October 2, 2022

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MIND Technology Bags New Orders But Leaves Preferred Stockholders Out In The Rain

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Right after the near of Wednesday’s normal session, Intellect Technological innovation (NASDAQ:Intellect, NASDAQ:MINDP) or “Intellect”, declared the receipt of an aggregate $7.7 million in new orders for sonar and supply controller units.

That claimed, the business had previously projected these orders to arrive as a result of and accordingly integrated them in its said $22.9 million “overall e-book of business” disclosed in both equally its Q1/FY2023 press launch and quarterly report on Sort 10-Q past month.

These new orders had been expected, but it is an critical action to have them in hand. The tools to be shipped consists of multi-beam sonar devices, along with related dealing with devices, and seismic source controller units. We count on all these orders to be concluded and shipped in our existing fiscal 12 months. We imagine these orders reveal the energy in army and exploration marketplaces and we count on even further orders in the close to long run.

As a result, these orders is not going to outcome in upside to the company’s earlier communicated anticipations.

In addition, Intellect amazed investors with the determination not to declare a quarterly dividend on its 9.00% Collection A Cumulative Desired Inventory (“Collection A Most well-liked Inventory”) for the next quarter of its fiscal year ending January 31, 2023.

Because of to liquidity needs to finish these, and other, orders and the uncertainty as to the timing of selected cash move, we truly feel it prudent to defer the payment of the second quarter dividend on our Sequence A Desired Stock. The Enterprise proceeds to have beneficial working capital and no funded debt.

As the Sequence A Desired Stock is cumulative, the non-payment technically represents a deferral:

The Organization may possibly defer dividend payments on the Series A Favored Stock, but the dividend is a cumulative dividend that accrues for payment in the foreseeable future. During a deferral time period, the Business is prohibited from spending dividends or distributions on its frequent inventory, or redeeming any of these shares. Even more, if the Corporation does not pay out dividends on its Sequence A Favored Inventory for six or extra quarters, the holders of Collection A Desired Stock will have the suitable to appoint two directors to the Company’s board.

When liquidity was previously down to a paltry $.8 million at the finish of April, management attempted to reassure investors on the recent Q1 meeting phone:

MIND’s cash construction and liquidity continue being great. As of April 30, 2022, we experienced operating money of somewhere around $16.7 million and hard cash of around $817,000. We collected approximately $4 million of accounts receivable in May possibly, so our money condition has improved appreciably and we have fantastic visibility on added receivables that are imminent.

Of course, the board of administrators failed to share management views as it made the decision to keep off on the $.95 million quarterly dividend payment.

Please note that just seven months in the past, the company finished a $10.5 million comply with-on providing of its Series A Preferred Inventory at a price tag of $24.25 per share.

But with much more than $20 million of money employed in working routines given that the commencing of FY2022, symptoms of distress have come to be evident in the inventory cost in new months. At Wednesday’s closing price tag of $13.40, the preferred shares have been down roughly 45% from the presenting cost in November.

In FY2022, the corporation lifted an added $5.2 million from promoting most popular shares into the open marketplace underneath its at-the-marketplace (“ATM”) featuring application with Ladenburg Thalmann.

But with the dividend yield approaching 17%, the charge of capital has come to be prohibitive for the firm. Whilst Head also has the ability to offer typical shares less than the ATM, the weak stock price and small trading quantity effectively precludes the organization from likely by means of this avenue.

Bottom Line

Head Technology luggage some perfectly-anticipated orders but shocks buyers with the choice to “defer” the quarterly dividend on its 9.00% Collection A Cumulative Desired Inventory in get to preserve liquidity for evident doing work capital necessities.

Provided the company’s ongoing liquidity problems, I do not expect Brain to capture up on the desired inventory dividend anytime shortly.

With pretty restricted supplemental resources of liquidity available to the firm at this point, preferred stockholders ought to seriously contemplate selling existing positions and shifting on.

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