UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-K

 


 

☒         Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended September 30, 2023

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended September 30, 2020

OR

OR


 

☐         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 001-13601


GEOSPACE TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 


Texas

76-0447780

(State or Other Jurisdictionof

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

(I.R.S.  Employer

Identification No.)

7007 Pinemont Drive

Houston, Texas 77040-6601

(Address of Principal Executive Offices)

(713) 986-4444

(Registrant’sRegistrants telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock

GEOS

 

GEOSThe NASDAQ Global Select Market

The NASDAQ Global Select Market

Securities Registered pursuant to Section 12(g) of the Act:NONE

 


Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

  Non-accelerated filer

Smaller reporting company   

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).  ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

There were 13,670,63913,197,489 shares of the Registrant’s Common Stock outstanding as of the close of business on October 31, 2020.2023. As of March 31, 2020,2023, the aggregate market value of the Registrant’s Common Stock held by non-affiliates was approximately $85$86 million (based upon the closing price of $6.40$7.05 on March 31, 2020,2023, as reported by The NASDAQ Global Select Market).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the Registrant’s 20212024 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

 

Auditor Firm Id: 49Auditor Name: RSM US LLPAuditor Location: Houston, Texas, USA


 


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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. These seismic products are marketed to the oil and gas industry and 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, imaging equipment, offshore cables, remote shutoff water valves and Internet of Things ("IoT") platform.  Additionally, we provide contract manufacturing services.services, which leverage our capabilities and manufacturing resources. We report and categorize our customers and products into three different segments: Oil and Gas 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 this segment is largely attributable to the 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.”

Business Acquisitions

Quantum Technology Sciences, Inc.

On July 27, 2018, we acquired Quantum Technology Sciences, Inc., a Florida-based tactical security and surveillance systems solutions provider (“Quantum”) through a merger of the Company’s subsidiary with and into Quantum, with Quantum as the surviving corporation.  The acquisition purchase price consisted of a cash down payment at closing of approximately $4.4 million and contingent earn-out payments of up to $23.5 million over a four-year period.  The contingent earn-out payments, if any, which may be paid in the form of cash or Company stock, will be derived from certain eligible revenue that may be generated during the four-year earn-out period.  Earn-out obligation payments made during the fiscal years ended September 30, 2019 and 2020 were zero and $0.1 million, respectively.

The Quantum acquisition represents the Company’s strategy to expand its product revenues, as well as its engineering and manufacturing competencies, to markets outside the oil and gas industry.   The operations of Quantum are included in our Emerging Markets business segment.    

OptoSeis®fiber optic sensing technology

On November 13, 2018, we acquired all of the intellectual property and related assets of the OptoSeis® fiber optic sensing technology business.  The operations of the OptoSeis® business are included in our Oil and Gas Markets business segment.  The acquisition purchase price consisted of cash payments at closing of approximately $1.8 million and contingent earn-out payments of up to $23.2 million during the five-and-a-half year period.  The contingent earn-out payments will be derived from eligible revenue generated during the earn-out period from products and services utilizing the OptoSeis® fiber optic technology.    There were no earn-out obligation payments made during the fiscal years ended September 30, 2019 and 2020. 

Segment and Geographical Information

Effective September 30, 2018, we began reporting

We report and evaluatingevaluate financial information for our three business segments: Oil and Gas Markets, Adjacent Markets and Emerging Markets.  The Oil and Gas Markets segment was previously referred to as our Seismic segment.  Our Adjacent Markets segment was previously referred to as our Non-Seismic segment.  The Emerging Markets segment was added in conjunction with the acquisition of Quantum in July 2018, which designs and markets seismic products targeted at the border and perimeter security markets.  Because we have simply renamed our two original segments and added a new segment, we have not restated any previous financial statements. 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 2119 to the consolidated financial statements contained in this Annual Report on Form 10-K.

Products and Product Development

Oil and Gas Markets

Our Oil 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. This segment’s products include wireless seismic data acquisition systems, reservoir characterization products and services, and traditional seismic exploration products such as geophones, hydrophones, leader wire, connectors, cables, marine streamer retrieval and steering devices and various other seismic

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products. We believe that our Oil and Gas MarketsMarkets' 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 that 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.

Wireless Products

We have developed multiple versions of a land-based wireless (or nodal) seismic data acquisition system. Rather than utilizing interconnecting cables as required by most traditional land data acquisition systems, each of our wireless stations operate as an independent data collection system, allowing for virtually unlimited channel configurations. As a result, our wireless 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. Each wireless station is available in a single-channel or three-channel configuration.  Since its introduction in 2008 and through September 30, 2020, we have sold 473,000 wireless channels and we currently have 84,000 wireless channels in our rental fleet.

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We have also developed a marine-based wireless seismic data acquisition system called the OBX. Similar to our land-based wireless systems, the marine OBX system may be deployed in virtually unlimited channel configurations and does not require interconnecting cables between each station. Our deepwaterWe 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, 2020,2023, we have sold 88013,000 OBX stations and we currently have 35,00028,000 OBX stations in our rental fleet.

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 70 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 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 a producing oil and gas reservoir, and operators can use these surveys to monitor the effects of oil and gas development and production. This type of 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. Utilizing these reservoir monitoring tools, producers can enhance the recovery of oil and gas deposits over the life of a reservoir.

We have 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®OptoSeis® fiber optic sensing technology, we now 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 both land and marine reservoir-monitoring projects. The scalable architecture of these systems enables 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 spring 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 long operational lifetime @ 150 °C.

 

In addition, we produce seismic borehole acquisition systems that 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.

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

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monitoring, a compact marine three-component or four-component gimbaled sensor and special-purpose connectors, connector arrays and cases.

In September 2020,

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 a requestrequests for information from aother major oil and gas producer for a proposal to manufacture a large-scale seabedproducers regarding PRM system.  We are in the process of responding to this request and we believe the potential customer may grant the award in the second quarter or third quarter of fiscal year 2021.  If we receive the order, we anticipate that revenue from the order would be recognized in the latter part of our fiscal year 2022, fiscal year 2023 and beyond.systems.  We have not received any orders for a large-scale seabed PRM system since November 2012.

 

Adjacent Markets

Our Adjacent Markets businesses leverage upon existing manufacturing facilities and engineering capabilities utilized by our Oil and Gas Markets businesses. Many of the seismic products in our Oil and Gas Markets segment, with little or no modification, have direct application to other industries.

Our business diversification strategy has centered largely on translating expertise in ruggedized engineering and manufacturing 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").

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Industrial Products

Our industrial products include water meter products, remote disconnect shut-off water valves and IoT Platform, contract manufacturing products, offshore cables,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 with highly reliable automated meter-reading and automated meter infrastructure with our robust water-proof connectors.

Our remote disconnect values and water IoT platform allows customers that manage multi-family and commercial properties to monitor their 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 and geotechnical applications such asin industrial machinery, mine safety applications and earthquake detection.

Imaging Products

Our imaging 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®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 products targeted at movement monitoring, intrusion detection and situational awareness. Quantum’s customers include various agencies of the U.S. government including the Department of Defense, Department of Energy, Department of Homeland Security and other agencies.agencies as well as energy companies needing real-time monitoring of seismic data.

Business Strategy

We have experienced several years of very low demand for most of the products we sell and rent into our Oil and Gas Markets.  Demand for these products has also been adversely affected by COVID-19 and the resulting lower global demand for oil and gas.  Many ocean-bottom nodal projects have been delayed and rescheduled due to the pandemic and uncertainty in oil and gas commodity prices, reducing rental demand for our ocean-bottom nodal products used to gather seismic data on the ocean-bottom.  While we have recently been invited to participate in a tender for a large-scale seabed PRM system, depressed demand continues for our traditional seismic products and our land nodal seismic products.  As a result, we have adopted what we think is a conservative and prudent business strategy which places a focus on sound financial management practices.practices, as outlined below. We have not changed our primary focus on continued investment in product research and development, selective acquisitions and joint ventures.

Continue Investment in Product Research and Development – Past periods of revenue growth were primarily driven through our internal development of new products for the oil and gas industry. In past years, our oil and gas product innovations included the introduction of borehole seismology tools, land and seabed PRM systems and wireless data acquisition systems for both land and marine applications. These innovative technologies are the result of our unceasing investment in research and development initiatives. A majority of our product research and development cost relates to our product engineers. Our engineering staff have been key to our past success, and we intend to continue our tradition of retaining and attracting quality engineering staff by providing appropriate compensation and benefits. Going forward, we intend to continue significant investments in product research and development of new oil and gas technologies as well as products for our other business segments in order to diversify and grow our revenue base.

 

Selectively Pursue Acquisitions of Businesses with Technological and Engineering Overlap – The oil and gas industry periodically experiences volatile business cycles requiring us to rapidly increase and decrease our business activities to meet the industry’s demand for our products. This industry generally offers equipment manufacturers like us limited visibility into new orders creating challenges for us to manage our manufacturing capacity, workforce, inventories and other working capital challenges. While our primary growth initiative is to expand our oil and gas seismic product offerings, as seen recently with our acquisition of the OptoSeis®OptoSeis® fiber optic sensing technology in fiscal year 2019, we may also seek out

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other business opportunities in adjacent markets and emerging markets which complement our existing oil and gas seismic products, engineering and manufacturing capabilities, and company-wide culture. In order to diversify our revenue base and expose us to different markets with different business cycles, we may directhave directed these efforts toward businesses outside the oil and gas industry, as seen with our acquisition of Quantum in fiscal year 2018.2018 and Aquana in fiscal year 2021.

4

 

Financial Management Industry conditions since fiscal year 2014 have required us to place increased emphasis on cash management and preservation. Due to the cyclicality of the oil and gas industry, we have historically managed our financial risk by limiting or eliminating debt leverage in our balance sheet. While we are not opposed to moderate amounts of short-term debt during favorable business cycles, we choose to minimize our exposure to long-term debt obligations which, in our view, restrict our ability to operate during periodic difficult business cycles in the oil and gas industry similar to the recent business environment. We believe this strategy has allowed us to continue operations through difficult business cycles without disruption for debt and equity restructuring as has been seen among our peers, many of whom have significant long-term debt burdens. In addition, we have limited our investments in capital assets and have liquidated, and made appropriate reserves for, significant amounts of our inventories and rental fleet assets. We also believe that the value of our common shares outstanding will be best served in the long-term by retaining our cash to fund future cash outflows as they become necessary. In this regard, we do not anticipate paying any cash dividends in the foreseeable future, however, our board of directors has recently authorized a stock buy-back program which authorizes us to repurchase up to $5 millionduring fiscal years 2021 and 2022 we repurchased 841,992 shares of our common stock in open market transactions.  We intend to begin the stock buy-backtransactions completing a $7.5 million stock-buy-back program in the first quarterauthorized by our board of fiscal year 2021.directors.

Competition

Oil and Gas Products

We are one of the world’s largest designers and manufacturers of seismic products used in the oil and gas industry. The principal competitors for many of our traditional seismic products are Sercel (a division of CGG) and INOVA (an independent joint venture between ION Geophysical Corporation and BGP, Inc., 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, 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 Seabed Geosolutions (a joint venture formed between Fugro and CGG),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. While price is an important factor in a customer’s decision to purchase 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.

 

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. Product deliverability is always an important consideration 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.

Our primary competitorcompetitors for the rental of our traditional and land wireless seismic equipment is Seismic Equipment Specialists.are STRYDE, SmartSolo, INOVA, and Geophysical Technologies.

Our primary competitor for our seabed PRM systems is Alcatel-Lucent. Our primary competitors for high-definition borehole seismic data acquisition systems are Avalon Sciences Ltd and Sercel.

Our primary competitors for the new energy or energy transition market are Microseismic, Inc., Namometrics, ISTI and ESG.

Adjacent Markets Products

Our industrial and imaging 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

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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.

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Suppliers

We purchase raw materials from a variety of suppliers located in various countries. We typically have multiple suppliers for our critical materials. In our 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 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 products to the specifications required by our customers. For example, we can armor cables for use in multiple deep-water applications.  We assemble geophone strings 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 environmental extremes of product specifications and inspect the products for quality assurance. Consistent with industry practice, we normally manufacture 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 gas, also aggravated by the decline in crude oil prices,global supply shortages of electronic components, we currently hold more than twelve months supply of 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 deepwater PRM products, our customers are generally large international oil and gas companies that operate long-term offshore oil and gas producing properties. Our industrial 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 border and perimeter security customers are 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.

One customer

Two customers comprised 48.2%26.7% and 11.7% of our revenue during fiscal year 2020.  Two customers2023.  One customer comprised 25.2% and 19.7%29.3% of our revenue during fiscal year 2019.  One customer comprised 10.4% of our revenue during fiscal year 2018.2022.  The following table describes our revenue by customer segmentproduct type (in thousands):

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YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2018

 

 

2023

  

2022

 

Traditional seismic exploration product revenue

 

$

6,653

 

 

$

9,504

 

 

$

12,855

 

 $12,183 $6,597 

Wireless seismic exploration product revenue

 

 

54,072

 

 

 

52,770

 

 

 

27,254

 

 60,848 40,667 

Seismic reservoir product revenue

 

 

936

 

 

 

2,692

 

 

 

4,842

 

 962 1,877 

Industrial product revenue

 

 

15,622

 

 

 

18,324

 

 

 

18,352

 

 36,859 25,640 

Imaging product revenue

 

 

9,818

 

 

 

11,832

 

 

 

11,580

 

 12,180 13,531 

Border & perimeter security product revenue

 

 

734

 

 

 

159

 

 

 

286

 

 1,234 711 

Corporate revenue

 

 

 

 

 

528

 

 

 

579

 

  243  230 

Total revenue

 

$

87,835

 

 

$

95,809

 

 

$

75,748

 

 $124,509  $89,253 

 

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 2037.2039. 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.

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Research and Development

We expect to incur significant future research and development expenditures aimed at the development of additional products for each of our business segments. We have incurred company-sponsored research and development expenses of $16.6 million, $15.5$16.0 million and $10.8$18.1 million during the fiscal years ended September 30, 2020, 20192023 and 2018,2022, respectively.

Human 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, encouragementcross-function skill-development to grow and develop their career,careers, all supported by competitive compensation and benefits.

Workforce Composition - At September 30, 2020,2023, we employed 651681 people predominantly on a full-time basis, of which 393451 were employed in the United States, 236209 in the Russian Federation and the remainder in the United Kingdom, Canada, China and Colombia. During fiscal 2020, the number of employees decreased by 130 employees mostly due to our workforce reduction during our third quarter of fiscal year 2020.   64%Our professional staff includes geoscientists, electrical and mechanical engineers, accountants, computer and data scientists, marketing and human resource professionals. 65% of our global workforce areis employed in manufacturing, 16%14% in Engineeringengineering and 19%17% in Salessales and Administration.  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 stoppage.

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 our society. 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 healthhealthcare 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 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 expansion.development. We focus on continuous learning and provide feedback to assist in the development of talent.

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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.

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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, wepoll our workforce hold an internal Core Values survey to inform leadership on the Core Value’svalues in action and opportunities to improve.

Governance – We pride ourselves on the highly ethical and transparent standards through the governance under our Board of Geospace Technology Corporation.  Employees are allowed to evaluate their supervisors/managersDirectors.

Board Composition - Our Board of Directors is chaired by a highly experienced, independent Director whose position is wholly separate and co-workers againstdivided from the valuesrole of the organization, identifying those employees or departments exceeding those values or needing improvementChief Executive Officer. Unlike organizations where the two leadership roles are intertwined, this distinction helps ensure varying viewpoints designed to reach those values.  The Core Value’s program also allows employeesdeliver 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 provide suggestions for improvement or commentsreview 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 praise directlytrusted 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 senior levelsreviewing each of management. 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.

Geospace Technologies Corporation is

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 2119 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. 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.

 


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Item 1A. Risk Factors

 

In evaluating the Company’sCompanys business, you should consider the following discussion of risk factors, in addition to other information contained in this report and in the Company’sCompanys 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 spread across the globe and has negatively impacted worldwide economic activity including the global demand for oil and natural gas, and continues to create challenges in our markets.  In addition to measures we have taken voluntarily, the government authorities in our markets have taken actions to mitigate the spread ofThe COVID-19 including travel restrictions, border closings, restrictions on public gatherings, stay-at-home orders and other quarantine and isolation measures. Following the initial outbreak of the virus, we have experienced disruptions in our supply chain, a reduction in demand for certain products, cancellation of rental contracts and difficulty with field employees and salespeople traveling domestically and abroad to conduct our business. COVID-19 continues to pose the risk that we or our employees, contractors, suppliers and customers may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to restrictions that may be requested or mandated by governmental authorities, including quarantines of certain geographic areas, restrictions on travel and other restrictions that prohibit employees from going to work, both around the world as well as in certain jurisdictions in the United States.  The continued spread of COVID–19pandemic and the related mitigation measures may disrupthave 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 significant decrease in business from our customers and/or cause our customers to be unable to meet existing payment or other obligations to us.   If COVID–19 continues to spread or the response to contain the COVID–19 pandemic is unsuccessful, we could experience 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.

 

The Decrease in Oil Commodity Price Levels Is Likely to NegativelyCould Affect Demand for Our Oil and Gas Products, Which Has and Could Continue to Materially and Adversely Affect Our Results of Operations and Liquidity.

 

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 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 fluctuations 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, 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.

 

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Sustained lowCrude oil prices or the failure of oil prices to riseheld above $65 per barrel throughout 2022 and through September 2023, which may result in the future and the resulting downturns or lack of growth in the energy industry and energy‑related business, could have a negative impact on our results of operations and financial condition. In light of the recent sharp decline in oil prices, oil and gashigher cash flows for exploration and production companies are expected to experience a significant reduction in cash flows, which could result in reductions in their capital spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities.  Demand for our seismic products targeted at customers in our Oil and Gas Markets segment, which segment has historically accounted for the majority of our revenue, could significantly diminish during fiscal year 2020 or beyond as a result of significant uncertainty in the outlook for oil and gas exploration.  Specifically, we expect these challenging industry conditions to result in decreased demand for our marine wireless nodal products and our land-based seismic products, as the demand for such products, has been, and will likely continue to be, vulnerable to downturns in the economy and the oil and gas industry in general.  In addition to the negative effects of slowdowns in the United States economy, 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 and result in an extended period of lower crude oil and natural gas prices.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.

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Generally, imbalances in the supply and demand for oil and gas will affect oil and gas prices and, in such circumstances, demand for our oil and gas products may be adversely affected when world supplies exceed demand.

 

We Operate in Highly Competitive MarketsThe Ongoing Armed Conflict Between Russia and Ukraine Could Adversely Affect Our Competitors May Be AbleBusiness, Financial Condition, and Results of Operations, including our ability to Provide Newer or Better Products Than We Are Able to Providerepatriate cash from Russia.

 

The markets for mostA 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 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 thatrestricted by government regulation, we may not be ableforced to match.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 new competitors may enterto 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 competition could intensify.  potentially have substantial impact on the global economy and our business for an unknown period of time.

 

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.

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

 

Based on customer billing data, revenue to customers outside the United States accounted for approximately 73%50% of our revenue during fiscal year 2020;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 20212024 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.

 

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A portion of our oil and gas product manufacturing is conducted through our subsidiary Geospace Technologies Eurasia LLC, which is based in the Russian Federation.  Our oil and gas 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 the export of oil and gas 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 or a majority of voting interests.  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 equipment will be used in such projects, the export is prohibited.  In fiscal year 2020, we imported $1.3 million of products from Geospace Technologies Eurasia LLC, our wholly-owned subsidiary in the Russian Federation 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 the manufacture of 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 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.

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.

 

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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 2020,2023, customers outside the United States accounted for approximately 73%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.

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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 Continued General Downturn in the Economy in Future Periods May Adversely Affect Our BusinessBusiness.

 

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. SeeFor 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,” above.below.

 


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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 oil and gas nodal seismic data acquisition systems, as well as other 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 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 If Our Customers Continue to Face Difficult Economic CircumstancesCircumstances.

 

While we believe that our allowance for bad debts is adequate in light of known circumstances, additional amounts attributable to uncollectible accounts and notes receivable and bad debt write-offs may have a material adverse effect on our future results of operations. Many of our oil 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. Many of our oil and gas customers continue to experience significant liquidity difficulties, which increase those credit risks, due to prolonged periods of low crude oil prices. We have received a senior secured bond from an international seismic marine customer in exchange for $13 million of unpaid invoices and late fees owed to us by that customer. The bond is listed on the Oslo Alternative Bond Market; however, the actual marketability is unknown at this time. 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, we rent equipment to our oil and gas customers who utilize such equipment in various countries around the world. If these customers experience financial difficulties, it could be difficult or impossible to retrieve our rental equipment from foreign countries.

 

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:

 

●    improve our existing product lines,

●    address the increasingly sophisticated needs of our customers,

●    maintain a reputation for technological leadership,

●    maintain market acceptance of our products,

●    anticipate changes in technology and industry standards,

●    respond to technological developments on a timely basis and

●    develop new markets for our products and capabilities.

improve our existing product lines,

address the increasingly sophisticated needs of our customers,

maintain a reputation for technological leadership,

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maintain market acceptance of our products,

anticipate changes in technology and industry standards,

respond to technological developments on a timely basis and

develop new markets for our products and capabilities.

 

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.

 


The Limited Market for Our Oil and Gas Markets and Emerging MarketsMarkets' Products Can Affect Our RevenueRevenue.

 

In our Oil and Gas Markets segment, we generally market many of our products to seismic service contractors. We estimate that fewer than 30 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 such information is difficult to verify. We estimate that fewer than 15 seismic contractors are engaged in marine seismic 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 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. 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 have not received any orders for large-scale seabed PRM systems since November 2012. In September 2020, we received a request from a major oil and gas producer to propose on the manufacture of a large-scale seabed PRM system.  We are in the process of responding to this request and we believe the potential customer will grant the award before the end of the 2021 calendar year.  If we receive the order, we anticipate that revenue from the order would be recognized in the latter part of our fiscal year 2022 and in fiscal year 2023. 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.

13


 

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 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 Strategy of Renting Our Oil and Gas Seismic Products Exposes Us to Additional Risks Relating to Equipment Recovery, Rental Renewals, Technological Obsolescence and Impairment of AssetsAssets.

 

Our rental fleet of oil and gas seismic equipment represents a significant portion of our assets and accounts for a significant portion of our revenue. Equipment we rent to our customers 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 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 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 SuccessfulSuccessful.

 

We have not previously operated in the border and perimeter security marketplace prior to our 2018 acquisition of Quantum. Quantum is also a 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 and success up to this point in this market makes it difficult to estimate our financial returns if any, 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 BusinessBusiness.

 

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 ProductsProducts.

 

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.

 

14


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 PersonnelPersonnel.

 

Our success depends on attracting and retaining highly skilled professionals. A number of our employees are highly skilledhighly-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 FacilitiesFacilities.

 

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.

 

15

Our Credit Agreement Imposes Restrictions on Our BusinessBusiness.

 

We and several of our subsidiaries domiciled in the United States are parties to a credit agreement with a bank.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 book valuecredit agreement will be secured by substantially all of our domestic assets, except for certain assets.excluded property.  The credit agreement limits the incurrence of additional indebtedness, restricts our and our U.S. subsidiaries’ ability to pay cash dividends if payment would result in pro forma non-compliance with the negative covenants in the credit agreement, requires us to maintain a certain amount of unencumbered liquid assets, 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 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 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 theour 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 thatsuch 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 ReputationReputation.

 

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 OperationsOperations.

 

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 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 manufactured products could adversely affect our results of operations.

 


15


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 Well 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.

 


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. 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 VolatileVolatile.

 

At September 30, 2020,2023, we have approximately 13.212.2 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, 20202023 averaged approximately 79,00041,000 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 Brazilian, ChineseColombian, 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, 2020,2023, approximately 9%5% of our consolidated revenue was related to the operations of our foreign subsidiaries and branches.

 


16


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 our 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 these 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 ifrelated to our Aquana acquisition of Quantum or the OptoSeis® fiber optic sensing technology does not generateif 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.

 

Increased or Inaccurate Estimation of Contingent Earn-Out Liabilities Could Result in Increased Charge-Offs or Losses and Defaults Under Our Credit Agreement

As further discussed below, we have contingent earn-out liabilities associated with our acquisitions of Quantum and OptoSeis®.  We have utilized the services of an independent valuation consultant to assist us with the estimation of the contingent earn-out liability in each case.  We expect to continue to utilize similar consulting services to help us estimate the contingent earn-out liability in future periods.  If we, or our independent valuation consultant, have incorrectly estimated such potential earn-out liability or if such estimates prove to be inaccurate due to the inherent unpredictability of the size, scope, and occurrence of the contracts that might be subject to such earn-outs, and we are required to pay an amount of consideration in excess of our estimate, we may incur increased charges to our consolidated statement of operations associated with that increased liability.  If we receive substantial revenue from Quantum or OptoSeis® and if such revenue is subject to the applicable earn-out, the attendant increase in contingent liability could also be substantial.  Further, in certain instances, if the increases in contingent earn-out liability are of a large enough magnitude, they may cause us to default on certain financial covenants in our credit agreement.  These increased losses, potential defaults, and other negative repercussions from such increased liability could adversely affect our financial performance and results of operations.

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 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.

17

 

Item 2. Properties

As of September 30, 2020,2023, our operations included the following locations:

 

Location

 

Owned/Leased

 

Approximate

Square

Footage/Acreage

 

 

Use

 

Segment (see notes below)

 

Owned/Leased

 Approximate Square Footage/Acreage 

Use

 Segment (see notes below) 

Houston, Texas

 

Owned

 

 

387,000

 

 

See Note 1 below

 

6 and 7

 

Owned

 387,000 

See Note 1 below

 

6 and 7

 

Houston, Texas

 

Owned

 

 

30,000

 

 

See Note 2 below

 

6

 

Owned

 

17.3 acres

 

See Note 2 below

 6 

Houston, Texas

 

Owned

 

17.3 acres

 

 

See Note 3 below

 

6

Austin, Texas

 

Leased

 

 

17,000

 

 

See Note 4 below

 

6

 

Leased

 9,000 

See Note 3 below

 6 

Cocoa Beach, Florida

 

Leased

 

 

10,000

 

 

See Note 5 below

 

8

Melbourne, Florida

 

Leased

 7,000 

See Note 4 below

 8 

Ufa, Bashkortostan, Russia

 

Owned

 

 

120,000

 

 

Manufacturing, sales and service

 

6

 

Owned

 120,000 

Manufacturing, sales and service

 6 

Calgary, Alberta, Canada

 

Owned

 

 

45,000

 

 

Manufacturing, sales and service

 

6 and 7

 

Owned

 45,000 

Manufacturing, sales and service

 

6 and 7

 

Luton, Bedfordshire, England

 

Owned

 

 

8,000

 

 

Sales and service

 

7

 

Owned

 8,000 

Sales and service

 7 

Beijing, China

 

Leased

 

 

1,000

 

 

Sales and service

 

6

Bogotá, Colombia

 

Owned

 

 

19,000

 

 

Sales and service

 

6

 

Owned

 19,000 

Sales and service

 6 

17


(1)

This property is located at 7007 Pinemont Drive in Houston, Texas (the “Pinemont Facility”).  The Pinemont Facility contains substantially all manufacturing activities and all engineering, selling, marketing and administrative activities for us in the United States.  The Pinemont Facility also serves as our international corporate headquarters.

(2)

This property is located at 6410 Langfield Road7007 Pinemont Drive in Houston, Texas.  This facility provides additional warehousingTexas (the “Pinemont Facility”). The Pinemont Facility contains substantially all manufacturing activities and maintenanceall engineering, selling, marketing and repair capacityadministrative activities for us in the United States. The Pinemont Facility also serves as our marine rental equipment operations.international corporate headquarters.

(3)(2)

This property is located adjacent to the Pinemont Facility. It is currently being used as additional parking for the Pinemont Facility and legacy structures are being used to support our manufacturing and warehousing operations.

 

(4)(3)

This property is located at 11801 Stonehollow8701 Cross Park Drive, Suite 100, in Austin, Texas. This facility contains substantially allsupports the majority of our fiber optic sensingOptoSeis®research and development and engineering operations.

 

(5)(4)

This property is located at 19805700 N. Atlantic Avenue,Harbor City Blvd., Suite 201,100, in Cocoa Beach,Melbourne, Florida. This facility contains all the operations of Quantum.

(5)

Oil and Gas Markets.

(6)

Oil and Gas Markets.Adjacent Markets

(7)

(7)Emerging Markets

Adjacent Markets

(8)

Emerging Markets

 

 

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.

 

18

 

18


PART II

 

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

Holders of Record

Our common stock is traded on The NASDAQ Global Select Market under the symbol “GEOS”. On October 31, 2020,2023, there were approximately 130143 holders of record of our common stock, and the closing price per share on such date was $5.13$11.99 as quoted by The NASDAQ Global Select Market.

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.

 

Year Ended September 30, 2020:

 

Low

 

 

High

 

Year Ended September 30, 2023:

 

Low

  

High

 

Fourth Quarter

 

$

5.64

 

 

$

8.15

 

 $7.22 $14.59 

Third Quarter

 

 

5.00

 

 

 

9.57

 

 6.60 9.16 

Second Quarter

 

 

4.61

 

 

 

16.96

 

 3.96 7.55 

First Quarter

 

 

13.18

 

 

 

17.66

 

 3.76 4.88 

 

 

 

 

 

 

 

 

 

Year Ended September 30, 2019:

 

 

 

 

 

 

 

 

Year Ended September 30, 2022:

      

Fourth Quarter

 

$

11.61

 

 

$

16.61

 

 $4.10  $5.45 

Third Quarter

 

 

11.85

 

 

 

15.89

 

 4.64  6.72 

Second Quarter

 

 

10.01

 

 

 

16.92

 

 4.97  8.88 

First Quarter

 

 

9.93

 

 

 

15.93

 

 6.41  10.27 

 

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 may restrict our ability to pay dividends if payment would result in pro forma non-compliance with the negative covenants in the credit agreement.  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, 2020:2023:

Equity Compensation Plan Information

 

Plan Category

 

Number of Securities

to be Issued upon

Exercise of

Outstanding Options,

Warrants and Rights

(a)

 

 

Weighted-average

Exercise Price of

Outstanding Options,

Warrants and Rights

(b)

 

 

Number of Securities

Remaining Available

for Future Issuance

Under Equity

Compensation Plans

(Excluding Securities

Reflected in Column

(a)) (c)

 

 

 

(In shares)

 

 

(In dollars per share)

 

 

(In shares)

 

Equity Compensation Plans Approved

   by Security Holders (1)

 

 

309,357

 

 

17.66 (2)

 

 

 

370,110

 

Equity Compensation Plans Not Approved

   by Security Holders

 

 

 

 

 

 

 

 

 

Total

 

 

309,357

 

 

17.66 (2)

 

 

 

370,110

 

19


Plan Category

 Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a)  Weighted-average Exercise Price of Outstanding Options, Warrants and Rights (b)  Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) 
  

(In shares)

  

(In dollars per share)

  

(In shares)

 

Equity Compensation Plans Approved by Security Holders (1)

  377,549   N/A   1,137,509 

Equity Compensation Plans Not Approved by Security Holders

         

Total

  377,549   N/A   1,137,509 

 

(1)

The number of securities shown in column (c) represents number of securities remaining available for issuance under the Company’s 2014 Long Term Incentive Plan, as amended (the “2014 Plan”), which was approved by the Board and shareholders in February 2014.. The 2014 Plan allows for the issuance of restricted stock awards, performance stock awards, performance stock unit awards, restricted stock unit awards (the foregoing, “Full Value Awards”), stock options and stock appreciation rights. For purposes of calculating the number of securities remaining under the 2014 Plan in column (c), Full Value Awards are counted as 1.5 shares for each share awarded. The number of securities shown in column (a) of the table above represents 91,100 stock options and 218,257 restricted stock unit awards outstanding under the 2014 Plan. Column (b) excludes restricted stock unit awards.

19

 

(2)

The calculation of the weighted-average exercise price of outstanding options, warrants and rights excludes restricted stock unit awards.

Recent Sales of Unregistered Securities and Use of Proceeds

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

 

Item 6. Selected Financial Data

Not Required.

20

 

Item 7. Management’sManagements 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 transactions withrollout of our Aquana smart water valves and cloud-based control platform, future demand for our Quantum and the OptoSeis® technology,security solutions, the adoption and sale of our products in various geographic regions, potential tenders for PRM systems, future demand for OBX systems,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 (COVID-19)(or COVID-19) pandemic, the Company’simpact 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 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®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 substantial investment by 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, inability to collect on promissory notes, lack of further orders for our OBX systems,rental equipment, failure of our 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

20


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 and primarily market these products to the oil and gas industry to locate, characterize and monitor hydrocarbon producing reservoirs. 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, imaging equipment offshore cables and provide contract manufacturing services. SeeFor 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, sales of our oil and gas PRM systems and/or wireless seismic data acquisition systems for land and marine applications.

Our revenue and results of operations have not been materially impacted by inflation or changing prices in the past two fiscal years.

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We report and evaluate financial information for three segments: Oil and Gas Markets, Adjacent Markets and Emerging Markets. Summary financial data by business segment follows (in thousands):

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Oil and Gas Markets

 

 

 

 

 

 

 

 

    

Traditional exploration product revenue

 

$

6,653

 

 

$

9,504

 

 $12,183  $6,597 

Wireless exploration product revenue

 

 

54,072

 

 

 

52,770

 

 60,848  40,667 

Reservoir product revenue

 

 

936

 

 

 

2,692

 

  962   1,877 

Total revenue

 

 

61,661

 

 

 

64,966

 

 73,993  49,141 

Operating income (loss)

 

 

(2,139

)

 

 

3,095

 

 15,759  (7,539)

Adjacent Markets

 

 

 

 

 

 

 

 

    

Industrial product revenue

 

 

15,622

 

 

 

18,324

 

 36,859  25,640 

Imaging product revenue

 

 

9,818

 

 

 

11,832

 

  12,180   13,531 

Total revenue

 

 

25,440

 

 

 

30,156

 

 49,039  39,171 

Operating income

 

 

4,017

 

 

 

6,234

 

 11,490  6,021 

Emerging Markets

 

 

 

 

 

 

 

 

    

Revenue

 

 

734

 

 

 

159

 

 1,234  711 

Operating loss

 

 

(6,064

)

 

 

(2,306

)

 (4,003) (9,128)

Corporate

 

 

 

 

 

 

 

 

    

Revenue

 

 

 

 

 

528

 

 243  230 

Operating loss

 

 

(13,853

)

 

 

(5,990

)

 (11,918) (12,490)

Consolidated Totals

 

 

 

 

 

 

 

 

    

Revenue

 

 

87,835

 

 

 

95,809

 

 124,509  89,253 

Operating income (loss)

 

 

(18,039

)

 

 

1,033

 

 11,328  (23,136)

 

Overview

 In 2014, our Oil and Gas Markets segment experienced a softening

Although in the demand for its traditional exploration products, particularly in North America, as capital budgets foran already depressed oil and gas producers were trending away from exploration-focused activities toward production and exploitation activities.  During this period oil productionindustry, demand further decreased in North America’s unconventional shale reservoirs increased, as did oil production from other non-OPEC countries, resulting in an oversupplyFebruary 2020 because of crude oil in the world market and a resulting drop in energy prices.  Early in 2020, decreased demand again caused by the oversupply of crude oil due to failed OPEC negotiations and, when combined with the impact of the COVID–19 pandemic,that led to a dramatic drop in crude oil prices which have subsequently recovered to some extent.  To datewhen combined with the effectimpact of the COVID-19 pandemic has resulted in a global drop in demand for oil and gas.pandemic. These declines in the demand for oil and gas have caused oil and gas exploration and production companies to experience a significant reduction in cash flows, which have resulted in and will likely continue to result in reductions in their capital spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities. OurCrude 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 hasproducts. 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 recent years experienced strongdebt 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 the reduced levels of demand for the rentalour Oil and Gas Markets segment products. We also expect our land-based traditional and wireless products will continue to experience low levels of our marine wireless nodal products; however, thisproduct demand could

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significantly diminish during fiscal year 2021 or beyond as a result of the significant uncertainty in the outlook for oil and gas exploration.  Demand for new land-based seismic equipment in recent fiscal years has remained restrained due to capital limitations affecting many ofuntil our customers along withconsume their excess levels of underutilized equipment. As a result, revenueDuring the third quarter of fiscal year 2022, we began to experience an increase in rental demand for our marine nodal products in the form of additional rental contracts and requests for quotes from the saleexisting and rentalnew customers.  The increase in demand has led to near full utilization of our marine wireless rental fleet, yet we continue to experience low levels of demand for our land-based traditionalwireless products.      

During the first quarter of fiscal year 2023, we implemented a plan to discontinue the manufacture of certain low margin, low revenue products and wireless products has remained low duereconfigure 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 in the first quarter of fiscal year 2023, primarily termination costs related to the reduced investmentworkforce reduction. The costs were recorded both to cost of revenue and operating expenses in exploration-focused seismic activities.  We expect these challenging industry conditions will result in revenue from our traditional and land-based wireless products to remain below historical norms.  the consolidated statement of operations. No significant future costs are expected.

In light of current market conditions, the inventory balances in our Oil and Gas Markets business segment at September 30, 20202023 continued to exceed levels we consider appropriate for the current level of product demand. While weWe are continuing to work aggressively working to reduce these legacy inventory balances,balances; however, we are also adding new inventories for new wireless product 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 obsolescence expense as we experience reduced product demand and as our inventories continue to age. If difficult market conditions continue forAlthough the products in our Oil and Gas Markets segment is seeing a recovery after experiencing difficult market conditions, we expect to recordhave been recording additional expenses for inventory obsolescence expenseand will continue to do so in fiscal year 2021 and beyondthe future until product demand and/or resulting inventory turnover 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)

In March 2020, the World Health Organization declared

The ongoing COVID-19 a globalpandemic has negatively impacted worldwide economic activity and continues to create challenges in our markets.  The COVID-19 pandemic and recommended containment andthe related mitigation measures worldwide. 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 spreadoccurrence or resurgence of COVID-19 has resulted in most governments issuing restrictive orders, including “shelter in place” orders around the globe to assist in mitigating the spread of the virus.

While we continue to support our customers, there remain uncertainties regarding the duration and the extent to whichglobal or regional health events such as the COVID-19 pandemic, will ultimately haveand the related government responses, could result in a negative impact on the demand for our products and services ormaterial adverse effect on our supply chain.  Webusiness, financial condition, results of operations and liquidity.  As such, we will continue to closely monitor the situation as information becomes readily available.COVID-19 and will continue to reassess our strategy and operational structure on a regular, ongoing basis.

As of the date of this filing, our operations have, for the most part, remained open globally and the impact of the effects of COVID-19 to our personnel and operations has been limited.  We have experienced lower than expected sales in our Adjacent Markets segment which we believe are primarily the result of the pandemic.  We have also experienced a reduction in demand for certain products, cancellation of rental contracts and difficulty with field employees and salespeople traveling domestically and abroad to conduct our business.

The current low oil and gas price environment may be intensified and prolonged by the COVID-19 pandemic and is increasing the risk and financial stress placed on our customers.  We cannot reasonably estimate the length or severity of this pandemic, or the extent to which COVID-19 will affect our business, financial condition and results of operations in fiscal year 2021 and beyond.

Cost Reduction Initiative

In July 2020, we initiated a program to reduce operating and manufacturing expenses in light of decreased demand for products in our Oil and Gas Markets and Adjacent Markets segments.  The program is expected to produce approximately $2.0 million of annualized cash savings.  The cost reductions were primarily realized through a reduction of employees from our workforce.  In connection with the workforce reductions, we incurred $0.9 million of termination costs in our fourth quarter of fiscal year 2020.  The termination costs were recorded to both cost of revenue and operating expenses in the consolidated statement of operations.  There are no outstanding liabilities related to this program as of September 30, 2020.    

Fiscal Year 20202023 Compared to Fiscal Year 20192022

Consolidated revenue for fiscal year 20202023 was $87.8$124.5 million, a decreasean increase of $8.0$35.3 million, or 8.3%39.5%, from fiscal year 2019.  While we experienced reduced2022. 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 mostour industrial products from our Adjacent Markets segment.  The increase was partially offset by a decrease in sales of ourwireless exploration products.  Wireless exploration product categories due to the factors cited above, the decrease was primarily caused by an $8.0revenue for fiscal year 2023 also included $4.0 million charge to (or reduction of) revenue related to the impairment of an operating lease receivable resulting from thea rental of our marine seismic equipment.customer as compensation for lost OBX nodes.

 

Consolidated gross profit for fiscal year 20202023 was $23.4$51.7 million, a decreasean increase of $8.0$33.6 million, or 25.4%186.5%, from fiscal year 2019.2022. The decreaseincrease in gross profit was also primarily causeddue 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 $8.0 million charge to (or reduction of)decrease in wireless exploration product revenue and related to the impairment of an operating lease receivable resulting from the rental of our marine seismic equipment.gross profits.

Consolidated operating expenses for fiscal year 20202023 were $41.5$41.7 million, an increase of $4.0$0.5 million, or 10.8%1.2%, from fiscal year 2019.2022.  The increase in operating costs werewas primarily due to a (i) $5.0 million favorable non-cash adjustment reported in the prior year period resulting from a $3.2 million net non-cash increasechange in the estimated fair value of contingent earn-out consideration related to our Quantum and OptoSeis®OptoSeis® acquisitions and (ii) $0.9an increase in personnel related termination costs associated with our workforce reduction, (iii) $0.4 million of incremental research and development costs associated with our acquisition ofincentive compensation attributable to the OptoSeis® businessincrease in November 2018 and (iv) a $0.7 million goodwill impairment charge.  These increasesrevenue.  The increase in operating expenses were partially offset by a $0.4(i) $4.3 million non-cash goodwill impairment charge reported in the prior fiscal year related to our Quantum acquisition, (ii) reduction in personnel costs attributable to our workforce reduction, (iii) lower research and development project expenditures and (iv) decrease in bad debt expense.expense resulting from collections of previously reserved past due receivables.

 

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In August 2019,February 2023, we sold our real property located at 7334 N. Gessner7310 Langfield Road in Houston, Texas which generatedfor a $7.0cash sales price of $3.7 million, net of closing costs of $0.3 million.  We recognized a gain on disposal of $1.3 million from the sale of this property in the fourthsecond quarter of fiscal year 2019.2023. The buyer occupied the property as a tenant under a long-term lease.  The propertysale was not strategicpart of our plan to our ongoing operations.  streamline operations and reduce costs. 

Consolidated other income for fiscal year 20202023 was $1.4$1.2 million compared to $1.2$0.5 million from fiscal year 2019.2022. The increase in other income was primarily caused by andue to a increase in net foreign exchange gains, andcurrency transaction gains.  The increase was partially offset by a decrease in interest income.      income attributable to lower note receivable balances between periods.

Consolidated income tax expense for fiscal year 2020 and 2019 was $2.6 million and $2.4 million, respectively.  This increase in income tax expense was primarily the result of an increase in rental revenue earned in foreign jurisdictions requiring tax withholding.  We are currently unable to record any tax benefits from the tax losses we incur in the U.S., Canada and Russian Federation due to the uncertainty surrounding our ability to utilize such losses in the future to offset taxable income.

Segment Results of Operations

Fiscal Year 2023 Compared to Fiscal Year 2022

Oil and Gas Markets

Fiscal Year 2020 Compared to Fiscal Year 2019

Revenue

Revenue from our Oil and Gas Markets products for fiscal year 2020 decreased $3.32023 increased $24.9 million, or 5.1%50.6%, from fiscal year 2019.2022.  The components of these decreases included the following:this increase were as follows:

Traditional Exploration Product Revenue – Revenue from our traditional products decreased $2.9increased $5.6 million, or 30.0%,84.7% from the prior fiscal year. The decreaseincrease primarily reflects lowerhigher demand for our sensor products and a decrease in customer product repair and support service revenue.  marine products.

 

Wireless Exploration Product Revenue – Revenue from our wireless exploration products increased $1.3$20.2 million, or 2.5%49.6%, from the prior fiscal year. Excluding an $8.0 million chargeThe increase was primarily due to (or reduction of)increased rental revenue relatedattributable to the impairmenthigher utilization of an operating lease receivable, our wireless exploration product revenue increased by $9.3 million, or 17.6%.  The revenue increase primarily resulted from higher rental demand for our OBX systems.rental fleet.  The increase was partially offset by a decrease in wireless product sales.  Wireless product revenue for fiscal year 2023 also included the recognition of revenue$4.0 million from an international seismic marinea rental equipment customer and lower GSX product revenue.       as compensation for lost OBX nodes.

 

Reservoir Product Revenue – Revenue from our reservoir products decreased $1.8 million, or 65.2%, from the prior fiscal year.  The decrease for both periods was primarily due to a decrease in sales of our borehole products and lower service revenue.

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During the second quarter of fiscal year 2020, we partially financed a $12.5 million product sale by entering into a $10.0 million promissory note with a customer.  The promissory note is for a three-year term with monthly principal and interest payments of $0.3 million.  Due to the financial condition of the customer, we have concerns over the probable collectability of the promissory note.  As a result, we did not recognize any revenue or cost of revenue on the product sale. Through September 30, 2020 we have received payments from the customer totaling $4.6 million (exclusive of interest) related to the sale, which are reflected on our accompanying consolidated balance sheet as non-current deferred revenue.  Management does not intend to recognize the revenue and cost of revenue from the sale until it becomes probable that the customer will satisfy its financial obligation under the promissory note.

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Operating Income (Loss)

Operating income (loss) fromassociated with our Oil and Gas Markets products for fiscal year 20202023 was $(2.1)$15.8 million, compared to $3.1an operating loss of $(7.5) million from the prior fiscal year. The decreaseincrease in our operating income was primarily the resultdue to higher wireless rental revenue and related gross profits due to improved utilization of an $8.0 million charge related to the impairment of an operating lease receivable.our OBX rental fleet.  The decrease was also attributable to $0.7 million in termination costs related to the Company’s fourth quarter fiscal year 2020 workforce reduction and a $0.7 million goodwill impairment charge.  The decreaseimprovement in operating income was partially offset by an increasea (i) decrease in gross profit attributable higher rentalwireless product revenue and a $0.7related gross profits and (ii) $4.4 million decreasefavorable non-cash adjustment reported in non-cash chargesthe prior fiscal year related to changes in the estimated fair value of contingent earn-out consideration related to our OptoSeis OptoSeis®acquisition.

Adjacent Markets

Fiscal Year 2020 Compared to Fiscal Year 2019

Revenue

Revenue from our Adjacent Markets products for fiscal year 2020 decreased $4.72023 increased $9.9 million, or 15.6%25.2%, from the prior fiscal year.  The components of this decrease included the following:increase were as follows:

Industrial Product Revenue and Services – Revenue from our industrial products decreased $2.7increased $11.2 million, or 14.7%43.8%, from the prior fiscal year. The decreaseincrease was primarily due to lowerhigher demand for our industrial sensor and water meter products and contract manufacturing services as a result of the COVID-19 pandemic.    We cannot reasonably estimate the impact the COVID-19 will have on the future demand for our industrial products and services.products.

 

Imaging Product Revenue – Revenue from our imaging products decreased $2.0$1.4 million, or 17.0%10.0%, from the prior fiscal year. The decrease was primarily due to a decline in sales of our film products as a result of the COVID-19 pandemic.  The decrease was also attributable to unforeseen delays in the production of certain imaging equipment.  We cannot reasonably estimate the impact COVID-19 will have on the futurelower demand for our imaging products.equipment.

Operating Income

Operating income from our Adjacent Markets products for fiscal year 20202023 was $4.0$11.5 million, a decreasean increase of $2.2$5.5 million, or 35.6%,90.8% from the prior fiscal year. The decreaseincrease in operating income was primarily due to the increase in revenue and related gross profits.  The increase was partially offset by (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 decrease in gross profit caused by the decline in industrial and imaging product revenue.$0.4 million impairment charge on our manufacturing equipment.

Emerging Markets

Fiscal Year 2020 Compared to Fiscal Year 2019

Revenue

On July 27, 2018, we entered the border and perimeter security market through our acquisition of Quantum.   In connection with our Quantum acquisition, we established the Emerging Markets business segment, which currently includes only Quantum.  

Revenue from our Emerging Markets products for fiscal year 20202023 was $0.7$1.2 million, compared to $0.2$0.7 million from the prior fiscal year.  The increase in revenue was primarily attributabledue to (i) the salerevenue of border and perimeter$0.7 million recognized on a security products torelated contract completed with a commercial customer and (ii) site preparation and engineering related to a U.S. Customs and Border Protection U.S. Border Patrol contract.   In April 2020, Quantum was awarded a $10 million contract with the U.S. Customs and Border Protection U.S. Border Patrol to provide a technology solution to the Department of Homeland Security.  The Company expects most of the revenue from this contract will be recognized during the first six months of fiscal year 2021.customer. 

Operating Loss

Operating loss from our Emerging Markets products for fiscal year 20202023 was $6.1$4.0 million, an increase of $3.8compared to $9.1 million from the prior fiscal year.  The increasedecrease in operating loss for fiscal year 2023 was primarily due toa (i) non-cash chargesgoodwill impairment charge of $1.0$4.3 million reported in the prior fiscal year 2020 for changesand (ii) lower personnel costs attributable to our workforce reduction.  The decrease in operating loss was partially offset by a $0.7 million decrease to a favorable non-cash adjustment to the estimated fair value of contingent earn-out consideration related to our Quantum acquisition when compared to $(2.9) millionthe same period of non-cash credits in the prior year.  During fiscal year 2020, Quantum also experienced an increase in product development costs which were offset by an increase in gross profits attributable to its higher revenue.  Quantum’s operating expenses for each of fiscal years 2020 and 2019 included intangible asset amortization expenses of $1.2 million.  Since its acquisition in July 2018, Quantum has primarily focused on product development activities, and the marketing of its technologies to government agencies and other end users.  year.

24


Liquidity and Capital Resources

Fiscal Year 20202023

At September 30, 2020,2023, we had approximately $32.7$33.7 million in cash, cash equivalents and cash equivalents.short-term investments.  For the fiscal year 2020,ended September 30, 2023, we generated $18.1$15.6 million of cash from operating activities.  OurSources of cash included our net lossincome of $19.2$12.2 million was offset byand net non-cash charges of $40.7$19.6 million resulting from deferred income taxes, depreciation, amortization, accretion, inventory obsolescence, goodwill impairment, stock-based compensation and bad debt expense, change in estimate of collectability of rental revenue and changes in the estimated fair value of contingent consideration.recovery.  Other sources of cash included a (i) a $5.2$5.4 million increase in deferred revenueother liabilities due to an increase in customer deposits on rental contracts and accrued employee compensation costs and (ii) $1.3 million decrease in other liabilitiesassets.  These sources of cash were partially offset by (i) a $5.6 million increase in trade accounts and notes receivable primarily due to the deferral ofour increase in revenue on a significant product sale occurring in our second fiscal quarter and partially offset by a decrease in customer deposits and (ii) a $2.5 million decrease in trade and other receivables resulting from the timing of collections from customers.  Offsetting these sources of cash were (i)customers, (ii)$2.5 million decrease in accounts payable resulting from the timing of payments to our suppliers, (ii) an $7.8$11.0 million increase in deferred cost of revenue and other assets primarily dueinventories to the deferral of cost on a product sale andmeet an increase in the prepayment of certain expenses anddemand for our products, (iii) the removal of a $0.7$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. 

For the fiscal year 2020,ended September 30, 2023, we used cash of $4.1$11.9 million in investing activities. Uses of cash included (i) a $5.5 million investment in our rental equipment primarily to expand our OBX rental fleet and (ii) $2.9$4.0 million for additions to our property, plant and equipment.equipment, (ii) $9.9 million for additions to our equipment rental fleet and (iii) net disbursements of $13.9 million for purchases of short-term investments.  These uses of cash were partially offset by proceeds of (i) $4.1$11.5 million of proceeds from the sale of used rental equipment and (ii) $0.2$4.4 million of proceeds from the sale of property and equipment.  FiscalWe expect fiscal year 2021 cash investments in property, plant and equipment could be approximately $5 million.  Fiscal year 20212024 cash investments into our rental fleet will primarily be dependent on demand forapproximately $9 million.  We expect fiscal year 2024 cash investments in our OBX marine rental equipment.property, plant and equipment will be approximately $4 million.  Our capital expenditures are expected to be funded from our cash on hand, internal cash flows, cash flows from our rental contracts or, if necessary, from borrowings under our new credit agreement.

For the fiscal year 2020ended September 30, 2023, we used $0.1cash of  $0.5 million from financing activities consisting of (i) $0.4 million for the payment of contingent considerationdebt issuance costs related to our acquisitionnew credit agreement and (ii) $0.2 million for final contingent consideration payments to the former shareholders of Quantum in 2018.  

Since 2014, the oil and gas industry has experienced a sustained downturn due to low oil and gas prices. Recently, the unprecedented sharp decline in crude oil prices since February 2020 has further impacted the overall condition of the oil and gas industry, stifling budgets targeted at the oil and gas exploration industry, including the seismic industry.  Prior to recent downturn we saw some signs of increased seismic activity in certain areas around the world; however, we expect the need for new seismic equipment to remain restrained due to current industry conditions, capital limitations affecting many of our customers and excessive on-hand quantities of under-utilized customer-owned seismic equipment.  Further, we expect product sales of our Oil and Gas Markets products—specifically our legacy land-based traditional and wireless products—to remain low until the oil and gas industry begins to show signs of recovery and exploration-focused seismic activities increase. However, oil and gas pricing and the resultant economic conditions may not recover meaningfully in the near term, and we expect these challenging industry conditions facing our land-based traditional and legacy wireless products will continue in fiscal year 2021. Quantum.

 


On July 13, 2020, we received an interest in a senior secured bond from an international seismic marine customer.  Our interest in the bond, which has a face value of $13.0 million, was received in exchange for $13.0 million of unpaid invoices and late fees owed by the customer.   The bond is secured by a third in line lien on the assets owned by the customer and has an 8% interest rate with bi-annual interest and possible principal payments based on excess available cash flow.  Interest payments can be made either in cash or in-kind payments in the form of additional debt security.  In-kind interest payments require an 8.8% interest rate.  The bond matures July 13, 2022.  The bond is listed on the Oslo Alternative Bond Market; however, the actual marketability is unknown at this time.  Based on the distressed financial condition of the customer, we believe the fair value of the bond is nominal and we have not recorded a carrying amount for this bond at September 30, 2020. 

Our available cash, and cash equivalents totaled $32.7and short-term investments was $33.7 million at September 30, 2020,2023, which included $5.8$3.8 million of cash and cash equivalents held by our foreign subsidiaries and branch offices.  The 2017 Tax Act creates newoffices, of which $2.5 million was held by our subsidiary in the Russian Federation. In response to sanctions imposed by the U.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 Russian 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 Russian subsidiary, we would be required to accrue and pay taxes on any amount 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.

In July 2023, we entered into a credit agreement (“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 $15 million.  Availability under the Agreement is determined based upon a borrowing base comprised of certain of our domestic assets which include (i) 80% of eligible accounts receivable, plus (ii) 90% of eligible foreign earningsinsured 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 also requires companiesadjustments.  Interest shall accrue on outstanding borrowings at a rate equal to payTerm SOFR (Secured Overnight Financing Rate) plus a one-time transition tax on undistributed earnings of their foreign subsidiaries which were previously tax deferred.margin equal to 3.25% per annum.  We have determined that we arenot required to pay any transition taxmake monthly interest payments on the undistributed earningsborrowed funds. The Agreement is secured by substantially all of our foreign subsidiaries since we had no accumulated foreign earnings onassets, except for certain excluded property.  The Agreement requires us to maintain a consolidated basis.

Our credit agreement allows for borrowings of up to $30.0 million with such amounts available for borrowing determined by a borrowing base.  In November 2019, we amended  the credit agreement tominimum (i) extend the maturity date from April 2020 to April 2022, (ii) increase the unencumbered liquid assets covenant threshold from $5 million to $10 million commencing with the fiscal quarter ending December 31, 2020 and for each fiscal quarter thereafter, (iii) increase theconsolidated tangible net worth requirement from $140of $100 million, (ii) liquidity of $5 million, and (iii) current ratio no less than 2.00 to $145 million commencing with the fiscal quarter ending December 31, 2020 and for1.00, in each fiscal quarter thereafter and (iv) remove the requirement that we obtain the consentcase tested quarterly. The Agreement also requires us to maintain a springing minimum interest coverage ratio of Frost Bank prior1.50 to paying dividends or repurchasing stock so long as we are1.00, tested quarterly whenever there is an outstanding balance.  The Agreement expires in compliance with the covenants of the credit agreement.  July 2025.

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At September 30, 2020,2023, we had no outstanding borrowings under the credit agreementAgreement and our borrowing base availability under the credit facility pursuant to the credit agreement, based on the borrowing base calculation asAgreement was $13.1 million after consideration of September 30, 2020, was $17.7 million.  At September 30, 2020, wea $0.1 million outstanding letter of credit.  We were in compliance with all covenants under the credit agreement.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.

Our available cash, cash equivalents and short-term investments increased $17.0 million during fiscal year 2023.  In the absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future operations, including executed rental contracts, available borrowings under our credit agreementthe Agreement through its expiration in April 2022,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 cash equivalents and borrowings under our credit facility will be sufficient to finance any future operating losses and planned capital expenditures through the next twelve months.

Fiscal Year 2019

At September 30, 2019, we had approximately $18.9 million in cash and cash equivalents and short-term investments.  For fiscal year 2019, we generated $5.6 million of cash from operating activities.  Our net loss of $0.1 million included net non-cash charges of $24.6 million resulting from deferred income taxes, depreciation, amortization, accretion, inventory obsolescence, stock-based compensation, bad debt expense and changes in the estimated fair value of contingent consideration.  These net non-cash charges were partially offset by (i) a $9.2 million increase in trade accounts and financing receivables resulting from the increase in revenue and delays in collecting funds owed from a rental customer, (ii) a $1.9 million increase in inventories for the production of recently introduced land-based wireless seismic products, (iii) the removal of a $7.1 million gain from the sale of real property and equipment since such gains are reflected in the proceeds from the sale of property and equipment under investing activities and (iv) a $1.0 decrease in deferred revenue due to the revenue recognition of customer deposits on rental contracts.    

For fiscal year 2019, we generated cash of $1.6 million from investing activities.  Sources of cash included (i) $25.6 million of proceeds from the sale of short-term investments, (ii) $8.3 million of proceeds from the sale of a real property (iii) $4.9 million of proceeds from the sale of rental equipment and (iv) $0.5 million of proceeds, net of payments, from a property-related insurance claim.  These sources of cash were partially offset by (i) $34.1 million investment in our rental equipment primarily to expand our OBX rental fleet, (ii) $1.9 million for additions to our property, plant and equipment and (iii) $1.8 million for the acquisition of the intellectual property and related assets of the OptoSeis® fiber optic sensing technology business.  

For fiscal year 2019, we generated cash proceeds of $0.2 million from financing activities from the exercise of stock options by our employees.  We had no long-term debt outstanding throughout the fiscal year ended September 30, 2019.

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

Contingent ConsiderationCompensation Costs

We recorded an initial contingent earn-out liability of $7.7 million in

In connection with our July 2018the acquisition of Quantum.   SubsequentAquana in July 2021, we are subject to additional contingent cash payments to the acquisition, we reduced the estimatedformer members of Aquana over a six-year earn-out period. The contingent earn-out liability to $5.8 million as of September 30, 2020.  Contingent payments, if any, may be paid in the form of cash or Company stock and will be derived from eligible revenue generated during the four-year post-acquisition period ending in July 2022.   The Company made cash earn-out payments of $0.1 million in fiscal year 2020.   The maximum amount of contingent payments is $23.5 million.  

We recorded an initial contingent earn-out liability of $4.3 million in connection with our November 2018 acquisition of all the intellectual property and related assets of the OptoSeis® fiber optic sensing technology.  Subsequent to the acquisition, we increased the estimated contingent earn-out liability to $5.2 million as of September 30, 2020.  Contingent cash payments, if any, will be derived from certain eligible revenue generated during a five-and-a-half year post-acquisitionthe earn-out period ending in May 2024.  No payments have been made to date relatedfrom products and services sold by Aquana. There is no maximum limit to the earn-out.contingent cash payments that could be made. The maximum amountmerger 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 is $23.2 million.      for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when incurred.

We will reassess the earn-out calculations related

See Note 17 to our consolidated financial statements in this contingent consideration in future periods.Annual Report on Form 10-K for more information on our contractual 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

26


expenses, product warranty reserves, contingent consideration, 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.

27

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 net realizable value. Cost is determined on a first-in, first-out method, except that our subsidiaries in the Russian Federation 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 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 in our consolidated balance sheets.

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 performance 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 consideration we expect to be entitled in exchange for those goods or services. Revenue from product sales is recognized when obligations under the terms of a contract are satisfied, control is transferred and collectability of the sales price is reasonably assured. Transfer of control generally occurs with shipment or delivery, depending on the terms of the 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 leaselease-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.

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Management’sManagements 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, pricesdemand for a barrel of WTIour products are subject to volatile fluctuations in crude oil declined from over $100 in July 2014 to approximately $26 in February 2016, and have recovered to approximately $40 today.  With thisprices. As a result of substantial net declinedeclines in crude oil prices andin 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 strongstronger marine nodal rental activity in recent years including fiscal year 2020,2023, 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 have rebounded; however, lasting higher levels of oil and gas commodity 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 20212024 demand for our land-based traditional seismic products may increase slightly over fiscal year 20202023 levels.

We believe our “GCL”, which is a new version of our land-based wireless data recorder, will be a market leader similar to our GSX wireless unit.  While it is uncertain what revenue impact the GCL will have during fiscal year 2021 in light of the tepid market demand for oil and gas seismic services and equipment, we expect our fiscal year 2021 land-based wireless product revenue to moderately exceed the levels we achieved in fiscal year 2020.

28

 

The vast majority of our oil and gas rental revenue in fiscal year 20202023 was derived from short-term rentals of our OBX ocean-bottom recorder. We believe our OBX rental revenue may decrease substantiallywill increase in fiscal year 2021 primarily due to the expiration2024 as a result of several rental contracts inexecuted during fiscal year 20202023 and indications from a customer considering the purchase of a substantial quantity of OBX units currently being rented, in addition to the consequences of the COVID-19 pandemic.  Although we anticipate moreanticipated new rental contracts, for our OBX equipment will be entered into in fiscal year 2021,but we can make no assurance in this regard.

We believeexpect that fiscal year 20212024 revenue from our oil and gas reservoir products, and principally our borehole tools and services, towill increase slightly over fiscal year 20202023 levels. In the fourth quarter of fiscal year 2020, weWe have not received a request from a major oil and gas producer to propose on the manufacture ofany orders for a large-scale seabed PRM system.  We aresystem since November 2012, although we do believe opportunities for PRM orders do exist in the process of responding to this request and we believe the potential customer will grant the awardtoday's market. If a large scale PRM order were received in the second or third quarter of fiscal year 2021.   If we are awarded the contract,2024, revenue from this contract will mostwould likely not be recognized until latter part of fiscal year 2021, if any; fiscal year 20222025 and beyond.2026.

 

We expect fiscal year 20212024 revenue from our Adjacent Markets products to increase over fiscal year 2020 levels.  Demand for2023 levels due to our adjacent marketsacquisition of Aquana and intergration of Aquana's products in fiscal year 2020 were negatively impacted by the COVID-19 pandemic.  Although we cannot accurately determine the impact the COVID-19 pandemic will have oninto our fiscal year 2021 revenue, we are optimisticbusiness and optimism that demand for both our industrial, imaging products and contract manufacturing services will continue to increase in fiscal year 2021.2024.

We expect fiscal year 20212024 revenue from our Emerging Markets products to increase over fiscal year 2020 primarily as a result2023 levels largely due to optimism of the contract awarded to Quantum from the U.S. Customsobtaining new security-related contracts and Border Protection U.S. Border Patrol to provide a technology solution to the Department of Homeland Security.  The Company expects most of the revenue from this contract will be recognized during the first six months of fiscal year 2021.opportunities with oil and gas industry customers.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not required.

 

Item 8. Financial Statements 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.

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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, 20202023 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 are effective as of September 30, 2020.  2023.

Management’s

Managements 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, 2020.2023. 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, as of September 30, 2020,2023, our internal control over financial reporting is effective based on those criteria.

29

 

Changes in Internal Control Over Financial Reporting

We previously reported a material weakness

There have not been any changes in our internal control over financial reporting.  Asreporting (as defined in Rule 13a-15(f) and 15d-15(f) of June 30, 2020 we did not maintain effective controls relating to our adoption of ASC 842 Leases.   In our financial statements for the firstExchange Act) during the fiscal quarter ended December 31, 2019 we determinedSeptember 30, 2023 that the collection of future operating lease revenue from one ofhave materially affected, or are reasonably likely to materially affect, our customers was less than probable while the operating lease receivable was not impaired.  In our second quarter ended March 31, 2020, we determined the operating lease receivable was impaired and recorded a charge to bad debt expense to reflect the impairment.  In accordance with the guidance of ASC 842, when collectability of the future payments is not deemed probable, lease revenue is limited to cash received while any existing operating lease receivables are immediately charged-off through rental revenue. 

This error was subsequently identified and corrected which resulted in a revision of our unaudited consolidated balance sheet as of December 31, 2019, our unaudited consolidated statement of operations for the three months ended December 31, 2019 and our unaudited consolidated statements of operations for the three and six months ended March 31, 2020.  The impact of this revision had no effect on our net loss for the nine months ended June 30, 2020.

Because of this material weakness, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019, March 31, 2020 and June 30, 2020, based on criteria described in Internal Control – Integrated Framework (2013) issued by COSO.

To remediate the material weakness described above, we have designed and implemented a quarterly control to capture all new accounting pronouncements, and when determined necessary, will seek outside technical assistance to enhance our understanding and application of these new pronouncements.  

We believe that this measure remediates the material weakness identified and strengthens our internal controls over financial reporting.

 

Item 9B. Other Information

None.

 

30

 

29


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, 20202023 in connection with our 20212024 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, 20202023 in connection with our 20212024 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, 20202023 in connection with our 20212024 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, 20202023 in connection with our 20212024 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, 20202023 in connection with our 20212024 Annual Meeting of Stockholders under the caption “Independent Public Accountants” and is incorporated herein by reference.

 

 

31

30


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

 

Exhibit
Number

  

Description of Documents

  3.1

  

Amended and Restated Certificate of Formation of Geospace Technologies Corporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed May 8, 2015).

  3.2

  

Amended and Restated Bylaws of Geospace Technologies Corporation (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed August 8, 2019).

10.1

  

Employment Agreement dated as of August 1, 1997, between the Company and Michael J. Sheen (incorporated by reference to the Registrant’s Registration Statement on Form S-1 filed September 30, 1997 (Registration No. 333-36727)).*

10.2

Employment Agreement effective as of January 1, 2012, by and between OYO Geospace Corporation and Walter R. Wheeler (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed December 9, 2011).*

10.3

Employment Agreement effective as of January 1, 2012, by and between OYO Geospace Corporation and Robbin B. Adams (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed December 9, 2011).*

10.4

Employment Agreement effective as of January 1, 2012, by and between OYO Geospace Corporation and Thomas T.  McEntire (incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed December 9, 2011).*

10.5

Geospace Technologies Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed on December 11, 2013).*

10.5

  

First Amendment to the Geospace Technologies Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed December 30, 2020).*

10.6

Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form S-8 filed May 21, 2014).*

10.7

Form of Employee Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 26, 2018).*

31


Exhibit
Number

Description of Documents

10.8

10.8

Form of Employee Incentive Stock Option Award Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form S-8 filed May 21, 2014).*

10.9

Form of Employee Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Form S-8 filed May 21, 2014).*

10.10

Form of Performance Option Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 20, 2015).*

10.11

Form of Consultant Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’s Form S-8 filed May 21, 2014).*

10.12

Form of Consultant Stock Option Award Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Form S-8 filed May 21, 2014).*

10.13

Form of Director Stock Option Award Agreement (incorporated by reference to Exhibit 10.6 to the Registrant’s Form S-8 filed May 21, 2014).*

10.14

Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.7 to the Registrant’s Form S-8 filed May 21, 2014).*

32

 

10.15

Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed May 3, 2019).*

10.16

  

Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 26, 2018).*

10.17

Form of Amended and Restated Indemnity Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 26, 2015).*

10.18

Geospace Technologies Corporation Annual Bonus Program (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the year ended September 30, 2017 filed December 1, 2017).*

10.19

First Amendment effective October 1, 2008 to EmploymentCredit Agreement dated as of August 1, 1997, betweenJuly 26, 2023 among the Company, and Michael J.  Sheen (incorporated by referenceeach other person from time to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2009, filed February 5, 2010).*

10.20

Loan Agreement dated September 27, 2013 among Geospace Technologies Corporation,time party thereto as a borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and FrostWoodforest National Bank, as lender (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed October 1, 2013).

10.21

First Amendment to Loan Agreement effective September 27, 2013 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed December 18, 2013).

10.22

Second Amendment to the Loan Agreement effective May 4, 2015 by and between Geospace Technologies Corporation as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed May 8, 2015).

10.23

Third Amendment to the Loan Agreement effective May 9, 2017 by and between Geospace Technologies Corporation as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended September 30, 2018 filed December 1, 2017).

10.24

Fourth Amendment to Loan Agreement dated October 25, 2017 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 27, 2017)August 1, 2023).

10.20

10.25

Fifth Amendment to Loan Agreement dated November 9, 2018 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed November 13, 2018).

32


Exhibit
Number

Description of Documents

10.26

Sixth Amendment to Loan Agreement dated March 29, 2019 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed March 29, 2019).

10.27

Seventh Amendment to Loan Agreement dated November 15, 2019 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed November 18, 2019, File No.: 001-13601).

10.28

Revolving Promissory Note effective May 4, 2015 by and between Geospace Technologies Corporation as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed May 8, 2015).

10.29

Waiver and Consent Letter to Loan Agreement effective April 6, 2015 among Geospace Technologies Corporation as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April 7, 2015).

10.30

Commercial Contract – Improved Property, dated June 3, 2019 by and between GTC, Inc. and Harmony Public Schools (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 3, 2019).

10.31

10.21Employment Termination and Consulting Agreement dated November 21, 2019June 30, 2023 between Geospace Technologies Corporationthe Company and Thomas T. McEntire (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 22, 2019, File No.: 001-13601).Michael J. Sheen. **

14.1

General Code of Business Conduct and Supplemental Code of Ethics for CEO and Senior Financial Officers (incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form 8-K filed February 6, 2019).

21.1

  

Subsidiaries of the Registrant.**

23.1

  

Consent of RSM US LLP.**

31.1

  

Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**

31.2

  

Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**

32.1

  

Certification of the Company’s Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2

  

Certification of the Company’s Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101

  

The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020,2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets as of September 30, 20202023 and September 30, 2019,2022, (ii) the Consolidated Statements of Operations for the years ended September 30, 20202023 and 2019,2022, (iii) the Consolidated Statements of Comprehensive Loss for the years ended September 30, 20202023 and 2019,2022, (iv) the Consolidated Statements of Stockholders’ Equity for the years ended September 30, 20202023 and 2019,2022, (v) the Consolidated Statements of Cash Flows for the years ended September 30, 20202023 and 20192022 and (vi) Notes to Consolidated Financial Statements.**

104

The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 20202023 formatted in Inline XBRL.iXBRL. **

 

*

This exhibit is a management contract or a compensatory plan or arrangement.

**


* This exhibit is a management contract or a compensatory plan or arrangement.

** Filed herewith.

Item 16. Form 10-K Summary

None.

 

33

 

33SIGNATURES


SIGNATURES

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.

 

GEOSPACE TECHNOLOGIES CORPORATION

By:

/s/ WALTER R. WHEELER

Walter R. Wheeler, Director, President and Chief Executive Officer

November 20, 202017, 2023

 

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.

 

Signature

Title

Date

/s/ WALTER R. WHEELER

Director, President and Chief Executive Officer

November 20, 202017, 2023

Walter R. Wheeler

(Principal Executive Officer)

/s/ ROBERT L. CURDA

Vice President, Chief Financial Officer and Secretary

November 20, 2020

17, 2023

Robert L. Curda

(Principal Financial Officer and Principal Accounting Officer)

/s/ GARY D. OWENS

Chairman of the Board

November 20, 2020

17, 2023

Gary D. Owens

/s/ MARGARET S. ASHWORTH

Director

November 17, 2023

Margaret S. Ashworth

/s/ THOMAS L. DAVIS

Director

November 20, 2020

17, 2023

Thomas L. Davis

/s/ EDGAR R. GIESINGER, JR.

Director

November 20, 2020

17, 2023

Edgar R. Giesinger, Jr.

/s/ TINA M. LANGTRYRICHARD F. MILES

Director

November 20, 2020

Tina M. Langtry

/s/ RICHARD F. MILES

Director

November 20, 2020

17, 2023

Richard F. Miles

/s/ MICHAEL J. SHEEN

Director

November 20, 2020

Michael J. Sheen

 

34

34


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

 

Reports of Independent Registered Public Accounting Firm

  

F-2

Consolidated Balance Sheets as of September 30, 20202023 and 20192022

  

F-4F-5

Consolidated Statements of Operations for the Years Ended September 30, 20202023 and 20192022

  

F-5F-6

Consolidated Statements of Comprehensive LossIncome (Loss) for the Years Ended September 30, 20202023 and 20192022

  

F-6F-7

Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 20202023 and 20192022

  

F-7F-8

Consolidated Statements of Cash Flows for the Years Ended September 30, 20202023 and 20192022

  

F-8F-9

Notes to Consolidated Financial Statements

  

F-9F-10

Schedule II—Valuation and Qualifying Accounts

  

F-33F-32

F-1

 


F-1


Report of Independent Registered Public Accounting Firm

 

To the ShareholdersStockholders and the Board of Directors of Geospace Technologies Corporation

 

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Geospace Technologies Corporation and its subsidiaries (the Company) as of September 30, 20202023 and 2019, and2022, the related consolidated statements of operations, comprehensive loss, stockholders'income, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 20202023 and 2019,2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ RSM US LLPCritical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.


Inventory Valuation

As described in Note 1 to the consolidated financial statements, the Company’s consolidated inventories balance, which is stated at lower of cost or net realizable value, was $43.3 million as of September 30, 2023. The valuation of inventories is based on the Company’s periodic review of the composition of its inventories to determine if market demand, product modifications, technology changes, excessive quantities on-hand and other factors hinder its ability to recover its investment in such inventories. The Company’s assessment is based upon historical product demand, estimated future product demand and various other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that portions or components of the Company’s investment will not be realized in its operating activities.

We identified the valuation of inventories at the lower of cost or net realizable value as a critical audit matter due to the significant judgment and estimates required by management. Determining whether a decline in value has occurred requires management to make complex judgments related to (i) historical and estimated future product demand in relation to quantities on hand and (ii) obsolescence of certain products based on changes in technology and demand. Auditing these judgments is especially challenging and involved significant auditor judgment due to fluctuations in sales trends and evolving customer demands.

Our audit procedures related to the Company’s valuation of inventory included the following, among others:

We evaluated management’s calculation of the inventory valuation reserve by testing the mathematical accuracy of the calculation.

We tested the completeness, accuracy, and relevance of the reports and inputs used in the Company’s analysis.

We evaluated the appropriateness and consistency of management’s methods and assumptions used in developing their estimate of the inventory valuation reserve, which included consideration of recent changes in historical usage information.

We evaluated management’s process for subsequent adjustments to net realizable value by performing a retrospective review on an individual item basis to test for subsequent changes in the inventory values after the net realizable value had been established.

We compared actual purchases and sales data on an individual item basis for all inventory items and aggregated to perform an independent assessment of the net realizable value of inventory.

Valuation of Long-lived Assets for impairment Emerging Markets Asset Group

As discussed in Note 10 to the consolidated financial statements, the Company assessed $3.3 million of long-lived assets associated with its Emerging Markets asset group for recoverability. As part of their quantitative assessment, the Company performed a recoverability assessment in which its carrying value was compared to estimated undiscounted cash flows over the remaining useful life of the asset group’s primary asset, its developed technology. Key assumptions in the analyses include revenue projections, including the probability of obtaining new contracts, and cash flow projections. Estimated future cash flows of the Company’s Emerging Markets asset group include the Company’s ability to obtain an additional contract with its significant customer.

We identified the valuation of long-lived assets for the Emerging Market’s asset group as a critical audit matter because of the significant assumptions management makes in determining the estimate, including revenue and cash flow projections. Auditing management’s assumptions of revenue and cash flow projections involved a high degree of auditor judgment and increased audit effort, and changes in these assumptions could have a significant impact on the fair value of the Emerging Market’s asset group and potential impairment charges.

Our audit procedures related to the Company’s valuation of long-lived assets for the Emerging Markets asset group included the following, among others:

We evaluated the reasonableness of management’s revenue and cash flow projections by comparing to historical results, inquiry of management of the asset group regarding additional contracts with its significant customer, review of publicly available industry information, and testing the completeness and accuracy of the data used in the projections.

We have served as the Company'sCompany’s auditor since 2018.

Houston, Texas

November 20, 202017, 2023


F-2


 


 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of Geospace Technologies Corporation

 

 

Our audits of the consolidated financial statements referred to in our report dated November 20, 2020,17, 2023, (included elsewhere in this Annual Report on Form 10-K) also included the financial statement schedule of Geospace Technologies Corporation and its subsidiaries, listed in Item 15(a) of this Form 10-K. This schedule is the responsibility of Geospace Technologies Corporation's management. Our responsibility is to express an opinion based on our audits of the consolidated financial statements.

 

In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

/s/ RSM US LLP

Houston, Texas

November 20, 202017, 2023

 

F-3

F-4

 

Geospace Technologies Corporation and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share amounts)

 

 

AS OF SEPTEMBER 30,

 

 

AS OF SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

ASSETS

 

 

 

 

 

 

 

 

      

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,686

 

 

$

18,925

 

 $18,803  $16,109 

Trade accounts and financing receivables, net of allowance of $496 and $951

 

 

13,778

 

 

 

27,426

 

Short-term investments

 14,921  894 

Trade accounts and notes receivable, net

 21,373  20,886 

Inventories, net

 

 

16,933

 

 

 

23,855

 

 18,430  19,995 

Property held for sale

 

 

587

 

 

 

 

Prepaid expenses and other current assets

 

 

953

 

 

 

1,008

 

  2,251   2,077 

Total current assets

 

 

64,937

 

 

 

71,214

 

 75,778  59,961 

 

 

 

 

 

 

 

 

 

Non-current financing receivables

 

 

 

 

 

184

 

Non-current inventories, net

 

 

16,930

 

 

 

21,524

 

 24,888  12,526 

Rental equipment, net

 

 

54,317

 

 

 

62,062

 

 21,587  28,199 

Property, plant and equipment, net

 

 

29,874

 

 

 

31,474

 

 24,048  26,598 

Operating right-of-use assets

 714  957 

Goodwill

 

 

4,337

 

 

 

5,008

 

 736  736 

Other intangible assets, net

 

 

8,331

 

 

 

10,063

 

 4,805  5,573 

Deferred cost of revenue and other assets

 

 

8,119

 

 

 

479

 

Other non-current assets

  486   506 

Total assets

 

$

186,845

 

 

$

202,008

 

 $153,042  $135,056 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

      

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable trade

 

$

1,593

 

 

$

4,051

 

 $6,659  $5,595 

Deferred revenue and other liabilities

 

 

8,753

 

 

 

9,119

 

Contingent consideration

   175 

Operating lease liabilities

 257  241 

Other current liabilities

  12,882   6,616 

Total current liabilities

 

 

10,346

 

 

 

13,170

 

 19,798  12,627 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

10,962

 

 

 

9,940

 

Non-current deferred revenue and other liabilities

 

 

4,567

 

 

 

51

 

Non-current operating lease liabilities

 512  769 

Deferred tax liabilities, net

  16   13 

Total liabilities

 

 

25,875

 

 

 

23,161

 

  20,326   13,409 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 20)

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 17)

       

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock, 1,000,000 shares authorized, 0 shares issued and outstanding

 

 

 

 

 

 

Common stock, $.01 par value, 20,000,000 shares authorized, 13,670,639 and

13,630,666 shares issued and outstanding

 

 

137

 

 

 

136

 

Preferred stock, 1,000,000 shares authorized, no shares issued and outstanding

    

Common stock, $.01 par value, 20,000,000 shares authorized, 14,030,481 and 13,863,233 shares issued, respectively; and 13,188,489 and 13,021,241 shares outstanding, respectively

 140  139 

Additional paid-in capital

 

 

90,965

 

 

 

88,660

 

 96,040  94,667 

Retained earnings

 

 

86,566

 

 

 

105,808

 

 61,860  49,654 

Accumulated other comprehensive loss

 

 

(16,698

)

 

 

(15,757

)

 (17,824) (15,313)

Treasury stock, at cost, 841,992 shares

  (7,500)  (7,500)

Total stockholders’ equity

 

 

160,970

 

 

 

178,847

 

  132,716   121,647 

Total liabilities and stockholders’ equity

 

$

186,845

 

 

$

202,008

 

 $153,042  $135,056 

 

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

 

F-4

F-5

 

Geospace Technologies Corporation and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Revenue:

 

 

 

 

 

 

 

 

 

Products

 

$

34,136

 

 

$

45,847

 

 $73,333 $64,109 

Rental equipment

 

 

53,699

 

 

 

49,962

 

  51,176  25,144 

Total revenue

 

 

87,835

 

 

��

95,809

 

  124,509   89,253 

Cost of revenue:

 

 

 

 

 

 

 

 

 

Products

 

 

39,970

 

 

 

46,059

 

 55,136 51,649 

Rental equipment

 

 

24,433

 

 

 

18,322

 

  17,683  19,561 

Total cost of revenue

 

 

64,403

 

 

 

64,381

 

  72,819   71,210 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

23,432

 

 

 

31,428

 

 51,690  18,043 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

23,068

 

 

 

23,626

 

 25,952 23,482 

Research and development

 

 

16,569

 

 

 

15,495

 

 15,863 18,104 

Goodwill impairment

 

 

671

 

 

 

 

   4,336 

Change in estimated fair value of contingent consideration

 

 

1,100

 

 

 

(2,115

)

   (5,035)

Bad debt expense

 

 

63

 

 

 

436

 

Bad debt expense (recovery)

  (138)  292 

Total operating expenses

 

 

41,471

 

 

 

37,442

 

  41,677   41,179 

 

 

 

 

 

 

 

 

 

Gain on disposal of property

 

 

 

 

 

7,047

 

 1,315   

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(18,039

)

 

 

1,033

 

  11,328   (23,136)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(38

)

 

 

(99

)

 (134) (65)

Interest income

 

 

1,102

 

 

 

1,308

 

 539 976 

Foreign exchange gains, net

 

 

491

 

 

 

241

 

Foreign currency transaction gains (losses), net

 994 (397)

Other, net

 

 

(109

)

 

 

(212

)

  (158)  (61)

Total other income, net

 

 

1,446

 

 

 

1,238

 

  1,241   453 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(16,593

)

 

 

2,271

 

 12,569  (22,683)

Income tax expense

 

 

2,649

 

 

 

2,417

 

  363  173 

Net loss

 

$

(19,242

)

 

$

(146

)

Net income (loss)

 $12,206  $(22,856)

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

Income (loss) per common share:

 

Basic

 

$

(1.42

)

 

$

(0.01

)

 $0.93 $(1.76)

Diluted

 

$

(1.42

)

 

$

(0.01

)

 $0.92 $(1.76)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

13,525,179

 

 

 

13,388,626

 

  13,146,085  12,987,996 

Diluted

 

 

13,525,179

 

 

 

13,388,626

 

  13,215,066  12,987,996 

 

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

 

F-6

 

F-5


Geospace Technologies Corporation and Subsidiaries

Consolidated Statements of Comprehensive LossIncome (Loss)

(In thousands)

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Net loss

 

$

(19,242

)

 

$

(146

)

Net income (loss)

 $12,206  $(22,856)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Change in unrealized gains on available-for-sale securities, net of tax

 

 

 

 

 

82

 

 4  

Foreign currency translation adjustments

 

 

(941

)

 

 

(220

)

  (2,515)  1,007 

Other comprehensive loss

 

 

(941

)

 

 

(138

)

Total comprehensive loss

 

$

(20,183

)

 

$

(284

)

Total other comprehensive income (loss), net

  (2,511)  1,007 

Total comprehensive income (loss)

 $9,695  $(21,849)

 

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

 

F-7

 

F-6


Geospace Technologies Corporation and Subsidiaries

Consolidated StatementStatements of Stockholders’Stockholders Equity

For the years ended September 30, 20202023 and 20192022

(In thousands, except share amounts)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Other

Comprehensive

Loss

 

 

Total

 

Balance at October 1, 2018

 

 

13,600,541

 

 

$

136

 

 

$

86,116

 

 

$

105,954

 

 

$

(15,619

)

 

$

176,587

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(146

)

 

 

 

 

 

(146

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(138

)

 

 

(138

)

Issuance of restricted stock

 

 

8,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock

 

 

(2,875

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock pursuant to the vesting of

   restricted stock units

 

 

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock pursuant to exercise of options

 

 

24,500

 

 

 

 

 

215

 

 

 

 

 

 

 

 

215

 

Stock-based compensation

 

0

 

 

 

 

 

 

2,329

 

 

 

 

 

 

 

 

 

2,329

 

Balance at September 30, 2019

 

 

13,630,666

 

 

 

136

 

 

 

88,660

 

 

 

105,808

 

 

 

(15,757

)

 

 

178,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,242

)

 

 

 

 

 

(19,242

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(941

)

 

 

(941

)

Issuance of common stock pursuant to the vesting of

   restricted stock units

 

 

41,723

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Forfeiture of restricted stock

 

 

(1,750

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,305

 

 

 

 

 

 

 

 

 

2,305

 

Balance at September 30, 2020

 

 

13,670,639

 

 

$

137

 

 

$

90,965

 

 

$

86,566

 

 

$

(16,698

)

 

$

160,970

 

  

Common Stock

          

Accumulated

         
  

Shares

  

Amount

  Additional Paid-In Capital  

Retained Earnings

  

Other Comprehensive Loss

  Treasury Stock  

Total

 

Balance at October 1, 2021

  12,969,542  $137  $92,935  $72,510  $(16,320) $(6,805) $142,457 
                             

Net loss

           (22,856)        (22,856)

Other comprehensive income

              1,007      1,007 

Issuance of common stock pursuant to the vesting of restricted stock units

  124,262   2   (2)            

Purchase of treasury stock

  (72,563)              (695)  (695)

Stock-based compensation

        1,734            1,734 

Balance at September 30, 2022

  13,021,241   139   94,667   49,654   (15,313)  (7,500)  121,647 
                             

Net income

           12,206         12,206 

Other comprehensive loss

              (2,511)     (2,511)

Issuance of common stock pursuant to the vesting of restricted stock units

  167,248   1   (1)            

Stock-based compensation

        1,374            1,374 

Balance at September 30, 2023

  13,188,489  $140  $96,040  $61,860  $(17,824) $(7,500) $132,716 

 

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

 

F-8

 

F-7


Geospace Technologies Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(19,242

)

 

$

(146

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Deferred income tax expense

 

 

181

 

 

 

16

 

Net income (loss)

 $12,206  $(22,856)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

Deferred income tax expense (benefit)

 3 (17)

Rental equipment depreciation

 

 

17,945

 

 

 

13,713

 

 11,766 13,740 

Property, plant and equipment depreciation

 

 

4,016

 

 

 

3,965

 

 3,704 4,143 

Amortization of other intangible assets

 

 

1,732

 

 

 

1,661

 

Amortization of intangible assets

 768 1,677 

Goodwill impairment expense

 

 

671

 

 

 

 

  4,336 

Amortization of premiums on short-term investments

 

 

 

 

 

(9

)

Property, plant and equipment impairment expense

  401 

Amortization of premiums (accretion of discounts) on short-term investments

 (144) 96 

Stock-based compensation expense

 

 

2,305

 

 

 

2,329

 

 1,374 1,734 

Bad debt expense

 

 

63

 

 

 

436

 

Bad debt expense (recovery)

 (138) 292 

Inventory obsolescence expense

 

 

4,726

 

 

 

4,614

 

 2,229 3,222 

Change in estimate of collectability of rental revenue

 

 

7,993

 

 

 

 

Change in estimated fair value of contingent consideration

 

 

1,100

 

 

 

(2,115

)

  (5,035)

Gross profit from sale of used rental equipment

 

 

(743

)

 

 

(652

)

 (4,424) (11,061)

Loss (gain) on disposal of equipment

 244 (54)

Gain on disposal of property

 

 

 

 

 

(7,047

)

 (1,315)  

Gain on disposal of equipment

 

 

(116

)

 

 

(100

)

Realized loss on short-term investments

 

 

 

 

 

66

 

  22 

Realized foreign currency translation loss from dissolution of foreign subsidiary

 38  

Effects of changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Trade accounts and other receivables

 

 

2,482

 

 

 

(9,159

)

Trade accounts and notes receivable

 (5,561) 1,751 

Unbilled receivables

  1,051 

Inventories

 

 

5

 

 

 

(1,865

)

 (11,026) (2,357)

Deferred cost of revenue and other assets

 

 

(7,786

)

 

 

343

 

Other assets

 442 349 

Accounts payable trade

 

 

(2,453

)

 

 

(44

)

 41 (786)

Deferred revenue and other liabilities

 

 

5,243

 

 

 

(377

)

Net cash provided by operating activities

 

 

18,122

 

 

 

5,629

 

Other liabilities

  5,351  (683)

Net cash used provided by (used in) operating activities

  15,558   (10,035)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(2,916

)

 

 

(1,936

)

 (3,964) (1,130)

Investment in rental equipment

 

 

(5,487

)

 

 

(34,070

)

 (9,920) (4,832)

Proceeds from the sale of equipment

 724 54 

Proceeds from the sale of property

 

 

 

 

 

8,265

 

 3,682  

Proceeds from the sale of equipment

 

 

204

 

 

 

142

 

Proceeds from the sale of used rental equipment

 

 

4,149

 

 

 

4,856

 

 11,478 11,583 

Purchase of short-term investments

 (24,782) (450)

Proceeds from the sale of short-term investments

 

 

 

 

 

25,606

 

  10,900   8,924 

Business acquisition, net of acquired cash

 

 

 

 

 

(1,819

)

Payments for damages related to insurance claim

 

 

 

 

 

(650

)

Proceeds from insurance claim

 

 

 

 

 

1,166

 

Net cash (used in) provided by investing activities

 

 

(4,050

)

 

 

1,560

 

Net cash provided by (used in) investing activities

  (11,882)  14,149 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Payments on contingent consideration

 

 

(78

)

 

 

 

Proceeds from exercise of stock options and other

 

 

 

 

 

215

 

Net cash provided by (used in) financing activities

 

 

(78

)

 

 

215

 

Payments of contingent consideration

 (175) (807)

Debt issuance costs

 (350) (211)

Purchase of treasury stock

     (695)

Net cash used in financing activities

  (525)  (1,713)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(233

)

 

 

(413

)

  (457)  (358)

Increase in cash and cash equivalents

 

 

13,761

 

 

 

6,991

 

 2,694  2,043 

Cash and cash equivalents, beginning of fiscal year

 

 

18,925

 

 

 

11,934

 

  16,109   14,066 

Cash and cash equivalents, end of fiscal year

 

$

32,686

 

 

$

18,925

 

 $18,803  $16,109 

 

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

 

F-9

 

F-8


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements

 

 

1. Summary of Significant Accounting Policies:

The Company

Geospace Technologies Corporation (“Geospace”) designs and manufactures instruments and equipment used by the oil and gas industry to acquire seismic data in order to locate, characterize and monitor hydrocarbon producing reservoirs. Geospace also designs and manufactures Adjacent Markets products including industrial products, imaging equipment, and provides contract manufacturing services, and Emerging Market products consisting of border and perimeter security products. Geospace and its subsidiaries are referred to collectively as the “Company”.

Basis of Presentation

The accompanying financial statements present the consolidated financial position, results of operations and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America.America ("U.S. GAAP"). All significant intercompany balances and transactions have been eliminated.

Reclassifications

Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation.  Such reclassifications had no effect on previously reported net loss, stockholders’ equity or cash flows.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company considers 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. The Company continually evaluates its estimates, including those related to revenue recognition, bad debt reserves, collectability of rental revenue, inventory obsolescence reserves, self-insurance reserves, product warranty reserves, useful lives of long-lived assets, impairment of long-lived assets, impairment of goodwill and other intangible assets, contingent consideration investment in debt security and deferred income tax assets. The Company bases its estimates on historical experience and various other factors that are believed to be reasonable under the circumstances. While management believes current estimates are reasonable and appropriate, actual results may differ from these estimates under different conditions or assumptions.

Cash and Cash Equivalents

The Company considers all highly-liquidhighly liquid investments purchased with an original or remaining maturity at the time of purchase of three months or less to be cash equivalents.  At September 30, 2020 2023 and 2022, the Company had restricted cash of $0.2 million on deposit with a bank, which serves as collateral on employee issued credit cards. At September 30, 2023, cash and cash equivalents included $5.8$3.8 million held by the Company’s foreign subsidiaries and branch offices.  Ifoffices, including $2.5 million held by its subsidiary in the Russian Federation. In response to sanctions imposed by the United States 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 the Company may be unable to transfer it out of Russia without incurring substantial costs, if at all. In addition, if the Company were to repatriate the cash held by its foreign subsidiaries,Russian subsidiary, it couldwould be required to accrue and pay taxes on any amount repatriated.  During fiscal year 2023, in light of recent volatility in the financial markets, the Company entered into an IntraFi Cash Service ("ICS") Deposit Placement Agreement with IntraFi Network LLC through its primary bank, Woodforest National Bank.  The Tax Cut and Jobs Act (“2017 Tax Act”ICS program offers access to unlimited Federal Deposit Insurance Corporation ("FDIC') creates new taxes on certain foreign earnings and also requires entities to pay a one-time transition tax on undistributed earnings of their foreign subsidiaries which were previously tax deferred.  The Company has determined it is 0t required to pay transition taxinsurance on the undistributed earningsCompany's domestically held cash in excess of $5.0 million, thereby mitigating its foreign subsidiaries since it had 0 accumulated foreign earnings on a consolidated basis.risk of falling outside of FDIC coverage limits.

 

Concentrations of Risk

Credit and Supplier Risk

The Company maintains its cash in bank deposit accounts that, at times, exceed federally insured limits. Management of the Company believes that the financial strength of the financial institutions holding such deposits minimizes the credit risk of such deposits.

The Company sells products to customers throughout the United States and various foreign countries. The Company’s normal credit terms for trade receivables are 30 days. In certain situations, credit terms may be extended to 60 days or longer. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for its trade receivables. Additionally, the Company provides long-term financing in the form of promissory notes and sales-type leases when competitive conditions require such financing. In such cases, the Company may require collateral. Allowances are recognized for potential credit losses. One customerTwo customers comprised 48.2%26.7% and 11.7% of the Company’s revenue during fiscal year 2020.2023. At September 30, 2020,2023, the Company had trade accountaccounts and financing receivables duefrom these customers of $3.5 million and $4.8 million, respectively.  One customer comprised 29.3% of the Company’s revenue during fiscal year 2022. At September 30, 2022, the Company had trade accounts and financing receivables from this customer of $7.3$5.5 million.  Two customers comprised 25.2% and 19.7%, of the

F-9

F- 10

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Supplier

 

Company’s  revenue during fiscal year 2019. At September 30, 2019, the Company had trade account receivables due from these two customers of $12.1 million and $6.7 million, respectively.           

Certain models of the Company’s oil and gas marine wireless products require a timing device it purchases from a United States manufacturer. The Company currently does not possess the ability to manufacture this component and has 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 the Company on competitive terms or were unable to supply the component in sufficient quantities to meet its requirements, the Company’s ability to compete in the marine wireless marketplace could be impaired, which could adversely affect its financial performance. The device is used in certain models of the Company’s rental equipment. Product sales requiring this device accounted forrepresented approximately 2%4% and 11% of the Company’sCompany's revenue duringin fiscal year 2020.2023 and  2022, respectively.

The Company purchases all of its thermal film from one manufacturer for its imaging products. Except for the film sold to the Company by this manufacturer, the Company knows of no other source for thermal film that performs as well in its imaging equipment. If the manufacturer were to discontinue producing thermal film, were to become unwilling to contract with the Company on competitive terms or were unable to supply thermal film in sufficient quantities to meet its requirements, the Company’s ability to compete in the direct thermal imaging marketplace could be impaired, which could adversely affect its financial performance. Thermal film sales represented approximately 5% and 8% of the Company’s revenue in fiscal year 2020.2023 and 2022, respectively.

Armed Conflict Between Russia and Ukraine

A portion of the Company's oil and gas product manufacturing is conducted through its 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. 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 the Company's operations in Russia. As a result of the invasion, the governments of several western nations, including the United States, Canada, the United Kingdom, 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 theses sanctions and exports restrictions, in combinations with the withdrawal of numerous private companies from the Russian market, which has had, and is likely to continue to have, a negative impact on the Company's business in the region.  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, the Company may be forced to find other sources for the manufacturing of these products at potentially higher costs. Likewise, restrictions on the Company's ability to send products to GTE, may force our subsidiary to have to find other sources for the manufacturing of these products at potentially higher costs.  However, the Company's exports to GTE have historically been limited. The risk of doing business in the Russian Federation and other economically or politically volatile areas could adversely affect the Company's operations and earnings.

The Company is actively monitoring the situation in Ukraine and Russia and assessing its impact on its business, including GTE. The net carrying value of GTE on the Company's consolidated balance sheet at September 30, 2023 was $5.8 million. GTE generated $1.8 million in revenue from domestic sales and the Company imported $3.8 million of products from GTE in fiscal year 2023. The Company has 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 the Company's business for an unknown period of time.

Inventories

The Company records a write-down of its 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 net realizable value. Cost is determined on the first-in, first-outfirst-in, first-out method, except that certain of the Company’s foreign subsidiaries use an average cost method to value their inventories.

The Company periodically reviews the composition of its inventories to determine if market demand, product modifications, technology changes, excessive quantities on-hand and other factors hinder our ability to recover its investment in such inventories. The Company’s assessment is based upon historical product demand, estimated future product demand and various other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that portions or components of the Company’s inventory investment will not be realized in its operating activities.

 

The Company reviews it inventories for classification purposes. The value of inventories not expected to be realized in cash, sold or consumed during its next operating cycle are classified as noncurrentnon-current assets.

F- 11

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

Property, Plant and Equipment and Rental Equipment

Property, plant and equipment and rental equipment are stated at cost. Depreciation expense is calculated using the straight-line method over the following estimated useful lives:

 

Years

Years

Rental equipment

2-5

2 - 5

Property, plant and equipment:

Machinery and equipment

3-15

3 - 15

Buildings and building improvements

10-50

10 - 50

Other

5-10

5 - 10

 

Expenditures for renewals and betterments are capitalized. Repairs and maintenance expenditures are charged to expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any gain or loss thereon is reflected in the statements of operations.

Impairment of Long-lived Assets

The Company’s 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.  Impairment charges are included as a component of cost of revenue in the Company’s consolidated statements of operations.       

F-10


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

 

At September 30, 2023, in light of the Company's historical operating losses on its Emerging Markets reporting unit, the Company assessed the carrying value of the long-lived assets of its Emerging Markets asset group and determined that the undiscounted cash flows exceeded the carrying value. As a result, no impairment charges were necessary to the Company's long-lived assets of this asset group.

Goodwill

The Company conducts its evaluation of goodwill at the reporting unit level on an annual basis as of September 30 and more frequently if events or circumstances indicate that the 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 performed. If, based on the quantitative assessment, the Company determines that the fair value of a reporting unit is less that its carrying amount, a goodwill impairment is recognized equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of the goodwill.

At September 30, 2020, the Company assessed the goodwill associated with both its Oil

F- 12

Geospace Technologies Corporation and Gas Markets and Emerging Markets reporting units for impairment.  The assessment primarily utilized an income approach based on discounted cash flows.  As a result of the assessment, the Company determined that the fair market value of its Oil and Gas Markets reporting unit was less than its carrying amount and recorded an impairment charge of $0.7 million for the goodwill associated with this reporting unit.  NaN impairment was indicated on the goodwill associated with its Emerging Markets reporting unit.  The Company has 0 goodwill associated with its Adjacent Markets reporting unit.    Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

Other Intangible Assets

Intangible assets are carried at cost, net of accumulated amortization. The estimated useful life of the Company’s other intangible assets are evaluated each reporting period to determine whether events or circumstances warrant a revision to the remaining amortization period. If the estimate of an intangible asset’s remaining useful life is changed, the amortization period should be changed prospectively. Amortization expense is calculated using the straight-line method over the following estimated useful lives:

 

Years

Years

Developed technology

18

Trade names

5

Customer relationships

4

Non-compete agreements

4

 

Revenue Recognition

See Note 2 to these consolidated financial statements.

Deferred Revenue

The Company records deferred revenue when customer funds are received prior to the recognition of the associated revenue.

Contingent Consideration

The Company established earn-out liabilities in connection with its business acquisitions in fiscal year 2018 and 2019.  The Company engaged the services of a valuation firm to measure the initial fair value of the earn-out liabilities as of the acquisition date for each business.  The valuation technique used to measure the fair value of the liability was derived from models utilizing market observable inputs.  The Company reviews the fair value of its contingent earn-out liabilities on a quarterly basis.  Adjustments to the liabilities, if any, are included as a component of earnings in the consolidated statements of operations.  See Note 20 to these consolidated financial statements for additional information.    

Research and Development Costs

The Company expenses research and development costs as incurred. Research and development costs include salaries, employee benefit costs, department supplies, direct project costs and other related costs.

F-11


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

 

Product Warranties

Most of the Company’s products do not require installation assistance or sophisticated instructions. The Company offers a standard product warranty obligating it to repair or replace equipment with manufacturing defects. The Company maintains a reserve for future warranty costs based on historical experience or, in the absence of historical product experience, management’s estimates. Reserves for future warranty costs are included within accrued expenses and other current liabilities on the consolidated balance sheets.

Changes in the product warranty reserve are reflected in the following table (in thousands):

 

Balance at October 1, 2021

 $379 

Accruals for warranties issued during the year

  1,431 

Settlements made (in cash or in kind) during the year

  (1,286)

Balance at September 30, 2022

  524 

Accruals for warranties issued during the year

  1,655 

Settlements made (in cash or in kind) during the year

  (1,521)

Balance at September 30, 2023

 $658 

Balance at October 1, 2018

 

$

688

 

Accruals for warranties issued during the year

 

 

386

 

Settlements made (in cash or in kind) during the year

 

 

(845

)

Balance at September 30, 2019

 

 

229

 

Accruals for warranties issued during the year

 

 

790

 

Settlements made (in cash or in kind) during the year

 

 

(761

)

Balance at September 30, 2020

 

$

258

 

 

Stock-Based Compensation

The Company accounts for stock-based compensation, including grants of restricted awards and unqualified stock options in accordance with Accounting Standards Codification Topic 718, which requires that all share-based payments (to the extent that they are compensatory) be recognized as an expense in the Company’s consolidated statements of operations based on their fair values on the award date and the estimated number of shares it ultimately expects to vest.

The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award. The Company’s stock-based compensation plan and awards are more fully described in Note 1614 to these consolidated financial statements.

F- 13

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

Foreign Currency Gains and Losses

The assets and liabilities of the Company’s foreign subsidiaries and branch offices that have a foreign currency as their functional currency have been translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Results of operations have been translated using the average exchange rates during the year. Resulting translation adjustments have been recorded as a component of accumulated other comprehensive loss in stockholders’ equity. Foreign currency transaction gains and losses are included in the statements of operations as they occur. Transaction gains and losses on intra-entity foreign currency transactions and balances, including advances and demand notes payable on which settlement is not planned or anticipated in the foreseeable future, are recorded in “accumulated other comprehensive loss” on our consolidated balance sheets.

Fair Value

Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. U.S. generally accepted accounting principles (“GAAP”)GAAP has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Level 1 represents unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 represents quoted prices for similar assets and liabilities in active markets (other than those included in Level 1)1) which are observable, either directly or indirectly. Level 3 represents valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Also see Note 4 to these consolidated financial statements.

F-12


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

 

Income Taxes

Income taxes are presented in accordance with the Accounting Standards Codification Topic 740 (“Topic 740”) guidance for accounting for income taxes. The estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carrybacks and carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company periodically reviews the recoverability of tax assets recorded on the balance sheet and provides valuation allowances if it is more likely than not that such assets will not be realized.

The Company follows the guidance of Topic 740 to analyze all tax positions that are less than certain. Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In accordance with Topic 740, the Company recognizes in its financial statements the impact of a tax position if that position is “more likely than not” to be sustained on audit, based on the technical merits of the position. The Company’s estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time.

The Company classifies interest and penalties associated with the payment of income taxes, if any, in the Other Income (Expense) section of its consolidated statements of operations.  The Company incurred 0 interest or penalties for the fiscal years ended September 30, 2020 and 2019.

 

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance requiring a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months.  The recognition, measurement and presentation of expense and cash flows arising from a lease by a lessee primarily will depend on its classification of the lease as a finance or operating lease.  However, unlike prior guidance, which requires only capital leases to be recognized on the balance sheet, the new guidance requires operating leases of the lessee to be recognized on the balance sheet if the operating lease term is more than 12 months.  The guidance also requires lessors to write-off any lease receivables when assessment of collectability of future lease payments is not probable and the write-off be recorded as a reduction of lease income as opposed to bad debt expense.  

The guidance also requires disclosures to help investors and other financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases.  These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.  The Company adopted this guidance on October 1, 2019 using the optional transition method, which allows it to initially apply the new guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings.  No adjustment to the opening balance of retained earnings was required upon adoption.  As a lessor of rental equipment, the adoption of this guidance had a material impact on the Company’s consolidated financial statements as it is now required to write-off existing operating lease receivables as a reduction of lease income when collectability of an operating lease receivable becomes less than probable.  

In June 2018, the FASB issued guidance expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees.  The Company adopted this guidance on October 1, 2019.  The adoption of this guidance did not have any material impact on the consolidated financial statements.

In August 2018, the FASB issued guidance requiring certain existing disclosure requirements in ASC Topic 820, Fair Value Measurements and Disclosures, to be modified or removed, and certain new disclosure requirements to be added to this standard.  In addition, the guidance allows entities to exercise more discretion when considering fair value measurement disclosures.  The Company adopted this guidance on October 1, 2019.  The adoption of this guidance did not have any impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued guidance simplifying the current two-step goodwill impairment test by eliminating Step 2 of the test.  The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any.  This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis.  Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this guidance on July 1, 2020.  The adoption of this guidance was considered in our September 2020 goodwill impairment assessment.    

F-13


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued guidance surrounding credit losses for financial instruments that replaces the incurred loss impairment methodology in generally accepted accounting principles.U.S. GAAP.  The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other financial instruments. For available-for-sale debt securities with unrealized losses, credit losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a smallsmaller reporting company, the Company must adopt this standard no later than the first quarter of its fiscal year ending September 30, 2024. Early adoption is permitted.  on October 1, 2023. The standard’s provisions will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company intends towill adopt this standard duringon October 1, 2023 and does not expect the first quarter of its fiscal year ending September 30, 2024 and is currently evaluating the impactadoption of this new guidancestandard to have a material impact on itsthe Company's consolidated financial statements.

In December 2019, the FASB issued guidance on simplifying the accounting for income taxes.  The guidance eliminates certain exceptions

F- 14

Geospace Technologies Corporation and Subsidiaries
Notes to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020.  Certain amendments within the guidance are required to be applied on a retrospective basis for all periods presented; others are to be applied using a modified retrospective approach with a cumulative-effect adjustment to retained earnings, if any, as of the beginning of the first reporting period in which the guidance is adopted; and yet others are to be applied using either basis. All other amendments not specified in the guidance should be applied on a prospective basis. Early adoption is permitted. An entity that elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company intends to adopt this standard during the first quarter of its fiscal year ending September 30, 2022 and is currently evaluating the new guidance to determine the impact it will have on its condensed consolidated financial statements.Consolidated Financial Statements—(Continued)

2. Revenue Recognition

 

2.   Revenue Recognition

On October 1, 2018, the Company adoptedIn accordance with ASC Topic 606,Revenue from Contracts with Customers (“ASC 606”).This new standard applies to contracts for the sale of products and services, and does not apply to contracts for the rental or lease of products.  The Company adopted the new standard using the modified retrospective method applied to those contracts that were not completed as of September 30, 2018.  Results for reporting periods beginning October 1, 2018 are presented under the new standard and prior period amounts were not restated.

Under the new standard,, the Company recognizes revenue when performance of contractual obligations are satisfied, generally when control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services.

 

The Company primarily derives product revenue from the sale of its manufactured products. Revenue from these product sales, including the sale of used rental equipment, is recognized when obligations under the terms of a contract are satisfied, control is transferred and collectability of the sales price is probable. The Company records deferred revenue when customer funds are received prior to shipment or delivery or performance has not yet occurred. The Company assesses collectability during the contract assessment phase. In situations where collectability of the sales price is not probable, the Company recognizes revenue when it determines that collectability is probable or when non-refundable cash is received from its customers.customers and there is not a significant right of return. Transfer of control generally occurs with shipment or delivery, depending on the terms of the underlying contract. The Company’s products are generally sold without any customer acceptance provisions, and the Company’s standard terms of sale do not allow customers to return products for credit.

 

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.

The Company also generates revenue from short-term rentals under operating leases of its manufactured products. Rental revenue is recognized as earned over the rental period if collectability of the rent is probable.reasonably assured. Rentals of the Company’s equipment generally range from daily rentals to minimum rental periods of up to six months or longer.one year. The Company has determined that ASC 606 does not apply to rental contracts, which are within the scope of ASC Topic 842,Leases.

The cumulative effect of the changes made to the Company’s consolidated balance sheet as of October 1, 2018 resulting from the adoption of ASC 606 the new standard was not material and did not impact beginning retained earnings.  The impact on the timing of sales and services for the fiscal year ended September 30, 2019 resulting from the application of the new standard was not material. 

As permissible under the new standard,ASC 606, sales taxes and transaction-based taxes are excluded from revenue. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Additionally, the Company expenses costs incurred to obtain contracts when incurred because the amortization period would have been one year or less. These costs are recorded in selling, general and administrative expenses.

F-14


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

 

The Company has elected to treat shipping and handling activities in a sales transaction after the customer obtains control of the goodgoods as a fulfillment cost and not as a promised good service. Accordingly, fulfillment costs related to the shipping and handling of goods are accrued at the time of shipment. Amounts billed to a customer in a sales transaction related to reimbursable shipping and handling costs are included in revenue, and the associated costs incurred by the Company for reimbursable shipping and handling expenses are reported in cost of sales.revenue. The Company incurred shipping and handling expenses of $0.3$0.5 million and $0.5$0.6 million, respectively, for the fiscal years ended September 30, 2020 2023 and 2019,2022, respectively.

During the second quarter of fiscal year 2020, the Company partially financed a $12.5 million product sale by entering into a $10.0 million promissory note with the customer.  The note is for a three-year term with monthly principal and interest payments of $0.3 million.  Due to the financial condition of the customer, the Company has concerns over the probable collectability of the promissory note.  As a result, the Company has 0t recognized any revenue or cost of revenue on the product sale. The Company has received payments from the customer totaling $4.6 million (exclusive of interest) as of

At September 30, 2020 related to the product sale, which is reflected on the Company’s consolidated balance sheet as non-current deferred revenue. Management does not intend to recognize revenue and cost of revenue from the sale until it becomes probable that the customer will satisfy its financial obligation to the Company.

During the third quarter of fiscal year 2020, the Company was awarded a $10.7 million contract (inclusive of a subsequent contract amendment of $0.3 million) with the U.S. Customs and Border Protection U.S. Border Patrol to provide a technology solution to the Department of Homeland Security. Revenue recognized under the contract for fiscal year 2020 was $0.3 million.  Unrecognized revenue for unsatisfied performance obligations on this contract at September 30, 2020 was $10.4 million.  The Company anticipates the majority of the revenue on the remaining performance obligation on this contract will be recognized in fiscal year 2021. Unsatisfied performance obligations on all other contracts held by the Company at September 30, 2020 had an original duration of one year or less.   

At September 30, 2020 and September 30, 2019,2023, the Company had deferred contract liabilities of $0.2$0.7 million and 0, respectively, included as a component ofno deferred revenue.  Thecontract costs.  At September 30, 2022, the Company had 0 deferred contract costs at September 30, 2020 and September 30, 2019.   During fiscal year 2020, the Company recognized 0 revenue or cost of revenue fromno deferred contract liabilities or deferred contract costs.cost.  During the fiscal yearyears ended September 30, 2019, the Company2023 and 2022, no revenue was recognized revenue of $0.2 million from deferred contract liabilities and no cost of revenue of $27,000was recognized from deferred contract costs.  At September 30, 2023, all contracts had an original duration of one year or less.

 

F- 15

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

For each of the Company’s operating segments, the following table presents revenue only from the sale of products and the performance of services under contracts with customers (in thousands). TheTherefore, the table excludes all revenue earned from rental contracts.

 

 

 

YEAR ENDED SEPTEMBER 30,

 

 

 

2020

 

 

2019

 

Oil and Gas Markets Product and Services Revenue:

 

 

 

 

 

 

 

 

Traditional exploration

 

$

5,849

 

 

$

8,712

 

Wireless exploration

 

 

1,421

 

 

 

4,362

 

Reservoir

 

 

805

 

 

 

2,554

 

Total revenue

 

 

8,075

 

 

 

15,628

 

 

 

 

 

 

 

 

 

 

Adjacent Markets Product and Services Revenue:

 

 

 

 

 

 

 

 

Industrial

 

 

15,622

 

 

 

18,324

 

Imaging

 

 

9,705

 

 

 

11,736

 

Total revenue

 

 

25,327

 

 

 

30,060

 

 

 

 

 

 

 

 

 

 

Emerging Markets Product and Services Revenue:

 

 

 

 

 

 

 

 

Revenue

 

734

 

 

159

 

 

 

 

 

 

 

 

 

 

Total

 

$

34,136

 

 

$

45,847

 

  

YEAR ENDED SEPTEMBER 30,

 
  

2023

  

2022

 

Oil and Gas Markets

        

Traditional exploration product revenue

 $12,081  $6,558 

Wireless exploration product revenue

  10,168   15,822 

Reservoir product revenue

  962   1,968 

Total revenue

  23,211   24,348 
         

Adjacent Markets

        

Industrial product revenue

  36,859   25,640 

Imaging product revenue

  12,029   13,360 

Total revenue

  48,888   39,000 
         

Emerging Markets

        

Revenue

  1,234   711 
         

Corporate

        

Revenue

     50 
         

Total

 $73,333  $64,109 

 

See Note 2219 for more information on the Company’s operating segments.

For each of the geographic areas where the Company operates, the following table presents revenue (in thousands) from the sale of products and performance of services under contracts with customers.  Thecustomers (in thousands). Therefore, the table excludes all revenue earned from rental contracts:  contracts.

 

F-15


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Asia

 

$

3,613

 

 

$

6,025

 

Asia (including Russian Federation)

 $13,006  $10,978 

Canada

 

 

2,054

 

 

 

2,558

 

 1,032  890 

Europe

 

 

4,813

 

 

 

6,569

 

 5,976  15,705 

South America

 448  719 

United States

 

 

22,294

 

 

 

28,763

 

 49,828  33,778 

Other

 

 

1,362

 

 

 

1,932

 

  3,043   2,039 

 

$

34,136

 

 

$

45,847

 

 $73,333  $64,109 

 

Revenue is attributable to countries based on the ultimate destination of the product sold, if known. If the ultimate destination is not known, revenue is attributable to countries based on the geographic location of the initial shipment.

 

F-16

F- 16

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

3. Investments

 

3. Business AcquisitionShort-term Investments

On November 13, 2018,

The Company classifies its short-term investments as available-for-sale securities. Available-for-sale securities are carried at fair market value with net unrealized gains and losses reported as a component of accumulated other comprehensive loss in stockholders’ equity. No gains or losses were realized from the Company acquired allsale of the intellectual property and related assets of the OptoSeis® fiber optic sensing technology business from PGS Americas, Inc.  The assets of the OptoSeis® business are included in the Company’s Oil and Gas Markets business segment.  The acquisition represented the Company’s strategy for the addition of breadth to its PRM and other products.  The acquisition purchase price consisted of cash at closing of approximately $1.8 million and contingent earn-out payments of up to $23.2 million over a five-and-a half year period beginning on the date of acquisition.  The contingent cash payments will be derived from certain eligible product and service revenue generated during the earn-out period.      

In connection with the OptoSeis® acquisition, the Company recorded goodwill of $0.7 million (deductible for tax purposes), other intangible assets of $3.7 million, fixed assets of $1.7 million and established an initial contingent earn-out liability of $4.3 million.    

Legal costs of $0.2 million related to the OptoSeis® acquisition are included in selling, general and administrative expensesshort-term investments for the fiscal year ended September 30, 2019.   

For2023.  The Company realized losses of $22,000 from the sale of short-term investments for the fiscal year ended September 30, 2019, the estimated fair value of the acquired OptoSeis® assets was revised, including a $1.8 million addition to machinery and equipment, which was offset by a $1.0 million decrease in goodwill and a $0.8 million decrease in other intangible assets.2022.

 

4.  Investment in Debt Security

On July 13, 2020, the Company received an interest in a senior secured bond issued from an international seismic marine customer.  The Company’s interest in the bond, which has a face value of $13.0 million, was received in exchange for $13.0 million of unpaid invoices and later fees owed by the customer.   The bond is secured by a third in line lien on the assets owned by the customer and has an 8% interest rate with bi-annual interest and possible principal payments based on available excess cash flows.  Interest payments can be made either in cash or in-kind payments in the form of additional debt security.  In-kind interest payments require an 8.8% interest rate.  The bond matures July 13, 2022.  The bond is listed on the Oslo Alternative Bond Market; however, the actual marketability is unknown at this time.

As of September 30, 2020, the Company performed a fair value assessmentshort-term investments were composed of the investment to determine the bond’s initial carrying amount.  In accordance with ASC 825, “Fair Value Instruments”, the Company has determined that the investment is a Level 3 primarily due to its current unknown marketability.  Because of the distressed financial condition of the customer, the Company believes the fair value of the bond is nominal. The Company has classified the investment as a held-to-maturity security.              

5. Derivative Financial Instruments

At September 30, 2020 and 2019, the Company’s Canadian subsidiary had CAN$3.4 million and CAN$9.3 million, respectively, of Canadian dollar denominated intercompany accounts payable owed to one of the Company’s U.S subsidiaries.  In order to mitigate its exposure to movements in foreign currency rates between the U.S. dollar and Canadian dollar, the Company routinely enters into foreign currency forward contracts to hedge a portion of its exposure to changes in the value of the Canadian dollar.  At September 30, 2019, the Company had a short-term hedge contract of CAN$7.0 million  with a United States bank to reduce the impact on cash flows from movements in the Canadian dollar/U.S. dollar currency exchange rate, which was not designated as a hedge for accounting purposes.  The Company had 0 hedge contracts at September 30, 2020.  

The following table summarizes the gross fair value of all derivative instruments, which are not designated as hedging instruments and their location in the consolidated balance sheets (in thousands):

 

Derivative Instrument

 

Location

 

AS OF SEPTEMBER 30,

 

 

 

 

 

2020

 

 

2019

 

Foreign Currency Forward Contracts

 

Accrued Expenses and Other Current Liabilities

 

$

 

 

$

4

 

  

AS OF SEPTEMBER 30, 2023

 
  Amortized Cost  Unrealized Gains  Unrealized Losses  Estimated Fair Value 

Short-term investments:

                

Corporate bonds

 $11,310  $  $(15) $11,295 

U.S. treasury securities and securities of U.S. government-sponsored agency

  3,622   4      3,626 

Total

 $14,932  $4  $(15) $14,921 

  

AS OF SEPTEMBER 30, 2022

 
  Amortized Cost  Unrealized Gains  Unrealized Losses  Estimated Fair Value 

Short-term investments:

                

Corporate bonds

 $909  $  $(15) $894 

Total

 $909  $  $(15) $894 

 

The following table summarizes the impact of the Company’s derivatives on the consolidated statements of operations (in thousands):short-term investments have contractual maturities ranging from January 2024 to September 2024.

 

 

 

 

 

YEAR ENDED SEPTEMBER 30,

 

Derivative Instrument

 

Location

 

2020

 

 

2019

 

Foreign Currency Forward Contracts

 

Other Income (Expense)

 

$

154

 

 

$

552

 

F- 17

F-17


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Amounts in the above table include realized and unrealized derivative gains and losses.

6.4. Fair Value of Financial Instruments

The Company’s financial instruments generally includedinclude cash and cash equivalents, an investment in debt security, a foreign currency forward contract,short-term investments, trade andaccounts, financing receivables and accounts payable. Due to the short-term maturities of cash and cash equivalents, trade andaccounts receivable, financing receivables and accounts payable, the carrying amounts approximate fair value on the respective balance sheet dates. The valuation technique used to measure the fair value of the contingent consideration and investment in debt security was derived from models utilizing market observable inputs.

 

The Company measures its short-term investments and contingent consideration and foreign currency forward contracts at fair value on a recurring basis.

The following tables present the fair value of the Company’s short-term investments and contingent consideration and foreign currency forward contract by valuation hierarchy and input (in thousands):

 

 

 

AS OF SEPTEMBER 30, 2020

 

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable

(Level 2)

 

 

Significant

Unobservable

(Level 3)

 

 

Totals

 

Contingent consideration

 

$

 

 

$

 

 

$

(10,962

)

 

$

(10,962

)

  

AS OF SEPTEMBER 30, 2023

 
  Quoted Prices in Active Markets for Identical Assets (Level 1)  Significant Other Unobservable (Level 2)  Significant Unobservable (Level 3)  

Totals

 

Short-term investments:

      .         

Corporate bonds

 $  $11,295  $  $11,295 

U.S. treasury securities and securities of U.S. government-sponsored agency

      3,626       3,626 

Total assets

 $  $14,921  $  $14,921 

 

 

 

AS OF SEPTEMBER 30, 2019

 

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable

(Level 2)

 

 

Significant

Unobservable

(Level 3)

 

 

Totals

 

Contingent consideration

 

$

 

 

$

 

 

$

(9,940

)

 

$

(9,940

)

Foreign currency forward contract

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Total

 

$

 

 

$

(4

)

 

$

(9,940

)

 

$

(9,944

)

  

AS OF SEPTEMBER 30, 2022

 
  Quoted Prices in Active Markets for Identical Assets (Level 1)  Significant Other Unobservable (Level 2)  Significant Unobservable (Level 3)  

Totals

 

Short-term investments:

                

Corporate bonds

 $  $894  $  $894 

Total assets

 $  $894  $  $894 
                 

Contingent consideration liabilities:

                

Contingent consideration liabilities

        175   175 

Total liabilities

 $  $  $175  $175 

 

Assets and Liabilities Measured on a Nonrecurring Basis

The measurements utilized to determine the implied fair value of the Company’s long-lived assetsCompany's Emerging Markets reporting unit as of September 30, 2020 2022 represented significant unobservable inputs (Level 3)3). See Note 10 for discussion of these inputs.

 

The following table summarizes changes in the fair value of the Company’s Level 3 financial instruments for the fiscal years ended September 30, 2019 2023 and 2020:2022:

 

Balance at October 1, 2018

 

$

7,713

 

Business acquisition

 

 

4,342

 

Fair value adjustments

 

 

(2,115

)

Balance at September 30, 2019

 

 

9,940

 

Fair value adjustments

 

 

1,100

 

Payment of contingent consideration

 

 

(78

)

Balance at September 30, 2020

 

$

10,962

 

Contingent Consideration balance at October 1, 2021

 $6,017 

Fair value adjustments

  (5,035)

Payment of contingent consideration

  (807)

Balance at September 30, 2022

  175 

Fair value adjustments

   

Payment of contingent consideration

  (175)

Balance at September 30, 2023

 $ 

 

F-18

F- 18

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Adjustments to the fair value of the contingent consideration are based on Monte Carlo simulations utilizing inputs which include market comparable informationinternal estimates and management assessments regarding potential future scenarios. The Company believes its estimates and assumptions are reasonable,reasonable; however, there is significant judgementjudgment involved. Also see Note 17.

 

7.5. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following (in thousands):

 

 

 

Unrealized Gains

(Losses) on

Available-for-Sale

Securities

 

 

Foreign

Currency

Translation

Adjustments

 

 

Total

 

Balance at October 1, 2018

 

$

(82

)

 

$

(15,537

)

 

$

(15,619

)

Other comprehensive income (loss)

 

 

82

 

 

 

(220

)

 

 

(138

)

Balance at September 30, 2019

 

$

 

 

 

(15,757

)

 

 

(15,757

)

Other comprehensive loss

 

 

 

 

 

(941

)

 

 

(941

)

Balance at September 30, 2020

 

$

 

 

$

(16,698

)

 

$

(16,698

)

  

Unrealized Losses on Available-for-Sale Securities

  

Foreign Currency Translation Adjustments

  

Total

 

Balance at October 1, 2021

 $(15) $(16,305) $(16,320)

Other comprehensive income

     1,007   1,007 

Balance at September 30, 2022

 $(15)  (15,298)  (15,313)

Other comprehensive income (loss)

  4   (2,515)  (2,511)

Balance at September 30, 2023

 $(11) $(17,813) $(17,824)

 

8.6. Trade Accounts and Financing Receivables

Trade accounts receivable, consisted ofnet (excluding financing receivables) are reflected in the following table (in thousands):

 

 

AS OF SEPTEMBER 30,

 

 

AS OF SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Trade accounts receivable

 

$

14,090

 

 

$

25,144

 

 $20,282  $13,252 

Allowance for doubtful accounts

 

 

(496

)

 

 

(951

)

  (125)  (591)

 

$

13,594

 

 

$

24,193

 

 $20,157  $12,661 

 

The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses. The Company determines the allowance based upon historical experience and a current review of its accounts receivable balances. Accounts receivable balances are charged off against the allowance whenever it is probable that the receivable balance will not be recoverable.

The following table summarizes changes in the Company’s allowance for doubtful accounts for the fiscal year ended September 30, 2020 (in thousands):

Balance at October 1, 2019

 

$

951

 

Bad debt expense, net of recoveries

 

 

63

 

Write-offs

 

 

(518

)

Balance at September 30, 2020

 

$

496

 

In fiscal year 2020, the Company entered into an agreement with an international seismic marine customer to transition $13.0 million of unpaid invoices and late fees into a senior secured bond having a face value of $13.0 million.  The bond was issued to the Company in July 2020.  The customer had rented a significant amount of marine nodal equipment from the Company.  The Company has experienced cash collection difficulties with this customer throughout fiscal year 2019 and through the third quarter of fiscal year 2020 due to the customer’s inability to generate sufficient cash flows to pay its obligations in a timely manner.  During fiscal year 2020, the Company recorded an $8.0 million reversal of an operating lease receivable resulting in an $8.0 million charge to rental revenue to reduce to 0 the carrying value of an operating lease receivable owed by the customer.  During fiscal year 2020, the Company received cash payments of $8.1 million from this customer.  Since the inception of the lease during fiscal year 2018, the Company has received cash payments in excess of $24 million from this customer.  See Note 4 – Investment in Debt Security for more information on the Company’s senior secured bond.    

F-19


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

 

Financing receivables are reflected in the following table (in thousands):

 

 

 

AS OF SEPTEMBER 30,

 

 

 

2020

 

 

2019

 

Promissory notes

 

$

184

 

 

$

780

 

Sales-type lease

 

 

 

 

 

2,692

 

Total financing receivables

 

 

184

 

 

 

3,472

 

Unearned income:

 

 

 

 

 

 

 

 

Sales-type lease

 

 

 

 

 

(55

)

Total unearned income

 

 

 

 

 

(55

)

Total financing receivables, net of unearned income

 

 

184

 

 

 

3,417

 

Less current portion

 

 

(184

)

 

 

(3,233

)

Non-current financing receivables

 

$

 

 

$

184

 

  

AS OF SEPTEMBER 30,

 
  

2023

  

2022

 

Notes receivable

 $1,216  $8,225 

Less current portion

  (1,216)  (8,225)

Non-current notes receivable

 $  $ 

 

F- 19

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

Promissory notes receivable are generally collateralized by the products sold, and bear interest at rates ranging up to 7% per year.  The promissory notes receivable (including sold. At September 30, 2023, the unrecognized $10.0 millionCompany had one promissory note receivable disclosed below) mature at various times through January 2023.outstanding from a customer with a face amount of $10.0 million.  The Company has, on occasion, extended or renewed notes receivable as they mature, but there is no obligation to do so.

Duringnote originated during the second quarter of fiscal year 2020 the Company partially financed in connection with a $12.5 million product sale by entering into a $10.0 million secured promissory note with athe customer. The note has a three-year term and bears interest at 7%7.0% per year.   Principalyear and has a three-year term with monthly principal and interest payments of $0.3 million are duemillion. During the fourth quarter of fiscal year 2021, the Company granted the customer a six-month principal payment forbearance. The customer recommenced its monthly until maturity.  Duepayments to the financial conditionCompany in the second quarter of fiscal year 2022.  In October 2022, the Company granted the customer an additional six-month principal payment forbearance. The customer recommenced its monthly payments to the note receivable is not reflectedCompany in the third quarter of fiscal year 2023.  The customer has made payments totaling $11.3 million (exclusive of interest) as of September 30, 2023 related to the product sale, and the balance outstanding on the Company’s consolidated balance sheet due to collectability concerns.  See Note 2 for more information on this matter.  

The Company entered into a sales-type lease in September 2017 resulting from the sale of rental equipment.  The sales-type lease had a term of three years.  At promissory note at September 30, 2020, the Company had received all payment obligations required under the lease and ownership of equipment 2023 was transferred to the lessee.$1.2 million.  The note matures in January 2024.

 

9.7. Inventories

Inventories consisted of the following (in thousands):

 

 

AS OF SEPTEMBER 30,

 

 

AS OF SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Finished goods

 

$

20,798

 

 

$

17,967

 

 $18,555 $14,653 

Work in process

 

 

984

 

 

 

3,681

 

 11,992 6,230 

Raw materials

 

 

47,041

 

 

 

55,781

 

 26,832 25,609 

Obsolescence reserve

 

 

(34,960

)

 

 

(32,050

)

Obsolescence reserve (net realizable value adjustment)

  (14,061)  (13,971)

 

 

33,863

 

 

 

45,379

 

 43,318  32,521 

Less current portion

 

 

16,933

 

 

 

23,855

 

  18,430   19,995 

Non-current portion

 

$

16,930

 

 

$

21,524

 

 $24,888  $12,526 

 

Inventory obsolescence expense totaled approximately $4.7$2.2 million and $4.6$3.2 million during fiscal years 20202023 and 2019,2022, respectively. Raw materials include semi-finished goods and component parts that totaled approximately $24.3$10.6 million and $25.2$9.4 million at September 30, 2020 2023 and 2019,2022, respectively.  At September 30, 2023, non-current inventories included raw materials and work in process totaling $3.2 million that will be transferred to rental equipment during the first quarter of fiscal year 2024.

8. Leases

 

F-20


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)As Lessee

 

10. Leases

As Lessee

The Company has elected not to record operating right-of-use assets or operating lease liabilities on its consolidated balance sheet for leases having a minimum term of 12 months or less. Such leases are expensed on a straight-line basis over the lease term. TheVariable lease payments are excluded from the measurement of operating right-of-use assets and operating liabilities and recognized in the period in which the obligation for those payments is incurred. As of September 30, 2023, the Company has onetwo operating right-of use assetassets related to a leased facilityfacilities in Austin, Texas.  The lease commenced in May 2019Texas and is for a two-year term. The operating right-of-use asset had a balanceMelbourne, Florida.

F- 20

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

Maturities of $0.1 million as of September 30, 2020

Future minimum lease payments related to the operating lease liabilities as of September 30, 20202023 were as follows (in thousands):

 

For fiscal years ending September 30,

 

 

 

 

 

2021

 

$

84

 

2024

 278 

2025

 186 

2026

 130 

2027

 134 

2028

  91 

Future minimum lease payments

 $819 

Less interest

 

 

(1

)

  (50)

 

$

83

 

Present value of minimum lease payments

 $769 

Less current portion

  (257)

Long-term portion

 $512 

 

Supplemental cash flowLease costs recognized in the consolidated statements of operations for the fiscal years ended September 30, 2023 and 2022 is as follows (in thousands):

  

YEAR ENDED SEPTEMBER 30,

 
  

2023

  

2022

 

Right-of-use operating lease costs

 $272  $272 

Short-term lease costs

  220   190 

Total

 $492  $462 

Right-of-use operating lease costs and short-term lease costs are included as a component of total operating expenses.

Other information related to the operating leases is as follows (in thousands):

 

 

 

YEAR ENDED

 

 

 

SEPTEMBER 30, 2020

 

Cash paid for amounts included in the measurement of lease liability

 

$

165

 

Right-of-use asset established upon adoption of ASC 842

 

 

219

 

  

YEAR ENDED SEPTEMBER 30,

 
  

2023

  

2022

 

Cash paid for amounts included in the measurement of lease liabilities:

        

Operating cash flows from operating leases

 $270  $262 
         

Weighted average remaining lease term

 

3.9 years

  

4.7 years

 

Weighted average discount rate

  3.25%  3.25%

The discount rate used on the operating right-of-use assets represented the Company’s incremental borrowing rate at lease inception.

As Lessor

Equipment

The Company leases equipment to customers primarily forwhich generally range from daily rentals to minimum termsrental periods of six months or less.up to one year. All of the Company's current leasing arrangements, with the Company acting as lessor, are classified as operating leases. The majority of the Company’s rental revenue is generated from its marine-based wireless seismic data acquisition system.

All of the Company’s leasing arrangements as lessor are classified as operating leases except for one sales-type lease at September 30, 2019.  The Company had 0 sales-type leases at September 30, 2020.

The Company regularly evaluates the collectability of its lease receivables on a lease by leaselease-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. The Company suspends revenue recognition when the collectability of amounts due are no longer probable and concurrently records a direct write-off of the lease receivable to rental revenue to limit rental revenue recognized to the cash collections received. As of September 30, 2020,2023, the Company hadCompany’s trade accounts receivables included lease receivables from customers, net of reserves, of $9.3$9.0 million.

F- 21

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

Rental revenue related to leased equipment for fiscal years 20202023 and 20192022 was $53.7$51.0 million and $50.0$24.9 million, respectively.

At September 30, 2020, the Company had 0 future

Future minimum lease obligations due from itsthe Company's leasing customers as all equipment leased was on month-to-month terms.of September 30, 2023 were $29.6 million, the majority of which is due within the next 12 months.

 

Rental equipment consisted of the following (in thousands):

 

 

AS OF SEPTEMBER 30,

 

 

AS OF SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Rental equipment, primarily wireless recording equipment

 

$

114,783

 

 

$

107,645

 

 $82,926  $83,153 

Accumulated depreciation and impairment

 

 

(60,466

)

 

 

(45,583

)

  (61,339)  (54,954)

 

$

54,317

 

 

$

62,062

 

 $21,587  $28,199 

 

Rental equipment depreciation expense was $17.9$11.8 million and $13.7 million in fiscal years 20202023 and 2019,2022, respectively.

 

11.Property

During the first quarter of fiscal year 2022, the Company leased a portion of its property located in Calgary, Alberta, Canada and fully leased its warehouse in Bogotá, Colombia. The lease in Canada commenced in November 2021 and is for a five-year term. The lease on the warehouse in Bogotá commenced in December 2021 and is currently on a month-to-month basis.

Rental revenue related to these two properties was $0.2 million for each of fiscal years 2023 and 2022.

Future minimum lease payments due to the Company as of September 30, 2023 were as follows (in thousands):

For fiscal years ending September 30,

    

2024

  128 

2025

  131 

2026

  132 

2027

  11 
  $402 

9. Property, Plant and Equipment

 

The Company owns a property located in Bogotá, Colombia that it is marketing for sale.  The property was used for warehousing its rental equipment operations, product sales and service support to its customers in South America.  The property’s carrying value at September 30, 2020 was $0.6 million and has been reclassified from property, plant and equipment to property held for sale in the accompanying consolidated balance sheet as of September 30, 2020.  The Company believes the fair market value less

F-21


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

costs to sell of the property exceeds its carrying value and that the property will be sold within the next 12-months.  The property is unencumbered.  The Company continues to operate on a reduced scale in Colombia.    

On August 1, 2019, In February 2023, the Company sold its realsatellite property located at 7334-7340 Gessner6410 Langfield Road in Houston, Texas for a cash price of $8.3$3.7 million, net of closing costs of $0.3 million, and realized a gain on disposal of property of $7.0$1.3 million.  The satellite property provided additional warehousing and maintenance and repair capacity for the Company’s marine rental equipment operations.  The Company has relocated the operations of this facility to its main campus at 7007 Pinemont Drive in Houston, Texas.  The sale was unencumbered.part of the Company’s plan to streamline operations and reduce costs. 

 

Property, plant and equipment consisted of the following (in thousands):

 

 

AS OF SEPTEMBER 30,

 

 

AS OF SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Land and land improvements

 

$

7,703

 

 

$

7,933

 

 $7,069  $7,855 

Building and building improvements

 

 

23,998

 

 

 

24,582

 

 21,931  24,588 

Machinery and equipment

 

 

55,359

 

 

 

54,760

 

 48,877  59,393 

Furniture and fixtures

 

 

1,368

 

 

 

1,376

 

 1,487  1,434 

Tools and molds

 

 

2,959

 

 

 

2,710

 

 3,287  3,243 

Construction in progress

 

 

1,431

 

 

 

512

 

 3,343  341 

Leasehold improvements

 

 

88

 

 

 

85

 

Transportation equipment

 

 

75

 

 

 

75

 

  74   74 

 

 

92,981

 

 

 

92,033

 

 86,068  96,928 

Accumulated depreciation and impairment

 

 

(63,107

)

 

 

(60,559

)

  (62,020)  (70,330)

 

$

29,874

 

 

$

31,474

 

 $24,048  $26,598 

 

Property, plant and equipment depreciation expense was $4.0$3.7 and $4.1 million for each of the fiscal years ended September 30, 2020 2023 and 2019.        2022. Impairment expense of $0.4 million was incurred on certain manufacturing equipment in fiscal year 2022. The impairment expense is included as a component of cost of revenue in the consolidated statement of operations.

 

F- 22

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

12.10. Goodwill and Other Intangible Assets

In connection with the acquisition of Quantum in July 2018, the Company recorded goodwill of $4.3 million and other intangible assets of $8.2 million. The operations of Quantum represent the Company’s Emerging Markets reporting unit.

In connection with the November 2018 acquisition of all the intellectual property and related assets of the OptoSeis® fiber optic sensing technology business from PGS Americas, Inc.At September 30, 2023, the Company recordedhad goodwill of $0.7 million and other intangible assets, net of $3.7 million.  The operations$0.5 million attributable to its Adjacent Markets reporting unit; other intangible assets, net of OptoSeis® are included as a component$3.0 million attributable to its Emerging Markets reporting unit; and other intangible assets, net of the Company’s$1.3 million attributable to its Oil and Gas Markets reporting unit. Goodwill represents the excess cost of the businessesa business acquired over the fair market value of identifiable net assets at the datesdate of acquisition.

At September 30, 2020, 2023, in light of the Company's historical losses on its Emerging Markets reporting unit, the Company preformed a recoverability assessment on the long-lived assets of its Emerging Markets asset group in which its carrying value was compared to estimated undiscounted cash flows over the remaining useful life of the asset group's primary asset, its developed technology.  The Company determined that no impairment was necessary as the future undiscounted cash flows exceeded the carrying value. Key assumptions used in the analysis include revenue, gross margin and cash flow projections.  The estimated cash flows include obtaining additional contracts with CBP and other current customers.  The Emerging Markets asset group could incur impairment charges in the future to its other intangible assets if it is unable to obtain additional contracts from the CBP or other customers.

At September 30, 2022, the Company assessed the goodwill associated with both its Oil and GasAdjacent Markets and Emerging Markets reporting units for impairment. The fair value of the reporting units were estimated using the expected present value of future cash flows and judgements, recent industry multiples and using estimates, judgements and assumptions that management believes were appropriate under the circumstances. The estimates and judgments used in the assessment included multiples for EBITDA, the weighted average cost of capital, and the terminal growth rate. The Company determined the future cash flow and industry multiple analyses provided the best estimate of the fair value of its reporting units.  Key assumptions in the impairment analysis include revenue and EBITDA projections, discount rates, long-term growth rates, and the effective tax rate the Company determined to be appropriate. These estimates and projections can be unpredictable, particularly for Quantum as an emerging business.  The total Company’s estimate of reporting unit fair values was reconciled to its then market capitalization (based upon the stock market price) plus an estimated control premium.  

F-22


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

As a result of the assessment, the Company determined that the fair market value of its Oil and GasEmerging Markets reporting unit was less than its carrying amount and recorded an impairment charge of $0.7$4.3 million for the entire goodwill associated with this reporting unit. The primary factors impactingunit for the decrease in fair value offiscal year ended September 30, 2022.  No impairment charge to the Oil and Gas Markets reporting unit was the decline in current market conditions, including our share price, and the current outlook for sales and operating performance. NaN impairment was indicated on the goodwill associated with the Company’s Emerging Markets reporting unit.  The Company has 0 goodwill associated with its Adjacent Markets reporting unit.  asset group was necessary for the fiscal year ended September 30, 2022 as its future undiscounted cash flows exceeded the carrying value. 

Also see Note 1 to these consolidated financial statements.

 

As a result of these acquisitions, theThe Company’s consolidated goodwill and other intangible assets consisted of the following (in thousands):

 

Weighted-Average Remaining Useful Lives (in years)

 

 

AS OF SEPTEMBER 30,

 

 Weighted-Average Remaining Useful Lives (in years)  

AS OF SEPTEMBER 30,

 

 

 

 

 

2020

 

 

2019

 

    

2023

  

2022

 

Goodwill

 

 

 

 

$

4,337

 

 

$

5,008

 

Goodwill:

 

Emerging Markets reporting unit

    $4,336  $4,336 

Adjacent Markets reporting unit

     736   736 

Total goodwill

    5,072  5,072 

Accumulated impairment losses

     (4,336)  (4,336)
    $736  $736 

Other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

16.9

 

 

$

5,918

 

 

$

5,918

 

 13.2  $6,475  $6,475 

Customer relationships

2.9

 

 

 

3,900

 

 

 

3,900

 

   3,900  3,900 

Trade names

3.9

 

 

 

1,930

 

 

 

1,930

 

 0.2  2,022  2,022 

Non-compete agreements

3.0

 

 

 

170

 

 

 

170

 

 0.2   186   186 

Total other intangible assets

 

10.0

 

 

 

11,918

 

 

 

11,918

 

 6.8  12,583  12,583 

Accumulated amortization

 

 

 

 

 

(3,587

)

 

 

(1,855

)

     (7,778)  (7,010)

 

 

 

 

$

8,331

 

 

$

10,063

 

    $4,805  $5,573 

 

Other intangible assets amortization expense for fiscal years 2023 and 2022was $0.8 million and $1.7 million, in each of fiscal years 2020 and 2019, respectively.

 

F- 23

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

As of September 30, 2020,2023, future estimated amortization expense of other intangible assets is as follows (in thousands):

 

For fiscal years ending September 30,

 

 

 

 

 

2021

 

$

1,732

 

2022

 

 

1,624

 

2023

 

 

714

 

2024

 

 

342

 

 395 

2025

 

 

329

 

 381 

2026

 374 

2027

 360 

2028

 360 

Thereafter

 

 

3,590

 

  2,935 

 

$

8,331

 

 $4,805 

  

13.11. Long-Term Debt

The Company had 0no long-term debt outstanding at September 30, 2020 and 2019.2023 or 2022.

On March 2, 2011, July 26, 2023, the Company entered into a credit agreement (“the Agreement”) with FrostWoodforest National Bank, (the “Original Credit Agreement”).as sole lender.  The Original Credit Agreement has been amended periodically since 2011 (as so amended,refinanced the “Credit Agreement”).  In November 2018, the Company extended the maturityCompany's 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 the Credit Agreement from April 2019 to April 2020.  In March 2019, the Company entered into an amendment to the Credit Agreement that altered the unencumbered liquid assets covenant to (i) reduce the minimum threshold from $10 million to $5 million and (ii) include unencumbered assets held outside the United States.  The amendment also added another financial covenant that requires the Company to maintain a tangible net worth of not less than $140$15 million.  Additionally, pursuant to the amendment, the Company’s principal place of business and the related real estate, located at 7007 Pinemont Drive, Houston, Texas was added as collateral securing its obligationsAvailability under the credit agreement.  In November 2019, we further amended the credit agreement to (i) extend the maturity date from April 2020 to April 2022, (ii) increase the unencumbered liquid assets covenant threshold from $5 million to $10 million effective in the first quarter of fiscal year 2021, (iii) to increase the tangible net worth requirement from $140 million to $145 million in the first quarter of fiscal year 2021 and (iv) remove the requirement that we obtain the consent of Frost Bank prior to paying dividends or repurchasing stock so long as we are in compliance with the covenants

F-23


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

of the credit agreement.  Under the Credit Agreement the Company can borrow up to $30.0 million with amounts available for borrowing determined by a borrowing base.  The borrowing base is determined based upon a borrowing base comprised of certain of the Company’s domestic assets which include (i) 80% of certaineligible accounts, receivable plus (ii) 50%90% of certain notes receivable (such result not to exceed $10 million)eligible foreign insured accounts, plus (iii) 25% of certain inventories (such result not to exceed $20 million). Subject to the borrowing base calculation, as of September 30, 2020, the amount available for borrowing was $17.7 million.  Severaleligible inventory plus (iv) 50% of the Company’s domestic subsidiaries have guaranteed the obligationsorderly liquidation value of the Company under the Credit Agreementeligible equipment, in each case subject to certain limitations and such subsidiaries have secured their obligations under such guarantees by the pledge of substantially all of the assets of such subsidiaries.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.  The Company is required to make monthly interest payments on borrowed funds. The Credit Agreement limitsis secured by substantially all of the incurrenceCompany's assets, except for certain excluded property. The Agreement requires the Company to maintain a minimum (i) consolidated tangible net worth of additional indebtedness$100 million, (ii) liquidity of $5 million, and contains other covenants customary(iii) current ratio no less than 2.00 to 1.00, in agreementseach case tested quarterly. The Agreement also requires the Company to maintain a springing minimum interest coverage ratio of this type.1.50 to 1.00, tested quarterly whenever there is an outstanding balance.  The interest rate for borrowingsAgreement expires in July 2025.  At September 30, 2023, the Company's borrowing availability under the Credit Agreement is based on the Wall Street Journal prime rate, which was 3.25% at $13.1 million after consideration of a $0.1 million outstanding letter of credit.  At September 30, 2020.  At September 30, 2020, 2023, the Company was in compliance with all covenants under the Credit Agreement.

 

14. Deferred RevenueDebt issuance costs of $0.4 million were incurred in connection with the Agreement. These costs were capitalized in other non-current assets on the consolidated balance sheet and are being amortized to interest expense over the term of the Agreement.

12.Other Current Liabilities

Deferred revenue and other

Other current liabilities consisted of the following (in thousands):

 

 

AS OF SEPTEMBER 30,

 

 

AS OF SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Deferred revenue

 

$

6,245

 

 

$

2,775

 

 $4,368  $629 

Employee bonuses

 1,665 35 

Compensated absences

 

 

1,818

 

 

 

1,603

 

 1,746  1,849 

Payroll

 

 

1,799

 

 

 

1,031

 

 940  769 

Property and sales taxes

 

 

1,364

 

 

 

1,972

 

 974  991 

Legal and professional fees

 

 

451

 

 

 

356

 

 616  346 

Medical claims

 

 

437

 

 

 

496

 

 641  590 

Agent commissions

 211 142 

Product warranty

 

 

258

 

 

 

229

 

 658  524 

Income taxes

 

 

54

 

 

 

25

 

 117  56 

Other

 

 

894

 

 

 

683

 

  946   685 

 

 

13,320

 

 

 

9,170

 

 $12,882  $6,616 

Less current portion

 

 

8,753

 

 

 

9,119

 

Non-current portion

 

$

4,567

 

 

$

51

 

 

The Company is self-insured for certain losses related to employee medical claims. The Company has purchased stop-loss coverage for individual claims in excess of $175,000 per claimant per year in order to limit its exposure to any significant levels of employee medical claims. Self-insured losses are accrued based on the Company’s historical experience and on estimates of aggregate liability for uninsured claims incurred using certain actuarial assumptions followed in the insurance industry.

 

15.13. Employee Benefits

The Company’s U.S.United States employees are participants in the Geospace Technologies Corporation’s Employee’s 401(k)401(k) Retirement Plan (the “Plan”), which covers substantially all eligible employees in the United States. The Plan is a qualified salary reduction plan in which all eligible participants may elect to have a percentage of their compensation contributed to the Plan, subject to certain guidelines issued by the Internal Revenue Service. The Company’s share of discretionary matching contributions was approximately $0.8$1.3 million and $0.9$1.0 million in fiscal years 20202023 and 2019,2022, respectively.

F- 24

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

The Company’s stock incentive plans in which key employees may participate are discussed in Note 1614 to these consolidated financial statements.

 

16. Stockholders’14. Stockholders Equity

In September 1997, February 2014, the board of directors and stockholders approved the 1997 Key Employee Stock Option2014 Long Term Incentive Plan, (asas amended (the “2014 Plan”). Under the “1997 Plan”) and, following amendments thereto, there has been reserved2014 Plan, an aggregate of 2,250,0003,000,000 shares of common stock for issuance thereunder.   The 1997 Plan expired in November 2017. 

In February 2014, the board of directors and stockholders approved the 2014 Long Term Incentive Plan (the “2014 Plan”), which replaced the 1997 Plan.  Under the 2014 Plan, an aggregate of 1,500,000 shares of common stock may be issued. The Company is authorized to issue nonqualified and incentive stock options to purchase common stock, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to key employees, directors and consultants under the 2014 Plan. Options have a term not to

F-24


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

exceed ten years, with the exception of incentive stock options granted to employees owning 10ten percent or more of the outstanding shares of common stock, which have a term not to exceed five years. The exercise price of any option may not be less than the fair market value of the common stock on the date of grant. In the case of incentive stock options granted to an employee owning ten percent or more of the outstanding shares of common stock, the exercise price of such option may not be less than 110% of the fair market value of the common stock on the date of grant. An RSU represents a contingent right to receive one share of the common stock upon vesting. Under the 2014 Plan, the Company may issue RSAs and RSUs to employees for no payment by the employee or for a payment below the fair market value on the date of grant. The RSAs and RSUs are subject to certain restrictions described in the 2014 Plan.

At September 30, 2020,2023, an aggregate of 370,1101,137,509 shares of common stock were available for issuance under the 2014 Plan.  NaN further awards of stock options may be made under the 1997 Plan.

The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

 

 

Number of

Nonqualified

Options

Outstanding

 

 

Weighted

Average

Exercise

Price per

Share

 

 

Number of

RSAs

 

 

Weighted

Average

Grant-date

Fair Value

per Share

 

 

Number of

RSUs

 

 

Weighted

Average

Grant-date

Fair Value

per Unit

 

 Number of Nonqualified Options Outstanding  Weighted Average Exercise Price per Share  Number of RSAs  Weighted Average Grant-date Fair Value per Share  Number of RSUs  Weighted Average Grant-date Fair Value per Unit 

Outstanding at October 1, 2018

 

 

190,100

 

 

$

17.81

 

 

 

327,225

 

 

$

16.42

 

 

 

 

 

$

 

Outstanding at October 1, 2021

 38,800  $21.42  42,097  $15.95  299,374  $10.97 

Granted

 

 

 

 

 

 

 

 

8,000

 

 

 

14.59

 

 

 

161,800

 

 

 

15.11

 

         200,350  8.49 

Exercised

 

 

(24,500

)

 

 

8.78

 

 

 

 

 

 

 

 

 

 

 

 

 

            

Forfeited

 

 

 

 

 

 

 

 

(2,875

)

 

 

14.60

 

 

 

(24,010

)

 

 

15.17

 

 (38,800) 21.42      (51,603) 9.17 

Vested

 

 

0

 

 

 

 

 

 

(111,938

)

 

 

16.18

 

 

 

(500

)

 

 

15.17

 

       (41,097) 14.67   (124,262) 11.20 

Outstanding at September 30, 2019

 

 

165,600

 

 

 

19.15

 

 

 

220,412

 

 

 

16.50

 

 

 

137,290

 

 

 

15.10

 

Outstanding at September 30, 2022

     1,000  $14.59  323,859  $9.54 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

162,250

 

 

 

14.58

 

         228,250  4.70 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

            

Forfeited

 

 

(74,500

)

 

 

21.34

 

 

 

(1,750

)

 

 

17.55

 

 

 

(39,560

)

 

 

14.78

 

         (7,312) 8.44 

Vested

 

 

0

 

 

 

 

 

 

(108,288

)

 

 

16.32

 

 

 

(41,723

)

 

 

14.81

 

       (1,000) 14.59   (167,248) 9.94 

Outstanding at September 30, 2020

 

 

91,100

 

 

$

17.66

 

 

 

110,374

 

 

$

16.66

 

 

 

218,257

 

 

$

14.82

 

Outstanding at September 30, 2023

    $     $   377,549  $6.46 

 

During fiscal years 20202023 and 20192022, the Company issued 0228,250 and 8,000 RSAs, respectively, to certain of its employees under the 2014 Plan, as amended.  The weighted average grant date fair value of each RSA issued for fiscal year 2019 was $14.59 per share.  The total grant date fair value of all RSAs issued for fiscal year 2019 was $0.1 million, which will be charged to expense over the next four years as the restrictions lapse.  Compensation expense for the RSAs was determined based on the closing market price of the Company’s stock on the date of grant applied to the total number of shares that are anticipated to fully vest.  Recipients of RSAs are entitled to vote such shares and are entitled to dividends, if paid.

During fiscal years 2020 and 2019, the Company issued 162,250 and 161,800200,350 RSUs to certain of its employees, executive officers and directors under the 2014 Plan, as amended. Plan. The RSUs issued include both time-based and performance-based vesting provisions. The weighted average grant date fair value of each RSU issued for fiscal years 20202023 and 20192022 was $14.58$4.70 and $15.11$8.49 per unit.unit, respectively. The total grant date fair value of all RSUs issued for fiscal years 20202023 and 20192022 was $2.4$1.1 million and $2.4$1.7 million, respectively, which will be charged to expense over the next one to four years as the restrictions lapse. Compensation expense for RSUs was determined based on the closing market price of the Company’s stock on the date of grant applied to the total number of units that are anticipated to fully vest.  

All RSAs, RSUs and stock options outstanding at September 30, 2020 2023 and 20192022 were issued from the 2014 Plan. All remaining stock options outstanding were

No RSAs have been issued under the 2014 Plan.  All stock options outstanding are nonqualified options.

The total intrinsic value of the Company’s nonqualified stock options exercised duringsince fiscal year 2019 was $0.1 million.  NaN nonqualified stock options and none were exercised during fiscal year 2020.   

The following table summarizes information about stock options outstanding and exercisable at September 30, 2020:

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of Exercise Prices

 

Shares

 

 

Weighted

Average

Remaining

Term

(in years)

 

 

Weighted

Average

Exercise

Price

 

 

Intrinsic

Value

 

 

Shares

 

 

Weighted

Average

Remaining

Term

(in years)

 

 

Weighted

Average

Exercise

Price

 

 

Intrinsic

Value

 

$14.87

 

 

52,300

 

 

 

5.1

 

 

$

14.87

 

 

$

 

 

 

 

 

 

 

 

$

 

 

$

 

$21.42

 

 

38,800

 

 

 

6.1

 

 

 

21.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

91,100

 

 

 

5.5

 

 

$

17.66

 

 

$

 

 

 

 

 

 

 

 

 

 

 

$

 

F-25


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)2023.

 

The Company recognized $2.3 million of stock-basedStock-based compensation expense recognized for each of the fiscal years ended September 30, 2020 2023 and 2019.2022 was $1.4 million and $1.7 million, respectively. The Company accounts for forfeitures as they occur and records compensation costs under the assumption that the holder will complete the requisite service period.  As of September 30, 2020,2023, the Company had unrecognized compensation expense of $0.9 million relating to RSAs which is expected to be recognized over a weighted average period of 1.2 years.  As of September 30, 2020, the Company had unrecognized compensation expense of $2.4$1.5 million relating to RSUs which is expected to be recognized over a weighted average period of 2.72.4 years.  The Company had 0 unrecognized compensation expense related to nonqualified stock option awards. 

 

17.

F- 25

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

15. Income Taxes:

 

Components of income (loss) before income taxes were as follows (in thousands):

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

United States

 

$

(14,109

)

 

$

4,105

 

 $11,190  $(19,425)

Foreign

 

 

(2,484

)

 

 

(1,834

)

  1,379   (3,258)

 

$

(16,593

)

 

$

2,271

 

 $12,569  $(22,683)

 

The provision (benefit) for income taxes consisted of the following (in thousands):

 

 

YEAR ENDED SEPTEMBER 30,

 

 YEAR ENDED SEPTEMBER 30, 

 

2020

 

 

2019

 

 

2023

  

2022

 

Current

 

 

 

 

 

 

 

 

 

Federal

 

$

(4

)

 

$

(16

)

 $63  $(12)

Foreign

 

 

2,467

 

 

 

2,401

 

 244  202 

State

 

 

5

 

 

 

16

 

  59    

 

 

2,468

 

 

 

2,401

 

  366   190 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

 

 

 

 

    

Foreign

 

 

181

 

 

 

16

 

  (3)  (17)

 

 

181

 

 

 

16

 

  (3)  (17)

 

$

2,649

 

 

$

2,417

 

 $363  $173 

 

ActualThe difference between the effective tax rate reflected in the provision for income tax expense (benefit) differs from income tax expense computed by applyingtaxes and the U.S. federal statutory federal tax rate of 21% for each of the fiscal years ended September 30, 2020 and 2019were as follows (in thousands):

 

 

 

YEAR ENDED SEPTEMBER 30,

 

 

 

2020

 

 

2019

 

Expense (benefit) for U.S federal income tax at statutory rate

 

$

(3,484

)

 

$

477

 

Effect of foreign income taxes

 

 

(64

)

 

 

(101

)

Research and experimentation tax credit

 

 

(1,201

)

 

 

(812

)

State income taxes, net of federal income tax benefit

 

 

(158

)

 

 

(161

)

Nondeductible expenses

 

 

63

 

 

 

105

 

Resolution of prior years’ tax matters

 

 

(7

)

 

 

14

 

Change in valuation allowance

 

 

4,882

 

 

 

964

 

Impact on deferred taxes due to change in tax rate

 

 

196

 

 

 

 

Change in fair value of contingent consideration

 

 

214

 

 

 

(444

)

Foreign income tax withholding

 

 

1,928

 

 

 

2,358

 

Disallowance of stock compensation adjustments in excess of book

 

 

255

 

 

 

31

 

Other items

 

 

25

 

 

 

(14

)

 

 

$

2,649

 

 

$

2,417

 

Effective tax rate

 

 

(16.0

)%

 

 

106.4

%

F-26


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

  

YEAR ENDED SEPTEMBER 30, 2023

  

YEAR ENDED SEPTEMBER 30, 2022

 
  

Amount

  

Percent

  

Amount

  

Percent

 

Expense (benefit) for U.S. federal income tax at statutory rate

 $2,639   21.0% $(4,763)  21.0%

Research and experimentation tax credit

  (480)  (3.9)%  6   (0.1)%

State income taxes, net of federal income tax benefit

  302   2.5%  (265)  1.2%

Nondeductible goodwill

        911   (4.0)%

Change in valuation allowance

  (2,459)  (19.6)%  3,768   (16.6)%

Change in fair value of contingent consideration

        (278)  1.2%

Disallowed stock compensation

  171   1.4%  217   (1.0)%

Impact due to foreign currency translation

  51   0.4%  460   (2.0)%

Other items

  139   1.1%  117   (0.5)%

Total tax expense and effective tax rate

 $363   2.9% $173   (0.8)%

 

The income tax expense for fiscal years 2020year 2023 primarily reflects tax accrual for U.S. state and 2019Russian income tax.  The income tax expense for fiscal year 2022 primarily reflects withholding tax on rental income earned in foreign jurisdictions. The Company is currently unable to record any tax benefits for its tax losses in the U.S.United States and Canada due to the uncertainty surrounding its ability to utilize such losses in the future to offset taxable income.

 

F- 26

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income tax assetassets (liabilities) were as follows (in thousands):

 

 

AS OF SEPTEMBER 30, 2020

 

 

AS OF SEPTEMBER 30, 2019

 

 

YEAR ENDED SEPTEMBER 30,

 

 

U.S.

 

 

Non U.S.

 

 

Total

 

 

U.S.

 

 

Non U.S.

 

 

Total

 

 

2023

  

2022

 

Deferred income tax assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

2,813

 

$

3

 

 

$

2,816

 

 

$

189

 

 

$

3

 

 

$

192

 

Inventories

 

 

7,809

 

33

 

 

 

7,842

 

 

 

7,652

 

 

 

79

 

 

 

7,731

 

 $8,269  $8,513 

Loss and tax credit carry-forwards

 

 

17,431

 

4,596

 

 

 

22,027

 

 

 

18,156

 

 

 

4,221

 

 

 

22,377

 

 29,581  34,643 

Stock-based compensation

 

 

506

 

 

 

 

506

 

 

 

691

 

 

 

 

 

 

691

 

Accrued product warranty

 

 

52

 

2

 

 

 

54

 

 

 

43

 

 

 

4

 

 

 

47

 

Accrued compensated absences

 

 

328

 

 

 

 

328

 

 

 

313

 

 

 

 

 

 

313

 

Accrued compensation

 870  609 

R&D expenditure capitalization

 1,538   

Property and equipment

 

 

 

501

 

 

 

501

 

 

 

 

 

 

462

 

 

 

462

 

 504  578 

Prepaid income taxes

 

 

 

517

 

 

 

517

 

 

 

 

 

 

753

 

 

 

753

 

Other reserves

 

 

1,009

 

 

9

 

 

 

1,018

 

 

 

13

 

 

 

8

 

 

 

21

 

  590   359 

Subtotal deferred income tax assets

 41,352  44,702 

Valuation allowance

  (38,917)  (41,376)

Net deferred income tax assets

 2,435  3,326 

 

 

29,948

 

 

5,661

 

 

 

35,609

 

 

 

27,057

 

 

 

5,530

 

 

 

32,587

 

 

Deferred income tax liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

 

 

(11

)

 

 

(11

)

 

 

 

 

 

 

 

 

 

Intangible assets

 

 

(960

)

 

 

 

 

(960

)

 

 

(1,386

)

 

 

(5

)

 

 

(1,391

)

 (292) (356)

Property, plant and equipment and other

 

 

(3,271

)

 

 

(31

)

 

 

(3,302

)

 

 

(4,919

)

 

 

(59

)

 

 

(4,978

)

Subtotal deferred income tax assets

 

 

25,717

 

 

5,619

 

 

 

31,336

 

 

 

20,752

 

 

 

5,466

 

 

 

26,218

 

Valuation allowance

 

 

(25,717

)

 

 

(5,646

)

 

 

(31,363

)

 

 

(20,752

)

 

 

(5,281

)

 

 

(26,033

)

Net deferred income tax assets (liabilities)

 

$

 

$

(27

)

 

$

(27

)

 

$

 

 

$

185

 

 

$

185

 

Property and equipment

 (2,153) (2,874)

Other

  (6)  (109)

Total deferred income tax liabilities

  (2,451)  (3,339)

Net deferred income tax liabilities

 $(16) $(13)

 

Deferred income tax assets and liabilities are reported as follows in the accompanying consolidated balance sheets (in thousands):

 

 

AS OF SEPTEMBER 30,

 

 

 

2020

 

 

2019

 

Deferred income tax assets, net

 

$

 

 

$

236

 

Deferred income tax liabilities, net

 

 

(27

)

 

 

(51

)

 

 

$

(27

)

 

$

185

 

The 2017 Tax Act was enacted in December 2017. The 2017 Tax Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018, creates new taxes on certain foreign earnings and may require companies to pay a one-time transition tax on undistributed earnings of certain foreign subsidiaries that were previously tax deferred.  The Company is not required to pay a one-time transition tax on earnings of our foreign subsidiaries since there were no accumulated earnings on a consolidated basis.

The financial reporting basis of investments in foreign subsidiaries exceed their tax basis. A deferred tax liability is not recorded for this temporary difference because the investment is deemed to be permanent. A reversal of the Company’s plans to permanently invest in these foreign operations would cause the excess to become taxable. At On September 30, 2020,2023, the Company had $5.8$3.8 million of cash and cash equivalents held by its foreign subsidiaries. At On September 30, 2020 2023 and 2019,2022, the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately $11.6$8.2 million and $12.9$6.9 million, respectively.

Tax return filings which are subject to review by local tax authorities by major jurisdiction are as follows:

United States—fiscal years ended September 30, 2017 through 2020

State of Texas—fiscal years ended September 30, 2017 through 2020

F-27


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

State of New York—fiscal years ended September 30, 2018

State of California – fiscal years ended September 30, 2017 through 2020

State of Pennsylvania – fiscal years ended September 30, 2018

Russian Federation—calendar years 2018 through 2020

Canada—fiscal years ended September 30, 2017 through 2020

United Kingdom—fiscal years ended September 30, 2019 through 2020

Colombia—calendar years 2018 through 2020

 

The Company had 0 unrecognizedis subject to taxation in the United States as well as various states and foreign jurisdictions. Tax years that remain subject to examination by significant tax liabilities as of September 30, jurisdictions are the United States for tax years ending after 2016, Russia for tax years ending after 2020, the United Kingdom for tax years ending after 2021, and Canada for tax years ending after 2019.

 

As of September 30, 2020,2023, the Company had net operating loss (“NOL”) carry-forwards of approximately $51.0$78.2 million in the United States, $16.8$18.9 million in Canada and $1.1$0.7 million in Russia which are available to offset future taxable income in those jurisdictions. The NOL carry-forwards for Canada and Russia begin to expire in 2033 and 2026, respectively. The NOL carry-forward for the United States which originated prior to the 2017 Tax Act of $28.3$32.6 million begins to expire in 2028.  The Company’s NOLs2029 and those originating after the 2017 Tax Act of $22.7$45.6 million do not expire.

Management of the Company has concluded that it was more-likely-than-notnot more-likely-than-not that its U.S., Canadian and Russian net deferred tax assets will not be realized in accordance with U.S. GAAP. At On September 30, 20202023 and 2019,September 30, 2022, the Company had a valuation allowance against its U.S. net deferred tax assets of $25.7$33.7 million and $20.8$35.5 million, respectively. At On September 30, 20202023 and 2019,September 30, 2022, the Company had a valuation allowance against its Canadian net deferred tax assets of $5.6$4.8 million and $5.3$5.2 million, respectively. At On September 30, 2020,2023 and September 30, 2022, the Company had a valuation allowance against its Russian net deferred tax assets of $0.2 million.          $0.4 million and $0.7 million, respectively.

 

18. Loss

F- 27

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

16. Income (Loss) Per Common Share

 

Basic lossearnings (loss) per share is computed by dividing net lossincome (loss) available to common stockholders by the weighted average number of common shares used in basic lossearnings (loss) per share during the period. Diluted lossearnings (loss) per share is determined on the assumption that outstanding RSUs have been exchanged for common stock and outstanding dilutive stock options have been exercised and the aggregate proceeds as defined were used to reacquire common stock using the average price of such common stock for the period.

The following table summarizes the calculation of net lossincome (loss) and weighted average common shares and common equivalent shares outstanding for purposes of the computation of lossearnings (loss) per share (in thousands, except share and per share amounts):

 

 

 

YEAR ENDED SEPTEMBER 30,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(19,242

)

 

$

(146

)

Less: Loss allocable to unvested restricted stock

 

 

 

 

 

 

Loss attributable to common shareholders

   for diluted earnings per share

 

$

(19,242

)

 

$

(146

)

Weighted average number of common share equivalents:

 

 

 

 

 

 

 

 

Common shares used in basic loss per share

 

 

13,525,179

 

 

 

13,388,626

 

Common share equivalents outstanding related to

   stock options and RSUs

 

 

 

 

 

 

Total weighted average common shares and common share

   equivalents used in diluted loss per share

 

 

13,525,179

 

 

 

13,388,626

 

Loss per shares:

 

 

 

 

 

 

 

 

Basic

 

$

(1.42

)

 

$

(0.01

)

Diluted

 

$

(1.42

)

 

$

(0.01

)

  

YEAR ENDED SEPTEMBER 30,

 
  

2023

  

2022

 

Net income (loss)

 $12,206  $(22,856)

Less: Income allocable to unvested restricted stock

      

Income (loss) attributable to common shareholders for diluted earnings (loss) per share

 $12,206  $(22,856)

Weighted average number of common share equivalents:

        

Common shares used in basic earnings (loss) per share

  13,146,085   12,987,996 

Common share equivalents outstanding related to RSUs

  68,981    

Total weighted average common shares and common share equivalents used in diluted earnings (loss) per share

  13,215,066   12,987,996 

Earnings (loss) per share:

        

Basic

 $0.93  $(1.76)

Diluted

 $0.92  $(1.76)

 

For the calculation of diluted lossearnings (loss) per share for fiscal years 20202023 and 2019, stock options of 91,100 and 165,600, respectively, and2022, RSUs of 218,757308,568 and 137,290,323,859, respectively, were excluded in the calculation of weighted average shares outstanding as a result of their impact being antidilutive.

 

19.  Exit and Disposal Activities

F-28


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

17. Commitments and Contingencies

 

Contingent Compensation Costs

In July 2020, the Company initiated a program to reduce operating and manufacturing expenses in light of decreased demand for products in our Oil and Gas Markets and Adjacent Markets segments.  The program is expected to produce approximately $2.0 million of annualized cash savings starting in fiscal year 2021.  The cost reductions were primarily realized through a reduction of approximately 100 employees from the Company’s workforce.  

In connection with the workforce reductions, acquisition of Aquana, LLC ("Aquana") in July 2021, the Company incurred $0.9 million of termination costs in our fourth quarter of fiscal year 2020.  The majority of these costs were incurred by the Company’s Oil & Gas Markets business segment.  The termination costs were recordedis subject to both cost of revenue and operating expenses in the consolidated statement of operations.  There are 0 outstanding liabilities related to this program as of September 30, 2020.    

20. Commitments and Contingencies

Contingent Consideration

In connection with its acquisitions of Quantum Technology Sciences, Inc. (“Quantum”) and the OptoSeis® fiber optic sensing technology business, the Company recordedadditional contingent purchase pricecash payments or contingent consideration, that may be owed in the future.  For both acquisitions, the contingent payments are based on future receipt of contract awards and the resulting revenue derived from such contracts.  The Company utilizes the services of independent valuation consultants to assist with the estimation of the fair value of this contingent consideration.  The determination of fair value is inherently unpredictable since it requires estimates and projections of future revenue, including the size, length, timing and, in the case of Quantum, the extent of gross profits earned under its future contracts.  As a result, the Company anticipates fair value adjustments to these liabilities over the respective earn-out periods, and these adjustments will result in either charges or credits to the Company’s operating expenses when the fair valueformer members of the contingent consideration increases or decreases, respectively.  

The Company recorded an initial contingent earn-out liability of $7.7 million in connection with its July 2018 acquisition of Quantum.   Contingent payments, if any, may be paid in the form of cash or Company stock and will be derived from eligible revenue generated duringAquana over a four-yearsix earn-out period ending July 2022.  The maximum amount of contingent payments is $23.5 million over the four-year-year earn-out period. During fiscal year 2019, the Company recorded a $2.9 million adjustment to decrease the initial earn-out liability to an estimated fair value of $4.8 million.  During fiscal year 2020, the Company made cash earn-out payments of $0.1 million and recorded net adjustments of $1.1 million to increase the earn-out liability to an estimated fair value of $5.8 million.  The increase in the earn-out liability in fiscal year 2020 was due to an increase in projected eligible revenue.  In April 2020, Quantum was awarded a $10 million contract with the U.S. Customs and Border Protection U.S. Border Patrol to provide a technology solution to the Department of Homeland Security.  

The Company recorded an initial contingent earn-out liability of $4.3 million in connection with its November 2018 acquisition of all the intellectual property and related assets of the OptoSeis® fiber optic sensing technology.  Contingent cash payments, if any, will be derived from certain eligible revenue generated during a five-and-a-half yearthe earn-out period ending in May 2024.from products and services sold by Aquana. There is no maximum limit to the contingent cash payments that could be made. The maximum amountmerger agreement with Aquana requires the continued employment of contingent payments is $23.2 million overa certain key employee and former member of Aquana for the five-and-a-halffirstfour years of the six year earn-out period.  During fiscal year 2019,period in order for any of Aquana’s former members to be eligible to any earn-out payments.  Due to the Companycontinued employment requirement, no liability has been recorded a $0.8 million adjustment to increasefor the initial earn-out liability to an estimated value of $5.1 million.   During fiscal year 2020, the Company recorded net adjustments of $0.1 million to increase the earn-out liability to an estimated value of $5.2 million.    

 The Company reviews and assesses the fair value of its contingent earn-out liabilities on a quarterly basis.                 payments for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when incurred.  No eligible revenue has been generated to date.

Operating Leases

The Company leases office space and certain equipment for terms of two years or less.  Rent expense was approximately $0.5 million and $0.6 million during fiscal years 2020 and 2019, respectively.  Future minimum lease obligations (all in fiscal year 2021) were $0.1 million.  

Legal Proceedings

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

 

F-29


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

21.18. Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Cash paid for interest

 

$

38

 

 

$

99

 

Cash paid for income taxes

 

 

2,530

 

 

 

2,402

 

 $151  $169 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

Inventory transferred to rental equipment

 

 

6,343

 

 

 

1,861

 

 587 1,148 

Inventory transferred to property, plant and equipment

 

 

222

 

 

 

126

 

   172 

Property, plant and equipment acquired in connection with business acquisition

 

 

 

 

 

1,721

 

Extinguishment of financing receivable in connection with repossession of equipment added to rental fleet

 

 

 

 

750

 

Issuance of notes receivables related to sale of used rental equipment

   11,745 

 

F- 29

Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)

2219. Segment and Geographic Information

 

The Company reports and evaluates financial information for 3three operating business segments: Oil and Gas Markets, Adjacent Markets and Emerging Markets. The Oil and Gas Markets segment was previously referred to as our Seismic segment.  This segment’s products include wireless seismic data acquisition systems, reservoir characterization products and services, and traditional seismic exploration products such as geophones, hydrophones, leader wire, connectors, cables, marine streamer retrieval and steering devices and various other seismic products. OurThe Adjacent Markets segment was previously referred to as our Non-Seismic segment.  This segment’s products include imaging equipment, water meter products, offshore cables,remote shut-off valves and IoT platform, as well as seismic sensors used for vibration monitoring and geotechnical applications such as mine safety applications and earthquake detection. The Emerging Markets segment was added in conjunction with the acquisition of Quantum, which designs and markets seismic products targeted at the border and perimeter security markets.

F-30


Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

 

The following tables summarize the Company’s segment information:

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Revenue:

 

 

 

 

 

 

 

 

 

Oil and Gas Markets

 

$

61,661

 

 

$

64,966

 

 $73,993  $49,141 

Adjacent Markets

 

 

25,440

 

 

 

30,156

 

 49,039  39,171 

Emerging Markets

 

 

734

 

 

 

159

 

 1,234  711 

Corporate

 

 

 

 

 

528

 

  243   230 

Total

 

 

87,835

 

 

 

95,809

 

  124,509   89,253 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

Oil and Gas Markets

 

 

(2,139

)

 

 

3,095

 

 15,759  (7,539)

Adjacent Markets

 

 

4,017

 

 

 

6,234

 

 11,490  6,021 

Emerging Markets

 

 

(6,064

)

 

 

(2,306

)

 (4,003) (9,128)

Corporate

 

 

(13,853

)

 

 

(5,990

)

  (11,918)  (12,490)

Total

 

 

(18,039

)

 

 

1,033

 

  11,328   (23,136)

Depreciation and amortization expenses:

 

 

 

 

 

 

 

 

 

Oil and Gas Markets

 

 

21,192

 

 

 

16,865

 

 14,428 16,947 

Adjacent Markets

 

 

453

 

 

 

466

 

 703 743 

Emerging Markets

 

 

1,194

 

 

 

1,164

 

 565 1,068 

Corporate

 

 

854

 

 

 

844

 

  542  802 

Total

 

 

23,693

 

 

 

19,339

 

  16,238   19,560 

Impairment, inventory obsolescence and stock-based compensation expenses:

 

 

 

 

 

 

 

 

 

Oil and Gas Markets

 

 

6,326

 

 

 

6,046

 

 2,329 3,612 

Adjacent Markets

 

 

232

 

 

 

92

 

 656 932 

Emerging Markets

 

 

203

 

 

 

68

 

 52 4,423 

Corporate

 

 

941

 

 

 

737

 

  566  727 

Total

 

 

7,702

 

 

 

6,943

 

  3,603   9,694 

Interest income:

 

 

 

 

 

 

 

 

 

Oil and Gas Markets

 

 

1,029

 

 

 

1,033

 

 352 850 

Adjacent Markets

 

 

3

 

 

 

1

 

   

Emerging Markets

 

 

 

 

 

 

   

Corporate

 

 

70

 

 

 

274

 

  187  126 

Total

 

 

1,102

 

 

 

1,308

 

  539   976 

Interest expense:

 

 

 

 

 

 

 

 

 

Oil and Gas Markets

 

 

 

 

 

 

 105 65 

Adjacent Markets

 

 

 

 

 

 

   

Emerging Markets

 

 

 

 

 

 

   

Corporate

 

 

38

 

 

 

99

 

  29   

Total

 

 

38

 

 

 

99

 

  134   65 


 

The Company’s manufacturing operations for its business segments are combined. Therefore, the Company does not segregate and report separate balance sheet accounts for each of its segments and, therefore, no such segment balance sheet information is presented in the table above.

“Corporate” revenue consists of rental revenue earned from an operating lease of a surplus building located in Houston, Texas.  “Corporate” loss from operations primarily consists of the Company’s Houston headquarters general and administrative expenses.

F-31

F- 30

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company generates revenue from product sales, product rentals and services from its subsidiaries located in the United States, Canada, Colombia, the Russian Federation and the United Kingdom. Revenue information forgenerated by the CompanyCompany’s subsidiaries is as follows (in thousands):

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

United States

 

$

82,166

 

 

$

91,222

 

 $118,017  $82,332 

Canada

 

 

3,709

 

 

 

5,266

 

 1,924  1,615 

Colombia

 

 

5

 

 

 

408

 

Russian Federation

 

 

2,668

 

 

 

4,286

 

 1,850  1,922 

United Kingdom

 

 

2,488

 

 

 

2,905

 

  2,718   3,384 

Eliminations

 

 

(3,201

)

 

 

(8,278

)

 

$

87,835

 

 

$

95,809

 

 $124,509  $89,253 

 

A summary of revenue by geographic area is as follows (in thousands):

 

 

YEAR ENDED SEPTEMBER 30,

 

 

YEAR ENDED SEPTEMBER 30,

 

 

2020

 

 

2019

 

 

2023

  

2022

 

Africa

 

$

5,814

 

 

$

20,192

 

Asia

 

 

41,128

 

 

 

10,171

 

Asia (including Russian Federation)

 $26,685  $13,823 

Canada

 

 

3,193

 

 

 

5,232

 

 2,703  1,225 

Europe

 

 

12,626

 

 

 

25,860

 

 20,826  28,381 

South America

 8,166  7,547 

United States

 

 

23,780

 

 

 

32,397

 

 62,611  35,171 

Other

 

 

1,294

 

 

 

1,957

 

  3,518   3,106 

 

$

87,835

 

 

$

95,809

 

 $124,509  $89,253 

 

Revenue is attributed to countries based on the ultimate destination of the product sold, if known. If the ultimate destination is not known, revenue is attributed to countries based on the geographic location of the initial shipment.

Long-lived assets were as follows (in thousands):

 

  

AS OF SEPTEMBER 30,

 
  

2023

  

2022

 

United States

 $75,321  $71,742 

Canada

  575   1,459 

Colombia

  442   449 

Russian Federation

  543   1,010 

United Kingdom

  383   422 

China

     13 
  $77,264  $75,095 

 

 

AS OF SEPTEMBER 30,

 

 

 

2020

 

 

2019

 

United States

 

$

114,119

 

 

$

118,064

 

Canada

 

 

6,654

 

 

 

10,419

 

Colombia

 

 

1

 

 

 

671

 

Russian Federation

 

 

717

 

 

 

961

 

United Kingdom

 

 

404

 

 

 

430

 

China

 

 

13

 

 

 

13

 

 

 

$

121,908

 

 

$

130,558

 

F- 31

 

Note 20. Exit and Disposal Activities

 

F-32


During the first quarter of fiscal year 2023, the Company implemented a plan to discontinue the manufacture of 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 the Company's workforce which are expected to yield an annual savings of more than $2 million. In connection with the plan, the Company incurred costs of $0.6 million in the first quarter of fiscal year 2023, primarily termination costs related to the workforce reduction. The costs were recorded both to cost of revenue and operating expenses in the consolidated statement of operations.  No significant future costs are expected.  As of September 30, 2023, no liabilities were outstanding related to this plan.

 

Schedule II

Geospace Technologies Corporation and Subsidiaries

Valuation and Qualifying Accounts

(In thousands)

 

 

Balance at

Beginning

of Period

 

Charged to

Costs and

Expenses, net of Recoveries

 

Charged

to Other

Assets

 

(Deductions)

and

Additions

 

Balance at

End of

Period

 

Year ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts on accounts and financing

   receivables

$

951

 

$

63

 

$

 

$

(518

)

$

496

 

Year ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts on accounts and financing

   receivables

$

3,302

 

$

436

 

$

 

$

(2,787

)

$

951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

Beginning

of Period

 

Charged to

Costs and

Expenses

 

Charged

to Other

Assets

 

(Deductions)

and

Additions

 

Balance at

End of

Period

 

Year ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory obsolescence reserve

$

32,050

 

$

4,529

 

$

 

$

(1,816

)

$

34,763

 

Year ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory obsolescence reserve

$

30,551

 

$

4,614

 

$

 

$

(3,115

)

$

32,050

 

  Balance at Beginning of Period  Charged to Costs and Expenses, net of Recoveries  Charged to Other Assets  (Deductions) and Additions  Balance at End of Period 

Year ended September 30, 2023

                    

Allowance for doubtful accounts on trade accounts and notes receivable

 $591  $(138) $  $(328) $125 

Year ended September 30, 2022

                    

Allowance for doubtful accounts on trade accounts and notes receivable

 $428  $292  $  $(129) $591 

 

  Balance at Beginning of Period  Charged to Costs and Expenses  Charged to Other Assets  (Deductions) and Additions  Balance at End of Period 

Year ended September 30, 2023

                    

Inventory obsolescence reserve

 $13,971  $2,229  $  $(2,139) $14,061 

Year ended September 30, 2022

                    

Inventory obsolescence reserve

 $13,636  $3,222  $  $(2,887) $13,971 

 

F-33

F-32