10-Q 1 mind10q073119.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-13490 
 
MITCHAM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
Texas
 
76-0210849
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2002 Timberloch Place
Suite 400
The Woodlands, Texas 77380
(Address of principal executive offices, including Zip Code)
(936) 291-2277
(Registrant’s telephone number, including area code) 
 
Title of each class
Trading Symbol (s)
Name of each exchange on which registered
Common Stock - $0.01 par value per share
MIND
The NASDAQ Stock Market LLC
Series A Preferred Stock - $1.00 par value per share
MINDP
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
 
  
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,128,399 shares of common stock, $0.01 par value, were outstanding as of September 3, 2019.
 



MITCHAM INDUSTRIES, INC.
Table of Contents
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 


ii


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
 
July 31, 2019
 
January 31, 2019
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
7,489

 
$
9,389

Restricted cash
150

 
160

Accounts receivable, net of allowance for doubtful accounts of $2,073 and $2,113
at July 31, 2019 and January 31, 2019, respectively
10,649

 
12,082

Inventories, net
13,115

 
10,774

Prepaid expenses and other current assets
3,323

 
1,735

Assets held for sale

 
2,202

Total current assets
34,726

 
36,342

Seismic equipment lease pool and property and equipment, net
11,841

 
14,155

Operating lease right-of-use assets
2,738

 

Intangible assets, net
9,909

 
10,495

Goodwill
2,531

 
2,531

Deferred tax asset
68

 
68

Long-term receivables, net of allowance for doubtful accounts of $- at
July 31, 2019 and January 31, 2019
90

 
712

Other assets
1,144

 
712

Long-term assets held for sale

 
286

Total assets
$
63,047

 
$
65,301

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
1,977

 
$
1,534

Deferred revenue
405

 
1,040

Accrued expenses and other current liabilities
4,650

 
3,738

Income taxes payable
177

 
224

Operating lease liabilities - current
720

 

Liabilities held for sale

 
892

Total current liabilities
7,929

 
7,428

Operating lease liabilities - non-current
2,018

 

Other non-current liabilities
1,086

 
1,195

Total liabilities
11,033

 
8,623

Shareholders’ equity:
 
 
 
Preferred stock, $1.00 par value; 1,000 shares authorized; 917 and 830 shares issued and
outstanding at July 31, 2019 and January 31, 2019, respectively
20,310

 
18,330

Common stock, $0.01 par value; 20,000 shares authorized; 14,058 and 14,049 shares issued at
July 31, 2019 and January 31, 2019, respectively
141

 
140

Additional paid-in capital
123,452

 
123,085

Treasury stock, at cost (1,929 shares at July 31, 2019 and January 31, 2019)
(16,860
)
 
(16,860
)
Accumulated deficit
(70,494
)
 
(63,973
)
Accumulated other comprehensive loss
(4,535
)
 
(4,044
)
Total shareholders’ equity
52,014

 
56,678

Total liabilities and shareholders’ equity
$
63,047

 
$
65,301

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
 
For the Three Months Ended July 31,
 
For the Six Months Ended July 31,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Sale of marine technology products
 
$
6,723

 
$
5,877

 
$
12,700

 
$
9,443

Equipment leasing
 
1,374

 
1,630

 
4,697

 
4,327

Sale of lease pool equipment and other equipment
 
801

 
843

 
1,358

 
2,193

Total revenues
 
8,898

 
8,350

 
18,755

 
15,963

Cost of sales:
 
 
 
 
 
 
 
 
Sale of marine technology products
 
3,887

 
3,216

 
7,342

 
5,302

Equipment leasing (including lease pool depreciation of $1,143 and $2,445 for the three months ended July 31, 2019 and 2018, respectively, and $2,589 and $5,099 for the six months ended July 31, 2019 and 2018 respectively)
 
1,880

 
3,242

 
4,291

 
6,824

Equipment sales
 
249

 
32

 
499

 
732

Total cost of sales
 
6,016

 
6,490

 
12,132

 
12,858

Gross profit
 
2,882

 
1,860

 
6,623

 
3,105

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general and administrative
 
4,795

 
5,504

 
10,027

 
11,134

Research and development
 
498

 
312

 
813

 
682

Provision for doubtful accounts
 

 

 

 
200

Depreciation and amortization
 
651

 
620

 
1,301

 
1,237

Total operating expenses
 
5,944

 
6,436

 
12,141

 
13,253

Operating loss
 
(3,062
)
 
(4,576
)
 
(5,518
)
 
(10,148
)
Other income (expense):
 
 
 
 
 
 
 
 
Interest (expense) income, net
 
(11
)
 
17

 
(22
)
 
35

Other, net
 
(15
)
 
55

 
92

 
141

Total other (expense) income
 
(26
)
 
72

 
70

 
176

Loss before income taxes
 
(3,088
)
 
(4,504
)
 
(5,448
)
 
(9,972
)
Provision for income taxes
 
(48
)
 
(85
)
 
(103
)
 
(522
)
Net loss
 
$
(3,136
)
 
$
(4,589
)
 
$
(5,551
)
 
$
(10,494
)
Preferred stock dividends
 
(499
)
 
(411
)
 
(970
)
 
(796
)
Net loss attributable to common shareholders
 
$
(3,635
)
 
$
(5,000
)
 
$
(6,521
)
 
$
(11,290
)
Net loss per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.30
)
 
$
(0.41
)
 
$
(0.54
)
 
$
(0.93
)
Diluted
 
$
(0.30
)
 
$
(0.41
)
 
$
(0.54
)
 
$
(0.93
)
Shares used in computing net loss per common share:
 
 
 
 
 
 
Basic
 
12,128

 
12,093

 
12,124

 
12,090

Diluted
 
12,128

 
12,093

 
12,124

 
12,090

The accompanying notes are an integral part of these condensed consolidated financial statements.


2


MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
 
 
 
For the Three Months Ended July 31,
 
For the Six Months Ended July 31,
 
 
2019
 
2018
 
2019
 
2018
Net loss attributable to common shareholders
 
$
(3,635
)
 
$
(5,000
)
 
$
(6,521
)
 
$
(11,290
)
Change in cumulative translation adjustment for sale of foreign entity
 

 

 
(331
)
 

Other changes in cumulative translation adjustment
 
(41
)
 
(142
)
 
(160
)
 
(379
)
Comprehensive loss attributable to common shareholders
 
$
(3,676
)
 
$
(5,142
)
 
$
(7,012
)
 
$
(11,669
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


3


MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
 
For the Six Months Ended July 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(5,551
)
 
$
(10,494
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
3,960

 
6,399

Stock-based compensation
 
341

 
368

Provision for doubtful accounts, net of charge offs
 

 
200

Provision for inventory obsolescence
 

 
115

Gross profit from sale of lease pool equipment
 
(780
)
 
(1,246
)
Deferred tax expense
 
135

 
(306
)
Changes in:
 
 
 
 
Accounts receivable
 
100

 
2,227

Unbilled revenue
 
3

 
(341
)
Inventories
 
(2,372
)
 
(1,406
)
Prepaid expenses and other current assets
 
(11
)
 
(1,435
)
Income taxes receivable and payable
 
(47
)
 
665

Accounts payable, accrued expenses and other current liabilities
 
632

 
(1,551
)
Deferred revenue
 
(50
)
 
942

Foreign exchange losses net of gains
 
137

 
64

Net cash used in operating activities
 
(3,503
)
 
(5,799
)
Cash flows from investing activities:
 
 
 
 
Purchases of seismic equipment held for lease
 
(230
)
 
(1,386
)
Acquisition of assets
 

 
(3,000
)
Purchases of property and equipment
 
(573
)
 
(487
)
Sale of used lease pool equipment
 
1,186

 
2,792

Sale of business, net of cash sold
 
239

 

Net cash provided by (used in) investing activities
 
622

 
(2,081
)
Cash flows from financing activities:
 
 
 
 
Proceeds from exercise of stock options
 
26

 

Net proceeds from preferred stock offering
 
1,980

 
5,450

Preferred stock dividends
 
(970
)
 
(796
)
Net cash provided by financing activities
 
1,036

 
4,654

Effect of changes in foreign exchange rates on cash, cash equivalents and restricted cash
 
(65
)
 
189

Net decrease in cash, cash equivalents and restricted cash
 
(1,910
)
 
(3,037
)
Cash, cash equivalents and restricted cash, beginning of period
 
9,549

 
10,146

Cash, cash equivalents and restricted cash, end of period
 
$
7,639

 
$
7,109

Supplemental cash flow information:
 
 
 
 
Interest paid
 
$
27

 
$
2

Income taxes paid
 
$
182

 
$
268

Purchases of seismic equipment held for lease in accounts payable at end of period
 
$

 
$
264

The accompanying notes are an integral part of these condensed consolidated financial statements.


4


MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(unaudited)
 
Common Stock
 
Preferred Stock
 
 
 
 
 

Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional
Paid-In
Capital
Treasury
Stock
 
 
Total
Balances, January 31, 2019
14,049

 
$
140

 
830

 
$
18,330

 
$
123,085

 
$
(16,860
)
 
$
(63,973
)
 
$
(4,044
)
 
$
56,678

Net loss

 

 

 

 

 

 
(2,415
)
 

 
(2,415
)
Foreign currency translation

 

 

 

 

 

 

 
(450
)
 
(450
)
Preferred stock offering

 

 
17

 
409

 

 

 

 

 
409

Preferred stock dividends

 

 

 

 

 

 
(471
)
 

 
(471
)
Stock-based compensation

 

 

 

 
172

 

 

 

 
172

Balances, April 30, 2019
14,049

 
$
140

 
847

 
$
18,739

 
$
123,257

 
$
(16,860
)
 
$
(66,859
)
 
$
(4,494
)
 
$
53,923

Net loss

 

 

 

 

 

 
(3,136
)
 

 
(3,136
)
Foreign currency translation

 

 

 

 

 

 

 
(41
)
 
(41
)
Equity Compensation
9

 
1

 

 

 
25

 

 

 

 
26

Preferred stock offering

 

 
70

 
1,571

 

 

 

 

 
1,571

Preferred stock dividends

 

 

 

 

 

 
(499
)
 

 
(499
)
Stock-based compensation

 

 

 

 
170

 

 

 

 
170

Balances, July 31, 2019
14,058

 
$
141

 
917

 
$
20,310

 
$
123,452

 
$
(16,860
)
 
$
(70,494
)
 
$
(4,535
)
 
$
52,014

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
 
 
 
 
Total
Balances, January 31, 2018
14,019

 
$
140

 
532

 
$
11,544

 
$
122,304

 
$
(16,860
)
 
$
(42,425
)
 
$
(8,854
)
 
$
65,849

Net loss

 

 

 

 

 

 
(5,905
)
 

 
(5,905
)
Foreign currency translation

 

 

 

 

 

 

 
(237
)
 
(237
)
Preferred stock offering

 

 
166

 
3,768

 

 

 

 

 
3,768

Preferred stock dividends

 

 

 

 

 

 
(385
)
 

 
(385
)
Stock-based compensation

 

 

 

 
126

 

 

 

 
126

Balances, April 30, 2018
14,019

 
$
140

 
698

 
$
15,312

 
$
122,430

 
$
(16,860
)
 
$
(48,715
)
 
$
(9,091
)
 
$
63,216

Net loss

 

 

 

 

 

 
(4,589
)
 

 
(4,589
)
Foreign currency translation

 

 

 

 

 

 

 
(141
)
 
(141
)
Restricted stock issued
30

 

 

 

 

 

 

 

 

Preferred stock offering

 

 
70

 
1,637

 

 

 

 

 
1,637

Preferred stock dividends

 

 

 

 

 

 
(411
)
 

 
(411
)
Stock-based compensation

 

 

 

 
242

 

 

 

 
242

Balances, July 31, 2018
14,049

 
$
140

 
768

 
$
16,949

 
$
122,672

 
$
(16,860
)
 
$
(53,715
)
 
$
(9,232
)
 
$
59,954


The accompanying notes are an integral part of these condensed consolidated financial statements.


5


MITCHAM INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization
Mitcham Industries, Inc., a Texas corporation (the “Company”), was incorporated in 1987. The Company, through its wholly owned subsidiary, Seamap International Holdings Pte, Ltd. (“Seamap”), and its wholly owned subsidiary, Klein Marine Systems, Inc. (“Klein”), 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 New Hampshire, Singapore, Malaysia, the United Kingdom and Huntsville, Texas. The Company, together with its wholly owned Canadian subsidiary, Mitcham Canada, ULC (“MCL”), its wholly owned Hungarian subsidiary, Mitcham Europe Ltd. (“MEL”), its wholly owned Singaporean subsidiary, Mitcham Marine Leasing Pte. Ltd. (“MML”), and its branch operations in Colombia, provides full-service equipment leasing, sales and service to the seismic industry worldwide. During the three months ended April 30, 2019 the Company sold its wholly owned Australian subsidiary Seismic Asia Pacific Pty Ltd (“SAP”) and in August 2018 the Company sold its wholly owned Russian subsidiary, Mitcham Seismic Eurasia LLC (“MSE”). See Note 13 to our condensed consolidated financial statements for more information. All intercompany transactions and balances have been eliminated in consolidation.
2. Basis of Presentation
The condensed consolidated balance sheet as of January 31, 2019 for the Company has been derived from audited consolidated financial statements. The unaudited interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2019. In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position as of July 31, 2019, the results of operations for the three and six months ended July 31, 2019 and 2018, the cash flows for the three and six months ended July 31, 2019 and 2018, and the statement of shareholders’ equity for the six months ended July 31, 2019 and 2018, have been included in these condensed consolidated financial statements. The foregoing interim results are not necessarily indicative of the results of operations to be expected for the full fiscal year ending January 31, 2020.
3. New Accounting Pronouncements
In August 2018, the SEC adopted amendments to simplify certain disclosure requirements, as set forth in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which includes a requirement for entities to present the changes in shareholders’ equity in the interim financial statements in quarterly reports on Form 10-Q. This amendment is effective for all filings made on or after November 5, 2018. In light of the timing of effectiveness of the amendment and proximity to the filing date for most filers’ quarterly reports, the SEC has allowed for a filer’s first presentation of the changes in shareholders’ equity to be included in its Form 10-Q for the quarter that begins after the effective date. The Company adopted the SEC’s amendment to interim disclosures in the first quarter of fiscal year 2020 and has presented the changes in shareholders’ equity on an interim basis.
In February 2016, the Financial Accounting Standards Board's ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) as modified by subsequently issued ASUs 2018-01, 2018-10, 2018-11 and 2018-20. The Company adopted the standard effective February 1, 2019. We have elected to apply the current period transition approach as introduced by ASU 2018-11 for our transition at February 1, 2019 and we have elected to apply several of the practical expedients in conjunction with accounting policy elections. See Note 7 to our condensed consolidated financial statements for additional details.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement by removing, modifying and adding certain disclosures. This ASU is effective for the annual period beginning after December 15, 2019, including interim periods within that annual period. The Company is currently evaluating the new guidance to determine the impact it will have on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees except for certain circumstances. Any transition impact will be a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company adopted this guidance in the first fiscal quarter of 2019 and it did not have a material impact on its consolidated financial statements.

6


4. Revenue from Contracts with Customers
Effective February 1, 2018 the Company adopted ASU 2014-09 as amended, (“New Revenue Standard” or “Topic 606”), using the modified retrospective method applied to those contracts which were not completed as of February 1, 2018. Results for reporting periods beginning after January 31, 2018 are presented under Topic 606 and pertain only to our Marine Technology Products segment. Revenues related to our Equipment Leasing segment are not included in the scope of Topic 606.
The following table presents revenue from contracts with customers disaggregated by product line and timing of revenue recognition:

 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
 
 
2019
 
2018
 
2019
 
2018
Revenue recognized at a point in time:
 
(in thousands)
Seamap
 
$
4,836

 
$
3,611

 
$
8,954

 
$
5,156

Klein
 
1,841

 
1,401

 
3,398

 
2,877

SAP
 

 
797

 
101

 
1,277

Total revenue recognized at a point in time
 
$
6,677

 
$
5,809

 
$
12,453


$
9,310

Revenue recognized over time:
 
 
 
Seamap
 
$
68

 
$
203

 
$
274

 
$
410

Total revenue recognized over time
 
68

 
203

 
274


410

Total revenue from contracts with customers
 
$
6,745

 
$
6,012

 
$
12,727


$
9,720


The revenue from products manufactured and sold by our Seamap and Klein businesses, as well as the revenue from products marketed and sold by our SAP business, is generally recognized at a point in time, or when the customer takes possession of the product, based on the terms and conditions stipulated in our contracts with customers. Our Seamap business also provides Software Maintenance Agreements (“SMA”) to customers who have an active license for software embedded in Seamap products. The revenue from SMA’s is recognized over time, with the total value of the SMA amortized in equal monthly amounts over the life of the contract. The Company sold SAP during the quarter ended April 30, 2019. See Note 13 to our condensed consolidated financial statements for more information.
The following table presents revenue from contracts with customers disaggregated by geography, based on shipping location of our customers:
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
United States
 
$
1,084

 
$
1,124

 
$
1,841

 
$
1,252

Europe, Russia & CIS
 
2,563

 
2,747

 
5,167

 
4,766

Middle East & Africa
 
358

 
122

 
549

 
636

Asia-Pacific
 
1,835

 
1,979

 
3,108

 
2,679

Canada & Latin America
 
905

 
40

 
2,062

 
387

Total revenue from contracts with customers
 
$
6,745

 
$
6,012

 
$
12,727

 
$
9,720

As of July 31, 2019 and January 31, 2019 contract assets and liabilities consisted of the following:

 
 
July 31, 2019
 
January 31, 2019
Contract Assets:
 
(in thousands)
Unbilled revenue - current
 
$
343

 
$
340

Total unbilled revenue
 
$
343

 
$
340

Contract Liabilities:
 
 
Deferred revenue & customer deposits - current
 
$
512

 
$
556

Deferred revenue & customer deposits - non-current
 
6

 
11

Total deferred revenue & customer deposits
 
$
518

 
$
567


7


Considering the products manufactured and sold by the businesses in our Marine Technology Products segment and the Company’s standard contract terms and conditions, we expect our contract assets and liabilities to turn over, on average, within a period of three to six months.
Pursuant to practical expedients and exemptions included in the New Revenue Standard, sales and transaction-based taxes are excluded from revenue. Also, we do not disclose the value of unsatisfied performance obligations for contacts with an original expected duration of one year or less. Additionally, we expense costs incurred to obtain contracts when incurred because the amortization period would have been one year or less. These costs are recorded in selling, general and administrative expenses.
5. Acquisition of Assets
In February 2018 the Company completed the acquisition of intellectual property and certain other assets from Hydroscience Technologies, Inc. and Solid Seismic LLC (collectively “Hydroscience”). Hydroscience designed, manufactured and sold marine sensors and solid streamer technology products primarily for the hydrographic and seismic industries. In April 2017 Hydroscience filed for bankruptcy protection. Mitcham acquired the assets pursuant to an Asset Purchase Agreement and Sale Order (collectively the “Agreement”) that were approved by the bankruptcy court on January 31, 2018. Under the terms of the Agreement, Mitcham acquired certain specified intangible and tangible assets free and clear of all prior claims and encumbrances, and assumed no liabilities, contracts or prior warranty obligations. Details of the purchase price and the allocation of the purchase price to the assets acquired are as follows (in thousands):
 
 
Purchase Price:
 
Cash
$
3,000

Release of claims against Hydroscience
1,144

Transaction costs
312

Total purchase price
$
4,456

 
 
Allocation of purchase price:
 
Inventory
$
206

Tangible assets (mainly manufacturing equipment)
350

Intangible assets (including patents, designs & software)
3,900

Total purchase price
$
4,456

The cash portion of the purchase price and other related costs were financed with the sale of 174,046 shares of our 9% Series A Cumulative Preferred Stock to Mitsubishi Heavy Industries, Inc. ("MHI") for $4.0 million.
6. Balance Sheet

 
As of July 31, 2019
 
As of January 31, 2019
 
Current
 
Long-term
 
Total
 
Current
 
Long-term
 
Total
Accounts receivable
$
12,722

 
$
90

 
$
12,812

 
$
14,195

 
$
712

 
$
14,907

Less allowance for doubtful accounts
(2,073
)
 

 
(2,073
)
 
(2,113
)
 

 
(2,113
)
Accounts receivable net of allowance for doubtful accounts
$
10,649

 
$
90

 
$
10,739

 
$
12,082

 
$
712

 
$
12,794

As of July 31, 2019, the Company has structured payment agreements with two customers totaling $2.1 million. As of January 31, 2019, the Company had structured payment agreements with three customers totaling $3.0 million. Payments expected to be received in more than one year have been classified as long-term receivables and total $90,000 and $712,000 as of July 31, 2019 and January 31, 2019, respectively. The structured payment agreements bear interest at an average rate of approximately 3.2% and 3.6% as of July 31, 2019 and January 31, 2019, respectively. The remaining repayment terms of the structured payment agreements range from one to 30 months.

8


 
 
July 31, 2019
 
January 31, 2019
 
 
(in thousands)
Inventories:
 
 
 
 
Raw materials
 
$
7,060

 
$
5,446

Finished goods
 
2,300

 
5,229

Work in progress
 
4,857

 
1,322

 
 
14,217

 
11,997

Less allowance for obsolescence
 
(1,102
)
 
(1,223
)
Total inventories, net
 
$
13,115

 
$
10,774

 
 
 
July 31, 2019
 
January 31, 2019
 
 
(in thousands)
Seismic equipment lease pool and property and equipment:
 
 
 
 
Seismic equipment lease pool
 
$
143,894

 
$
147,519

Land and buildings
 
4,055

 
4,041

Furniture and fixtures
 
10,205

 
9,897

Autos and trucks
 
570

 
571

 
 
158,724

 
162,028

Accumulated depreciation and amortization
 
(146,883
)
 
(147,873
)
Total seismic equipment lease pool and property and equipment, net
 
$
11,841

 
$
14,155

As of January 31, 2019, the Company completed an annual review of long-lived assets noting that the undiscounted future cash flows exceeded their carrying value and no impairment has been recorded. Since January 31, 2019 there have been no significant changes to the market, economic or legal environment in which the Company operates that would indicate additional impairment analysis is necessary as of July 31, 2019.
7. Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which was modified by subsequently issued ASUs 2018-01, 2018-10, 2018-11 and 2018-20. The update requires organizations that lease assets ("lessees") to recognize the assets and liabilities of the rights and obligations created by leases with terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee remains dependent on its classification as a finance or operating lease. The criteria for determining whether a lease is a finance or operating lease was not significantly changed by this ASU. The ASU also requires additional disclosure of the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. This pronouncement was effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption was permitted.
In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements (Topic 842). ASU 2018-11 provided additional relief in the comparative reporting requirements for initial adoption of ASC 842. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 provided an additional transition method to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption.
The Company adopted the standard effective February 1, 2019. We elected to apply the current period transition approach as introduced by ASU 2018-11 for our transition at February 1, 2019 and we elected to apply the following practical expedients and accounting policy decisions.
We elected a package of transition expedients that allowed us to forgo reassessing certain conclusions reached under ASC 840 which must be elected together. All expedients in this package were applied together for all leases that commenced before the effective date, February 1, 2019, of ASC 842. As a result, in transitioning to ASC 842, for existing leases as of February 1, 2019, we continued to use judgments made under ASC 840 related to embedded leases, lease classification and accounting for initial direct costs. In addition, we have chosen, as an accounting policy election by class of underlying asset, not to separate nonlease components from the associated lease for all of our leased asset classes, except for Real Estate related leases. As a result, for classes of Automobiles, Office Equipment and Manufacturing Equipment, we account for each separate lease component and the nonlease components associated with that lease as a single lease component.
The Company has certain non-cancelable operating lease agreements for office, production and warehouse space in The Woodlands, Texas, Budapest, Hungary, Singapore, Jahor, Malaysia, Bogota, Colombia, Shepton Mallet, United Kingdom and Calgary, Alberta.

9


The new standard did have a material impact on our consolidated balance sheet related to recording right-of-use assets and the corresponding lease liabilities for our operating leases by approximately $3.0 million, each. The new standard did not have a material impact on our consolidated statements of operations or our statements of cash flows.
Lease expense for the three and six months ended July 31, 2019 was approximately $290,000 and $590,000, respectively, and was recorded as a component of operating loss. Included in these costs was short-term lease expense of approximately $10,000 and $20,000, respectively for the three and six months ended July 31, 2019. The Company determined to treat lease costs with an original maturity of less than one year as short-term lease costs and did not record a right-of-use asset or related lease liability for these leases.

Supplemental balance sheet information related to leases as of July 31, 2019 was as follows (in thousands):
Lease
 
July 31, 2019
 
April 30, 2019
 
Impact of ASC 842 Transition
Assets
 
 
 
 
 
 
Operating Leases
 
$
2,738

 
$
3,014

 
$
2,710

 
 

 
 
 
 
Liabilities
 
 
 
 
 
 
Operating lease liabilities
 
$
2,738

 
$
3,014

 
$
2,710

 
 
 
 
 
 
 
Classification of lease liabilities
 
 
 
 
 
 
Current liabilities
 
$
720

 
$
853

 
 
Non-current liabilities
 
2,018

 
2,161

 
 
Total Operating lease liabilities
 
$
2,738

 
$
3,014

 
 
Lease-term and discount rate details as of July 31, 2019 were as follows:
Lease term and discount rate
 
July 31, 2019
Weighted average remaining lease term (years)
 
 
Operating leases
 
2.2

 
 
 
Weighted average discount rate:
 
 
Operating leases
 
10.02
%
The incremental borrowing rate was calculated using the Company's weighted average cost of capital.
Supplemental cash flow information related to leases was as follows (in thousands) :
Lease
 
Six Months Ended July 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
568

 
 
 
Right-of-use assets obtained in exchange for lease liabilities:
 
 
Operating leases
 
$
592



10


Maturities of lease liabilities at July 31, 2019 were as follows (in thousands):
 
 
July 31, 2019
2020
 
$
720

2021
 
1,299

2022
 
749

2023
 
199

2024
 
101

Thereafter
 
73

Total payments under lease agreements
 
$
3,141

 
 

Less: imputed interest
 
(403
)
Total lease liabilities
 
$
2,738

8. Goodwill and Other Intangible Assets
 
Weighted Average Life at 7/31/2019
 
July 31, 2019
 
January 31, 2019
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Impairment
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Impairment
 
Net
Carrying
Amount
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
Goodwill
 
 
$
7,060

 
$

 
$
(4,529
)
 
$
2,531

 
$
7,060

 
$

 
$
(4,529
)
 
$
2,531

Proprietary rights
7.5
 
$
9,295

 
$
(4,611
)
 
$

 
$
4,684

 
$
9,303

 
$
(4,292
)
 
$

 
$
5,011

Customer relationships
2.3
 
5,024

 
(3,489
)
 

 
1,535

 
5,024

 
(3,147
)
 

 
1,877

Patents
5.0
 
2,440

 
(1,152
)
 

 
1,288

 
2,441

 
(1,028
)
 

 
1,413

Trade name
6.8
 
894

 
(58
)
 

 
836

 
894

 
(52
)
 

 
842

Developed technology
6.4
 
1,430

 
(512
)
 

 
918

 
1,430

 
(441
)
 

 
989

Other
4.7
 
692

 
(44
)
 

 
648

 
385

 
(22
)
 

 
363

Amortizable intangible assets
 
$
19,775

 
$
(9,866
)
 
$

 
$
9,909

 
$
19,477

 
$
(8,982
)
 
$

 
$
10,495

On January 31, 2019, the Company completed an annual review of goodwill and other intangible assets. Based on a review of qualitative factors it was determined it was more likely than not that the fair value of our Seamap reporting unit was greater than its carrying value. During the six months ended July 31, 2019 there have been no indicators of impairment.
Aggregate amortization expense was $764,000 and $889,000 for the six months ended July 31, 2019 and 2018, respectively. As of July 31, 2019, future estimated amortization expense related to amortizable intangible assets was estimated to be (in thousands):
For fiscal years ending January 31
 
2020
$
961

2021
1,775

2022
1,245

2023
1,141

2024
938

Thereafter
3,849

Total
$
9,909

9. Income Taxes
For the six months ended July 31, 2019 the provision for income taxes was approximately $103,000 on a pre-tax net loss of $5.4 million. For the six months ended July 31, 2018 the provision for income taxes was approximately $522,000 on a pre-tax net loss of $10.0 million. The variance between our actual provision and the expected provision based on the U.S. statutory rate is due primarily to recording valuation allowances against the increase in our deferred tax assets in the respective periods, plus the effect of foreign withholding taxes.
The Company files U.S. federal and state income tax returns as well as separate returns for its foreign subsidiaries within their local jurisdictions. The Company's U.S. federal and state income tax returns are subject to examination by the Internal Revenue Service and state tax authorities for fiscal years ended January 31, 2013 through 2019. In addition, the Company's tax returns filed in foreign jurisdictions are generally subject to examination for the fiscal years ended January 31, 2014 through 2019.

11


The Company has determined that the undistributed earnings of foreign subsidiaries are not deemed to be indefinitely reinvested outside of the United States as of July 31, 2019. Furthermore, the Company has concluded that any deferred taxes with respect to the undistributed foreign earnings would be immaterial, particularly in light of the one-time repatriation of foreign earnings imposed by the Tax Cuts and Jobs Act legislation enacted in December 2017. Therefore, the Company has not recorded a deferred tax liability associated with the undistributed foreign earnings as of July 31, 2019.
For the six months ended July 31, 2019 and July 31, 2018, the Company did not recognize any tax expense or benefit related to uncertain tax positions.
10. Earnings per Share
Net income per basic common share is computed using the weighted average number of common shares outstanding during the period, excluding unvested restricted stock. Net income per diluted common share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the period using the treasury stock method. Potential common shares result from the assumed exercise of outstanding common stock options having a dilutive effect and from the assumed vesting of unvested shares of restricted stock.
The following table presents the calculation of basic and diluted weighted average common shares used in the earnings per share calculation:
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
 
(in thousands)
Basic weighted average common shares outstanding
 
12,128

 
12,093

 
12,124

 
12,090

Stock options
 
96

 
84

 
64

 
63

Unvested restricted stock
 
2

 
3

 
2

 
15

Total weighted average common share equivalents
 
98

 
87

 
66

 
78

Diluted weighted average common shares outstanding
 
12,226

 
12,180

 
12,190

 
12,168


For the three and six months ended July 31, 2019 and 2018, potentially dilutive common shares, underlying stock options and unvested restricted stock were anti-dilutive and were therefore not considered in calculating diluted loss per share for those periods.
11. Related Party Transaction
On October 7, 2016 the Company entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Ladenburg Thalmann & Co. Inc. (the “Agent”), pursuant to which the Company may sell up to 500,000 shares of 9.00% Series A Cumulative Preferred Stock (the "Preferred Stock"), par value $1.00 per share through an at-the-market ("ATM") offering program administered by the Agent. The Co-Chief Executive Officer and Co-President of Ladenburg Thalmann & Co. Inc is the Non-Executive Chairman of the company’s board of directors. Under the Equity Distribution Agreement, the Agent will be entitled to compensation of up to 2.0% of the gross proceeds from the sale of Preferred Stock under the ATM offering program. As of July 31, 2019, the total number of shares sold pursuant to the program was 423,264. For the three and six months ended July 31, 2019, the Company issued 70,282 and 86,938 shares of Preferred Stock under the ATM offering program, respectively. Gross proceeds from these sales for the three and six months ended July 31, 2019 were approximately $1.7 million and $2.1 million, respectively, and the Agent received compensation of approximately $34,000 and $42,000, respectively. The Non-Executive Chairman of the Company received no portion of this compensation.
12. Equity and Stock-Based Compensation
During the three months ended July 31, 2019, the Company’s Board of Directors (the "Board") declared quarterly dividends of $0.5625 per share for our Preferred Stock. The Board also approved the grant of 425,000 non-qualified stock options and 37,000 shares of restricted stock during the second quarter of fiscal 2020. The non-qualified stock options had an average option price of $4.13 while the restricted stock was granted at an average price of $3.98 per share. Refer to Note 11 for additional details related to the issuance of preferred shares under the Company's ATM offering program.
Total compensation expense recognized for stock-based awards granted under the Company’s equity incentive plan during the three and six months ended July 31, 2019 was approximately $169,000 and $341,000, respectively, and during the three and six months ended July 31, 2018 was approximately $237,000 and $461,000, respectively.
13. Sale of Subsidiaries
During the quarter ended April 30, 2019, the Company completed the sale of its wholly owned Australian subsidiary, Seismic Asia Pacific Pty Ltd. for total contractual proceeds of approximately $660,000 U.S. dollars of which the Company received approximately $240,000 in cash

12


at closing and an unsecured, non-interest bearing two years note receivable in the amount of $420,000. The agreement also included a working capital adjustment of approximately $114,000 payable to the Company. We received payment of the working capital adjustment in August of 2019. The working capital adjustment receivable and the note receivable were recorded as other current and other non-current assets, respectively, as of July 31, 2019.
In August 2018, the Company completed the sale of its wholly owned Russian subsidiary, Mitcham Seismic Eurasia LLC (the “Buyer”) for total contractual proceeds of approximately $1.2 million U.S. dollars. Our agreement with the Buyer stipulated a series of eight (8) payments totaling the contractual proceeds, plus interest accruing at a rate of 9% per annum, with the final payment to be received on or before August 31, 2019. Through July 31, 2019 the Buyer has made payments totaling approximately $495,000. We are working with the Buyer and expect the remaining balance of contractual proceeds due, together with applicable interest, to be paid in full. The amounts due from Buyer were recorded in accounts receivable at July 31, 2019 and January 31, 2019. As a result of the sale, the Company recorded a loss of approximately $4.9 million including recognition of approximately $5.4 million of cumulative translation losses which had been historically recorded in Accumulated Other Comprehensive Loss, a component of equity.
14. Segment Reporting
The Marine Technology Products segment is engaged in the design, manufacture and sale of state-of-the-art seismic and offshore telemetry systems. Manufacturing, support and sales facilities are maintained in the UK, Singapore, Malaysia and New Hampshire, with sales offices in Huntsville, Texas and, prior to the sale of SAP in February 2019, Brisbane, Australia. See Note 13 to our condensed consolidated financial statements.

The Equipment Leasing segment offers for lease or sale, new and used seismic equipment to the oil and gas industry, seismic contractors, environmental agencies, government agencies and universities. The Equipment Leasing segment is headquartered in Huntsville, Texas, with sales and services offices in Calgary, Canada; Singapore; and, prior to the sale of MSE in August 2018, Ufa, Bashkortostan, Russia. See Note 13 to our condensed consolidated financial statements.
Financial information by business segment is set forth below (net of any allocations):
 
 
 
Total Assets
 
 
As of July 31, 2019
 
As of January 31, 2019
 
 
(in thousands)
Marine Technology Products
 
$
47,057

 
$
44,832

Equipment Leasing
 
15,990

 
20,469

Consolidated
 
$
63,047

 
$
65,301

Results for the three months ended July 31, 2019 and 2018 were as follows (in thousands):
 
 
Revenues
 
Operating loss
 
Loss before taxes
 
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Marine Technology Products
 
$
6,745

 
$
6,012

 
$
(718
)
 
$
(1,016
)
 
$
(621
)
 
$
(973
)
Equipment Leasing
 
2,175

 
2,473

 
(1,551
)
 
(2,655
)
 
(1,674
)
 
(2,626
)
Corporate expenses
 

 

 
(793
)
 
(905
)
 
(793
)
 
(905
)
Eliminations
 
(22
)
 
(135
)
 

 

 

 

Consolidated
 
$
8,898

 
$
8,350

 
$
(3,062
)
 
$
(4,576
)
 
$
(3,088
)
 
$
(4,504
)
Results for the six months ended July 31, 2019 and 2018 were as follows (in thousands):
 
 
Revenues
 
Operating loss
 
Loss before taxes
 
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Marine Technology Products
 
$
12,727

 
$
9,720

 
$
(1,879
)
 
$
(3,391
)
 
$
(1,782
)
 
$
(3,322
)
Equipment Leasing
 
6,110

 
6,520

 
(1,940
)
 
(5,022
)
 
(1,967
)
 
(4,916
)
Corporate expenses
 

 

 
(1,699
)
 
(1,735
)
 
(1,699
)
 
(1,735
)
Eliminations
 
(82
)
 
(277
)
 

 

 

 
1

Consolidated
 
$
18,755

 
$
15,963

 
$
(5,518
)
 
$
(10,148
)
 
$
(5,448
)
 
$
(9,972
)


13


Sales from the Marine Technology Products segment to the Equipment Leasing segment are eliminated in consolidated revenues. Consolidated income before taxes reflects the elimination of profit from intercompany sales and depreciation expense on the difference between the sales price and the cost to manufacture the equipment. Fixed assets are reduced by the difference between the sales price and the cost to manufacture the equipment, less the accumulated depreciation related to the difference.

14


CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward-looking statements, which are not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts of our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
 
risks associated with our manufacturing operations including availability and reliability of materials and components as well the reliability of the products that we manufacture and sale;
loss of significant customers;
increased competition;
loss of key suppliers;
intellectual property claims by third parties;
the effect of uncertainty in financial markets on our customers’ and our ability to obtain financing;
uncertainties regarding our foreign operations, including political, economic, currency environmental regulation and export compliance risks;
seasonal fluctuations that can adversely affect our business;
fluctuations due to circumstances beyond our control or that of our customers;
defaults by customers on amounts due us;
possible further impairment of our long-lived assets due to technological obsolescence or changes in anticipated cash flow generated from those assets;
inability to obtain funding or to obtain funding under acceptable terms;
demand for seismic data is not assured and depends on the level of spending by oil and gas companies for exploration, production and development activities;
For additional information regarding known material factors that could cause our actual results to differ materially from our projected results, please see (1) Part II, “Item 1A. Risk Factors” of this Form 10-Q, and (2) Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2019.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement after the date they are made, whether as the result of new information, future events or otherwise.


15


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview
We operate in two segments, Marine Technology Products and Equipment Leasing. Revenue from the Marine Technology Products segment includes sales of Seamap products, sales of Klein products and sales of oceanographic and hydrographic products by SAP. As of January 31, 2019, the assets related to our SAP operations were classified as held for sale. We completed the sale of SAP during the quarter ended April 30, 2019. This segment operates from locations near Bristol, United Kingdom, Salem, New Hampshire, Singapore, and, prior to the sale of SAP, Brisbane, Australia. During fiscal 2019 we established a new facility in Malaysia for the manufacture and repair of the SeaLink product line discussed in more detail below. This facility is in close proximity to our Singapore facility.
The operations of our Equipment Leasing segment include all leasing activity, sales of lease pool equipment and certain other equipment sales and services related to those operations. This business is conducted from our locations in Huntsville, Texas; Calgary, Canada; Bogota, Colombia; Budapest, Hungary and Singapore. This includes the operations of our subsidiaries MCL, MEL, MML and our branch in Colombia. Prior to August 2018, we conducted leasing operations through MSE, our subsidiary located in Ufa, Russia.
Management believes that the performance of our Marine Technology Products segment is indicated by revenues from product sales and by gross profit from those sales. Management further believes that the performance of our Equipment Leasing segment is indicated by revenues from equipment leasing and by the level of our investment in lease pool equipment. Management monitors EBITDA and Adjusted EBITDA, both as defined in the following table, as key indicators of our overall performance and liquidity.
The following table presents certain operating information by operating segment.
 
 
For the Three Months Ended July 31,
 
For the Six Months Ended July 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
Marine technology products
 
$
6,745

 
$
6,012

 
$
12,727

 
$
9,720

Equipment Leasing
 
2,175

 
2,473

 
6,110

 
6,520

Less inter-segment sales
 
(22
)
 
(135
)
 
(82
)
 
(277
)
Total revenues
 
8,898


8,350


18,755


15,963

Cost of sales:
 
 
 
 
 
 
 
 
Marine technology products
 
3,909

 
3,351

 
7,424

 
5,579

Equipment Leasing
 
2,129

 
3,274

 
4,790

 
7,556

Less inter-segment costs
 
(22
)
 
(135
)
 
(82
)
 
(277
)
Total costs of sales
 
6,016


6,490


12,132


12,858

Gross profit (loss)
 
 
 
 
 
 
 
 
Marine technology products
 
2,836


2,661


5,303


4,141

Equipment leasing
 
46


(801
)

1,320


(1,036
)
Total gross profit
 
2,882


1,860


6,623


3,105

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general and administrative
 
4,795

 
5,504

 
10,027

 
11,134

Research and development
 
498

 
312

 
813

 
682

Provision for doubtful accounts
 

 

 

 
200

Depreciation and amortization
 
651

 
620

 
1,301

 
1,237

Total operating expenses
 
5,944


6,436


12,141


13,253

Operating loss
 
$
(3,062
)

$
(4,576
)

$
(5,518
)

$
(10,148
)

16


Reconciliation of Net loss to EBITDA and Adjusted EBITDA
 
 
 
 
 
 
 
 
Net loss
 
$
(3,136
)
 
$
(4,589
)
 
$
(5,551
)
 
$
(10,494
)
Interest expense (income), net
 
11

 
(17
)
 
22

 
(35
)
Depreciation and amortization
 
1,829

 
3,096

 
3,960

 
6,399

Provision for income taxes
 
48

 
85

 
103

 
522

EBITDA (1)
 
(1,248
)
 
(1,425
)
 
(1,466
)
 
(3,608
)
Non-cash foreign exchange losses
 
89

 
62

 
141

 
13

Stock-based compensation
 
169

 
242

 
341

 
368

Cost of lease pool sales
 
38

 
7

 
94

 
634

Adjusted EBITDA (1)
 
$
(952
)
 
$
(1,114
)
 
$
(890
)
 
$
(2,593
)
Reconciliation of Net cash provided by operating activities to EBITDA
 
 
 
 
 
 
 
 
Net cash used in operating activities
 
$
(1,652
)
 
$
(2,433
)
 
$
(3,503
)
 
$
(5,799
)
Stock-based compensation
 
(169
)
 
(242
)
 
(341
)
 
(368
)
Provision for doubtful accounts
 

 

 

 
(200
)
Provision for inventory obsolescence
 

 
(115
)
 

 
(115
)
Changes in accounts receivable (current and long-term)
 
(27
)
 
(398
)
 
(103
)
 
(1,886
)
Interest paid
 
13

 
1

 
27

 
2

Taxes paid, net of refunds
 
85

 
222

 
182

 
268

Gross profit from sale of lease pool equipment
 
417

 
710

 
780

 
1,246

Changes in inventory
 
1,871

 
562

 
2,372

 
1,406

Changes in accounts payable, accrued expenses and other current liabilities and deferred revenue
 
(987
)
 
875

 
(582
)
 
609

Changes in prepaid expenses and other current assets
 
(661
)
 
(85
)
 
11

 
1,435

Foreign exchange losses, net
 
(153
)
 
(48
)
 
(137
)
 
(64
)
Other
 
15

 
(474
)
 
(172
)
 
(142
)
EBITDA (1)
 
$
(1,248
)
 
$
(1,425
)
 
$
(1,466
)
 
$