EXPLANATORY NOTE – RESTATEMENT OF FINANCIAL INFORMATIONPART I

On November 16, 2017, the Audit Committee of the Board of Directors (“the Audit Committee”) of Geospace Technologies Corporation (the “Company”) on the recommendation of management, and after consultation with the Company’s independent registered public accounting firm, BDO USA, LLP, concluded that the Company’s audited consolidated financial statements for the fiscal years ended September 30, 2016 and 2015, and the related reports of the Company’s independent registered accounting firm thereon, and the unaudited consolidated financial statements for quarters ended December 31, 2016, March 31, 2017 and June 30, 2017 (“Restated Periods”) should no longer be relied upon because of an accounting error.

This Annual Report on Form 10-K for the fiscal year ended September 30, 2017 includes (i) audited restated consolidated balance sheets as of September 30, 2016 and 2015, (ii) unaudited restated condensed consolidated balance sheets as of December 31, 2016, March 31, 2017 and June 30, 2017 and (iii) footnotes reconciling previously final annual and quarterly consolidated balance sheets to the restated balance sheets, which we refer to as the restatement.

We have determined that a portion of our inventories at September 30, 2016 and 2015 should have been classified as non-current assets, as all inventories were not reasonably expected to be realized in cash, sold or consumed during our next operating cycle.  This error has been identified and corrected in the restated consolidated balance sheets as of September 30, 2016 and 2015 and as of December 31, 2016, March 31, 2017 and June 30, 2017 in this Annual Report on Form 10-K.  The effects of this restatement consist of a non-cash reclassification with respect to inventories. The restatement did not affect previously reported total assets, total liabilities, revenues, net loss, loss per share, or cash flows. For discussions of the restatement adjustments, see Item 1A. “Risk Factors” and Item 8, “Financial Statements and Supplementary Data”, including Notes 21 and 22 of the notes to the Consolidated Financial Statements.

Additionally, in connection with the errors noted above, our management, including the CEO and CFO, has identified a material weakness in the Company’s internal control over financial reporting as of September 30, 2017 and 2016 and has been engaged in a focused review of its financial reporting practices and remediation of the related control weakness.  For a discussion of our controls and procedures, the material weakness identified and our actions to remediate such weakness see Item 9A, “Controls and Procedures” in Part II of this Annual Report on Form 10-K,

We believe that presenting all of this information regarding the Restated Periods in this Annual Report allows investors to review all pertinent data in a single presentation.  We do not therefore plan to amend our previously filed Annual Report on Form 10-K the fiscal year ended September 30, 2016 and Forms 10-Q for the quarterly periods ended December 31, 2016, March 31, 2017 and June 30, 2017 in connection with the restatement.  The financial information that has been previously filed or otherwise reported for the Restated Periods is superseded by the information in this Annual Report on Form 10-K.  Unless otherwise stated, all financial information contained in this Annual Report on Form 10-K for periods prior to September 30, 2017 are presented on a restated basis.

PART I

Item 1. Business

Business Overview

Geospace Technologies Corporation reincorporated as a Texas corporation on April 16, 2015.  We originally incorporated as a Delaware corporation on September 27, 1994.  

Unless otherwise specified, the discussion in this Annual Report on Form 10-K refers to Geospace Technologies Corporation and its subsidiaries. We principally design and manufacture seismic instruments and equipment used inequipment. These seismic products are marketed to the oil and gas industry to acquire seismic data in orderand used to locate, characterize and monitor hydrocarbon producing reservoirs. More recently, we’ve begun marketing our seismic products for energy transition applications such as carbon storage, geothermal and mining.  We also market our seismic products to other industries for vibration monitoring, border and perimeter security and various geotechnical applications. We design and manufacture other products of a non-seismic nature, including water meter products, including industrial products,imaging equipment, offshore cables, remote shutoff water valves and imaging equipment.Internet of Things ("IoT") platform.  Additionally, we provide contract manufacturing services, which leverage our capabilities and manufacturing resources. We report and categorize our customers and products into twothree different segments: SeismicOil and Non-Seismic.

We have engagedGas Markets, Adjacent Markets and Emerging Markets. In recent years, the revenue contribution from our Adjacent Markets segment has grown to represent nearly half of our total revenue. This revenue growth in the seismic instrument and equipment business since 1980 and market our products primarilythis segment is largely attributable to the oil and gas industry.  rise in water utility modernization which includes our waterproof meter connector cable series of products.

Demand for our seismic products targeted at customers in our Oil and Gas Markets segment has been, and will likely continue to be, vulnerable to downturns in the economy and the oil and gas industry in general. For more information, please refer to the risks discussed under the heading “Risk Factors.”

Segment and Geographical Information

We report and evaluate financial information for our three business segments: Oil and Gas Markets, Adjacent Markets and Emerging Markets. For a discussion of the products sold and markets served by each of our segments, see “Products and Product Development” below. For a discussion of financial information by segment and geographic area, see Note 19 to the consolidated financial statements contained in this Annual Report on Form 10-K.

Products and Product Development

Seismic Products

Oil and Gas Markets

Our seismicOil and Gas Markets business segment has historically accounted for the majority of our revenue. Geoscientists use seismic data primarily in connection with the exploration, development and production of oil and gas reserves to map potential and known hydrocarbon bearing formations and the geologic structures that surround them. OurThis segment’s products include wireless seismic product lines currently consist of land and marine nodal data acquisition systems, permanent land and seabed reservoir monitoringcharacterization products and services, geophones and geophone strings,traditional seismic exploration products such as geophones, hydrophones, leader wire, connectors, telemetry cables, marine streamer retrieval and steering devices and various other products.  Our seismic products are compatible with most major competitive seismic data acquisition systems currently in use.products. We believe that our seismicOil and Gas Markets' products are among the most technologically advanced instruments and equipment available for seismic data acquisition.

Traditional Products

An energy source and a data recording system are combined to acquire seismic data. We provide many of the components of seismic data recording systems, including geophones, hydrophones, multi-component sensors, leader wire, geophone strings, connectors, seismic telemetry cables and other seismic related products. On land, our customers use geophones, leader wire, cables and connectors to receive and measure seismic reflections resulting from an energy source into data recording units, which store the seismic information for subsequent processing and analysis. In the marine environment, large ocean-going vessels tow long seismic cables known as “streamers” containing hydrophones whichthat are used to detect pressure changes. Hydrophones transmit electrical impulses back to the vessel’s data recording unit where the seismic data is stored for subsequent processing and analysis. Our marine seismic products also help steer streamers while being towed and help recover streamers if they become disconnected from the vessel.

Our seismic sensor, cable and connector products are compatible with most major competitive seismic data acquisition systems currently in use. Revenue from these products results primarily from seismic contractors purchasing our products as components of new seismic data acquisition systems or to repair and replace components of seismic data acquisition systems already in use.

Our products used in marine seismic data acquisition include our seismic streamer retrieval devices (“SRDs”).  Occasionally, streamer cables are severed and become disconnected from the vessel as a result of obstacles, inclement weather, vessel traffic or human error.  Our SRDs, which are attached to the streamer cables, contain air bags which are designed to inflate automatically at a given water depth, bringing the severed streamer cables to the surface.  These SRDs save the seismic contractors significant time and money compared to the alternative of losing the streamer cable.  We also produce seismic streamer steering devices, or “birds,” which are fin-like devices that attach to the streamer cable.  These birds help maintain the streamer cable at a certain desired depth as it is being towed through the water.

Wireless Products

We have developed multiple versions of a land-based wireless (or nodal) seismic data acquisition system called the GSX.system. Rather than utilizing interconnecting cables as required by most traditional land data acquisition systems, each GSX station operatesof our wireless stations operate as an independent data collection system, allowing our GSX stations to be deployed infor virtually unlimited channel configurations. As a result, our GSX system requireswireless systems require less maintenance, which we believe allows our customers to operate more effectively and efficiently because of its reduced environmental impact, lower weight and ease of operation. Our GSX systemEach wireless station is designed into configurations ranging from one to four channels per station.  Since its introductionavailable in 2008 and through September 30, 2017, we have sold 403,000 GSX channels

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and we have 71,000 GSX channels in our rental fleet.  We expect to make additional investments in our GSX rental fleet in fiscal year 2018 to replenish a sale of used GSX rental equipment in the fourth quarter of fiscal year 2017.single-channel or three-channel configuration.

We have also developed a marine-based wireless seismic data acquisition system called the OBX. Similar to our GSX land-based wireless system,systems, the marine OBX system canmay be deployed in virtually unlimited channel configurations and does not require interconnecting cables between each station. Our deep waterWe have two versions of the OBX systemnodal stations: A shallow water version that can be used in depths up to 750 meters and a deepwater version that can be deployed in depths of up to 3,450 meters. Through September 30, 2017,2023, we have sold approximately 60013,000 OBX stations and we currently have 6,70028,000 OBX stations in our rental fleet.  We expect

In August 2022, we announced the release of a new seismic acquisition product known as Mariner™, a continuous, cable-free, four channel autonomous, shallow water ocean bottom recorder. Mariner is the next generation node designed for extended duration seabed ocean bottom seismic data acquisition. The slim profile nodes, which are part of our shallow water stations, are ideally deployed as deep as 750 meters. The device continuously records for up to make additional investments70 days and offers more rapid recharging times. Its slim profile creates space savings on seismic survey vessels, allowing contractors to fit up to 25% more nodes into a download/charge container.

In August 2023, we announced the latest in our OBX rental fleet during fiscal year 2018.ocean bottom node product line known as Aquanaut™, a deepwater, wireless seismic acquisition node capable of operating for 200 days in water as deep at 3,450 meters.

Reservoir Products

Seismic surveys repeated over selected time intervals show dynamic changes within thea producing oil and gas reservoir, and operators can be useduse these surveys to monitor the effects of oil and gas development and production. In this regard, we have developed permanently installed high-definitionThis type of reservoir monitoring systems for land and ocean-bottom applications in producing oil and gas fields.  We also produce a retrievable version of our ocean-bottom system for use on fields where permanently installed systems are not appropriate or economical.  Utilizing these tools, producers can enhance the recovery of oil and gas deposits over the life of a reservoir.

Our high-definition reservoir monitoring products include the HDSeis™ product line and a suite of borehole and reservoir monitoring products and services.  Our HDSeis™ system is a high-definition seismic data acquisition system with flexible architecture that allows it to be configured as a borehole seismic system or as a subsurface system for both land and marine reservoir-monitoring projects.  The scalable architecture of the HDSeis™ system enables custom designed system configuration for applications ranging from low-channel engineering and environmental-scale surveys requiring a minimum number of recording channels to high-channel surveys required to efficiently conduct permanent reservoir monitoring (“PRM”).  Modular architecture allows virtually unlimited channel expansion.  In addition, multi-system synchronization features make the HDSeis™ system well suited for multi-well or multi-site acquisition, simultaneous surface and downhole acquisition and continuous reservoir monitoring projects.

Reservoir monitoring requires special purpose or custom designed systems in which portability becomes less critical and functional reliability assumes greater importance. This reliability factor helps assure successful operations in inaccessible locations over a considerable period of time. Additionally, reservoirs located in deep water or harsh environments require special instrumentation and new techniques to maximize recovery. Reservoir monitoring also requires high-bandwidth, high-resolution seismic data for engineering project planning and reservoir management. We believe our HDSeis™ System and tools, designed for cost-effective deployment and lifetime performance, will make borehole and seabed seismic acquisition a cost-effective and reliable process for the challenges of reservoir monitoring.  Our multi-component seismic product developments include an omni-directional geophone for use inUtilizing these reservoir monitoring tools, producers can enhance the recovery of oil and gas deposits over the life of a compact marine three-component or four-component gimbaled sensor and special-purpose connectors, connector arrays and cases.reservoir.

We did not deliver nor didhave developed permanently installed high-definition reservoir monitoring systems for land and ocean-bottom applications in producing oil and gas fields. Our electrical reservoir monitoring systems are currently installed on numerous offshore reservoirs in the North Sea and elsewhere. Through our acquisition of the OptoSeis® fiber optic sensing technology, we receive ordersnow offer both electrical and fiber optic reservoir monitoring systems. These high-definition seismic data acquisition systems have a flexible architecture allowing them to be configured as a subsurface system for any PRMboth land and marine reservoir-monitoring projects. The scalable architecture of these systems duringenables custom designed configuration for applications ranging from low-channel engineering and environmental-scale surveys requiring a minimum number of recording channels to high-channel surveys required to efficiently conduct permanent reservoir monitoring (“PRM”). The modular architecture of these products allows virtually unlimited channel expansion for these systems.

In the fiscalspring of 2023, we released a derivative of the OptoSeis® technology for high temperature downhole applications.  The product know as Insight by OptoSeis offers a passive, all-optical downhole sensor network – no electronics downhole - resulting in years 2015, 2016 and 2017.long operational lifetime @ 150 °C.

In addition, we produce seismic borehole acquisition systems whichthat employ a fiber optic augmented wireline capable of very high data transmission rates. These systems are used for several reservoir monitoring applications, including an application pioneered by us allowing operators and service companies to monitor and measure the results of hydraulic fracturing operations.

Non-Seismic Products

We believe our reservoir characterization products make seismic acquisition a cost-effective and reliable process for reservoir monitoring. Our multi-component seismic product developments also include an omni-directional geophone for use in reservoir monitoring, a compact marine three-component or four-component gimbaled sensor and special-purpose connectors, connector arrays and cases.

We have maintained active discussions with potential clients for future PRM systems. During 2022, in coordination with a potential client, we concluded a successful demonstration of our OptoSeis fiber optic PRM technology in real-world field conditions. This demonstration was a prerequisite step toward future contract consideration. We have also held discussions and received requests for information from other major oil and gas producers regarding PRM systems.  We have not received any orders for a large-scale seabed PRM system since November 2012.

Adjacent Markets

Our non-seismicAdjacent Markets businesses leverage upon our existing manufacturing facilities and engineering capabilities.  We have found that manycapabilities utilized by our Oil and Gas Markets businesses. Many of ourthe seismic products in our Oil and Gas Markets segment, with little or no modification, have direct application to industries beyond those involvedother industries.

Our business diversification strategy has centered largely on translating expertise in oilruggedized engineering and gas explorationmanufacturing into expanded customer markets. To bolster the solid market share we’ve established in the water utility market for water meter connectors, in fiscal year 2021, we acquired the smart water IoT company Aquana, LLC ("Aquana").

Industrial Products

Our industrial products include water meter products, remote disconnect shut-off water valves and development.  For example,IoT Platform, contract manufacturing services and seismic sensors used for vibration monitoring.

Our water meter products support the global smart meter connectivity water utility market. Our products provide our customers utilizewith highly reliable automated meter-reading and automated meter infrastructure with our borehole toolsrobust water-proof connectors.

Our remote disconnect values and water IoT platform allows customers that manage multi-family and commercial properties to monitor subsurface carbon dioxide injectionstheir properties for leak and burst events, with real-time notifications, complimented with our remote-shut off to stop water damage. These products also allow water utilities to re-claim non-revenue water at a lower energy and field service cost through remote control of water service without placing its employees in potential harm or danger.

Our robust manufacturing capabilities have allowed us to provide specialized contract manufacturing services for printed circuit board manufacturing, cabling and harnesses, machining, injection molding and electronic system assembly.

Our seismic sensors provide unique high definition, low frequency sensing that allows for vibration monitoring in industrial machinery, mine safety applications.and earthquake detection.

Imaging Products

Our non-seismicimaging products include electronic pre-press products that employ direct thermal imaging, direct-to-screen printing systems, and digital inkjet printing technologies targeted at the commercial graphics, industrial graphics, textile and flexographic printing industries.

Emerging Markets

Our Emerging Markets business segment consists entirely of our Quantum business. Quantum’s product line includes a proprietary detection system called SADAR®, which detects, locates and tracks items of interest in real-time. Using the SADAR technology, Quantum designs and sells products used for border and perimeter security surveillance, cross-border tunneling detection and other non-seismic products consisttargeted at movement monitoring, intrusion detection and situational awareness. Quantum’s customers include various agencies of (i) sensorsthe U.S. government including the Department of Defense, Department of Energy, Department of Homeland Security and tools for vibrationother agencies as well as energy companies needing real-time monitoring mine safety application and earthquake detection, (ii) cables for power and communication for the offshore oil and gas and offshore construction industries, (iii) water meter cables and connectors, and (iv) other specialty industrial cable and connector products.of seismic data.

Business Strategy

We are currently experiencing depressed industry conditions ashave adopted what we think is a result of lowerconservative and volatile crude oil prices and their impact upon capital spending in the oil and gas industry worldwide.  The resulting significant decline in seismic product orders and, in particular, the lack of any orders for PRM systems, has required us to modify ourprudent business strategy during this difficult period.  Our current business strategywhich places morea focus on sound financial management practices, while we endure this downturn.as outlined below. We have not changed our primary focus on continued investment in product research and development, and, possibly, selective acquisitions and joint ventures.

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Segment and Geographic Information

We report and categorize our revenue and products into two business segments: Seismic and Non-Seismic.  Our Seismic product segments currently include traditional exploration products, wireless exploration products and reservoir products.  Our Non-Seismic product segments include imaging and industrial products.  Frequently, we receive a minor amount of Seismic product revenue from our Non-Seismic customers.  For a discussion of financial information by segment and geographic area, see Note 20 to the consolidated financial statements contained in this Annual Report on Form 10-K.

Competition

Seismic

Oil and Gas Products

We are one of the world’s largest designers and manufacturers of seismic related products.products used in the oil and gas industry. The principal competitors for many of our traditional seismic products are Sercel (a division of CGG), ION Geophysical (“ION”) and INOVA (a joint venture formed in 2009 between ION and Bureau of Geophysical Prospecting, a subsidiary of China National Petroleum Company).INOVA. Furthermore, entities in China affiliated with Sercel, as well as other Chinese manufacturers produce low-cost oil and gas seismic products, meeting current industry standards.  which compete with our traditional seismic products.

The primary competitors for our land wireless data acquisition systems are SmartSolo, Sercel, INOVA, STRYDE, Geophysical Technologies and numerous smaller entities who have introduced similar versions of wireless data acquisition systems. We believe the primary competitors for our marine nodal data acquisition systems are Magseis Fairfield ASA (a division of TGS), Sercel and InApril AS each of whom utilizes their own proprietary nodal technology.

Most oil and gas seismic products are price sensitive, so the ability to manufacture these products at a low cost is essential to maintain market share. We believe our primary competitor in the manufacture of our marine products is Sercel.

The primary competitors for our land wireless data acquisition systems are Sercel, FairfieldNodal, INOVA, Wireless Seismic and numerous smaller entities who have recently introduced new versions of wireless data acquisition systems.  We believe the primary competitors for our marine nodal data acquisition systems are marine seismic data acquisition service providers like FairfieldNodal, Seabed Geosolutions (a joint venture formed between Fugro and CGG), and Magseis ASA, each of whom utilizes their own proprietary nodal technology.  For land and marine wireless data acquisition systems, whileWhile price is an important factor in a customer’s decision to purchase the product,a land or marine wireless data acquisition system, we believe customers also place a high value on a product’s historical performance and the ongoing engineering and field support provided by the product’s manufacturer.

Our primary competitors for rental of our traditional and wireless seismic equipment are Mitcham Industries, Inc. and Seismic Equipment Solutions.

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Our primary competitors for our seabed PRM systems are Alcatel-Lucent and Petroleum Geo-Services ASA.  We believe our primary competitors for high-definition borehole seismic data acquisition systems are Avalon Sciences Ltd and Sercel.  A product’s historical performance, field support and engineering capabilities are important factors for receiving orders for our seismic reservoir products.

The principal keys for success in the seismic instruments and equipment market are technological superiority, product durability under harsh field conditions, reliability, size, weight and customer support. Price and product delivery areProduct deliverability is always an important considerationsconsideration for our customers.

In general, most customers prefer to standardize data acquisition systems, geophones and hydrophones, particularly if they are used by seismic companies that have multiple crews which are able to support each other. This standardization makes it difficult for competitive manufacturers to gain market share from other manufacturers with existing customer relationships.

As mentioned above, a key factor

Our primary competitors for the rental of our traditional and land wireless seismic instrumentsequipment are STRYDE, SmartSolo, INOVA, and equipment manufacturersGeophysical Technologies.

Our primary competitor for our seabed PRM systems is durability under harsh field conditions.  Seismic instrumentsAlcatel-Lucent. Our primary competitors for high-definition borehole seismic data acquisition systems are Avalon Sciences Ltd and equipment must meet not only rigorous technical specifications regarding signal integritySercel.

Our primary competitors for the new energy or energy transition market are Microseismic, Inc., Namometrics, ISTI and sensitivity, but must also be extremely ruggedESG.

Adjacent Markets Products

Our industrial and durable to withstand the rigors of field use, often in harsh environments.

Non-Seismic Products

There are numerous competitors and competitive technologies including other direct thermal printer manufacturers and manufacturers of direct-to-screen and inkjet solutions.  Our non-seismic industrialimaging products face competition from numerous domestic and international specialty product manufacturers.

Emerging Markets Products

The border and perimeter security marketplace is dominated by large integrated system providers such as Boeing, General Dynamics, Lockheed Martin, Raytheon, Elbit Systems and others. Systems provided by these competitors are generally multifaceted and may include numerous integrated surveillance technologies, including the geophysical sensor and software systems that we have developed. Our sensing technology does not rely on line-of-sight motion detection, which is required by cameras and other visual and radio frequency technologies, and thus enables motion-sensing such devices would miss. Competitive geophysical technologies utilizing fiber optic sensing techniques are provided by OptaSense, Fibersensys, Future Fiber Technologies and other specialty sensor manufacturing firms.

Suppliers

We purchase raw materials from a variety of suppliers located in various countries. We typically have multiple suppliers for our critical materials. We purchase all ofIn our thermal film from a single supplier.  Except for the film sold to us by this supplier, we know of no other source for thermal film that performs as well in our imaging equipment.  In addition,oil and gas seismic business segment, certain models of our marine wireless products use a timing device manufactured by a single supplier. We currently do not possess the ability to manufacture this component and have no other reliable source for this device. In our Adjacent Markets business segment, we purchase all of our thermal imaging film from a single supplier. Beyond this film supplier, we know of no other source for thermal film that performs as well in our imaging equipment. For a discussion of the risks related to our reliance on these suppliers, see “Risk Factors – We Rely on Key Suppliers for Certain Components Used in Our Products.”

We do not currently experience any significant difficulties

COVID-19 has disrupted the Company’s supply chain, resulting in obtaining rawlonger lead times in materials available from suppliers and extended the shipping time for these materials to reach the Company’s facilities. These disruptions could constrain our suppliers forability to provide products to our customers in the production of our seismic or non-seismic products.time frame they require.

Product Manufacturing and Assembly

Our manufacturing and product assembly operations consist of machining, molding or cabling the necessary component parts, configuring these parts along with components received from various vendors and assembling a final product. We manufacture many of our oil and gas seismic equipmentproducts to the specifications ofrequired by our customers. For example, we can armor cables for use in multiple deep water applications.  We assemble geophone strings and seismic telemetry cables based on a number of customer choices such as length, gauge, tolerance and color of molded parts. Upon completion of our manufacturing and assembly operations, we test our final products to the functional and in the case of seismic equipment, environmental extremes of product specifications and inspect the products for quality assurance. Consistent with industry practice, we normally manufacture and ship our products based on firm customer orders, anticipated customer orders and historical product demand. As a result of the steep decline in product demand that began in fiscal year 2014, further accentuated by the COVID-19 pandemic creating a global decline in the demand for oil and that was furthergas, also aggravated by the decline in crude oil prices,global supply shortages of electronic components, we currently hold significant inventoriesmore than twelve months supply of finished goods.  Our finished goods inventories also include sub-assemblies of extensively manufactured products.inventory.

Markets and Customers

Our principal customers for our traditional and wireless seismic products are seismic contractors and, to a lesser extent, major independent and government-owned oil and gas companies that either operate their own seismic crews or specify seismic instrument and equipment preferences to contractors. For our deep waterdeepwater PRM products, our customers are generally large international oil and gas companies that operate long-term offshore oil and gas producing properties. Our graphicsindustrial product customers consist of specialty manufacturers, research institutions and industrial product distributors. Our imaging customers primarily consist of direct users of our equipment as well as specialized resellers that focus on the screen-printing and flexographic printing industries. Our industrial productborder and perimeter security customers consist of specialty manufacturers, research institutionsare primarily government agencies.  Our smart water connectivity customers include municipalities, water utilities, water meter manufacturing companies as well as asset management firms such as multifamily property owners.

Two customers comprised 26.7% and industrial product distributors.   One customer comprised 17.8%11.7% of our revenue during fiscal year 2017.2023.  One customer comprised 18.5%29.3% of our revenue during fiscal year 2016.  No customer comprised 10% or more of our revenue during fiscal year 2015.2022.  The following table describes our revenue by customerproduct type (in thousands):

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Intellectual Property

We seek to protect our intellectual property by means of patents, trademarks, trade secrets and other measures. We hold patents on geophones, micro-geophones, piezo-electric sensors, seismic data acquisition, in-line retrieval devices and water meter connectors, and we have pending applications on related technology. We do not consider any single patent essential to our success. Our patents are scheduled to expire at various dates through 2035.  At this time we2039. We are not able to predict the effect of any patent expiration. We protect our proprietary rights to our technology through a variety of methods, including confidentiality agreements and proprietary information agreements with suppliers, employees, consultants and others who may have access to proprietary information.

Research and Development

We expect to incur significant future research and development expenditures aimed at the development of additional seismic and non-seismic products.products for each of our business segments. We have incurred company-sponsored research and development expenses of $13.8 million, $13.9$16.0 million and $14.7$18.1 million during the fiscal years ended September 30, 2017, 20162023 and 2015,2022, respectively.

Employees

As ofHuman Capital, Environmental and Social

In order to continue to produce the most technologically advanced instruments and equipment available for the industrial, border and perimeter security and seismic data acquisition markets, it is crucial that we continue to attract and retain top talent. To attract and retain talented employees, we strive to make Geospace Technologies Corporation a diverse and safe workplace, with opportunities for our employees to receive educational benefits, cross-function skill-development to grow and develop their careers, all supported by competitive compensation and benefits.

Workforce Composition - At September 30, 2017,2023, we employed 707681 people predominantly on a full-time basis, of which 429451 were employed in the United States, 238209 in the Russian Federation and the remainder in the United Kingdom, Canada, China and Colombia. AOur professional staff includes geoscientists, electrical and mechanical engineers, accountants, computer and data scientists, marketing and human resource professionals. 65% of our global workforce is employed in manufacturing, 14% in engineering and 17% in sales and administration. The majority of our employees in the Russian Federation belong to a regional union for machine manufacturers. Our remaining employees are not unionized. We have never experienced a work stoppagestoppage.

As a global manufacturer of high-tech offerings, we believe that a diverse workforce benefits everyone, from our skilled workforce, to our valued clients, to our trusted shareholders and consider our relationshipsociety. Our domestic workforce make-up includes 29% white, 34% Asian, 24% Hispanic or Latino, 11% Black or African American, and 2% two or more races. Women in managerial roles represent 3% of our domestic workforce. We proudly employ veterans of the US Armed Forces, who make up 3% of our domestic workforce.

Health, Safety and Wellness - The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health and safety of our employees. We provide our full-time employees and their families with access to healthcare programs. In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This includes having employees work from home, while implementing additional safety measures for employees continuing critical on-site work.

Compensation and Benefits -We provide competitive compensation and benefits programs to be satisfactory.help meet the needs of our employees. In addition to salaries, these programs (which vary by country/region and employment classification) include an incentive compensation plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, tuition assistance and on-site services, among others. We use targeted equity-based grants with vesting conditions to facilitate retention of personnel, particularly those with critical skills and experience.

Talent Development -We invest resources to develop the talent needed to remain a leading manufacturer and developer of industrial, border and perimeter security and seismic data acquisition products. We provide our employees training opportunities and educational benefits to assist in career and skill development. We focus on continuous learning and provide feedback to assist in the development of talent.

Company Culture – Our Board of Directors established a Code of Business Conduct applicable to all our employees, directors and officers and a Code of Ethics for Senior Financial Officers in accordance with applicable U.S. federal securities laws and the NASDAQ Listed Company Manual. The Code of Business Conduct provides guidance on corporate policies such as anti-harassment, anti-corruption, substance abuse, anti-trust, conflict minerals compliance, international trade restrictions as well as policies against insider trading, conflict of interest and hedging of our common stock. We offer a Whistle Blower program designed to protect any employee who reports valid suspicions related to our financial accounting, internal controls or like matters to management without fear of termination or similar repercussions.

Human Rights – This year, we introduced a Human Rights Policy Statement which demonstrates our commitment to supporting and promoting human rights that benefit all our stakeholders, including our customers, employees, shareholders, investors, and the communities in which we live and operate. Our approach is applied in our business operations, across our supply chain and through ethical business conduct. This policy statement promotes a safe and healthy workplace, diversity and inclusion, non-discrimination and anti-harassment as well as addresses forced labor, human trafficking, and child labor. The Human Rights Policy Statement is posted to our corporate website and is adhered through our Business Code of Conduct and through responsible sourcing practices.

Our values and ethics serve as the guiding force through which we proactively maintain the highest standards of business conduct. Our Core Values guide our corporate policies and practices and promote ethical business conduct and compliance with the law. Our employees understand the importance of applying our Core Values toward their daily best practices. Annually, we hold an internal Core Values survey to inform leadership on the values in action and opportunities to improve.

Governance – We pride ourselves on the highly ethical and transparent standards through the governance under our Board of Directors.

Board Composition - Our Board of Directors is chaired by a highly experienced, independent Director whose position is wholly separate and divided from the role of the Chief Executive Officer. Unlike organizations where the two leadership roles are intertwined, this distinction helps ensure varying viewpoints designed to deliver improved returns for the shareholders we serve and the communities in which we operate.

Board Charter Reviews - Every twelve-months, we conduct a Board and Board Committee assessment review to review and ensure that the highest quality standards are met.

Executive Sessions Without Management - In order to ensure original and independent thought, non-management Board members meet throughout the year.

Audit Policies – Our Audit Committee is comprised of trusted members who ensure the integrity of our financial statements, internal controls, compliance with legal and regulatory requirements, as well as the performance of our independent auditor.

Enterprise Risk Management ("ERM") – Our Board of Directors takes an enterprise-wide approach to reviewing each of our business segments, which encompass Oil & Gas, Adjacent Markets, and Emerging Markets operations which include our Security & Surveillance sector. Board members meet regularly to oversee and ensure that company objectives are met, shareholder concerns are addressed and ERM policies are maintained.

Environmental – We are committed to zero harm to people, property and the environment. We have an ISO 14001 certified environmental management system, employed over many health, safety and environmental programs. We do not exist in isolation. We strive to pursue a strategy of responsibility that not only encompasses all our activities but addresses the needs of our employees, customers, suppliers and our stakeholders. We operate in communities, which have placed their trust in us. In doing this, we aim to better our impact on the environment and society, not only of our business but all businesses and organizations with whom we interact. We integrate responsible and sustainable practices throughout our organization. Our products are designed to not harm individuals, communities or the environment. We pledge to conduct ourselves in a most responsible manner in each community.

As a manufacturer, we have a responsibility to reuse or recycle waste materials from our operations. Over the last three years, we have recycled more than 263 tons of recyclable materials. Year to date 2023, we have recycled over 174 tons of manufacturing waste materials. This includes production recyclable materials (aluminum, brass, copper, stainless steel, steel, and titanium as well as armored cable, film, lithium batteries, PCB boards and solder paste) plus paper, plastic, cardboard and e-waste (electronics).

We produce an Environmental, Society and Governance (ESG) report annually which is made public on our website.

Financial Information by Segment and Geographic Area

For a discussion of financial information by segment and geographic area, see Note 2019 to the consolidated financial statements contained in this Annual Report on Form 10-K. For a description of risks attendant to our foreign operations, please see “Risk Factors - Our Foreign Subsidiaries and Foreign Marketing Efforts Are Subject to Additional Political, Economic, Legal and Other Uncertainties Not Generally Associated with Domestic Operations.”Operations and The Ongoing Armed Conflict Between Russia and Ukraine Could Adversely Affect Our Business, Financial Condition, and Results of Operations".

Available Information

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549.  Please call the SEC at 1-800-SEC-0330 for further information on their public reference room.  Our SEC filings are also available to the public free of charge on our website at www.geospace.com. Please note that information contained on our website, whether currently posted or posted in the future, is not a part of this Annual Report on Form 10-K or the documents incorporated by reference in this Annual Report on Form 10-K.

Item 1A. Risk Factors

Risk

In evaluating the Company’s business, you should consider the following discussion of risk factors, in addition to other information contained in this report and in the Company’s other public filings with the U.S. Securities and Exchange Commission. Any such risks could materially and adversely affect our business, financial condition, results of operations, cash flow and prospects. However, the risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations, cash flow and prospects.

External Factors that Could Adversely Affect Us

The Ongoing COVID-19 Pandemic Has Significantly Impacted Worldwide Economic Conditions and Could Have a Material Adverse Effect on Our Operations and Business.

The ongoing COVID-19 pandemic has negatively impacted worldwide economic activity and continues to create challenges in our markets.  The COVID-19 pandemic and the related mitigation measures have disrupted our supply chain, resulting in longer lead times in materials available from suppliers and extended shipping time for these materials to reach our facilities.  The occurrence or resurgence of global or regional health events such as the COVID-19 pandemic, and the related government responses, could result in a material adverse effect on our business, financial condition, results of operations and liquidity.  As such, we will continue to closely monitor COVID-19 and will continue to reassess our strategy and operational structure on a regular, ongoing basis.

Oil Commodity Price Levels MayCould Affect Demand for Our Oil and Gas Products, Which Has and Could Continue to Materially and Adversely Affect Our Results of Operations and LiquidityLiquidity.

Demand for many of our products and the profitability of our operations depend primarily on the level of worldwide oil and gas exploration activity. Prevailing oil and gas prices, with an emphasis on crude oil prices, and market expectations regarding potential changes in such prices significantly affect the level of worldwide oil and gas exploration activity. During periods of

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improved energy commodity prices, the capital spending budgets of oil and natural gas operators tend to expand, which results in increased demand for our customers services leading to increased demand in our products. Conversely, in periods when these energy commodity prices deteriorate, capital spending budgets of oil and natural gas operators tend to contract and thecausing demand for our products generally weakens.to weaken. Historically, the markets for oil and gas have been volatile and are subject to wide fluctuationfluctuations in response to changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include the level of consumer demand, supplies of oil and natural gas, regional and international economic conditions, weather conditions, domestic and foreign governmental regulations (including those related to climate change), price and availability of alternative fuels, political conditions, the war between Russia and Ukraine, instability and hostilities in the Middle East and other significant oil-producing regions, increases and decreases in the supply of oil and gas, the effect of worldwide energy conservation measures and the ability of OPECthe Organization of Petroleum Exporting Countries ("OPEC") to set and maintain production levels and prices of foreign imports.

Uncertainty in the European markets

Crude oil prices held above $65 per barrel throughout 2022 and slowing economic growth in growing economies like those in China and India could lead to a decline in demand for crude oil and natural gas.  Slowdowns in economic activity would likely reduce worldwide demand for energy andthrough September 2023, which may result in an extended period of lower crude oilhigher cash flows for exploration and natural gas prices.production companies. Any material changes in oil and gas prices or other market trends, thatlike slowing growth of the global economy, could adversely impact seismic exploration activity and would likely affect the demand for ourthe Company's products and could materially and adversely affect ourits results of operations and liquidity.

Generally, as exists at present, imbalances in the supply and demand for oil and gas will ordinarily affect oil and gas prices and, in such circumstances, demand for our company willoil and gas products may be adversely affected as now withwhen world supplies exceedingexceed demand.

The Ongoing Armed Conflict Between Russia and Ukraine Could Adversely Affect Our Business, Financial Condition, and Results of Operations, including our ability to repatriate cash from Russia.

A portion of our oil and gas product manufacturing is conducted through our wholly-owned subsidiary, Geospace Technologies Eurasia LLC ("GTE"), which is based in the Russian Federation. In February 2022, the Russian Federation launched a full-scale military invasion of Ukraine, and Russia and Ukraine continue to engage in active and armed conflict as of November 2022. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions in addition to any direct impact on our operations in Russia. As a result of the invasion, the governments of several western nations, including the U.S., Canada, the United Kingdom and the European Union, implemented new and/or expanded economic sanctions and export restrictions against Russia, Russian-backed separatist regions in Ukraine, certain banks, companies, government officials, and other individuals in Russia and Belarus. The implementation of these sanctions and export restrictions, in combination with the withdrawal of numerous private companies from the Russian market, has had, and is likely to continue to have, a negative impact on the company’s business in the region. During fiscal year 2023, we imported $3.8 million of products from GTE for resale elsewhere in the world. The rapid changes in rules and implementation of new rules on imports and exports of goods involving Russia has also led to serious delays in getting goods to or from Russia as port authorities struggle to keep up with the changing environment. If imports of these products from the Russian Federation are restricted by government regulation, we may be forced to find other sources for the manufacturing of these products at potentially higher costs. Likewise, restrictions on our ability to send products to our subsidiary in Russia may force our subsidiary to have to find other sources for the manufacturing of these products at potentially higher costs; however, our exports to GTE have historically been limited. Boycotts, protests, unfavorable regulations, additional governmental sanctions and other actions in the region could also adversely affect our ability to operate profitably. Delays in obtaining governmental approvals can affect our ability to timely deliver our products pursuant to contractual obligations, which could result in us being liable to our customers for damages. The risk of doing business in the Russian Federation and other economically or politically volatile areas could adversely affect our operations and earnings. It is possible that increasing sanctions, export controls, restrictions on access to financial institutions, supply and transportation challenges, or other circumstances or considerations could necessitate a reduction, or even discontinuation, of operations by GTE or other business in Russia.

We are actively monitoring the situation in Ukraine and Russia and assessing its impact on our business, including GTE. The net carrying value of GTE on our consolidated balance sheet at September 30, 2023 was $5.8 million, including cash of $2.5 million. In response to sanctions imposed by the U.S. and others on Russia, the Russian government has imposed restrictions on companies’ abilities to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia. As a result, this cash can be used in our Russian operations, but we may be unable to transfer it out of Russia without incurring substantial costs, if at all.  In addition to the $3.8 million of products we imported from GTE in fiscal year 2023, the subsidiary generated $1.8 million in revenue from domestic sales in fiscal year 2023. We have no way to predict the duration, progress or outcome of the military conflict in Ukraine. The extent and duration of the military action, sanctions, and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time.

Our Foreign Subsidiaries and Foreign Marketing Efforts Are Subject to Additional Political, Economic, Legal and Other Uncertainties Not Generally Associated with Domestic Operations.

Based on customer billing data, revenue to customers outside the United States accounted for approximately 50% of our revenue during fiscal year 2023; however, we believe the percentage of revenue outside the United States is likely higher since many of our products are first delivered to a domestic location and ultimately shipped to a foreign location. We again expect revenue outside of the United States to represent a substantial portion of our revenue for fiscal year 2024 and subsequent years.

Foreign revenue is subject to special risks inherent in doing business outside of the United States, including the risk of war, terrorist activities, civil disturbances, embargo and government activities, shifting foreign attitudes about conducting business activities with the United States, restrictions of the movement and exchange of funds, inhibitions of our ability to collect accounts receivable or repossess our rental equipment, international sanctions, expropriation and nationalization of our assets or those of our customers, currency fluctuations, devaluations and conversion restrictions, confiscatory taxation or other adverse tax policies and governmental actions that may result in the deprivation of our contractual rights, all of which may disrupt markets or our operations.

Foreign revenue is also generally subject to the risk of compliance with additional laws, including tariff regulations and import and export restrictions. International revenue transactions for our products containing hydrophones require prior U.S. government approval in the form of an export license, which may be withheld by the U.S. government based upon factors which we cannot predict.

We may experience difficulties in connection with future foreign revenue. Additionally, due to foreign laws and restrictions, should we experience substantial growth in certain foreign markets, for example in the Russian Federation, we may not be able to transfer cash balances to the United States to assist with debt servicing or other obligations.

Increases in Tariffs, Trade Restrictions or Taxes on our Products Could Have an Adverse Impact on our Operations.

In fiscal year 2023, customers outside the United States accounted for approximately 50% of our revenues. We also purchase a portion of our raw materials from suppliers in China and other foreign countries. The commerce we conduct in the international marketplace makes us subject to tariffs, trade restrictions and other taxes when the raw materials we purchase, and the products we ship, cross international borders. Trade tensions between the United States and China, as well as those between the U.S. and Canada, Mexico and other countries have been escalating in recent years. Trade tensions have led to a series of tariffs imposed by the U.S. on imports from China, as well as retaliatory tariffs imposed by China on imports from the U.S. If the U.S. and China are able to negotiate the issues to restore a mutually advantageous and fair trading regime, the increased tariffs could be eliminated. Certain raw materials we purchase from China are subject to these tariffs which has increased our manufacturing costs. Products we sell into certain foreign markets could also become subject to similar retaliatory tariffs, making the products we sell uncompetitive to similar products not subjected to such import tariffs. Further changes in U.S. trade policies, tariffs, taxes, export restrictions or other trade barriers, or restrictions on raw materials including rare earth minerals, may limit our ability to produce products, increase our manufacturing costs, decrease our profit margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase raw materials, which could have a material adverse effect on our business, results of operations or financial conditions.

Climate Change and Legislation Designed to Reduce Climate Change

The physical and regulatory effects of climate change could have a negative impact on our operations, our customers’ operations and the overall demand for our customers’ products and, accordingly, our services. There is an increasing focus of local, state, regional, national and international regulatory bodies on Greenhouse Gas ("GHG") emissions and climate change issues. Legislation to regulate GHG emissions has periodically been introduced in the U.S. Congress, and there has been a wide-ranging policy debate, both in the United States and internationally, regarding the impact of these gases and possible means for their regulation. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources. Some of the proposals would require industries to meet stringent new standards that would require substantial reductions in carbon emissions. Those reductions could be costly and difficult to implement. In the absence of federal GHG-limiting legislation, the EPA has determined that GHG emissions present a danger to public health and the environment and has adopted regulations that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain oil and natural gas system sources, implement Clean Air Act emission standards directing the reduction of methane emissions from certain new, modified, or reconstructed facilities in the oil and natural gas sector, and together with the DOT, implement GHG emissions limits on vehicles manufactured for operation in the United States.

In April 2016, the United States signed the Paris Agreement, which requires countries to review and “represent a progression” in their nationally determined contributions, which set emissions reduction goals, every five years. Under the Paris Agreement, the Biden Administration has committed the United States to reducing its greenhouse gas emissions by 50-52% from 2005 levels by 2030. In November 2021, the Unites States and other countries entered into the Glasgow Climate Pact, which includes a range of measures designed to address climate change, including, but not limited to the phase-out of fossil fuel subsidies, reducing methane emissions 30% by 2030, and cooperating toward the advancement of the development of clean energy. Several states and geographic regions in the United States have also adopted legislation and regulations to reduce emissions of GHGs, including cap and trade regimes and commitments to contribute to meeting the goals of the Paris Agreement.

Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the United States. President Biden and Congress have identified climate change as a priority, and it is likely that additional executive orders, regulatory action, and/or legislation targeting greenhouse gas emissions, or prohibiting or restricting oil and gas development activities in certain areas, will be proposed and/or promulgated during the Biden Administration. President Biden issued an executive order imposing a moratorium on new oil and gas leasing on federal lands and offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. President Biden’s order also establishes climate change as a primary foreign policy and national security consideration, affirms that achieving net-zero greenhouse gas emissions by or before midcentury is a critical priority, affirms the Biden Administration’s desire to establish the United States as a leader in addressing climate change, generally further integrates climate change and environmental justice considerations into government agencies’ decision-making, and eliminates fossil fuel subsidies, among other measures. Other actions impacting oil and natural gas production activities that could be pursued by the Biden administration may include more restrictive requirements for the establishment of pipeline infrastructure or the permitting of liquified natural gas export facilities.

It is not possible at this time to predict the timing and effects of climate change or whether additional climate-related legislation, regulations or other measures will be adopted at the local, state, regional, national and international levels. However, continued efforts by governments and non-governmental organizations to reduce GHG emissions appear likely, and additional legislation, regulation or other measures that control or limit GHG emissions or otherwise seek to address climate change could adversely affect our customers and our business. Because our business depends on the level of oil exploration, existing or future laws or regulations related to GHGs and climate change, including incentives to conserve energy or use alternative energy sources, our business could be negatively impacted if such laws or regulations reduce demand for our customers’ products and, accordingly, our services.

These political, litigation, and financial risks may result in our customers restricting or cancelling exploration or production activities which also could reduce demand for our products and services. In addition to regulatory impacts, the occurrence of weather events caused or exacerbated by climate change could impact local, national or global commodity demand or availability in ways that could be material to our business and/or the business of our customers.

We Operate in Highly Competitive Markets and Our Competitors May Be Able to Provide Newer or Better Products Than We Are Able to Provide

The markets for most of our products are highly competitive. Many of our existing and potential competitors have substantially greater marketing, financial and technical resources than we do. Some competitors currently offer a broader range of instruments and equipment for sale than we do and may offer financing arrangements to customers on terms that we may not be able to match. In addition, new competitors may enter the market and competition could intensify.

Revenue from our products may not continue at current volumes or prices if current competitors or new market entrants introduce new products with better features, performance, price or other characteristics than our products. Competitive pressures or other factors may also result in significant price competition that could have a material adverse effect on our results of operations.

A General Downturn in the Economy in Future Periods May Adversely Affect Our Business.

Economic slowdowns, currently or in the future, in the United States, China or India, could adversely affect our business in ways that we cannot predict. During times of economic slowdown, our customers may reduce their capital expenditures and defer or cancel pending projects and product orders. Such developments occur even among customers that are not experiencing financial difficulties. During times of economic slowdowns, some of our customers have (and other customers may have) undergone restructuring or bankruptcy that has or could adversely impact our revenues and profitability. Any economic downturn may adversely affect the demand for oil and gas generally or cause volatility in oil and gas commodity prices and, therefore, adversely affect the demand for delivery of our oil and gas products. It could also adversely affect the demand for consumer and industrial products, which could in turn adversely affect our Adjacent Markets business segment. To the extent these factors adversely affect other companies in the industries we serve, there could be an oversupply of products and services and downward pressure on pricing for our products and services, which could adversely affect us. Additionally, bankruptcies or financial difficulties among our oil and gas customers could reduce our cash flows and adversely impact our liquidity and profitability. For a discussion of the customers of our oil and gas products, see “The Limited Market for Our Oil and Gas Products Can Affect Our Revenue,” below.

Risks Associated with Our Business Strategy and Operations

Our New Products Require a Substantial Investment by Us in Research and Development Expense and May Not Achieve Market AcceptanceAcceptance.

Our outlook and assumptions are based on various macro-economic factors and internal assessments, and actual market conditions could vary materially from those assumed. In recent years, we have incurred significant expenditures to fund our research and development efforts, and we intend to continue those expenditures in the future. However, research and development is by its nature speculative, and we cannot assure you that these expenditures will result in the development of new products or services or that any new products and services we have developed recently or may develop in the future will be commercially marketable or profitable to us. In particular, we have incurred substantial expenditures to develop our landoil and marine wirelessgas nodal seismic data acquisition systems, as well as other seismic products for PRM applications. In addition, we try to use some of our capabilities to supply products to new adjacent and emerging markets. We cannot assure you that we will realize our expectations regarding acceptance of and revenue generated by our new products and services in existing or new markets.

The Short TermShort-Term Nature of Our Order Backlog for Sales of Our Oil and Gas Products and Delayed or Canceled Customer Orders May Cause Us to Experience Fluctuations in Quarterly Results of OperationsOperations.

Historically, the rate of new orders for the sale of our oil and gas products has varied substantially from quarter to quarter. Moreover, we typically operate, and expect to continue operating, on the basis of orders in-hand for our products before we commence substantial manufacturing “runs.” The short-term nature of our order backlog for most of our oil and gas products generally does not allow us to predict with any accuracy demand for our products more than approximately three months in advance. Thus, our ability to replenish orders and the completion of orders, particularly large orders for deep water PRM projects, can significantly impact our operating results and cash flow for any quarter, and results of operations for any one quarter may not be indicative of results of operations for future quarters.

Additionally, customers can delay or even cancel orders and rental contracts before delivery.product delivery occurs. For larger orders which generally require us to make a substantial capital investment in our inventories or rental fleet, we attempt to negotiate for a non-refundable deposit or cancellation penalties depending on our relationship with the customer. However, such deposits or penalties, even when obtained, may not fully compensate us for our inventory investment and forgone profits if the order is ultimately cancelled.

These periodic fluctuations in our operating results and the impact of any order delays/cancellations could adversely affect our stock price.

Our Credit Risk Could Increase and We May Incur Bad Debt Write-Offs ifIf Our Customers Continue to Face Difficult Economic CircumstancesCircumstances.

We

While we believe that our allowance for bad debts is adequate in light of known circumstances.  However, we cannot assure you thatcircumstances, additional amounts attributable to uncollectible accounts and notes receivable and bad debt write-offs will notmay have a material adverse effect on our future results of operations. Many of our seismicoil and gas customers are not well capitalized and as a result cannot always pay our invoices when due. We have in the past incurred write-offs in our accounts and notes receivable due to customer credit problems. We have found it necessary from time to time to extend trade credit, including promissory notes, to long-term customers and others where some risks of non-payment exist. With the recent decline in oil prices and a decline in seismic activities around the world, someMany of our seismicoil and gas customers maycontinue to experience significant liquidity difficulties, which increase those credit risks.risks, due to prolonged periods of low crude oil prices. An increase in the level of bad debts and any deterioration in our credit risk could adversely affect the price of our stock. In addition,

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we rent equipment to our oil and gas customers whichwho utilize such equipment in various countries around the world. If our rentalthese customers experience financial difficulties, it could be difficult or impossible to retrieve our rental equipment from foreign countries.

Our Industry is

The Industries in Which We Operate are Characterized by Rapid Technological Development and Product Obsolescence, Which May Affect Our Ability to Provide Product Enhancements or New Products on a Timely and Cost Effective BasisCost-Effective Basis.

Our instruments and equipment are constantly undergoing rapid technological improvement. Our future success depends on our ability to continue to:

Current competitors or new market entrants may develop new technologies, products or standards that could render our products obsolete. We cannot assure you that we will be successful in developing and marketing, on a timely and cost effectivecost-effective basis, product enhancements or new products that respond to technological developments, that are accepted in the marketplace or that comply with new industry standards. Additionally, in anticipation of customer product orders, from time to time we acquire substantial quantities of inventories, which if not sold or integrated into products within a reasonable period of time, could become obsolete. In such case, we would be required to impair the value of such inventories on our balance sheet.

We Operate in Highly Competitive Markets and Our Competitors May Be Able to Provide Newer or Better Products Than We Are Able to Provide

The markets for most of our products are highly competitive.  Many of our existing and potential competitors have substantially greater marketing, financial and technical resources than we do.  Some competitors currently offer a broader range of instruments and equipment for sale than we do and may offer financing arrangements to customers on terms that we may not be able to match.  In addition, new competitors may enter the market and competition could intensify.  As to our non-seismic imaging solutions, we compete with other printing solutions, including inkjet and laser printing technologies, many of which are provided by large companies with significant resources.

We cannot assure you that revenue from our products will continue at current volumes or prices if current competitors or new market entrants introduce new products with better features, performance, price or other characteristics than our products.  Competitive pressures or other factors may also result in significant price competition that could have a material adverse effect on our results of operations.

The Limited Market for Our SeismicOil and Gas Markets and Emerging Markets' Products Can Affect Our Revenue in the Seismic Business SegmentRevenue.

In our seismic businessOil and Gas Markets segment, we generally market many of our traditional and wireless products to seismic service contractors. We estimate that based on published industry sources, fewer than 5030 oil and gas seismic contracting companies are currently operating in countries other than those operating in the Russian Federation and the former Soviet Union, India, the People’s Republic of China and certain Eastern European countries, where seismic data acquisition activitysuch information is difficult to verify. We estimate that fewer than 2015 seismic contractors are engaged in marine seismic exploration.exploration activities. Due to these market factors, a relatively small number of customers, some of whom are experiencing financial difficulties, account for most of our oil and gas product revenue. From time to time, these seismic contractors have sought to vertically integrate and acquire our competitors, which has influenced their supplier decisions before and after such transactions. In addition, consolidation among our customers may further concentrate our business to a limited number of customers and expose us to increased risks related to dependence on a small number of customers. The loss of a small number of these customers could materially and adversely impact revenue from of our seismic products.  We market our seabed PRM systemssystems' products to large oil and gas companies. Since this product’s introduction in 2002, we have received system orders from three offshore oil and gas operators: BP, Shell and Statoil,Equinor, which have accounted for a significant portion of our revenue in fiscal year 2014 and prior fiscal years. We didhave not deliver nor have we received any orders for anylarge-scale seabed PRM systems since 2014.November 2012. Our emerging markets segment primarily sells its products to a small number of agencies within the U.S. government. The loss of a small number of these customers, and particularly our oil and gas customers, could materially and adversely impact our future revenues.

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We Cannot Be Certain of the Effectiveness of Patent Protection on Our ProductsProducts.

We hold and from time to time apply for certain patents relating to some of our seismic products. We cannot assure you that our patents will prove enforceable or free of challenge, that any patents will be issued for which we have applied or that competitors will not develop functionally similar technology outside the protection of any patents we have or may obtain.

Our Foreign SubsidiariesStrategy of Renting Our Oil and Foreign Marketing Efforts Are SubjectGas Seismic Products Exposes Us to Additional Political, Economic, LegalRisks Relating to Equipment Recovery, Rental Renewals, Technological Obsolescence and Other Uncertainties Not Generally Associated with Domestic OperationsImpairment of Assets.

Based on customer billing data, revenue to customers outside the United States accounted for approximately 35%

Our rental fleet of our revenue during fiscal year 2017; however, we believe the percentage of revenue outside the United States is likely higher since many of our products are first delivered tooil and gas seismic equipment represents a domestic location and ultimately shipped to a foreign location.  We again expect revenue outside of the United States to represent a substantialsignificant portion of our revenueassets and accounts for fiscal year 2018 and subsequent years.

Foreign revenue is subject to special risks inherent in doing business outside of the United States, including the risk of war, terrorist activities, civil disturbances, embargo and government activities, shifting foreign attitudes about conducting business activities with the United States, restrictions of the movement and exchange of funds, inhibitions of our ability to collect accounts receivable, international sanctions, expropriation and nationalization of our assets or those of our customers, currency fluctuations, devaluations and conversion restrictions, confiscatory taxation or other adverse tax policies and governmental actions that may result in the deprivation of our contractual rights, all of which may disrupt markets or our operations.

Aa significant portion of our manufacturing is conducted through our subsidiary Geospace Technologies Eurasia, which is based in the Russian Federation.  Our business could be directly affected by political and economic conditions in the Russian Federation, including the current geopolitical instability involving the Russian Federation, Ukraine and Syria.  United States sanctions against Russia have been expanded to preclude export of seismic equipment anywhere in the world that involve persons designated under the sanctions and to include projects in which persons subject to the sanctions have a 33% ownership interest.  Together, these changes make it more difficult for us to support projects that have the potential to produce oil involving Russian energy companies.  Furthermore, if an exporter is unable to determine whether its seismic equipment will be used in such projects, the export is prohibited.  In fiscal year 2017,revenue. Equipment we imported $1.4 million of products from Geospace Technologies Eurasia for resale elsewhere in the world.  If imports of these products from the Russian Federation are restricted by government regulation, we may be forced to find other sources for these products at potentially higher costs.   Boycotts, protests, unfavorable regulations, additional governmental sanctions and other actions in the region could also adversely affect our ability to operate profitably.  Delays in obtaining governmental approvals can affect our ability to timely deliver our products pursuant to contractual obligations, which could result in us being liablerent to our customers for damages.is frequently located in foreign countries where retrieval of the equipment after the termination of the rental agreement is difficult or impossible if the customer does not return the equipment. The riskcosts associated with retrieving this equipment or the loss of doing business in the Russian Federationequipment that is not retrieved could be significant and other economically or politically volatile areas could adversely affect our operations and earnings.

Foreign

The advancement of seismic technology having a significant competitive advantage over the equipment in our rental fleet could have an adverse effect on our ability to profitably rent and/or sell this equipment. Significant improvements in technology may also require us to record asset impairment charges to write-down the value of our rental fleet investment and to invest significant sums to upgrade or replace our rental fleet with newer equipment demanded by our customers. In addition, rental contracts may not be renewed for equipment in our rental fleet. Significant technology improvements by our competitors could have an adverse effect on our results of operations and earnings.

Our equipment rental business has high fixed costs, which primarily consist of depreciation expenses. In periods of declining rental revenue, these fixed costs generally do not decline. As a result, any significant decline in rental revenue caused by reduced demand could adversely affect our results of operations.

Our Expansion into the Border and Perimeter Security Market May Not Be Successful.

We have not previously operated in the border and perimeter security marketplace prior to our 2018 acquisition of Quantum. Quantum is also generallya relatively recent entrant into this marketplace, and Quantum was not cash-flow positive when we acquired it. In fiscal year 2021, we completed our first contract with the U.S. Customs and Border Protection (“CBP”), except for on-going service and maintenance. While we will continue to devote management time and resources, financial and otherwise, to develop our business in this marketplace, our lack of experience in this market makes it difficult to estimate our financial returns from this business. In addition, some of the customers for this business will be governmental entities and contracting with those entities can be difficult, costly, and unpredictable. We do not have extensive experience in government contracting, and so we may not win, retain, or perform under such future contracts in a manner that is profitable. If we are not successful in this emerging market segment, it will negatively impact our financial performance and could negatively impact our reputation and harm our other business segments.

Cybersecurity Breaches and Other Disruptions of Our Information Technology Network and Systems Could Adversely Affect Our Business.

We rely on information technology networks and systems, some of which are owned and operated by third parties, to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for a variety of functions, including worldwide financial reporting, inventory management, procurement, invoicing and email communications. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins, malware and similar disruptions. Malware, if surreptitiously installed on our systems and not timely detected and removed, could collect and disclose sensitive information relating to our customers, employees or others, exposing us to legal liability and causing us to suffer reputational damage. It could also lead to disruptions in critical systems or the corruption or destruction of critical data. If we are unable to prevent such outages and breaches, these events could damage our reputation and lead to financial losses from remedial actions, loss of business or potential liability.

We Rely on Key Suppliers for Certain Components Used in Our Products.

Certain models of our oil and gas marine wireless products require a timing device we purchase from a United States manufacturer. We currently do not possess the ability to manufacture this component and have no other reliable source for this device. If this manufacturer were to discontinue its production of this timing device, were to become unwilling to contract with us on competitive terms or were unable to supply the component in sufficient quantities to meet our requirements, our ability to compete in the marine wireless marketplace could be impaired, which could adversely affect our financial performance.

For our imaging products, we purchase all of our thermal film from one manufacturer. Except for the film sold to us by this manufacturer, we know of no other source for thermal film that performs as well in our imaging equipment. If the manufacturer were to discontinue producing thermal film, were to become unwilling to contract with us on competitive terms or were unable to supply thermal film in sufficient quantities to meet our requirements, our ability to compete in the direct thermal imaging marketplace could be impaired, which could adversely affect our financial performance.

Our Success Depends Upon a Limited Number of Key Personnel.

Our success depends on attracting and retaining highly skilled professionals. A number of our employees are highly-skilled engineers and other professionals. In addition, our success depends to a significant extent upon the abilities and efforts of the members of our senior management team. If we fail to continue to attract and retain such professionals, our ability to compete in the industry could be adversely affected.

We Have a Minimal Disaster Recovery Program at Our Houston Facilities.

Due to its proximity to the Texas Gulf Coast, our facilities in Houston, Texas are annually subject to the riskthreat of compliance with additional laws, including tariff regulationshurricanes, and import and export restrictions.  International revenue transactionsthe aftermath that follows. Hurricanes may cause, among other types of damage, the loss of electrical power for extended periods of time. If we lost electrical power at our Pinemont facility, or if a fire or other natural disaster occurred, we would be unable to continue our manufacturing operations during the power outage because we do not own a generator or any other back-up power source large enough to provide for our products containing hydrophones require prior U.S. government approvalmanufacturing power consumption needs. Additionally, we do not have an alternative manufacturing or operating location in the formUnited States. Therefore, a significant disruption in our manufacturing operations could materially and adversely affect our business operations during an extended period of a power outage, fire or other natural disaster. We have a back-up generator to provide power for our information technology operations. We store our back-up data offsite and we replicate our mission critical data to an export license,alternative cloud-based data center on a real-time basis. In the event of a major service interruption in our data center, we believe we would be able to activate our mission critical applications within less than 24 hours.

Our Credit Agreement Imposes Restrictions on Our Business.

We and several of our subsidiaries domiciled in the United States are parties to a credit agreement. Amounts available for borrowing under the credit agreement are determined by a borrowing base, which is determined based upon certain of our domestic assets. Borrowings under the credit agreement will be secured by substantially all of our domestic assets, except for certain excluded property.  The credit agreement limits the incurrence of additional indebtedness, contains a covenant that requires us to maintain a certain amount of consolidated tangible net worth and liquidity, and contains other covenants customary in agreements of this type. Our ability to comply with these restrictions may be withheldaffected by events beyond our control, including, but not limited to, prevailing economic, financial and industry conditions and continuing declines in our product revenue. The breach of any of these covenants or restrictions, as well as any failure to make a payment of interest or principal when due, could result in a default under the U.S. government based upon factors whichcredit agreement. Such a default would permit our lender to declare any amounts borrowed from it to be due and payable, together with accrued and unpaid interest, and our ability to borrow under the credit agreement could be terminated. If we cannot predict.are unable to repay any debts owed to our lender, the lender could proceed against the collateral securing such debt. While we intend to seek alternative sources of cash in such a situation, there is no guarantee that any alternative cash source would be available or would be available on terms favorable to us.

Reliance on Third Party Subcontractors Could Adversely Affect Our Results of Operations and Reputation.

We may experience difficultiesrely on subcontractors to complete certain projects. The quality and timing of production and services by our subcontractors is not totally under our control. Reliance on subcontractors gives us less control over a project and exposes us to significant risks, including late delivery, substandard quality and high costs. The failure of our subcontractors to deliver quality products or services in connectiona timely manner could adversely affect our profitability and reputation.

The High Fixed Costs of Our Operations Could Adversely Affect Our Results of Operations.

We have a high fixed cost structure primarily consisting of (i) depreciation expenses associated with future foreign revenue.  Additionally,our rental equipment and (ii) fixed manufacturing costs including salaries and benefits, taxes, insurance, maintenance, depreciation and other fixed manufacturing costs. In regards to our rental equipment, large declines in the demand for rental equipment could result in substantial operating losses due to foreign lawsthe on-going fixed nature of rental equipment depreciation expense. Concerning our product manufacturing costs, in periods of low product demand our fixed costs generally do not decline or may decline only in modest increments. Therefore, lower demand for our rental equipment and restrictions, should we experience substantial growth in certain foreign markets, for example in the Russian Federation, we may not be able to transfer cash balances to the United States to assist with debt servicing or other obligations.manufactured products could adversely affect our results of operations.

Legal and Compliance Risks

Our Global Operations Expose Us to Risks Associated with Conducting Business Internationally, Including Failure to Comply with U.S. Laws Which Apply to International Operations, Such as the Foreign Corrupt Practices Act and U.S. Export Control Laws, as wellWell as the Laws of Other Countries

We have offices in Brazil, Colombia, Canada, China, the Russian Federation, Kazakhstan  and the United Kingdom, in addition to our offices in the United States. In addition to the risks noted above that are inherent in conducting business internationally, we are also liable for compliance with international and U.S. laws and regulations that apply to our international operations. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export control laws, U.S. laws such as the Foreign Corrupt Practices Act and similar laws in other countries which also prohibit certain payments to governmental officials or certain payments or remunerations to customers. Many of our products are subject to U.S. export law restrictions that limit the destinations and types of customers to which our products may be sold, or require an export license in connection with revenue transactions outside the United States. Given the high level of complexity of these laws, there is a risk that some provisions may be inadvertently breached, for example through the negligent or the unauthorized intentional behavior of individual employees, our failure to comply with certain formal documentation requirements or otherwise. Additionally, we may be held liable for actions taken by our local dealers and partners. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brands, our international expansion efforts, our ability to attract and retain employees, our business and our operating results.

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Our Strategy of Leasing Seismic Products Exposes Us to Additional Risks Relating to Equipment Recovery, Lease Renewals, Technological Obsolescence and Impairment of Assets

Our rental fleet of seismic equipment represents a significant portion of our assets and accounts for a growing portion of our revenue.  Equipment leased by our customers is frequently located in foreign countries where retrieval of the equipment after the termination of the lease is difficult or impossible if the customer does not return the equipment.  The costs associated with retrieving this equipment or the loss of equipment that is not retrieved could be significant and could adversely affect our operations and earnings.

The advancement of seismic technology having a significant competitive advantage over the equipment in our rental fleet could have an adverse effect on our ability to profitably lease and/or sell this equipment.  Significant improvements in technology may also require us to record asset impairment charges to write-down the value of our rental fleet investment and to invest significant sums to upgrade or replace our rental fleet with newer equipment demanded by our customers.  In addition, rental contracts may not be renewed for equipment in our rental fleet, whether or not it has become obsolete.  Significant technology improvements by our competitors could have an adverse effect on our results of operations and earnings.

Our equipment leasing business has high fixed costs, which primarily consist of depreciation expenses.  In periods of declining rental revenue, these fixed costs generally do not decline.  As a result, any significant decline in rental revenue caused by reduced demand could adversely affect our results of operations.

Cybersecurity Breaches and Other Disruptions of Our Information Technology Network and Systems Could Adversely Affect Our Business

We rely on information technology networks and systems, some of which are owned and operated by third parties, to process, transmit and store electronic information.  In particular, we depend on our information technology infrastructure for a variety of functions, including worldwide financial reporting, inventory management, procurement, invoicing and email communications.  Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events.  Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins, malware and similar disruptions.  Malware, if surreptitiously installed on our systems and not timely detected and removed, could collect and disclose sensitive information relating to our customers, employees or others, exposing us to legal liability and causing us to suffer reputational damage.  It could also lead to disruptions in critical systems or the corruption or destruction of critical data.  If we are unable to prevent such outages and breaches, these events could damage our reputation and lead to financial losses from remedial actions, loss of business or potential liability.

Because We Have No Plans to Pay Any Dividends for the Foreseeable Future, Investors Must Look Solely to Stock Appreciation for a Return on Their Investment in UsUs.

We have not paid cash dividends on our common stock since our incorporation and do not anticipate paying any cash dividends in the foreseeable future.  We currently intend to retain any future earnings to support our operations and growth. Any payment of cash dividends in the future will be dependent on the amount of funds legally available, our financial condition, capital requirements, loan covenants and other factors that our Board of Directors may deem relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

We Have a Relatively Small Public Float, and Our Stock Price May be Volatile.

At September 30, 2023, we have approximately 12.2 million shares outstanding held by non-affiliates. This limited number of shares outstanding results in a relatively limited market for our common stock. Our daily trading volume for the year ended September 30, 2023 averaged approximately 41,000 shares. Our small float and daily trading volumes have in the past caused, and may in the future result in, significant volatility in our stock price.

Financial and Accounting Risks

Unfavorable Currency Exchange Rate Fluctuations Could Adversely Affect Our Results of OperationsOperations.

Substantially all of our third-party revenue from the United States is invoiced in U.S. dollars, though from time to time we may invoice revenue transactions in foreign currencies including intercompany sales. As a result, we may be subject to foreign currency fluctuations on our revenue. The reporting currency for our financial statements is the U.S. dollar. However, the assets, liabilities, revenue and costs of our Russian, Canadian and United Kingdom subsidiaries and our ChineseBrazilian, Colombian, and ColombianKazakhstan branch offices are denominated in currencies other than U.S. dollars. To prepare our consolidated financial statements, we must translate those assets, liabilities, revenue and expenses into U.S. dollars at then-applicable exchange rates. Consequently, increases and decreases in the value of the U.S. dollar versus these other currencies will affect the amount of these items in our consolidated financial statements, even if their value has not changed in their original currency. These translations could result in significant changes to our results of operations from period to period. For the fiscal year ended September 30, 2017,2023, approximately 22.2%5% of our consolidated revenue was related to the operations of our foreign subsidiaries and branches.

We Have a Relatively Small Public Float, and Our Stock Price May be Volatile

At September 30, 2017, we have approximately 13.0 million shares outstanding held by non-affiliates.  This small float results in a relatively limited market for our common stock.  Our daily trading volume for the year ended September 30, 2017

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averaged approximately 52,000 shares.  Our small float and daily trading volumes have in the past caused, and may in the future result in, significant volatility in our stock price.

We Rely on Key Suppliers for Certain Components Used in Our Products

We no longer manufacture thermal film and now purchase all of our thermal film from a European manufacturer.  Except for the film sold to us by this manufacturer, we know of no other source for thermal film that performs as well in our imaging equipment.  If the European manufacturer were to discontinue producing thermal film, were to become unwilling to contract with us on competitive terms or were unable to supply thermal film in sufficient quantities to meet our requirements, our ability to compete in the direct thermal imaging marketplace could be impaired, which could adversely affect our financial performance.

Certain models of our marine wireless products require a timing device we purchase from a United States manufacturer.  We currently do not possess the ability to manufacture this component and have no other source for this device.  If this manufacturer were to discontinue its production of this timing device, were to become unwilling to contract with us on competitive terms or were unable to supply the component in sufficient quantities to meet our requirements, our ability to compete in the marine wireless marketplace could be impaired, which could adversely affect our financial performance.

Our Success Depends Upon a Limited Number of Key Personnel

Our success depends on attracting and retaining highly skilled professionals.  A number of our employees are highly skilled engineers and other professionals.  In addition, our success depends to a significant extent upon the abilities and efforts of the members of our senior management team.  If we fail to continue to attract and retain such professionals, our ability to compete in the industry could be adversely affected.

A Continued General Downturn in the Economy in Future Periods May Adversely Affect Our Business

Uncertainty in the European markets and slowing growth in China and India and any other economic slowdown in future periods, could adversely affect our business in ways that we cannot predict.  During times of economic slowdown, our customers may reduce their capital expenditures and defer or cancel pending projects and product orders.  Such developments occur even among customers that are not experiencing financial difficulties.  Any economic downturn may adversely affect the demand for oil and gas generally or cause volatility in oil and gas commodity prices and, therefore, adversely affect the demand for delivery of our products to the oil and gas industry.  It could also adversely affect the demand for consumer and industrial products, which could in turn adversely affect our non-seismic business segment.  To the extent these factors adversely affect other seismic companies in the industry, there could be an oversupply of products and services and downward pressure on pricing for seismic products and services, which could adversely affect us.  Additionally, bankruptcies or financial difficulties among our customers could reduce our cash flows and adversely impact our liquidity and profitability.  See “The Limited Market for Our Seismic Products Can Affect Our Revenue in the Seismic Business Segment,” above.

We Have a Minimal Disaster Recovery Program at Our Houston Facilities

Due to its proximity to the Texas Gulf Coast, our facilities in Houston, Texas are annually subject to the threat of hurricanes, and the aftermath that follows.  Hurricanes may cause, among other types of damage, the loss of electrical power for extended periods of time.  If we lost electrical power at our Pinemont facility, or if a fire or other natural disaster occurred, we would be unable to continue our manufacturing operations during the power outage because we do not own a generator or any other back-up power source large enough to provide for our manufacturing power consumption needs.  Additionally, we do not have an alternative manufacturing or operating location in the United States.  Therefore, a significant disruption in our manufacturing operations could materially and adversely affect our business operations during an extended period of a power outage, fire or other natural disaster.  We have a back-up generator to provide power for our information technology operations.  We store our back-up data offsite and we replicate our mission critical data to an alternative cloud-based data center on a real-time basis.  In the event of a major service interruption in our data center, we believe we would be able to activate our mission critical applications within less than 24 hours.

Our Credit Agreement Imposes Restrictions on Our Business

We and several of our subsidiaries are parties to a credit agreement with a bank.  Amounts available for borrowing under the credit agreement are determined by a borrowing base, which is determined based upon the book value of certain of our assets.  The credit agreement limits the incurrence of additional indebtedness, requires the maintenance of a single financial ratio that compares certain of our and our U.S. subsidiaries’ assets to certain of our liabilities, restricts our and our U.S. subsidiaries’ ability to pay cash dividends and contains other covenants customary in agreements of this type.  Our ability to comply with these restrictions may be affected by events beyond our control, including, but not limited to, prevailing economic, financial and industry conditions and continuing declines in our product revenue.  The breach of any of these covenants or restrictions, as well as any failure to make a

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payment of interest or principal when due, could result in a default under the credit agreement.  Such a default would permit our lender to declare any amounts borrowed from it to be due and payable, together with accrued and unpaid interest, and the ability to borrow under the credit agreement could be terminated.  If we are unable to repay any debts owed to our lender, the lender could proceed against the collateral securing that debt.  While we intend to seek alternative sources of cash in such a situation, there is no guarantee that any alternative cash source would be available or would be available on terms favorable to us.

Reliance on Third Party Subcontractors Could Adversely Affect Our Results of Operations and Reputation

We may rely on subcontractors to complete certain projects.  The quality and timing of production and services by our subcontractors is not totally under our control.  Reliance on subcontractors gives us less control over a project and exposes us to significant risks, including late delivery, substandard quality and high costs.  The failure of our subcontractors to deliver quality products or services in a timely manner could adversely affect our profitability and reputation.

The High Fixed Costs of Our Operations Could Adversely Affect Our Results of Operations

We have a high fixed cost structure primarily consisting of (i) depreciation expenses associated with our rental equipment and (ii) fixed manufacturing costs including salaries and benefits, taxes, insurance, maintenance, depreciation and other fixed manufacturing costs.  In regards to our rental equipment, large declines in the demand for rental equipment could result in substantial operating losses due to the on-going nature of rental equipment depreciation expense.  Concerning our product manufacturing costs, in periods of low product demand our fixed costs generally do not decline or may decline only in modest increments.  Therefore lower demand for our rental equipment and manufactured products could adversely affect our results of operations.

Our Long-Lived Assets May be Subject to ImpairmentImpairment.

We periodically assess our long-lived assets for impairment. Significant sustained future decreases in crude oil and natural gas prices may require us to write down the value of theseour long-lived assets in our Oil and Gas Markets business segment, including our manufacturing facilities, manufacturing equipment and rental equipment if future cash flows anticipated to be generated from the relatedthese assets fall below the asset’s net book value. Furthermore, we may be required to write down the value of other intangible assets related to our acquisitions of Quantum, the OptoSeis® fiber optic sensing technology or the goodwill and other intangible assets related to our Aquana acquisition if sufficient cash flows are not generated to recover the carrying value of such assets. If we are forced to write down the value of our long-lived assets, these noncash asset impairments could adversely affect our results of operations.

Our Use of Percentage-of-Completion Method of Accounting Could Result in Volatility in Our Results of Operations

We recognize revenue and profits on certain PRM systems using the percentage-of-completion method of accounting.  Although we currently have no orders in hand that will require us to utilize the percentage-of-completion method of accounting, we anticipate that such contracts will again occur in the future although we can give no assurances in this regard.  This accounting method requires us to estimate contract costs and the profitability of our long-term contracts.  While such estimates may be reasonably reliable when made, these estimates can change as a result of uncertainties associated with these types of contracts.  Accordingly, we review the contract price and cost estimates periodically as our manufacturing efforts progress, and the cumulative impact of any periodic revisions to the contract price or cost estimates will be reflected in the period in which these changes become known, including, to the extent required, the recognition of losses at the time such losses are known and estimable, and such losses could be material.  In addition, change orders can increase (sometimes substantially) the future scope and cost of a job.  Therefore, change order awards (although frequently beneficial in the long-term) can have the short-term effect of reducing the contract’s percentage-of-completion and, thus, the revenue and profits that otherwise would be recognized to date.

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We have concluded that certain of our previously issued financial statements should not be relied upon and are restating certain of our previously issued financial statement, which may lead to, among other things, loss of investor confidence, negative impact on our stock price and certain other risks.

As discussed in the Explanatory Note to this Annual Report on Form 10-K and Item 8, “Financial Statements and Supplementary Data”, including Notes 21and 22 of the notes to the Consolidated Financial Statements, on November 16, 2017 our Audit Committee concluded that our audited consolidated financial statements for the fiscal years ended September 30, 2016 and 2015, and the unaudited consolidated financial statements for quarters ended December 31, 2016, March 31, 2017 and June 30, 2017 should no longer be relied upon because of an accounting error. The determination that the applicable financial statements should no longer be relied upon and that certain financial statements would be restated was made following the identification of financial statement misstatements relating to classification of inventories as noncurrent assets. We have determined that a portion of our inventories at September 30, 2016 and 2015 should have been classified as non-current assets, as all inventories were not reasonably expected to be realized in cash, sold or consumed during our next operating cycle, and have corrected this error with restated consolidated balance sheets as of September 30, 2016 and 2015 and as of December 31, 2016, March 31, 2017 and June 30, 2017 in this Annual Report on Form 10-K.  Although the restatement does not affect previously reported total assets, total liabilities, revenues, net loss, loss per share, or cash flows, the restatement makes us subject to additional risks and uncertainties, including unanticipated costs for accounting and legal fees.  Such events may also cause a diversion of our management’s time and attention away from key projects. The restatement, or additional restatements in the future, may lead to a loss of investor confidence and declines in the trading price of our securities.

We have identified a material weakness in our internal control over financial reporting, and this or other material weaknesses, or inadequate remediation measures, could impair our ability to report accurate financial information in a timely manner, which could adversely affect our business and results of operations.

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).  As disclosed in Item 9A. “Controls and Procedures”, our management identified a material weakness relating to the error in our classification of current assets with respect to inventories. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.  As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of September 30, 2016 and September 30, 2017, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013).  If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and may not be available in a timely manner and we could be required to restate our financial statements which could lead to substantial additional costs for accounting and legal fees.

Should We Fail to Maintain an Effective System of Internal Control Over Financial Reporting, We May Not Be Able to Accurately Report Our Financial Results and Prevent Material Fraud, Which Could Adversely Affect the Value of Our Common StockStock.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and effectively prevent and detect material fraud. If we cannot provide reliable financial reports or prevent or detect material fraud, our operating results could be misstated. There can be no assurances that we will be able to prevent control deficiencies from occurring and which could cause us to incur unforeseen costs, negatively impact our results of operations, cause the market price of our common stock to decline, or have other potential adverse consequences.

Item 1B. Unresolved Staff Comments

None.

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Item 2. PropertiesProperties

As of September 30, 2017,2023, our operations included the following locations:

Item 3. Legal Proceedings

We are involved in various pending legal actions in the ordinary course of our business. Management is unable to predict the ultimate outcome of these actions, because of the inherent uncertainty of litigation. However, management believes that the most probable, ultimate resolution of currently pending matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 4. Mine Safety Disclosures

None.

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PART II

Item 5. Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stock Performance Graph

The following graph compares the performance of the Company’s common stock with the performance of the Russell 2000 index and the Standard & Poor’s Oil & Gas Equipment and Services index as of each of the dates indicated.

The graph assumes $100 invested on September 30, 2012 (a) in the Company’s common stock, (b) in the stocks comprising the Russell 2000 index on that day and (c) in the stocks comprising the Standard & Poor’s Oil & Gas Equipment and Services index on that day.  Reinvestment of all dividends on stocks comprising the two indices is assumed.  The foregoing graphs are based on historical data and are not necessarily indicative of future performance.  These graphs shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulations 14A or 14C under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act.

Holders of Record

Our common stock is traded on The NASDAQ Global Select Market under the symbol “GEOS”. On November 15, 2017,October 31, 2023, there were approximately 123143 holders of record of our common stock, and the closing price per share on such date was $15.08$11.99 as quoted by The NASDAQ Global Select Market.

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Market Information for Common Stock

The following table shows the high and low per share sales prices for our common stock reported on The NASDAQ Global Select Market.

Dividends

Since our initial public offering in 1997, we have not paid dividends, and we do not intend to pay cash dividends on our common stock in the foreseeable future. We presently intend to retain our earnings for use in our business, with any future decision to pay cash dividends dependent upon our growth, profitability, financial condition and other factors our Board of Directors may deem relevant.  Our existing credit agreement also has covenants that restrict our ability to pay dividends.  For a discussion of our credit agreement, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” contained in this Annual Report on Form 10-K.

Securities Authorized for Issuance under Equity Compensation Plans

The following equity plan information is provided as of September 30, 2017:2023:

Equity Compensation Plan Information

Recent Sales of Unregistered Securities and Use of Proceeds

None.

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Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 6. Selected Financial Data

The following table sets forth certain selected historical financial data on a consolidated basis.  We have derived the selected consolidated financial information as of September 30, 2017, 2016 and 2015 and for fiscal years 2017, 2016 and 2015 from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.  We have derived the selected consolidated financial information as of September 30, 2014 and 2013 and for fiscal years 2014 and 2013 from audited consolidated information not included herein.  The selected consolidated financial data should be read in conjunction with “Management’s7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K.Operations

We did not declare or pay any cash dividends during any of the periods noted in the above tables.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of the major elements of our consolidated financial statements. You should read this discussion and analysis together with our consolidated financial statements, including the accompanying notes, and other detailed information appearing elsewhere in this Annual Report on Form 10-K, including under the heading “Risk Factors.” The discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the demand for our products and services and our future plans and results. These statements are based on assumptions that we consider to be reasonable, but that could prove to be incorrect. For more information regarding our assumptions, you should refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements and Assumptions” below.

Cautionary Note Regarding Forward-Looking Statements and Assumptions

This Annual Report on Form 10-K and the documents incorporated by reference herein, if any, contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “evaluating” or similar words. Statements that contain these words should be read carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other forward-looking information. Examples of forward-looking statements include, among others, statements that we make regarding our expected operating results, the adoption, results and success of our rollout of our Aquana smart water valves and cloud-based control platform, future demand for our Quantum security solutions, the adoption and sale of our products in various geographic regions, potential tenders for PRM systems, future demand for OBX rental equipment, the adoption of Quantum's SADAR® product monitoring of subsurface reservoirs, the completion of new orders for our channels of our GCL system, the fulfillment of customer payment obligations, the impact of and the recovery from the impact of the coronavirus (or COVID-19) pandemic, the impact of the current armed conflict between Russia and Ukraine, our ability to manage changes and the continued health or availability of management personnel, volatility and direction of oil prices, anticipated levels of capital expenditures and the sources of funding therefore,therefor, and our strategy for growth, product development, market position, financial results and the provision of accounting reserves. These forward-looking statements reflect our current judgment about future events and trends based on the information currently available to us. However, there will likely be events in the future that we are not able to predict or control. The factors listed under the caption “Risk Factors”, as well as cautionary language in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Such examples include, but are not limited to, the failure of the Quantum or OptoSeis® or Aquana technology transactions to yield positive operating results, decreases in commodity price levels and continued adverse impact of COVID-19 which could reduce demand for our products, the failure of our products to achieve market acceptance despite(despite substantial investment by us,us) our sensitivity to short term backlog, delayed or cancelled customer orders, product obsolescence resulting from poor industry conditions or new technologies, bad debt write-offs associated with customer accounts, and any negative impact frominability to collect on promissory notes, lack of further orders for our restatementOBX rental equipment, failure of our financial statements regarding current assets.Quantum products to be adopted by the border and perimeter security market, or a decrease in such market due to governmental changes, and infringement or failure to protect intellectual property. The occurrence of the events described in these risk factors and elsewhere in this Annual Report on Form 10-K could have a material adverse effect on our business, results of operations and financial position, and actual events and results of operations may vary materially from our current expectations. We assume no obligation to revise or update any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future developments or otherwise.

Background

We design and manufacture seismic instruments and equipment used byand primarily market these products to the oil and gas industry to acquire seismic data in order to locate, characterize and monitor hydrocarbon producing reservoirs. The CompanyWe also designsmarket our seismic products to other industries for vibration monitoring, border and manufacturesperimeter security and various geotechnical applications. We design and manufacture other products of a non-seismic nature, including water meter products, including industrial productsimaging equipment and imaging equipment.  Seeprovide contract manufacturing services. For further information on the nature of our operations, see the information under the heading “Business” in this Annual Report on Form 10-K.

Consolidated Results of Operations

As we have reported in the past, our revenue and operating profits have varied significantly from quarter-to-quarter, and even year-to-year, and are expected to continue that trend in the future, especially when our quarterly or annual financial results are impacted by the presence or absence of relatively large, but somewhat erratic, shipmentssales of permanent seabed reservoir monitoringour oil and gas PRM systems and/or wireless seismic data acquisition systems for land and marine applications.

We report and evaluate financial information for twothree segments: SeismicOil and Non-Seismic.Gas Markets, Adjacent Markets and Emerging Markets. Summary financial data by business segment follows (in thousands):

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Overview

Early

Although in calendar year 2014, we beganan already depressed oil and gas industry, demand further decreased in February 2020 because of the oversupply of crude oil due to experiencefailed OPEC negotiations that led to a softeningdramatic drop in crude oil prices when combined with the impact of the COVID-19 pandemic. These declines in the demand for our seismic exploration products, particularly in North America, as capital budgets for oil and gas producers were trending away from exploration-focused activities toward production and exploitation activities.  During this period oil production in North America’s unconventional shale reservoirs increased, as did oil production from other non-OPEC countries, resulting in an oversupply of crude oil in the world market.  Market prices for a barrel of crude oil declined from over $100 in July 2014 to approximately $27 in January 2016, and have recovered somewhat to approximately $57 today.  With this decline in oil and natural gas prices,caused oil and gas exploration and production companies experiencedto experience a significant reduction in cash flows, which have resulted in sharp reductions in their capital spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities. Crude oil prices held above $65 per barrel throughout 2022 and through September 2023; however, a lag in time typically occurs between higher oil prices and greater demand for our Oil and Gas Markets segment products. We believe this lag is the result of exploration and production (“E&P”) companies allocating their cash flow towards shareholder reward initiatives, such as stock buy-back programs and dividend payments, or in debt reduction. We believe this lag is a short-term trend that will continue until E&P companies decide to reinvest capital into exploration activities. As this lag persists, we expect revenue fromthe reduced levels of demand for our seismic products,Oil and in particularGas Markets segment products. We also expect our land-based traditional and wireless products to remain low until crude oil prices stabilize at higher levels and exploration-focused industry conditions improve.  We expect these challenging industry conditions towill continue to negatively impactexperience low levels of product demand until our customers consume their excess levels of underutilized equipment. During the third quarter of fiscal year 2022, we began to experience an increase in rental demand for our seismicmarine nodal products throughout fiscal year 2018.  

In September 2017, we were notified by a previous PRM system customer that it is in the processform of requestingadditional rental contracts and requests for quotes for twofrom existing and new PRM systems which must utilize fiber optic sensor technology.  Sincecustomers.  The increase in demand has led to near full utilization of our PRM designs utilize electrical sensor technology, we will not be participating with a quotation for the design and manufacture of these PRM systems.  We believe that our PRM system designs, which utilize electrical sensor technology, provide the best long-term functionality and performance of any PRM system, andmarine wireless rental fleet, yet we continue to aggressively market our PRM systems to major oil and gas companies.  However, the occurrenceexperience low levels of this notice, combined with the absence of any new PRM orders of any technology type since November 2012, have caused us to provide additional obsolescence reserves for a substantial portion of our PRM inventories, and we concluded a triggering event occurred and performed an impairment assessment on certain heavy equipment used for the manufacturing of PRM systems, which resulted in an impairment.  Specific to our PRM inventories and manufacturing equipment, we recorded obsolescence reserves of $5.1 million and impairment expense of $5.3 million, respectively, in the fourth quarter of our fiscal year ended September 30, 2017.  

Fiscal Year 2017 Compared to Fiscal Year 2016

Consolidated revenue for fiscal year 2017 increased $11.7 million, or 18.8% from fiscal year 2016.  The increase in revenue for fiscal year 2017 was primarily due to an increase in revenue from our seismic business segment, driven by an increase in demand for our land-based wireless exploration products, includingproducts.      

During the salefirst quarter of 45,000 GSX channels in our fourth quarter.

Consolidated gross profit (loss) for fiscal year 2017 was2023, we implemented a lossplan to discontinue the manufacture of ($20.1)certain low margin, low revenue products and reconfigure our production facilities to lower our costs and raise efficiencies. As part of the plan, reductions were made to our workforce which are expected to yield an annual savings of more than $2 million. In connection with the plan, we incurred costs of $0.6 million compared to a lossin the first quarter of ($19.4) million for fiscal year 2016.2023, primarily termination costs related to the workforce reduction. The decline in gross profit (loss) for fiscal year 2017 was primarily duecosts were recorded both to a $10.3 million increase in inventory obsolescencecost of revenue and operating expenses and a $5.3 million increase in equipment impairment charges.  The decline was partially offset by an increase in wireless exploration product sales and, to a lesser extent, a decrease in manufacturing costs resulting from the Company’s workforce reduction in the second fiscal quarterconsolidated statement of 2016.  Until seismic product demand increases to historical norms, we expect our consolidated gross margins to remain low.operations. No significant future costs are expected.

In light of current market conditions, the inventory balances in our seismic product inventoriesOil and Gas Markets business segment at September 30, 2017 far2023 continued to exceed levels consideredwe consider appropriate for the current level of product demand. We are continuing to work aggressively working to continue reducingreduce these legacy inventory

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balances throughout fiscal year 2018 and beyond; balances; however, we are also expect to addadding new inventories for recentnew wireless product developments.developments and for other product demand in our Adjacent Markets segment. During periods of excessive inventory levels, our policy has been, and will continue to be, to record higher obsolescence expense in our consolidated income statement as we experience reduced levels of inventory turnoverproduct demand and as our inventories continue to age. If currentAlthough the Oil and Gas Markets segment is seeing a recovery after experiencing difficult market conditions, continue, we expect to recordhave been recording additional expenses for inventory obsolescence expenseand will continue to do so in fiscal year 2018 and beyondthe future until seismic product demand andand/or resulting seismic inventory turnover levels return to acceptable levels.

Armed Conflict Between Russia and Ukraine

A portion of our oil and gas product manufacturing is conducted through GTE, which is based in the Russian Federation. Consequently, our oil and gas business could be directly affected by the current war between Russia and Ukraine. Please see “Part I—Item 1A.—Risk Factors” for more information.

Coronavirus (COVID-19)

The ongoing COVID-19 pandemic has negatively impacted worldwide economic activity and continues to create challenges in our markets.  The COVID-19 pandemic and the related mitigation measures have disrupted our supply chain, resulting in longer lead times in materials available from suppliers and extended shipping time for these materials to reach our facilities.  The occurrence or resurgence of global or regional health events such as the COVID-19 pandemic, and the related government responses, could result in a material adverse effect on our business, financial condition, results of operations and liquidity.  As such, we will continue to closely monitor COVID-19 and will continue to reassess our strategy and operational structure on a regular, ongoing basis.

Fiscal Year 2023 Compared to Fiscal Year 2022

Consolidated revenue for fiscal year 2023 was $124.5 million, an increase of $35.3 million, or 39.5%, from fiscal year 2022. The increase in revenue was largely due to higher rental revenue from our Oil and Gas Markets segment due to increased utilization of our OBX rental fleet and an increase in demand for our industrial products from our Adjacent Markets segment.  The increase was partially offset by a decrease in sales of wireless exploration products.  Wireless exploration product revenue for fiscal year 2023 also included $4.0 million from a rental customer as compensation for lost OBX nodes.

Consolidated gross profit for fiscal year 2023 was $51.7 million, an increase of $33.6 million, or 186.5%, from fiscal year 2022. The increase in gross profit was primarily due to higher gross profits from the increased utilization of our OBX rental fleet and the increase in industrial product revenue and related gross profits.  The increase was partially offset by the decrease in wireless exploration product revenue and related gross profits.

Consolidated operating expenses for fiscal year 20172023 were $33.6$41.7 million, a decreasean increase of $2.5$0.5 million, or 6.9%1.2%, from fiscal year 2016.  This decrease2022.  The increase was primarily due to a (i) $5.0 million favorable non-cash adjustment reported in the prior year period resulting from a change in the estimated fair value of contingent consideration related to our Quantum and OptoSeis® acquisitions and (ii) an increase in incentive compensation attributable to the Company’s costincrease in revenue.  The increase in operating expenses were partially offset by a (i) $4.3 million non-cash goodwill impairment charge reported in the prior fiscal year related to our Quantum acquisition, (ii) reduction program implemented during the second fiscal quarter of 2016in personnel costs attributable to our workforce reduction, (iii) lower research and to a lesser extent, adevelopment project expenditures and (iv) decrease in bad debt expense.expense resulting from collections of previously reserved past due receivables.

In February 2023, we sold our real property located at 7310 Langfield Road in Houston, Texas for a cash sales price of $3.7 million, net of closing costs of $0.3 million.  We recognized a gain of $1.3 million from the sale of this property in the second quarter of fiscal year 2023. The sale was part of our plan to streamline operations and reduce costs. 

Consolidated other income for fiscal year 20172023 was flat$1.2 million compared to $0.5 million from fiscal year 2016.  An2022. The increase in other income was primarily due to a increase in net foreign currency transaction gains.  The increase was partially offset by a decrease in interest income from our short-term investments and notes receivable was offset by an increase in foreign exchange losses attributable to U.S. dollar deposits held by our Russian subsidiary.lower note receivable balances between periods.

Consolidated income tax expense (benefit) for fiscal year 2017 was $2.7 million compared to ($9.4) million for the corresponding period of the prior fiscal year.  Our effective tax rates for fiscal year 2017 and 2016 were 5.0% and (16.9)%, respectively.  The United States statutory tax rate for the same periods was 35%.  Compared to the United States statutory rate, the lower effective tax rates for fiscal year 2017 resulted from our inability to recognize any tax benefits for the tax losses we incurred in the U.S. and Canada due to the uncertainty surrounding our ability to utilize these losses in the future to offset taxable income.  In addition, for fiscal year 2017, we recorded tax expenses for (i) U.S. income taxes paid in prior years resulting from the sale of rental equipment to our foreign subsidiaries and (ii) the recognition of a valuation allowance against foreign taxes withheld from rental revenues invoiced into foreign taxing jurisdiction.  For fiscal year 2016, the lower effective tax rate resulted primarily from our inability to recognize tax benefits for the tax losses we incurred in the U.S. and Canada due to the uncertainty of their utilization; however, we were able to recognize an income tax benefit of $13.1 million related to our ability to carryback certain U.S. tax losses to obtain a refund of taxes paid in previous years.  

Fiscal Year 2016 Compared to Fiscal Year 2015

Consolidated revenue for fiscal year 2016 decreased $22.8 million, or 26.9%, from fiscal year 2015.  The decrease in revenue for fiscal year 2016 was primarily attributable to substantially lower product demand in our seismic business segment driven by the low level of crude oil prices.  

Consolidated gross profit (loss) for fiscal year 2016 was ($19.4) million, compared to ($11.2) million for fiscal year 2015.  The change in gross profit (loss) for fiscal year 2016 was caused by a number of factors, including (i) a substantial reduction in seismic product revenue, (ii) unabsorbed fixed manufacturing costs due to lower factory utilization caused by reduced demand for our seismic products and (iii) increased inventory obsolescence expenses due to higher levels of slow-moving seismic inventories and (iv) the write-down of certain seismic inventories and rental equipment to their expected net realizable value.  

Consolidated operating expenses for fiscal year 2016 decreased $5.2 million, or 12.6%, from fiscal year 2015.  The decrease in operating expenses was partially attributable to our cost reduction program, as well as a $1.8 million reduction in goodwill impairment expense and a $1.4 million reduction in bad debt expense.

Consolidated other income for fiscal year 2016 decreased $2.5 million, or 93.5%, from fiscal year 2015.  The decrease in other income primarily resulted from a decrease in foreign exchange gains attributable to U.S. dollar deposits held by our Russian subsidiary.

Our effective tax rates for fiscal year 2016 and 2015 were (14.1)% and (34.5)%, respectively.  The United States statutory tax rate for the same periods was 35%.  The lower effective tax rate for fiscal year 2016 resulted from (i) a tax expense for a valuation allowance against the Company’s U.S. and Canadian deferred tax assets of $7.7 million, (ii) a tax expense of $1.4 million to recapture a manufacturers’/producers’ deduction associated with the carryback of our fiscal year 2016 operating loss, and (iii) a tax expense of $1.0 million recorded during the fiscal quarter ended March 31, 2016 to correct our fiscal year 2015 income tax benefit.

Segment Results of Operations

Seismic Products

Fiscal Year 20172023 Compared to Fiscal Year 20162022

Oil and Gas Markets

Revenue

Revenue from our seismicOil and Gas Markets products for the fiscal year ended September 30, 20172023 increased $13.3$24.9 million, or 39.4%50.6%, from the prior fiscal year.year 2022.  The components of this increase include the following:were as follows:

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Wireless Exploration Product

Operating Income (Loss)

Operating income associated with our Oil and Gas Markets products for fiscal year 2023 was $15.8 million, compared to an operating loss of $(7.5) million from the prior fiscal year. The increase in operating income was primarily due to higher wireless rental revenue and related gross profits due to improved utilization of our OBX rental fleet.  The improvement in operating income was partially offset by a (i) decrease in wireless product revenue and related gross profits and (ii) $4.4 million favorable non-cash adjustment reported in the prior fiscal year related to the estimated fair value of contingent consideration related to our OptoSeis®acquisition.

Adjacent Markets

Revenue –

Revenue from our wireless explorationAdjacent Markets products for fiscal year 2023 increased by $11.3$9.9 million, or 61.4%25.2%, from the prior fiscal year.  The increase was primarily due to higher demand for the sale of our OBX and GSX products and included the fourth quarter sale of 45,000 GSX channels from our rental fleet.  This increase in revenue was partially offset by a decrease in OBX rental revenue.

Operating Loss

Our operating loss associated with revenue from our seismic products for the fiscal year ended September 30, 2017 decreased $0.8 million, or 1.7%, from the prior year.  The decrease in operating loss for fiscal year 2017 was primarily due to (i) increased wireless exploration product sales and (ii) lower manufacturing and operating costs due to workforce reductions initiated in the second fiscal quarter of 2016.  This decrease was partially offset by an increase of $10.3 million in inventory obsolescence expense and $5.3 million in impairment charges on PRM manufacturing equipment.  

Fiscal Year 2016 Compared to Fiscal Year 2015

Revenue

Revenue from our seismic products for the fiscal year ended September 30, 2016 decreased $26.8 million, or 44.2%, from the prior fiscal year.  In each of the product groups discussed below, the decline in revenue resulted from lower demand for our seismic products due to a weakening of industry conditions brought about by the substantial decline in oil and gas prices which began in 2014.  The components of this decrease include the following:

Operating Lossincrease were as follows:

Our operating loss from our seismic products for fiscal year 2016 increased $5.0 million, or 11.6%, from fiscal year 2015.  The increase in operating loss for fiscal year 2016 was due to the substantial decline in our product revenue, unutilized factory costs due to low productivity, inventory obsolescence expense and impairment of rental assets.

Non-Seismic Products

Fiscal Year 2017 Compared to Fiscal Year 2016

Revenue

Revenue from our non-seismic products for the year ended September 30, 2017 decreased $1.7 million, or 6.1%, from fiscal year 2016.   The components of this decrease included the following:

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Operating Income

Our operating income associated with sales of our non-seismic products for the year ended September 30, 2017 increased by $0.1 million, or 1.4% from fiscal year 2016. The increase in operating income was primarily drivendue to the increase in revenue and related gross profits.  The increase was partially offset by price increases(i) an increase in operating expenses resulting from the increased revenue and (ii) higher research and development expense.  Operating income for the prior fiscal year included a $0.4 million impairment charge on our manufacturing efficiencies.equipment.

Fiscal Year 2016 Compared to Fiscal Year 2015Emerging Markets

Revenue

Revenue from our non-seismicEmerging Markets products for the year ended September 30, 2016 increased $4.0 million, or 16.6%, from fiscal year 2015.  The components of this increase include the following:

Operating Income

Our operating income associated with revenue from our non-seismic productsloss for the year ended September 30, 2016 increased by $1.1 million, or 35.0%, from fiscal year 2015.2023 was primarily due a (i) non-cash goodwill impairment charge of $4.3 million reported in the prior fiscal year and (ii) lower personnel costs attributable to our workforce reduction.  The increasedecrease in operating income was primarily the result of increased revenue from our industrial products andloss was partially offset by lower operating income froma $0.7 million decrease to a favorable non-cash adjustment to the estimated fair value of contingent consideration related to our imaging product segment.Quantum acquisition when compared to the same period of the prior fiscal year.

Liquidity and Capital Resources

Fiscal Year 20172023

At September 30, 2017,2023, we had approximately $15.1$33.7 million in cash, and cash equivalents and $36.1 million in short-term investments.  For the fiscal year ended September 30, 2017,2023, we generated $10.1$15.6 million of cash infrom operating activities primarily due toactivities.  Sources of cash included our net income tax refund as discussed below.  Our net loss of $56.8$12.2 million was offset by (i)and net non-cash charges of $50.0$19.6 million resulting from deferred income taxes, depreciation, amortization, accretion, inventory obsolescence, asset impairments, stock-based compensation and bad debts,debt recovery.  Other sources of cash included a (i) $5.4 million increase in other liabilities due to an increase in customer deposits on rental contracts and accrued employee compensation costs and (ii) income tax refunds totaling $13.0 million, (iii) a $7.7$1.3 million decrease in trade accounts and notes receivable resulting from collections, (iv) a $3.0 million decrease in inventories caused by a drawdown of our excess levels of finished goods and (v) a $2.2 million decrease in prepaid income taxes related to the depreciation of intercompany profits by our foreign subsidiary.other assets.  These sources of cash were partially offset by (i) a $5.6 million increase in trade accounts and notes receivable primarily due to our increase in revenue and the timing of collections from customers, (ii) a $11.0 million increase in inventories to meet an increase in demand for our products, (iii) the removal of a $9.1$4.4 million gross profit from the sale of used rental equipment since such gross profit is reflected in the proceedsand (iv) a $1.1 million of gain from the sale of used rentalproperty and equipment undersince they are included in investing activities and (ii) $1.3 million decrease in accrued and other expenses primarily due to lower property taxes.activities. 

For the fiscal year ended September 30, 2017,2023, we used cash of $5.5$11.9 million fromin investing activities. These usesUses of cash included (i) net disbursements of $8.7$4.0 million for the purchase of short-term investments, (ii) an investment of $1.2 million inadditions to our property, plant and equipment, and (iii) $0.5(ii) $9.9 million for additions to expand our equipment rental fleet.fleet and (iii) net disbursements of $13.9 million for purchases of short-term investments.  These uses of cash were partially offset by $4.9proceeds of (i) $11.5 million in proceeds from the sale of used rental equipment and (ii) $4.4 million from the sale of property and equipment.  Regarding future investments into our rental fleet, weWe expect fiscal year 20182024 cash investments into our rental fleet towill be approximately $6 million and non-cash transfers from our inventory account of approximately $15 million pending demand for OBX and GSX systems.$9 million.  We estimateexpect fiscal year 20182024 cash investments in our property, plant and equipment will be approximately $3$4 million.  Our capital expenditures are expected to be funded from our cash on hand, internal cash flowflows, cash flows from our rental contracts or, if necessary, from borrowings under our new credit agreement.

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For the fiscal year ended September 30, 2017,2023, we generatedused cash proceeds of  $0.1$0.5 million from financing activities from the exerciseconsisting of stock options by(i) $0.4 million for debt issuance costs related to our employees.  We had no long-term debt outstanding throughout the fiscal year ended September 30, 2017.

With the decline in oilnew credit agreement and natural gas prices which have occurred since July 2014, exploration and production companies have experienced a significant reduction in cash flows resulting in sharp reductions in their capital spending budgets(ii) $0.2 million for exploration-focused activities, including seismic activities.  As a result, our seismic business segment has experienced a significant decline in product orders and associated revenue, resulting in substantial operating losses and the continued depletion of our cash balances.  Duefinal contingent consideration payments to the uncertainty concerning a recoveryformer shareholders of crude oil prices to levels capable of sustaining increased seismic exploration activities, we expect these depressed seismic market conditions to continue through fiscal year 2018.Quantum.

Our available cash, cash equivalents and short-term investments totaled $51.2was $33.7 million at September 30, 2017, including $7.62023, which included $3.8 million of cash and cash equivalents held by our foreign subsidiaries and branch offices.  We intendoffices, of which $2.5 million was held by our subsidiary in the Russian Federation. In response to permanently reinvestsanctions imposed by the undistributed earningsU.S. and other countries on the Russian Federation, the Russian government has imposed restrictions on companies' abilities to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia. As a result, this cash can be used in our foreign subsidiaries.  IfRussian operations, but we may be unable to transfer it out of Russia without incurring substantial costs, if at all.  In addition, if we were to repatriate the cash held by our foreign subsidiaries,Russian subsidiary, we would be required to accrue and pay taxes on any amountsamount repatriated.  During fiscal year 2023, in light of recent volatility in the financial markets, we entered into an IntraFi Cash Service ("ICS") Deposit Placement Agreement with IntraFi Network LLC through our primary bank, Woodforest National Bank.  The ICS program offers us access to unlimited Federal Deposit Insurance Corporation ("FDIC") insurance on domestically held cash in excess of $5.0 million, thereby mitigating our risk of falling outside of FDIC coverage limits.

Our

In July 2023, we entered into a credit agreement allows for borrowings(“the Agreement”) with Woodforest National Bank, as sole lender.  The Agreement refinanced our credit agreement dated May 6, 2022, with Amerisource Funding, Inc., as administrative agent and as a lender, and Woodforest National Bank, as a lender.  The Agreement provides a revolving credit facility with a maximum availability of up to $30.0 million with such amounts available for borrowing$15 million.  Availability under the Agreement is determined bybased upon a borrowing base.  base comprised of certain of our domestic assets which include (i) 80% of eligible accounts receivable, plus (ii) 90% of eligible foreign insured accounts, plus (iii) 25% of eligible inventory plus (iv) 50% of the orderly liquidation value of eligible equipment, in each case subject to certain limitations and adjustments.  Interest shall accrue on outstanding borrowings at a rate equal to Term SOFR (Secured Overnight Financing Rate) plus a margin equal to 3.25% per annum.  We are required to make monthly interest payments on borrowed funds. The Agreement is secured by substantially all of our assets, except for certain excluded property.  The Agreement requires us to maintain a minimum (i) consolidated tangible net worth of $100 million, (ii) liquidity of $5 million, and (iii) current ratio no less than 2.00 to 1.00, in each case tested quarterly. The Agreement also requires us to maintain a springing minimum interest coverage ratio of 1.50 to 1.00, tested quarterly whenever there is an outstanding balance.  The Agreement expires in July 2025.

At September 30, 2017,2023, we had no outstanding borrowings under the credit agreementAgreement and our borrowing base availability under the Agreement was $13.1 million after consideration of $0.3a $0.1 million outstanding letter of outstanding letters of credit, our borrowing availability under the credit facility was $23.8 million.  At September 30, 2017, wecredit.  We were in compliance with all covenants under the credit agreement.  In October 2017, we extended the maturity of the credit agreement from May 2018 to April 2019.Agreement.  We currently do not currently anticipate the need to borrow under the credit agreement;Agreement; however, we can make no assurance that we will notmay decide to do so.  so in the future, if needed.

In March 2017, we received a $12.8

Our available cash, cash equivalents and short-term investments increased $17.0 million income tax refund from the U.S. Department of Treasury.  The refund was a result of the significant tax losses we experienced induring fiscal year 2016 which we elected to carryback to our fiscal year 2014 U.S. tax return to recoup taxes previously paid.  In addition, we expect to receive an additional $0.3 million income tax refund from the U.S. Department of Treasury in our first fiscal quarter of 2018.  For U.S. income tax purposes, we are now in a loss carryforward position in regards to our tax losses for fiscal year 2017 and beyond.  As a result, we will not receive any additional U.S. federal income tax refunds in future years as a result of our current tax losses.  The tax refunds we received in fiscal years 2016 and 2017 have been significant contributors to our overall liquidity.2023.  In the absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future operating results,operations, including liquidating short-term investments, executed rental contracts, available borrowings under our credit agreementthe Agreement through its expiration in April 2019,July 2025, leveraging or salesales of real estate assets, sales of rental assets and other liquidity sources which may be available to us. However,We currently we believe that our cash and short-term investment balancescash equivalents will be sufficient to finance ourany future operating losses and planned capital expenditures through December 2018.the next twelve months.

Fiscal Year 2016

At September 30, 2016, we had approximately $10.3 million in cash and cash equivalents and $27.5 million in short-term investments.  For the fiscal year ended September 30, 2016, we used $1.7 million of cash in operating activities.  These uses of cash included (i) our net loss of $46.0 million, (ii) a $3.4 million increase in trade accounts and notes receivable primarily due to amounts owed under the OBX Contract, (iii) a $1.9 million decrease in accounts payable primarily due to declining inventory purchases resulting from reduced product demand and (iv) a $2.1 million decrease in accrued and other expenses primarily due to settlements and reductions in expected warranty claims.  These uses of cash were partially offset by (i) non-cash charges of $43.2 million from deferred income taxes, depreciation, accretion, stock-based compensation, inventory obsolescence, asset impairments and bad debts, (ii) a $4.1 million decrease in income tax receivable primarily resulting from an $18.3 million income tax refund received in fiscal year 2016, (iii) a $5.2 million decrease in inventories caused by a drawdown of our excess levels of finished goods, and (iv) a $1.5 million decrease in prepaid income taxes.

For the fiscal year ended September 30, 2016, we used cash of $10.2 million from investing activities.  These uses of cash included (i) net disbursements of $9.4 million from the purchase and sale of short-term investments, (ii) $1.9 million for additions to our property, plant and equipment and (iii) $0.5 million to expand our rental equipment fleet, primarily for additional OBX nodes.  In addition, we made non-cash inventory transfers to our rental fleet of approximately $4.0 million.  These uses of cash were partially offset by $1.6 million in proceeds from the sale of used rental equipment.  

For the fiscal year ended September 30, 2016, we had no cash flows from financing activities.  We had no long-term debt outstanding at September 30, 2016.

Fiscal Year 2015

At September 30, 2015, we had approximately $22.3 million in cash and cash equivalents and $18.1 million in short-term investments.  For the fiscal year ended September 30, 2015, we used $11.4 million of cash from operating activities.  These uses of cash included (i) our net loss of $32.6 million, (ii) a $6.0 million decrease in accrued expenses and other current liabilities primarily due to the payment of fiscal year 2014 incentive compensation, (iii) a $14.8 million increase in income tax receivable resulting from

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our pretax loss and our intent to claim a tax refund of $17.4 million in our second quarter ending March 2016 for taxes paid in prior years, and (iv) a $3.6 million decrease in deferred revenue primarily due to the revenue recognition of a $3.0 million non-refundable customer deposit.  These uses of cash were partially offset by (i) net non-cash charges of $31.2 million from deferred income taxes, depreciation, goodwill impairment, accretion, stock-based compensation, inventory obsolescence and bad debts, (ii) a $7.1 million decrease in trade accounts and financing receivables resulting from collections and a decline in revenue, (iii) a $9.7 million decrease in inventories caused by reduced product demand and a drawdown of our excess inventories, and (iv) a $1.0 million decrease in prepaid and other current assets.

For the fiscal year ended September 30, 2015, we used cash of $0.3 million from investing activities.  These uses of cash included (i) $4.0 million to expand our rental equipment fleet primarily for the addition of OBX nodes and (ii) $2.2 million for additions to our property, plant and equipment.  These uses of cash were partially offset by (i) proceeds of $4.3 million from the sale of used rental equipment and (ii) net proceeds of $1.6 million from the sale and purchase of short-term investments.

For the fiscal year ended September 30, 2015, we had no cash flows from financing activities.  

Off-Balance Sheet Arrangements

We do not have any obligations which meet the definition of an off-balance sheet arrangement and which have or are reasonably likely to have a current or future effect on our financial statements or the items contained therein that are material to investors.

Contractual Obligations

We have

Contingent Compensation Costs

In connection with the acquisition of Aquana in July 2021, we are subject to additional contingent cash payments to the former members of Aquana over a six-year earn-out period. The contingent payments, if any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by Aquana. There is no maximum limit to the contingent cash payments that could be made. The merger agreement with Aquana requires the continued employment of a certain key employee and former member of Aquana for the first four years of the six year earn-out period in order for any of Aquana’s former members to be eligible to receive any earn-out payments. In accordance with ASC 805, Business Combinations, due to the continued employment requirement, no liability has been recorded for the estimated fair value of contingent earn-out payments for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when incurred.

See Note 17 to our consolidated financial statements in this Annual Report on Form 10-K for more information on our contractual obligations requiring disclosure.contingencies.

Critical Accounting PoliciesEstimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider many factors in selecting appropriate operational and financial accounting policies and controls and in developing the estimates and assumptions that are used in the preparation of these financial statements. We continually evaluate our estimates, including those related to revenue recognition, bad debt reserves, inventory obsolescence reserves, self-insurance reserves for medical expenses, product warranty reserves, stock-based compensationgoodwill and deferred income tax assets.long-lived asset impairment. We base our estimates on historical experience and various other factors, including the impact from the current economic conditions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.

Our normal credit terms for trade receivables are 30 days. In certain situations, credit terms for trade receivables may be extended to 60 days or longer and such receivables generally do not require collateral. Additionally, we provide long-term financing in the form of promissory notes and sales-type leases when competitive conditions require such financing and, in such cases, we may require collateral. We perform ongoing credit evaluations of our accounts and financing receivables, and allowances are recognized for potential credit losses.

Our long-lived assets are reviewed for impairment whenever an event or change in circumstances indicates the carrying amount of an asset or group of assets may not be recoverable. The impairment review, if necessary, includes a comparison of expected future cash flows (undiscounted and without interest charges) to be generated by an asset group with the associated carrying value of the related assets. If the carrying value of the asset group exceeds the expected future cash flows, an impairment loss is recognized to the extent that the carrying value of the asset group exceeds its fair value.

Management makes judgments regarding

We conduct our evaluation of goodwill at the interpretationreporting unit level on an annual basis as of tax lawsSeptember 30 and more frequently if events or circumstances indicate that mightthe carrying value of a reporting unit exceeds its fair value. The guidance on the testing of goodwill for impairment provides the option to first assess qualitative factors to determine if the fair value of a reporting unit exceeds its carrying amount. If, based on the qualitative assessment of events or circumstances, an entity determines it is more likely than not that the fair value of a reporting unit is more than its carrying amount, then it is not necessary to perform a quantitative assessment. However, if an entity concludes otherwise, then a quantitative assessment must be challenged upon an audit and cause changesperformed. If, based on the quantitative assessment, we determine that the fair value of a reporting unit is less that its carrying amount, a goodwill impairment is recognized equal to previous estimates of tax liability.  In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions as well as by the Internal Revenue Service.  In management’s opinion, adequate provisions for income taxes have been made for all open tax years.  The potential outcomes of examinations are regularly assessed in determiningdifference between the adequacycarrying amount of the provision for income taxesreporting unit and income tax liabilities.  Management believes that adequate provisions have been made for reasonable and foreseeable outcomes relatedits fair value, not to uncertain tax matters.exceed the carrying amount of the goodwill.

We record a write-down of our inventories when the cost basis of any manufactured product, including any estimated future costs to complete the manufacturing process, exceeds its net realizable value. Inventories are stated at the lower of cost or marketnet realizable value. Cost is determined on a first-in, first-out method, except that our officessubsidiaries in the Russian Federation Colombia and the United Kingdom use an average cost method to value their inventories.

We periodically review the composition of our inventories to determine if market demand, product modifications, technology changes, excessive quantities on-hand and other factors hinder our ability to recover our investment in such inventories. Management’s assessment is based upon historical product demand, estimated future product demand and various other judgments

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and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that portions or components of our inventory investment will not be realized in our operating activities.

The value of our inventories not expected to be realized in cash, sold or consumed during our next operating cycle are classified as non-current assets.assets in our consolidated balance sheets.

We primarily derive our revenue from product sales and product rentals under short-term operating leases and sales type leases.  Our products are produced in a standard manufacturing operation.  

We recognize revenue from product sales and services in accordance with ASC Topic 606, Revenue from Contracts with Customers. This standard applies to contracts for the sale of products and services and does not apply to contracts for the rental or lease of products. Under this standard, we recognize revenue when (i) title passesperformance of contractual obligations are satisfied, generally when control of the promised goods or services is transferred to our customers, in an amount that reflects the customer, (ii) the customer assumes risks and rewards of ownership, (iii) theconsideration we expect to be entitled in exchange for those goods or services. Revenue from product sales price has been determined, (iv)is recognized when obligations under the terms of a contract are satisfied, control is transferred and collectability of the sales price is reasonably assured and (v) productassured. Transfer of control generally occurs with shipment or delivery, occurs as directed by our customer.  We recognize rental revenue as earned overdepending on the rental period.  Rentalsterms of our equipment generally range from daily rentals to rental periods of up to six months or longer.  Service revenue is recognized when services are rendered and are generally priced on a per day rate.  Except for certain of our PRM products, ourthe underlying contract. Our products are generally sold without any customer acceptance provisions, and our standard terms of sale do not allow customers to return products for credit.

Most of our products do not require installation assistance or sophisticated instruction. We offer a standard product warranty, which obligates us to repair or replace our products having manufacturing defects. We maintain a reserve for future warranty costs based on historical experience or, in the absence of historical experience, management estimates. Revenue from engineering services is recognized as services are rendered over the duration of a project or as billed on a per hour basis. Field service revenue is recognized when services are rendered and is generally priced on a per day rate. We recognize rental revenue as earned over the rental period. Rentals of our equipment generally range from daily rentals to rental periods of up to six months or longer.

We recognize rental revenue in accordance with ASC Topic 842, Leases. In the event collectability of lease payments is not probable at the lease commencement date, we recognize revenue when payments are received. We regularly evaluate the collectability of our lease receivables on a lease-by-lease basis. The evaluation primarily consists of reviewing past due account balances and other factors such as the credit quality of the customer, historical trends of the customer and current economic conditions. We suspend the recognition of rental revenue when the collectability of amounts due are no longer probable and record a direct write-off of the lease receivable to rental revenue.

Recent Accounting Pronouncements

Please refer to Note 1 to our consolidated financial statements contained in this Annual Report for a discussion of recent accounting pronouncements.

Management’s

Management’s Current Outlook and Assumptions

As further discussed above, there remains uncertainties regarding the duration and to what extent the COVID-19 pandemic will ultimately impact the demand for our products and services or with our supply chain.

Regarding our Oil and Gas Markets business segment, demand for our products are subject to volatile fluctuations in crude oil prices. As a result of substantial declines in crude oil prices in recent years combined with the recent reduced global demand for oil and gas as a result of the COVID-19 pandemic, oil and gas exploration and production companies experienced a significant reduction in cash flows resulting in sharp reductions in their capital spending budgets for oil and gas exploration-focused activities including seismic data acquisition activities. While we have experienced stronger marine nodal rental activity in fiscal year 2023, the need for new seismic equipment, particularly land-based equipment, remains restrained due to our customers’ (i) limited capital resources, (ii) lack of visibility into future demand for their seismic services and (iii) in some cases, under-utilized legacy equipment. Crude oil prices for West Texas Intermediate continued their volatility during fiscal year 2017, ranging from a high of $54 per barrel and a low of $43 per barrel.  The instability in price coupled with oversupply in the world market continues to negatively impact the cash flows and spending patternshave rebounded; however, lasting higher levels of oil and gas companies.  Significantly reduced capital spending budgets targeted atcommodity pricing may not stabilize in the long term, thus continuing the challenging industry conditions we have experienced in previous fiscal years.

Many of our land-based traditional seismic products can be damaged, destroyed or otherwise consumed during our customer’s field operations. We expect fiscal year 2024 demand for our land-based traditional seismic products may increase slightly over fiscal year 2023 levels.

The vast majority of our oil and gas exploration projects, including both land and marine seismic projects, have contributed to the declinerental revenue in our seismic business segment revenue and gross profit since fiscal year 2014.  Although WTI crude oil prices have rebounded recently to $57 per barrel today, we believe pricing volatility will continue in the near term and serve to mute any significant rebound in seismic exploration spending during fiscal year 2018.  As a result, we do not expect fiscal year 2018 customer demand for most of our seismic products will exceed fiscal year 2017 levels.  As a result of reduced seismic exploration activities, many of our seismic customers are currently utilizing only a fraction of their owned seismic equipment.  In most cases, this unutilized equipment is generally available for immediate deployment if future demand for seismic services were to increase.  The availability of excess customer-owned seismic equipment combined with substantially reduced capital budgets and cash flows has curtailed our customer’s need to purchase or rent seismic equipment from providers like us.  As a result, we expect large-ticket sales of our GSX and OBX wireless data acquisition systems, as well as sales of our other land and marine seismic products, are likely to remain at depressed levels through fiscal year 2018.

Our rental revenue is primarily2023 was derived from short-term leases of our GSX and OBX wireless products and, to a lesser extent, from our traditional and reservoir products.  Rental revenue for our OBX wireless products decreased in fiscal year 2017, primarily due to the expiration of the OBX Contract.  However, demand for rentals of our GSX land-based wireless equipment increased in fiscal year 2017.OBX ocean-bottom recorder. We believe our GSX and OBX rental revenue couldwill increase in fiscal year 2018, although we can offer no assurances of such an increase due to the lack of executed firm rental contracts.

Many of our traditional seismic products are characterized2024 as low margin commodity or consumable products with intense international competition.  We believe the level of industry demand for these products is generally a good barometer of seismic crew activities since these product are consumed, damaged or lost while being utilized in seismic field operations.  As a result of current industry conditions, revenue from these products has dropped significantly since fiscal year 2014, and we do not expect revenue levels from these lower margin products to growrental contracts executed during fiscal year 2018.  As2023 and anticipated new rental contracts, but we focuscan make no assurance in this regard.

We expect that fiscal year 2024 revenue from our future product developmentoil and production activities targeted at higher margin specialtygas reservoir products, and new technologies, especiallyprincipally our wirelessborehole tools and reservoir products, we expect future sales of these lower margin traditional seismic products to decline.

services, will increase slightly over fiscal year 2023 levels. We have not received any orders for a large-scale seabed PRM systemssystem since November 2012, and we currently do not have any indication that such an order will be received in fiscal year 2018, although we do believe opportunities for PRM orders do exist in today’stoday's market. If a large-scalelarge scale PRM order were received in fiscal year 2018, it could significantly impact our2024, revenue would likely not be recognized until fiscal year 2018 revenue2025 and profits.  However, if no such order is received, we expect revenue and profits from our reservoir products to remain at fiscal year 2017 levels.2026.

We expect fiscal year 20182024 revenue from our non-seismicAdjacent Markets products to increase over fiscal year 2017 levels.  2023 levels due to our acquisition of Aquana and intergration of Aquana's products into our business and optimism that demand for our industrial, imaging products and contract manufacturing services will continue to increase in fiscal year 2024.

We expect fiscal year 2024 revenue from our industrialEmerging Markets products to contribute the majorityincrease over 2023 levels largely due to optimism of this increase as a result of expanded market acceptanceobtaining new security-related contracts and new product innovations.opportunities with oil and gas industry customers.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We have market risk relative to our short-term investments, foreign currency exchange rates and interest rates.  We do not engage in commodity or commodity derivative instrument purchase or sales transactions.  Because of the inherent unpredictability of foreign currency rates and interest rates, as well as other factors, actual results could differ materially from those projected in this Item 7A.

Foreign Currency and Operations Risk

One of our wholly-owned subsidiaries, Geospace Technologies Eurasia, is located in the Russian Federation.  In addition, we operate a branch office, Geospace Technologies Sucursal Sudamericana, in Colombia.  Our financial results for these entities may be affected by factors such as volatile changes in foreign currency exchange rates, weak economic conditions or changes in the political climate.  Our consolidated balance sheet at September 30, 2017 reflected approximately $6.2 million and $0.2 million of foreign currency denominated net working capital related to our Russian and Colombian operations, respectively.  Both of these entities receive a portion of their revenue and pay a majority of their expenses primarily in their local currency.  To the extent that transactions of these entities are settled in their local currency, a devaluation of these currencies versus the U.S. dollar could reduce any contribution from these entities to our consolidated results of operations and total comprehensive income as reported in U.S. dollars.  We do not hedge the market risk with respect to our operations in these countries; therefore, such risk is a general and unpredictable risk of future disruptions in the valuation of such currencies versus U.S. dollars to the extent such disruptions result in any reduced valuation of these foreign entities’ net working capital or future contributions to our consolidated results of operations.  At September 30, 2017, the foreign exchange rate for $1.00 (one U.S. dollar) was equal to 57.73 Russian Rubles and 2,937 Colombian Pesos, respectively.  If the value of the U.S. dollar were to increase by ten percent against these foreign currencies, our working capital in the Russian Federation and in Colombia could decline by $0.6 million and $25,000, respectively.

Foreign Currency Intercompany Accounts and Notes Receivable

From time to time, we provide access to capital to our foreign subsidiaries through U.S. dollar denominated interest bearing promissory notes.  Such funds are generally used by our foreign subsidiaries to purchase capital assets and for general working capital needs.  In addition, we sell products to our foreign subsidiaries on trade credit terms in both U.S. dollars and in the subsidiary’s local currency.  At September 30, 2017, we had outstanding Canadian-dollar denominated intercompany accounts receivable of CAN $26.1 million due from our Canadian subsidiary.  We previously considered CAN $24.2 million of this intercompany accounts receivable to be of a long-term nature whereby settlement was not planned or anticipated in the foreseeable future, therefore resulting foreign exchange gains and losses were to be reported in the consolidated balance sheets as a component of other comprehensive income in accordance with ASC 830 “Foreign Currency Matters”.   At September 30, 2017, we reassessed the long-term portion of the intercompany accounts receivable balance since our Canadian subsidiary recently executed a USD $7.3 million sale of a significant portion of its rental equipment.  This transaction was not anticipated, and the resulting cash flows from this equipment sale are expected to result in a substantial decrease in the intercompany accounts receivable owed by the Canadian subsidiary.  These cash flows combined with increased demand for certain wireless equipment manufactured by us increase the likelihood that the intercompany account receivable balance will be deemed of a short-term nature.  At September 30, 2017, we considered the entire CAN$24.2 million intercompany accounts receivable to be of a short-term nature.  In periods subsequent to September 30, 2017, the appreciation or devaluation of the Canadian dollar against the U.S. dollar will result in a gain or loss, respectively, to our consolidated statement of operations.   At September 30, 2017, the foreign exchange rate for USD $1.00 was equal to approximately CAN $1.25.  In September 2017, we entered into a CAN $9.0 million hedge agreement with a United States bank to hedge a portion of our Canadian dollar foreign exchange rate exposure, resulting in an under-hedged position of approximately CAN $17.1 million.  In October 2017, we entered into an additional CAN $11.0 million hedge agreement to further reduce this exposure.  Both hedge agreements expire December 29, 2017.  At September 30, 2017 if the U.S. dollar exchange rate were to strengthen by ten percent against the Canadian dollar, we would recognize a foreign exchange loss of USD $1.4 million in our consolidated financial statements.

Floating Interest Rate Risk

Our credit agreement contains a floating interest rate which subjects us to the risk of increased interest costs associated with any upward movements in bank market interest rates.  Under our credit agreement our borrowing interest rate is the Wall Street Journal prime rate, which was 4.25% at September 30, 2017.  As of September 30, 2017, there were no borrowings outstanding under our credit agreement.Not required.

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Item 8. Financial StatementsStatements and Supplementary Data

Our consolidated financial statements, including the reports thereon, the notes thereto and supplementary data begin at page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in our reports.

In connection with the preparation of this Annual Report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including the CEO and CFO, as of September 30, 20172023 of the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were notare effective atas of September 30, 2017 due to the material weakness described in “Management’s2023.

Management’s Report on Internal Control Over Financial Reporting” as of September 30, 2017.Reporting

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2017.2023. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)("COSO") in Internal Control Integrated Framework (2013). Based on this assessment, our management concluded that, due to a material weakness inas of September 30, 2023, our internal control over financial reporting as described below, our internal control over financial reporting was notis effective as of September 30, 2017.  

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As of September 30, 2017, we did not maintain effective controls concerning our classification of current assets with respect to inventories.  We have determined that a portion of our inventories should have been classified as noncurrent assets, as all inventories were not reasonably expected to be realized in cash, sold or consumed during our next operating cycle.  

This error was subsequently identified and corrected, and resulted in a restatement of the consolidated balance sheets as of September 30, 2016 and 2015 and as of December 31, 2016, March 31, 2017 and June 30, 2017, which are included in this Annual Report on Form 10-K.  The error had no impact upon previously reported total assets, total liabilities, revenues, net loss, loss per share, or cash flows.

Because of this material weakness, management concluded that we did not maintain effective internal control over financial reporting as of September 30, 2015, 2016 and 2017, based on criteria described in Internal Control – Integrated Framework (2013) issued by COSO.those criteria.

To remediate the material weakness described above, we are designing and implementing a quarterly control to determine the value of our inventories expected to be realized in cash, sold or consumed during the next operating cycle.  This control, which will encompass a review by senior management, will utilize a combination of forecasts and historical trends to determine our future expected inventory utilization.  We believe that this measure will remediate the material weakness identified and strengthen the Company's internal control over financial reporting.

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BDO USA, LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation report on the Company's internal control over financial reporting as of September 30, 2017 and 2016, based on their audits.

Changes in Internal Control Over Financial Reporting

There were nohave not been any changes in our internal control over financial reporting that occurred(as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended September 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  As discussed above during the first quarter of fiscal year 2018, we are designing and implementing a new control to remediate the material weakness described above.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of September 30, 20172023 in connection with our 20182024 Annual Meeting of Stockholders under the captions “Election of Directors,” “Executive Officers and Compensation,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Ethics” and is incorporated herein by reference.

Item 11. Executive Compensation

The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of September 30, 20172023 in connection with our 20182024 Annual Meeting of Stockholders under the caption “Executive Officers and Compensation” and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of September 30, 20172023 in connection with our 20182024 Annual Meeting of Stockholders under the caption “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference, and in Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” contained in Part II hereof.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of September 30, 20172023 in connection with our 20182024 Annual Meeting of Stockholders under the caption “Certain Relationships and Related Transactions” and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of September 30, 20172023 in connection with our 20182024 Annual Meeting of Stockholders under the caption “Independent Public Accountants” and is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

Financial Statements and Financial Statement Schedules

The financial statements and financial statement schedules listed on the accompanying Index to Financial Statements (see page F-1) are filed as part of this Annual Report on Form 10-K.

Exhibits

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Item 16. Form 10-K Summary

None.

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SIGNATURESSIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.