NEVADA incorporation or organization) (I.R.S. Employer Identification No.) 44,701,898. ASSETS Current assets: Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts of $10,000 at June 30, 2010 and December 31, 2009 Costs and estimated earnings in excess of billings on uncompleted contracts Notes receivable Prepaid expenses Total current assets Property and equipment, net of accumulated depreciation License fees, net of accumulated amortization Deposits on equipment Total non-current assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable Accrued expenses Billings in excess of costs and estimated earnings on uncompleted contracts Current portion of capital lease liabilities Due to stockholder Notes payable to stockholder Total current liabilities Non-current liabilities: Capital lease liabilities Convertible note payable to stockholder Total non-current liabilities Total liabilities Stockholders’ equity (deficit): Preferred stock, $.001 par value; 5,000,000 shares authorized at June 30, 2010 and December 31, 2009; 0 and 1,575,000 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively Common stock, $.001 par value; 100,000,000 shares authorized at June 30, 2010 and December 31, 2009; 43,784,998 and 31,124,369 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively Additional paid-in capital Accumulated deficit Total stockholders’ equity (deficit) Total liabilities and stockholders’ equity (deficit) Sales Cost of sales Gross profit Selling, general and administrative expenses Loss from operations Other income (expense): Interest income Interest expense Other income Total other income and expenses Net loss before income taxes Provision for (benefit from) income taxes Net loss Basic and fully-diluted net loss per share of Common Stock Additional Paid-In Balance, December 31, 2009 Issuance of common stock for cash at $1.00 per share, less offering costs Issuance of common stock in settlement of liabilities at $1.00 per share Issuance of common stock for services at $1.00 per share Conversion of Series A Convertible Preferred Stock to common stock — Issuance of common stock in settlement of contractual obligations Net loss for the six months ended June 30, 2010 — — — — — (2,866,122 ) (2,866,122 ) Balance, June 30, 2010 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Accrued interest receivable Accrued interest payable Issuance of common stock for services Rent expensed through increase in due to stockholder Changes in operating assets and liabilities: Accounts receivable Costs and estimated earnings in excess of billings on uncompleted contracts Prepaid expenses Accounts payable Accrued expenses Billings in excess of costs and estimated earnings on uncompleted contracts Due to stockholder Net cash used in operating activities Cash flows from investing activities: Purchase of property, plant and equipment Deposits on equipment Notes receivable issued Net cash used in investing activities Cash flows from financing activities: Proceeds from sale of common stock, net of offering costs Net borrowings from stockholders Principal payments on capital lease liabilities Net cash provided by financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosures: Cash paid during period for interest Cash paid during period for income taxes Non-cash transactions: Issuance of common stock in settlement of liabilities Issuance of common stock for services Capital lease liabilities incurred Reclassification of due to stockholder to note payable to stockholder Billed: Fixed-price contracts: Completed contracts Contracts in progress Time-and-materials contracts Units of delivery contracts Retainage Unbilled Less: allowance for doubtful accounts Costs incurred on uncompleted contracts Estimated earnings Billings to date Costs and estimated earnings in excess of billings on uncompleted contracts Billings in excess of costs and estimated earnings on uncompleted contracts Backlog balance at beginning of the period New contracts awarded during period Contract adjustments Less: contract revenue earned during the period Backlog balance at June 30, 2010 $138,001. $146,929. Current: Federal State Deferred: Federal State Total income taxes Less: valuation allowance Net income taxes Federal statutory rate State income taxes (net of federal benefit) Valuation allowance Effective rate Start-up costs License fees Depreciation Allowance for doubtful accounts Accrued expenses Uncompleted contracts Net operating loss carryforward Deferred income taxes Less: valuation allowance Net deferred income taxes Net loss Divided by: Weighted average shares outstanding Basic and fully-diluted net loss per share $6,221,440. On October 15, 2010, the Company completed private placements of $1.1 million aggregate principal amount of a 10% Senior Convertible Redeemable Note (the “Note”), pursuant to Subscription Agreements dated October 15, 2010. Under the terms of the Subscription Agreement and the Note, the Company may issue up to an additional $1.4 million aggregate principal amount of the Note. The proceeds of the Note were used to fund general working capital needs. Date: x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 JUNESEPTEMBER 30, 2010¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 NEVADA 87-055446387-0554463 (State or other jurisdiction of Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x AugustNovember 10, 2010: 43,870,373.PrivatePrivat e Securities Litigation Reform Act of 1995. Persons reviewing this report are cautioned that any Forward-Looking Statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the Forward-Looking Statements as a result of various factors. Such factors include general economic factors and conditions that may directly or indirectly impact the Company’s financial condition or results of operations. Readers are cautioned not to place undue reliance on these Forward-Looking Statements that speak only as of the date the statement was made.Page 3 3 16 20 2023 2124 212521 2125ITEM 1.FINANCIAL STATEMENTS Page FINANCIAL STATEMENTS AS OF JUNESEPTEMBER 30, 2010 AND DECEMBER 31, 2009 AND FOR THE THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2010 AND 2009 June 30,
2010 December 31,
2009* (Unaudited) $ 106,412 $ 481,536 525,479 263,653 84,014 61,624 450,162 397,373 470,987 371,772 1,637,054 1,575,958 2,001,705 1,603,785 1,310,042 1,367,000 5,460,000 500,000 8,771,747 3,470,785 $ 10,408,801 $ 5,046,743 $ 1,016,687 $ 1,391,488 3,709,892 3,670,337 492 — 313,942 210,645 78,646 26,000 279,261 140,071 5,398,920 5,438,541 481,386 458,167 31,770 1,013,637 513,156 1,471,804 5,912,076 6,910,345 — 1,575 43,785 31,124 22,688,452 13,473,089 (18,235,512 ) (15,369,390 ) 4,496,725 (1,863,602 ) $ 10,408,801 $ 5,046,743 *Condensed from audited financial statements. September 30, December 31, 2010 2009* (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 756,125 $ 481,536 Accounts receivable, net of allowance for doubtful accounts of $10,000 at September 30, 2010 and December 31, 2009 515,498 263,653 Costs and estimated earnings in excess of billings on uncompleted contracts 52,234 61,624 Notes receivable - 397,373 Prepaid expenses 323,495 371,772 Total current assets 1,647,352 1,575,958 Non-current assets: Property and equipment, net of accumulated depreciation 1,900,506 1,603,785 License fees, net of accumulated amortization 1,281,562 1,367,000 Notes receivable 459,301 - Deposits on equipment 5,450,000 500,000 Total non-current assets 9,091,369 3,470,785 Total assets $ 10,738,721 $ 5,046,743 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 1,466,846 $ 1,391,488 Accrued expenses 4,007,758 3,670,337 Billings in excess of costs and estimated earnings on uncompleted contracts 5,702 - Current portion of capital lease liabilities 325,983 210,645 Due to stockholder 130,221 26,000 Notes payable to stockholder 284,930 140,071 Total current liabilities 6,221,440 5,438,541 Non-current liabilities: Capital lease liabilities 423,165 458,167 Senior convertible redeemable notes 949,878 - Convertible note payable to stockholder 32,415 1,013,637 Total non-current liabilities 1,405,458 1,471,804 Total liabilities 7,626,898 6,910,345 Stockholders' equity (deficit): Preferred stock: Undesignated, $0.001 par value; 3,425,000 shares authorized at September 30, 2010 and December 31, 2009, respectively; no shares issued and outstanding at September 30, 2010 and December 31, 2009 - - Series A Convertible Preferred Stock, $0.001 par value; 1,575,000 shares authorized at September 30, 2010 and December 31, 2009; 0 and 1,575,000 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively - 1,575 Common stock, $.001 par value; 100,000,000 shares authorized at September 30, 2010 and December 31, 2009; 44,220,423 and 31,124,369 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively 44,220 31,124 Additional paid-in capital 22,688,016 13,473,089 Accumulated deficit (19,620,413 ) (15,369,390 ) Total stockholders' equity (deficit) 3,111,823 (1,863,602 ) Total liabilities and stockholders' equity (deficit) $ 10,738,721 $ 5,046,743 Geospatial Holdings, Inc. and Subsidiaries For the Three Months
Ended June 30, For the Six Months
Ended June 30, 2010 2009 2010 2009 $ 1,213,544 $ 186,286 $ 2,131,510 $ 256,479 943,286 174,327 1,663,123 281,384 270,258 11,959 468,387 (24,905 ) 1,723,558 1,047,296 3,270,681 1,961,808 (1,453,300 ) (1,035,337 ) (2,802,294 ) (1,986,713 ) 8,841 7,587 16,791 15,035 (31,683 ) (54,342 ) (82,055 ) (100,788 ) 1,436 50 1,436 1,333 (21,406 ) (46,705 ) (63,828 ) (84,420 ) (1,474,706 ) (1,082,042 ) (2,866,122 ) (2,071,133 ) — — — — $ (1,474,706 ) $ (1,082,042 ) $ (2,866,122 ) $ (2,071,133 ) $ (0.04 ) $ (0.04 ) $ (0.08 ) $ (0.09 ) For the Three Months For the Nine Months Ended September 30, Ended September 30, 2010 2009 2010 2009 Sales $ 981,047 $ 230,648 $ 3,112,557 $ 487,127 Cost of sales 908,649 225,189 2,571,772 506,573 Gross profit 72,398 5,459 540,785 (19,446 ) Selling, general and administrative expenses 1,433,717 1,214,087 4,704,398 3,175,895 Loss from operations (1,361,319 ) (1,208,628 ) (4,163,613 ) (3,195,341 ) Other income (expense): Interest income 9,138 7,430 25,929 22,465 Interest expense (32,784 ) (62,216 ) (114,839 ) (163,004 ) Other income 64 - 1,500 1,333 Total other income and expenses (23,582 ) (54,786 ) (87,410 ) (139,206 ) Net loss before income taxes (1,384,901 ) (1,263,414 ) (4,251,023 ) (3,334,547 ) Provision for (benefit from) income taxes - - - - Net loss $ (1,384,901 ) $ (1,263,414 ) $ (4,251,023 ) $ (3,334,547 ) Basic and fully-diluted net loss per share of common stock $ (0.03 ) $ (0.05 ) $ (0.11 ) $ (0.13 ) Geospatial Holdings, Inc. and SubsidiariesStockholders’Stockholders' Equity (Deficit)SixNine Months Ended JuneSeptember 30, 2010 Preferred Stock Common Stock Accumulated Shares Amount Shares Amount Capital Deficit Total 1,575,000 $ 1,575 31,124,369 $ 31,124 $ 13,473,089 $ (15,369,390 ) $ (1,863,602 ) — — 9,063,233 9,064 8,015,614 — 8,024,678 — — 1,051,771 1,052 1,050,719 — 1,051,771 — — 150,000 150 149,850 — 150,000 (1,575,000 ) (1,575 ) 2,126,250 2,126 (551 ) — — — 269,375 269 (269 ) — — — $ — 43,784,998 $ 43,785 $ 22,688,452 $ (18,235,512 ) $ 4,496,725 Additional Preferred Stock Common Stock Paid-In Accumulated Shares Amount Shares Amount Capital Deficit Total Balance, December 31, 2009 1,575,000 $ 1,575 31,124,369 $ 31,124 $ 13,473,089 $ (15,369,390 ) $ (1,863,602 ) Issuance of common stock for cash at $1.00 per share, less offering costs - - 9,063,233 9,064 8,015,613 - 8,024,677 Issuance of common stock in settlement of liabilities at $1.00 per share - - 1,051,771 1,052 1,050,719 - 1,051,771 Issuance of common stock for services at $1.00 per share - - 150,000 150 149,850 - 150,000 Conversion of Series A Convertible Preferred Stock to common stock (1,575,000 ) (1,575 ) 2,126,250 2,126 (551 ) - - Issuance of common stock in settlement of contractual obligations - - 704,800 704 (704 ) - - Net loss for the nine months ended September 30, 2010 - - - - - (4,251,023 ) (4,251,023 ) Balance, September 30, 2010 - $ - 44,220,423 $ 44,220 $ 22,688,016 $ (19,620,413 ) $ 3,111,823 Geospatial Holdings, Inc. and Subsidiaries For the Six Months
Ended June 30, 2010 2009 $ (2,866,122 ) $ (2,071,133 ) 273,601 76,356 (16,789 ) (14,989 ) 27,323 99,535 150,000 — — 39,000 (261,826 ) (19,368 ) (22,390 ) (27,830 ) (99,215 ) (7,155 ) (374,801 ) 139,698 91,326 533,135 492 (14,450 ) 52,646 — (3,045,755 ) (1,267,201 ) (369,828 ) (13,155 ) (4,960,000 ) (100,000 ) (36,000 ) (5,446 ) (5,365,828 ) (118,601 ) 8,024,678 652,500 130,000 718,000 (118,219 ) — 8,036,459 1,370,500 (375,124 ) (15,302 ) 481,536 42,793 $ 106,412 $ 27,491 $ 54,558 $ 1,252 — — 1,051,771 104,639 150,000 — 244,735 — — 52,000 For the Nine Months Ended September 30, 2010 2009 Cash flows from operating activities: Net loss $ (4,251,023 ) $ (3,334,547 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 433,115 115,211 Accrued interest receivable (25,928 ) (22,408 ) Accrued interest payable 33,637 160,335 Issuance of common stock for services 150,000 115,025 Rent expensed through increase in due to stockholder - 45,500 Changes in operating assets and liablities: Accounts receivable (251,845 ) (155,376 ) Costs and estimated earnings in excess of billings on uncompleted contracts 9,390 (47,364 ) Prepaid expenses 48,277 20,734 Accounts payable 75,357 548,084 Accrued expenses 389,192 367,943 Billings in excess of costs and estimated earnings on uncompleted contracts 5,702 (6,042 ) Due to stockholder 104,221 - Net cash used in operating activities (3,279,905 ) (2,192,905 ) Cash flows from investing activities: Purchase of property, plant and equipment (367,326 ) (22,637 ) Deposits on equipment (4,950,000 ) (300,000 ) Notes receivable issued (36,000 ) (5,446 ) Net cash used in investing activities (5,353,326 ) (328,083 ) Cash flows from financing activities: Proceeds from sale of common stock, net of offering costs 8,024,678 1,647,450 Proceeds from issuance of senior convertible redeemable notes 1,000,000 - Debt issuance costs (50,122 ) - Net borrowings from stockholders 130,000 882,000 Principal payments on capital lease liabilities (196,736 ) - Net cash provided by financing activities 8,907,820 2,529,450 Net change in cash and cash equivalents 274,589 8,462 Cash and cash equivalents at beginning of period 481,536 42,793 Cash and cash equivalents at end of period $ 756,125 $ 51,255 Supplemental disclosures: Cash paid during period for interest $ 81,202 $ 2,669 Cash paid during period for income taxes - - Non-cash transactions: Issuance of common stock in settlement of liabilities 1,051,771 104,639 Issuance of common stock for services 150,000 115,025 Capital lease liabilities incurred 277,072 - Deferred debt issuance costs 50,000 - Reclassification of due to stockholder to note payable to stockholder - 52,000 Geospatial Holdings, Inc. and SubsidiariesJunesixnine months ended JuneSeptember 30, 2010 should be read in conjunction with the Company’s Financial Statements as of and for the year ended December 31,3 1, 2009. In the opinion of the Company’s management, all adjustments considered necessary for a fair statement of the accompanying Unaudited Condensed Consolidated Financial Statements have been included, and all adjustments, unless otherwise discussed in the Notes to the Unaudited Condensed Consolidated Financial Statements, are of a normal and recurring nature. Operating results for the three and sixnine months ended JuneSeptember 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.JuneJuneSeptember 30, 2010: $ 72,271 23,204 84,757 297,704 2,981 54,562 (10,000 ) $ 525,479 Billed: Fixed-price contracts: Completed contracts $ 130,532 Contracts in progress 14,854 Time-and-materials contracts 20,465 Units of delivery contracts 291,893 Retainage 2,981 Unbilled 64,773 Less: allowance for doubtful accounts (10,000 ) $ 515,498 JuneSeptember 30, 2010: $ 184,633 110,129 294,762 (211,240 ) $ 83,522 Costs incurred on uncompleted contracts $ 201,496 Estimated earnings 137,623 339,119 Billings to date (292,586 ) $ 46,532 $ 84,014 492 $ 83,522 Costs and estimated earnings in excess of billings on uncompleted contracts $ 52,234 Billings in excess of costs and estimated earnings on uncompleted contracts (5,702 ) $ 46,532 Junesixnine months ended JuneSeptember 30, 2010. Backlog represents the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress at quarter end, and from contractual agreements on which work has not yet begun. Backlog does not include any amounts from signed units of deliveryunits-of-delivery or time-and-materials contracts. Three Months
Ended
June 30, 2010 Six Months
Ended
June 30, 2010 $ 296,513 $ 280,650 276,086 483,786 36,446 34,546 609,045 798,982 (311,597 ) (501,534 ) $ 297,448 $ 297,448 Three Months Nine Months Ended Ended September 30, 2010 September 30, 2010 Backlog balance at beginning of the period $ 297,448 $ 280,650 New contracts awarded during period 445,796 929,582 Contract adjustments 3,619 38,165 746,863 1,248,397 Less: contract revenue earned during the period (204,162 ) (705,696 ) Backlog balance at September 30, 2010 $ 542,701 $ 542,701 June56 – Related Party Transactions$39,000$58,500 of lease expense for this building during each of the six-monthnine-month periods ended JuneSeptember 30, 2010 and 2009.sixnine months ended JuneSeptember 30, 2010, Mr. Smith converted $1,000,000 of the Smith Demand Note to 1,000,000 shares of the Company’s common stock. Interest on the Smith Convertible Note was $18,133$18,778 for the sixnine months ended JuneSeptember 30, 2010. The balance due on the Smith Convertible Note, including accrueda ccrued interest, was $31,770$32,415 at JuneSeptember 30, 2010.$5,244$7,989 for the sixnine months ended JuneSeptember 30, 2010. At JuneSeptember 30, 2010, the balance due on the Smith Demand Note was $135,256.sixnine months ended JuneSeptember 30, 2010, Mr. Smith advanced the Company $130,000. Interest on other notes for the sixnine months ended JuneSeptember 30, 2010 was $3,946.$6,870. At December 31, 2009,September 30, 2010, the balance due on other notes payable was $144,005.June For the Three Months
Ended June 30, For the Six Months
Ended June 30, 2010 2009 2010 2009 $ — $ — $ — $ — — — — — — — — — 458,826 339,514 892,979 649,878 145,659 107,782 283,485 206,310 604,485 447,296 1,176,464 856,188 604,485 447,296 1,176,464 856,188 (604,485 ) (447,296 ) (1,176,464 ) (856,188 ) �� $ — $ — $ — $ — For the Three Months For the Nine Months Ended September 30, Ended September 30, 2010 2009 2010 2009 Current: Federal $ - $ - $ - $ - State - - - - - - - - Deferred: Federal 432,026 396,329 1,325,005 1,046,207 State 137,151 125,819 420,636 332,129 569,177 522,148 1,745,641 1,378,336 Total income taxes 569,177 522,148 1,745,641 1,378,336 Less: valuation allowance (569,177 ) (522,148 ) (1,745,641 ) (1,378,336 ) Net income taxes $ - $ - $ - $ - For the Three Months
Ended June 30, For the Six Months
Ended June 30, 2010 2009 2010 2009 35.0 % 35.0 % 35.0 % 35.0 % 6.5 6.5 6.5 6.5 (41.5 ) (41.5 ) (41.5 ) (41.5 ) 0.0 % 0.0 % 0.0 % 0.0 % For the Three Months For the Nine Months Ended September 30, Ended September 30, 2010 2009 2010 2009 Federal statutory rate 35.0 % 35.0 % 35.0 % 35.0 % State income taxes (net of federal benefit) 6.5 6.5 6.5 6.5 Valuation allowance (41.5 ) (41.5 ) (41.5 ) (41.5 ) Effective rate 0.0 % 0.0 % 0.0 % 0.0 % June67 – Income Taxes (continued)JuneSeptember 30, 2010 and 2009. A valuation allowance has been established as realization of such assets has not met the more-likely-than-not threshold requirement under Statement of Financial Accounting Standards Board Accounting Standards CodificationFASB ASC 740,Income Taxes. As of June 30, 2010 2009 $ 91,575 $ 101,408 (83,520 ) (69,337 ) (118,214 ) (90,921 ) 4,150 4,150 1,309,617 — (45,704 ) (23,604 ) 6,246,976 3,935,299 7,404,880 3,856,995 (7,404,880 ) (3,856,995 ) $ — $ — As of September 30, 2010 2009 Start-up costs $ 89,117 $ 98,950 License fees (81,156 ) (78,792 ) Depreciation (121,197 ) (94,832 ) Allowance for doubtful accounts 4,150 4,150 Accrued expenses 1,425,597 - Uncompleted contracts (57,114 ) (29,954 ) Net operating loss carryforward 6,714,660 4,479,622 Deferred income taxes 7,974,057 4,379,144 Less: valuation allowance (7,974,057 ) (4,379,144 ) Net deferred income taxes $ - $ - JuneSeptember 30, 2010, the Company had federal and state net operating loss carryforwards of approximately $15,053,000.$16,180,000. The federal and state net operating loss carryforwards expire beginning in 2021 and 2026, respectively. The amount of the state net operating loss carryforward that can be utilized each year to offset taxable income is limited by state law.June78 – Commitments and Contingencies89 – Stock-Based Paymentssixnine months ended JuneSeptember 30, 2010, the Company granted options to purchase 30,000 shares of common stock to an eligible employee under the 2007 Stock Option Plan, and options to purchase 50,00075,000 shares of the Company’s common stock under the 2007 Stock Option Plan were forfeited.Geospatial Holdings, Inc. and SubsidiariesNotes to Unaudited Condensed Consolidated Financial StatementsJune 30, 2010Note 8 – Stock-Based Payments (continued)On March 2, 2010, the Company entered into a Strategic Advisory Agreement (the “Strategic Advisory Agreement”) with Pace Global Energy Services, LLC (“Pace”) and Ridge Global, LLC (“Ridge”) to provide the Company with certain strategic advisory and other support services. Global Energy Services, LLC and Ridge Global, LLC warrants to purchase 1,600,000 and 2,400,000 shares, respectively, of the Company’s common stock at an exercise price of $1.00 per share. The warrants expire on March 2, 2012. Further, pursuantthe Strategic Advisory Agreement, the Company agreed to expand the number of members of the Company’s board of directors from three to five, and to appoint Timothy F. Sutherland, Chairman and Chief Executive Officer of Pace, and Thomas J. Ridge, President and Chief Executive Officer of Ridge, as members of the Company’s board of directors to fill the newly-created vacancies.Unaudited Condensed Consolidated Financial Statements910 – Net Loss Per Share of Common Stock Three Months Ended June 30, Six Months Ended June 30, 2010 2009 2010 2009 $ (1,474,706 ) $ (1,082,042 ) $ (2,866,122 ) $ (2,071,133 ) 41,970,770 24,395,598 37,247,344 24,180,273 ($ 0.04 ) ($ 0.04 ) ($ 0.08 ) ($ 0.09 ) Three Months Ended September 30, Nine Months Ended September 30, 2010 2009 2010 2009 Net loss $ (1,384,901 ) $ (1,263,414 ) $ (4,251,023 ) $ (3,334,547 ) Divided by: Weighted average shares outstanding 43,890,377 25,890,406 39,486,022 24,756,581 Basic and fully-diluted net loss per share $ (0.03 ) $ (0.05 ) $ (0.11 ) $ (0.13 ) 31,77032,415 shares of common stock was not included in the computation of diluted earnings per share for the three or sixnine months ended JuneSeptember 30, 2010 because the effect of its conversion would be antidilutive.12,175,00012,150,000 shares of common stock, and warrants to purchase 9,766,272 shares of common stock were not included in the computation of diluted earnings per share for the three or nine months ended March 31,September 30, 2010 because the effect of their conversion would be antidilutive.1011 – Subsequent EventsAugust 14,October 15, 2010, Company completed private placements of $1,100,000 aggregate principal amount of a 10% Senior Convertible Redeemable Note (the “Note”) with two unrelated accredited investors (the “Holders”), pursuant to Subscription Agreements, dated October 15, 2010. Under the terms of the Subscription Agreement and the Note, the Company may issue up to an additional $1.4 million aggregate principal amount of the Note. Interest on the Note accrues at a rate of 10% per annum by increasing the Note balance quarterly. The Note matures fifteen months after October 15, 2010. With the consent of the Holders of a majority of the Note, the term of the Note may be extended for up to three six-month periods. The Holders may, at any time until the Note is fu lly paid, convert any outstanding principal and Reduct enteredaccrued interest on the Note into shares of the Company’s common stock, par value $.001 per share (the “Common Stock”), at a Letter Agreementprice of $0.50 per share. Pursuant to extend the dateterms of payment for the advance purchaseSubscription Agreements, the Company granted the investors certain registration rights with respect to the Common Stock issuable upon conversion of equipmentthe Note. Upon the occurrence of $2,500,000 due pursuantcertain events, the price at which the Note may be converted into shares of the Company’s Common Stock may be adjusted. In addition, the Company may prepay in cash all or any portion of the outstanding principal amount of the Note, without penalty, on the 30th day following written notice to the Holder of the Note.from Juneto make a payment to Reduct for the purchase of equipment in the amount of $4,250,000 by October 30, 20102010. No event of default has been declared under the Amended Reduct License Agreement. The Company and Reduct are currently negotiating an agreement to September 15, 2010.extend the due date of such payment.ITEM 2: 2.MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS sixnine months ended JuneSeptember 30, 2010, which appear elsewhere in this Quarterly Report on Form 10-Q.JuneSeptember 30, 2010, we had current assets of $1,637,054,$1,647,352, and current liabilities of $5,398,920.litigationl itigation and potentially, a loss of our exclusive license rights. During the period of any such litigation, our ability to carry out the development of client relationships and provide pipeline management services could be significantly and adversely affected.intoi nto common stock, and common stock issued for services totaling approximately $215,000. In March, 2010, the Company completed a sale of common stock with an aggregate sale price of approximately $9.7 million, including the conversion of $1.0 million of indebtedness to our Chief Executive Officer into common stock. The proceeds of the stock offering were used to fund general working capital needs and our advance payment to Reduct for equipment.third-partiesthird parties to meet our minimum purchase requirements under the Amended Reduct License Agreement. The Company is also investigating diversifying operations by identifying potential acquisitions of technology to supplement the Reduct Smart Probe™ technology.$1,213,544$981,047 and 2,131,5103,112,557 for the three and sixnine months ended JuneSeptember 30, 2010, respectively, compared to $186,286$230,648 and $256,479$487,127 for the three and sixnine months ended JuneSeptember 30, 2009.2009, respectively. Cost of sales was $943,286$908,649 and $1,663,123$2,571,773 for the three and sixnine months ended JuneSeptember 30, 2010, respectively, compared to $174,327$225,189 and $281,384$506,573 for the three and sixnine months ended JuneSeptember 30, 2009.2009, respectively. Our sales and cost of sales increased in 2010 due to improved economic conditions and the commencement of our utility locating business.business, geographical expansion of our business, and growing market acceptance of our Smart Probe™ mapping. We expect sales and cost of sales to fluctuate as our business reaches maturity.$1,723,558 and $3,270,681$1,433,717 for the three and six months ended JuneSeptember 30, 2010, compared to $1,047,296 and $1,961,808$1,214,087 for the three and six months ended JuneSeptember 30, 2009. The increasesincrease in SG&A costs from 2009 to 2010 was due to increased expenses resulting from the expansion of our sales and administrative staff and facilities in 2010, partially offset by reductions in professional fees. SG&A expenses were $4,704,398 for the three and sixnine months ended JuneSeptember 30, 2010, compared to $3,175,895 for the three and sixni ne months ended JuneSeptember 30, 2009. The increase from 2009 wereto 2010 was due to increased expenses resulting from the expansion of our sales and administrative staff and facilities in 2010, and increased professional fees due to increased legal, financial advisory, government relations, and investor relations fees. In addition, in 2010 we incurred a fee of $100,000 associated with an extension of payments due under the Amended Reduct License Agreement.JuneSeptember 30, 2010 was a net expense of $21,406,$23,582, which included interest income of $8,841,$9,138, interest expense of $31,683,$32,784, and other income of$1,436. $64. Other income and expense for the sixnine months ended JuneSeptember 30, 2010 was a net expense of $63,828,$87,410, which included interest income of $16,791,$25,929, interest expense of $82,055,$114,839, and other income of $1,436.$1,500. Other income and expense for the three months ended JuneSeptember 30, 2009 was a net expense of $46,705,$54,786, which included interest income of $7,587,$7,430, and interest expense of $54,342, and other income of $50.$62,216. Other income and expenseexp ense for the sixnine months ended JuneSeptember 30, 2009 was a net expense of $84,420,$139,206, which included interest income of $15,035,$22,465, interest expense of $100,788,$163,004, and other income of $1,333. The decrease in interest expense in 2010 is due to a reduction in interest on notes payable to stockholders, due to the conversion of notes payable to stockholders to common stock, partially offset by additional interest expense in 2010 related to capital leases.JuneSeptember 30, 2010.SouthSou th America, and Australia. We recorded an intangible asset of $1,367,000 upon use of the license under the Original Reduct License Agreement. In addition to the license fees, we are required to make minimum purchases of Smart Probes™. If we are unable to satisfy minimum purchase requirements required pursuant to the Amended Reduct License Agreement, Reduct may terminate the license agreement, and our investment in the license rights would be impaired.JuneSeptember 30, 2010, we do not believe that material changes to contract cost estimates at completion for any of our open contracts are reasonably likely to occur.JuneSeptember 30, 2010, we had a deferred tax asset resulting principally from our net operating loss deduction carryforward available for tax purposes in future years. This deferred tax asset is completely offset by a valuation allowance due to the uncertainty of realization. We evaluate the necessity of the valuation allowance quarterly.ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK JuneSeptember 30, 2010 we had no liabilities denominated in Euros.ITEM 4.CONTROLS AND PROCEDURES. JuneSeptember 30, 20092010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.SALES OF UNREGISTERED EQUITY SECURITIES AND USE OF PROCEEDS June 29,October 15, 2010, Geospatial Holdings, Inc. (the “Company”) completed private placements of $1,100,000 aggregate principal amount of a 10% Senior Convertible Redeemable Note (the “Note”) with two unrelated accredited investors (the “Holders”), pursuant to Subscription Agreements, dated October 15, 2010. Under the terms of the Subscription Agreement and the Note, the Company enteredmay issue up to an additional $1.4 million aggregate principal amount of the Note. Interest on the Note accrues at a rate of 10% per annum by increasing the Note balance quarterly. The Note matures fifteen months after October 15, 2010. With the consent of the Holders of a majority of the Note, the term of the Note may be extended for up to three six-month periods. ;The Holders may, at any time until the Note is fully paid, convert any outstanding principal and accrued interest on the Note into an agreement with an investor in connection with the sale of 50,000 shares of ourthe Company’s common stock, at $1.00par value $.001 per share for an aggregate offering(the “Common Stock”), at a price of $50,000. The sale and issuance took place$0.50 per share. Pursuant to the terms of the Subscription Agreements, the Company granted the investors certain registration rights with respect to the Common Stock issuable upon conversion of the Note. Upon the occurrence of certain events, the price at which the Note may be converted into shares of the Company’s Common Stock may be adjusted. In addition, the Company may prepay in acash all or any portion of the outstanding principal amount of the Note, without penalty, on the 30th day following written notice to the Holder of the Note.transactionwas conducted pursuant to thean exemption from the registration requirements of the Securities Act of 1933, as amended, provided by(the “Securities Act”) pursuant to Section 4(2) of the Securities Act and Regulation D. D promulgated under the Securities Act.purchaser is an accredited investor,forgoing description of the Subscription Agreement and the Company conducted the private placement without any general solicitation or advertisementNote does not purport to be complete and with a restriction on resale.ITEM 5.OTHER INFORMATIONEntry into a Material Definitive AgreementOn August 14, 2010, Geospatial Holdings, Inc. and Reduct NV entered into a Letter Agreement to extend the date of payment for the advance purchase of equipment of $2,500,000, due pursuantis qualified in its entirety by reference to the Amendedfull text of the Subscription Agreement and Restated Exclusive LicenseNote. The Form of Subscription Agreement and Distribution Agreement dated DecemberForm of Note were included as Exhibits 10.1 and 10.2 to the Current Report on Form 8-K filed by the Company on October 15, 2009, from June 30, 2010, to September 15, 2010.ITEM 6.EXHIBITS Exhibit Description10.44 Description 31.1 Rule 13a-14(a) Certification of Mark A. Smith 31.2 Rule 13a-14(a) Certification of Thomas R. Oxenreiter 32.1 Section 1350 Certification of Chief Executive Officer 32.2 Section 1350 Certification of Chief Financial Officer Geospatial Holdings, Inc. (Registrant) August 16,November 15, 2010 By: Name: Mark A. Smith Title: By: Name: Thomas R. Oxenreiter Title: 22