended and Restated Certificate of Incorporation, we have 2,000,000 shares of preferred stock and 40,000,000 shares of common stock authorized which we believe provides capacity for subsequent issues of common or preferred stock. During the three months endedOctober 31, 2020 the Company sold 676,283 shares of Common Stock under the 2nd ATM program, resulting in net proceeds to the Company of approximately$1.3 million . 25 -------------------------------------------------------------------------------- Table of Contents The following table sets forth selected historical information regarding cash flows from our Consolidated Statements of Cash Flows: For the Nine Months Ended October 31, 2020 2019 (in thousands) Net cash used in operating activities$ (4,803) $ (4,247) Net cash provided by (used in) investing activities 2,570 (1,178) Net cash provided by financing activities 1,780 744
Effect of changes in foreign exchange rates on cash and cash equivalents
(117) (69)
Net decrease in cash and cash equivalents $ (570) $ (4,750)
As of October 31, 2020 , we had working capital of approximately $20.7 million ,
including cash and cash equivalents and restricted cash of approximately
$2.7 million , as compared to working capital of approximately $31.0 million ,
including cash and cash equivalents and restricted cash of approximately
$3.2 million , at January 31, 2020 . Our working capital decreased during the
first nine months of fiscal 2021 as compared to January 31, 2020 due primarily
to a decrease in cash and cash equivalents, reductions in accounts receivable
and an increase in accounts payable.
Cash Flows from Operating Activities. Net cash used in operating activities was
approximately $4.8 million in the first nine months of fiscal 2021 as compared
to approximately $4.2 million in the first nine months of fiscal 2020. The
decrease between the two periods resulted primarily from changes in working
capital items such as cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities.
Cash Flows from Investing Activities. Cash provided from investing activities
increased during the first nine months of fiscal 2021 compared to the same
period in the prior year. The increase is primarily due to proceeds from sale
the of lease pool equipment and the sale of assets held for sale.
In the first nine months of fiscal 2021 proceeds from the sale of lease pool
equipment and assets held for sale totaled approximately $2.7 million compared
to approximately $1.4 million in the first nine months of fiscal 2020. Due to
the decision to exit the Leasing Business we are currently seeking to sell all
of the remaining equipment from our lease pool. However, there is no guarantee
additional sales of lease pool equipment will occur. Accordingly, cash flow from
the sale of lease pool equipment is unpredictable. Proceeds from any additional
sales of lease pool equipment will be deployed in other areas of our business or
used for general corporate purposes..
Cash Flows from Financing Activities. Net cash provided by financing activities
in the first nine months of fiscal 2021 consisted of approximately $1.6 million
of proceeds from the PPP Loans, approximately $1.3 million of proceeds from
sales of Common Stock, offset by approximately $1.1 million of preferred stock
dividend payments, as compared to approximately $2.2 million of proceeds from
sales of Preferred Stock, offset by approximately $1.4 million of preferred
stock dividend payments in the prior year period. We believe that a significant
portion of the PPP Loans may be forgiven, and we have submitted applications for
the forgiveness of the Loans. However, there can be no assurance as to the
amount of the Loans that will be forgiven, if any. As of October 31, 2020 , there
were 994,046 shares of Preferred Stock outstanding, which represents 100% of the
Preferred Stock available for sale through our 1st ATM program. Based on the
Preferred Stock outstanding at October 31, 2020 , annual dividend requirements
are approximately $2.2 million . In August 2020 the Company effectuated a
shareholder approved reincorporation to the state of Delaware , name change to
MIND Technology, Inc. and increase in the number of shares of common stock and
preferred stock authorized for issuance. See Note 16 - "Corporate Restructuring"
to our condensed consolidated financial statements for additional details. The
Company may issue up to 40,000,000 shares of Common Stock and 2,000,000 shares
of Preferred Stock. Management believes this provides significant additional
financing flexibility, including the capacity for subsequent issues of Common
Stock or Preferred Stock. In September 2020 we entered the 2nd Equity
Distribution Agreement with the Agent with economic terms essentially identical
to the initial agreement. Pursuant to the 2nd Equity Distribution Agreement, the
Company may sell up to 500,000 shares of Preferred Stock and 5,000,000 shares of
Common Stock through the 2nd ATM program. During the three months ended October
31, 2020 the Company sold 676,283 shares of Commons Stock under the 2nd ATM
program, resulting in net proceeds to the Company of approximately $1.3 million .
Compensation to the Agent during this period was approximately $30,500 , none of
which was received by the Non-Executive Chairman of the Board.
We currently do not have a line of credit or other bank credit facilities. From
time to time, we may engage in discussions with one or more commercial banks
regarding establishing a credit facility or facilities. However, there can be no
assurance that we will be able to establish any such facilities if and when
needed and to the extent required, on acceptable terms or at all. We would
intend to use such facilities for short-term working capital needs and to
support letter of credit requirements. From time to time we are required to
provide performance bonds related to the sale and delivery of new equipment.
These bonds are normally provided by insurance companies, surety companies or
local banks. In some cases, the party issuing the bond requires that we post
collateral to secure our obligations under the bonds.
As of October 31, 2020 , we had deposits in foreign banks consisting of both U.S.
dollar and foreign currency deposits equal to approximately $1.9 million . We
believe all $1.9 million of these deposits could be distributed to the United
States without any adverse tax consequences.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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