FORWARD-LOOKING STATEMENTS:
This Annual Report on Form 10-K and the documents incorporated by reference herein, if any, contain “forward-looking” statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”,
“anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “evaluating” or similar words. Statements that contain these words should be
read carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or
state other forward-looking information. Examples of forward-looking statements include, among others, statements that we make regarding our
expected operating results, the adoption, results and success of our rollout of our Aquana smart water valves and cloud-based control platform,
future demand for our Quantum security solutions, the adoption and sale of our products in various geographic regions, potential tenders for
PRM systems, future demand for OBX systems, the completion of new orders for our channels of our GCL system, the fulfillment of customer
payment obligations, the impact of and the recovery from the impact of the coronavirus (or COVID-19) pandemic, the impact of the current armed
conflict between Russia and Ukraine, our ability to manage changes and the continued health or availability of management personnel, volatility
and direction of oil prices, anticipated levels of capital expenditures and the sources of funding therefor, and our strategy for growth, product
development, market position, financial results and the provision of accounting reserves. These forward-looking statements reflect our current
judgment about future events and trends based on the information currently available to us. However, there will likely be events in the future that
we are not able to predict or control. The factors listed under the caption “Risk Factors”, as well as cautionary language in this Annual Report on
Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Such examples include, but are not limited to, the failure of the Quantum or OptoSeis® or Aquana
technology transactions to yield positive operating results, decreases in commodity price levels and continued adverse impact of COVID-19
which could reduce demand for our products, the failure of our products to achieve market acceptance (despite 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, 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 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, except as required by applicable securities laws and regulations.
GROWTH. DIVERSITY. QUALITY.
Dear Fellow Shareholders,
This year, we came out of a tumultuous and unpredictable time following
a global pandemic to find the world still struggling with supply chain
limitations and rising costs on goods and services. Given the continued
uncertainty that exists for businesses worldwide, I’m incredibly grateful for the
dedication of our employees, the loyalty of our valued customers, and the strong support and confidence
given by our board of directors and shareholders.
Rick Wheeler
Reflecting on the past year, our company has truly seen the fruits of the guiding strategies we implemented
nearly a decade ago and continue fostering today. We set out to diversify into non-oil and gas businesses,
preserve the strength of our balance sheet and maintain a core focus on innovation. Record setting growth
in our Adjacent Markets segment illustrates our diversification successes, culminating in our Exile graphic
imaging products, water meter cables and connectors, and contract manufacturing services each setting
new full-year records of their own.
Our predilection for innovation spans our market diversification as well. This fall, we introduced the
Mariner™, a slim profile ocean bottom node to meet the growing needs of our E&P customers. Additionally,
we introduced our Aquana Smart Water Valve to both the municipal utilities market as well as the
commercial and residential building control market. Lastly, we transitioned Quantum’s SADAR offering to
a solution applicable to the emerging carbon storage and microseismic monitoring markets.
Financial Results
Our total revenue in fiscal year 2022 reached just over $89 million, reflecting a reduction of 6% from last
year’s figure. This led to a loss of $1.76 per share. However, at the close of the year, the Company’s total
liquidity stood at $25.5 million, which included $17.0 million in cash, cash equivalents and short-term
investments. This amount was augmented by an additional borrowing availability of $8.5 million under
our bank credit agreement which remained untapped with no borrowings outstanding. Adding further
strength to our balance sheet is the Company’s ownership of unencumbered property and real estate in
both domestic and international locations. Maintaining a balance sheet for a decade with no debt serves
as a testament to our focus on conservative management of resources.
Oil & Gas Markets
Our Oil & Gas Markets segment saw a modest decrease in revenue of 6% from last year. The slight reduction
is attributed to lower demand for the purchase of our land and marine wireless products. However, this
was partially offset by greater utilization of our marine wireless rental fleet and higher demand for our
seismic sensors. As the year concluded, we saw a noticeable, steady rise in the utilization of our OBX ocean
bottom node recording systems, which drove a 38% year-over-year increase in revenue for the final quarter
of the fiscal year. As an industry trend, we’re observing how many E&P companies strive to achieve lower
costs by exploring and finding new resources near producing fields, allowing them to leverage existing
offshore assets. Our OBX systems provide a powerful tool in this search. As a result, the world’s increasing
demand for oil and natural gas is expected to create additional demand for our OBX systems in 2023.
GEOSPACE TECHNOLOGIES ANNUAL REPORT 2022
Adjacent Markets
Our Company’s Adjacent Markets segment reported full-year revenue of $39.2 million, which represents an increase of 21%
over last year. This growth highlights the ever strengthening sales of the Company’s smart water meter cable and connector
products. Additional contributions came from higher demand for contract manufacturing services, greater sales of seismic
sensors to industrial customers, and increased demand for imaging products. Each of these product groups and services
set records for revenue generation in fiscal year 2022.
Emerging Markets
The Emerging Markets segment generated $0.7 million in revenue in fiscal year 2022. At year-end, a standard accounting
review resulted in the decision to record a non-cash charge of $4.3 million for the impairment of goodwill related to our 2018
acquisition of Quantum. Past performance of our Quantum acquisition has not met the necessary expectations required to
support its goodwill on the balance sheet. However, our confidence in the technology and its potential for future revenue,
including additional sales of our border and perimeter security products, remains positive. Having emerged from the delays
associated with COVID, Congressional budget challenges, and continuous turnover within the Department of Homeland
Security, we anticipate an improvement in future opportunities.
Other Events
As we prepare for fiscal year 2023 and beyond, reducing our costs and increasing our capacities to meet the growing
demands of certain products is top of mind. To this end, we began the elimination and disposal of machinery associated
with the manufacture of low revenue generating products, which will allow us to move our OBX rental operations to our main
Pinemont campus. Consolidating and streamlining these operations within our Pinemont facility is expected to improve
efficiency and reduce costs. Separately, we will continue the enhancement of automation and tooling in our manufacturing
and production lines to facilitate increased sales and revenue from our high demand growth Adjacent Markets products.
Conclusion
In conjunction with the successful expansion of our Adjacent Markets products we will continue to develop and deliver high
technology products to our Oil & Gas Markets and Emerging Markets customers. Combining this with our moves to achieve
greater capacities and efficiencies, our confidence in the future is bolstered for increasing revenue, maintaining a strong
balance sheet, and providing profitable returns for our shareholders.
Walter “Richard” Wheeler
President & Chief Executive Officer
GEOSPACE TECHNOLOGIES ANNUAL REPORT 2022
growth
diversity
quality
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, 2022
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
(State or Other Jurisdiction of
Incorporation or Organization)
76-0447780
(I.R.S. Employer
Identification No.)
7007 Pinemont Drive
Houston, Texas 77040-6601
(Address of Principal Executive Offices)
(713) 986-4444
(Registrant’s telephone number, including area code)
Title of Each Class
Common Stock
Securities Registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
GEOS
Securities Registered pursuant to Section 12(g) of the Act: NONE
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
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 ☐
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
Non-accelerated filer ☒
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. ☐
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 13,021,241 shares of the Registrant’s Common Stock outstanding as of the close of business on October 31, 2022. As of March 31,
2022, the aggregate market value of the Registrant’s Common Stock held by non-affiliates was approximately $71 million (based upon the closing
price of $5.75 on March 31, 2022, as reported by The NASDAQ Global Select Market).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant’s 2023 Annual Meeting of Stockholders are incorporated by reference into Part III of this
report.
Auditor Firm Id: 49
Auditor Name: RSM US LLP
Auditor Location: Houston, Texas, USA
Item 1. Business
Business Overview
PART I
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. 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 and provide contract manufacturing services. 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 is reflective of both our diversification strategy as well as the continued downturn in the Oil and Gas Markets segment.
Demand for our seismic products targeted at customers in our Oil and Gas Markets segment has been, and will likely continue to be,
vulnerable to downturns in the economy and the oil and gas industry in general. For more information, please refer to the risks discussed
under the heading “Risk Factors.”
Segment and Geographical Information
We report and evaluate financial information for our three business segments: Oil and Gas Markets, Adjacent Markets and Emerging
Markets. For a discussion of the products sold and markets served by each of our segments, see “Products and Product Development”
below. For a discussion of financial information by segment and geographic area, see Note 20 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 products. We
believe that our Oil and Gas Markets products are among the most technologically advanced instruments and equipment available for
seismic data acquisition.
Traditional Products
An energy source and a data recording system are combined to acquire seismic data. We provide many of the components of seismic
data recording systems, including geophones, hydrophones, multi-component sensors, leader wire, geophone strings, connectors,
seismic telemetry cables and other seismic related products. On land, our customers use geophones, leader wire, cables and connectors
to receive and measure seismic reflections resulting from an energy source into data recording units, which store the seismic information
for subsequent processing and analysis.
In the marine environment, large ocean-going vessels tow long seismic cables known as
“streamers” containing hydrophones 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
2
configuration. Since its introduction in 2008 and through September 30, 2022, we have sold 486,000 land-based wireless channels and
we currently have 73,000 land-based wireless channels in our rental fleet.
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. We have two versions of OBX nodal 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, 2022, we have sold
12,000 OBX stations and we currently have 25,000 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.
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® 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 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
monitoring, a compact marine three-component or four-component gimbaled sensor and special-purpose connectors, connector arrays
and cases.
During 2022, we maintained active discussions with potential clients for future PRM systems. 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. If we are awarded a PRM contract in fiscal year 2023, revenue will most
likely not be recognized until fiscal year 2024. We have also held discussions and received requests for information from other major
oil and gas producers regarding PRM systems. We have not received any orders for a large-scale seabed PRM system since November
2012.
Adjacent Markets
Our 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 cables, in
fiscal year 2021, we acquired the smart water IoT company Aquana, LLC ("Aquana").
3
Industrial Products
Our industrial products include water meter products, remote shut-off water valves and IoT Platform, contract manufacturing services
and seismic sensors used for vibration monitoring.
Our water meter products support the global smart meter connectivity water utility market. Our products provide our customers
with highly reliable automated meter-reading and automated meter infrastructure with our robust water-proof connectors. Our field
splice kits allow for accelerated repairs once identified.
Our water IoT platform and remote-shut off valve 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 control and monitor water use remotely, discontinue or limit service without placing its
employees in potential harm or danger.
Our robust manufacturing capabilities have allowed us to provide specialized contract manufacturing services for printed circuit
board manufacturing, cabling and harnesses, machining, injection molding and electronic system assembly.
Our seismic sensors provide unique high definition, low frequency sensing that allows for vibration monitoring in industrial
machinery, mine safety 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®, 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.
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. Depressed demand also
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, 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 with our acquisition of the OptoSeis® fiber optic sensing technology in fiscal year 2019, we may also
seek out other business opportunities in adjacent markets and emerging markets which complement our existing oil and
4
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 have directed these efforts toward
businesses outside the oil and gas industry, as seen with our acquisition of Quantum in fiscal year 2018 and Aquana in
fiscal year 2021.
•
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
In this regard, we do not anticipate paying any cash dividends in the foreseeable future,
as they become necessary.
however, during the first quarter of fiscal year 2022 we repurchased 841,992 shares of our common stock in open market
transactions completing a $7.5 million stock-buy-back program authorized by our board of 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. 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 and Sercel, 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 competitors for the rental of our traditional and land wireless seismic equipment are STRYDE, SmartSolo, INOVA,
Geophysical Technologies and Seismic Equipment Specialists.
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.
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 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
5
optic sensing techniques are provided by OptaSense, Fibersensys, Future Fiber Technologies and other specialty sensor manufacturing
firms.
Suppliers
We purchase raw materials from a variety of suppliers located in various countries. We typically have multiple suppliers for our
In our oil and gas seismic business segment, certain models of our marine wireless products use a timing device
critical materials.
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.”
COVID-19 has disrupted the Company’s supply chain, resulting in longer 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 ability to provide
products to our customers in the 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 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, 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.
One customer comprised 29.3% of our revenue during fiscal year 2022. Three customers comprised 19.8%, 16.4% and 10.6% of
our revenue during fiscal year 2021. The following table describes our revenue by product type (in thousands):
YEAR ENDED SEPTEMBER 30,
2022
2021
Traditional seismic exploration product revenue...................................... $
Wireless seismic exploration product revenue .........................................
Seismic reservoir product revenue............................................................
Industrial product revenue ........................................................................
Imaging product revenue ..........................................................................
Border & perimeter security product revenue ..........................................
Corporate revenue .....................................................................................
Total revenue ............................................................................................ $
6,597
40,667
1,877
25,640
13,531
711
230
89,253
$
$
4,518
45,751
1,983
21,335
11,084
10,193
—
94,864
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 2039. We are not able to predict the effect of any patent expiration. We protect our
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proprietary rights to our technology through a variety of methods, including confidentiality agreements and proprietary information
agreements with suppliers, employees, consultants and others who may have access to proprietary information.
Research and Development
We expect to incur significant future research and development expenditures aimed at the development of additional products for
each of our business segments. We have incurred company-sponsored research and development expenses of $18.1 million and $14.8
million during the fiscal years ended September 30, 2022 and 2021, 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 to grow and develop their career, all supported by
competitive compensation and benefits.
Workforce Composition - At September 30, 2022, we employed 650 people predominantly on a full-time basis, of which 415 were
employed in the United States, 204 in the Russian Federation and the remainder in the United Kingdom, Canada, China and Colombia.
Our professional staff includes geoscientists, electrical and mechanical engineers, accountants, computer and data scientists, marketing
and human resource professionals. 65% of our global workforce is employed in manufacturing, 16% in Engineering and 19% in Sales
and Administration. The majority of our employees in the Russian Federation belong to a regional union for machine manufacturers.
Our remaining employees are not unionized. We have never experienced a work 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. The workforce make up includes 37% white, 32% Asian, 23% Hispanic
or Latino, 7% Black or African American, and 1% two or more races. Women in managerial roles represent 30% of our domestic
workforce. We proudly employ veterans of the US Armed Forces, who make up 6% of our domestic workforce.
Health, Safety and Wellness - The success of our business is fundamentally connected to the well-being of our people. Accordingly,
we are committed to the health and safety of our employees. We provide our full-time employees and their families with access to
healthcare programs. In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best
interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This
includes having employees work from home, while implementing additional safety measures for employees continuing critical on-site
work.
Compensation and Benefits - We provide competitive compensation and benefits programs to help meet the needs of our employees.
In addition to salaries, these programs (which vary by country/region and employment classification) include an incentive compensation
plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, tuition
assistance and on-site services, among others. We use targeted equity-based grants with vesting conditions to facilitate retention of
personnel, particularly those with critical skills and experience.
Talent Development - We invest resources to develop the talent needed to remain a leading manufacturer and developer of industrial,
border and perimeter security and seismic data acquisition products. We provide our employees training opportunities and educational
benefits to assist in career and skill development. We focus on continuous learning and provide feedback to assist in the development
of talent.
Company Culture – Our Board of Directors established a Code of Business Conduct applicable to all our employees, Directors and
Officers and a Code of Ethics for Senior Financial Officers in accordance with applicable U.S. federal securities laws and the NASDAQ
Listed Company Manual. The Code of Business Conduct provides guidance on corporate policies such as anti-harassment, anti-
corruption, substance abuse, anti-trust, conflict minerals compliance, international trade restrictions as well as policies against insider
trading, conflict of interest and hedging of our common stock. We offer a Whistle Blower program designed to protect any employee
who reports valid suspicions related to our financial accounting, internal controls or like matters to management without fear of
termination or similar repercussions.
Human Rights – This year, we introduced a Human Rights Policy Statement which demonstrates our commitment to supporting and
promoting human rights that benefit all our stakeholders, including our customers, employees, shareholders, investors, and the
communities in which we live and operate. Our approach is applied in our business operations, across our supply chain and through
ethical business conduct. This policy statement promotes a safe and healthy workplace, diversity and inclusion, non-discrimination and
anti-harassment as well as addresses forced labor, human trafficking, and child labor. The Human Rights Policy Statement is posted to
our corporate website and is adhered through our Business Code of Conduct and through responsible sourcing practices.
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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, we hold an internal Core
Values survey to inform leadership on the values in action and opportunities to improve.
Governance – We pride ourselves on the highly ethical and transparent standards through the governance under our Board of
Directors.
Board Composition - Our Board of Directors is chaired by a highly experienced, independent Director whose position is wholly
separate and divided from the role of the Chief Executive Officer. Unlike organizations where the two leadership roles are intertwined,
this distinction helps ensure varying viewpoints designed to deliver improved returns for the shareholders we serve and the communities
in which we operate.
Board Charter Reviews - Every twelve-months, we conduct a Board and Board Committee assessment review to review and ensure
that the highest quality standards are met.
Executive Sessions Without Management - In order to ensure original and independent thought, non-management Board members
meet throughout the year.
Audit Policies – Our Audit Committee is comprised of trusted members who ensure the integrity of our financial statements, internal
controls, compliance with legal and regulatory requirements, as well as the performance of our independent auditor.
Enterprise Risk Management ("ERM") – Our Board of Directors takes an enterprise-wide approach to reviewing each of our business
segments, which encompass Oil & Gas, Adjacent Markets, and Emerging Markets operations which include our Security & Surveillance
sector. Board members meet regularly to oversee and ensure that company objectives are met, shareholder concerns are addressed and
ERM policies are maintained.
Environmental – We are committed to zero harm to people, property and the environment. We have an ISO 14001 certified
environmental management system, employed over many health, safety and environmental programs. We do not exist in isolation. We
strive to pursue a strategy of responsibility that not only encompasses all our activities but addresses the needs of our employees,
customers, suppliers and our stakeholders. We operate in communities, which have placed their trust in us. In doing this, we aim to
better our impact on the environment and society, not only of our business but all businesses and organizations with whom we interact.
We integrate responsible and sustainable practices throughout our organization. Our products are designed to not harm individuals,
communities or the environment. We pledge to conduct ourselves in a most responsible manner in each community.
As a manufacturer, we have a responsibility to reuse or recycle waste materials from our operations. Waste recycled includes
aluminum, brass, copper, stainless steel, steel, and titanium as well as armored cable, film, lithium batteries, PCB boards and solder
paste. Over the last three years, we have recycled more than 250 tons of recyclable materials. Year to date 2022, we have recycled over
40 tons of manufacturing waste materials.
Financial Information by Segment and Geographic Area
For a discussion of financial information by segment and geographic area, see Note 20 to the consolidated financial statements
contained in this Annual Report on Form 10-K. 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 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’s business, you should consider the following discussion of risk factors, in addition to other information
contained in this report and in the Company’s other public filings with the U.S. Securities and Exchange Commission. Any such risks
could materially and adversely affect our business, financial condition, results of operations, cash flow and prospects. However, the
risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently
view to be immaterial may also materially and adversely affect our business, financial condition, results of operations, cash flow and
prospects.
External Factors that Could Adversely Affect Us
The Ongoing COVID-19 Pandemic Has Significantly Impacted Worldwide Economic Conditions and Could Have a Material
Adverse Effect on Our Operations and Business.
The ongoing COVID-19 pandemic has 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 of COVID-19, including travel
restrictions, border closings, restrictions on public gatherings, stay-at-home orders and other quarantine and isolation measures. 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. The effort to vaccinate the global population appears to be reducing the effects of COVID-
19, but new mutations of the virus and the global unvaccinated population has allowed the continued spread of COVID-19. COVID-19
and the related mitigation measures have disrupted our supply chain, resulting in longer lead times in materials available from suppliers
and extended the shipping time for these materials to reach our facilities. 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.
Oil Commodity Price Levels Could Affect Demand for Our Oil and Gas Products, Which Could 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 causing demand for our products 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 the Organization of Petroleum
Exporting Countries ("OPEC") to set and maintain production levels and prices of foreign imports.
Sustained low oil prices or the failure of oil prices to rise 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
decline in oil prices caused by the COVID-19 pandemic in 2020, oil and gas exploration and production companies experienced a
significant reduction in cash flows, which resulted in reductions in their capital spending budgets for oil and gas exploration-focused
activities, including seismic data acquisition activities. Demand for the sale of our seismic products targeted at customers in our Oil and
Gas Markets segment, which has historically accounted for the majority of our revenue, significantly declined during fiscal year 2020,
and both product sales and rental revenue diminished during the first half of fiscal year 2021 as a result of significant uncertainty in the
outlook for oil and gas exploration. Recently, crude oil prices have increased, which will likely result in higher cash flows for exploration
and production ("E&P") companies. We believe E&P companies are allocating their increased levels of cash flows toward debt reduction
and shareholder reward initiatives, such as stock buy-back programs and dividend payments. We expect low demand for our Oil and
Gas Markets products until E&P companies redirect their cash flows toward investments in exploration activities, especially seismic
exploration. Any material changes in oil and gas prices or other market trends, like slowing growth of the global economy, could
adversely impact seismic exploration activity and would likely affect the demand for our products and could materially and adversely
affect our 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.
The Ongoing Armed Conflict Between Russia and Ukraine Could Adversely Affect Our Business, Financial Condition, and Results
of Operations, including our ability to repatriate cash from Russia
A portion of our oil and gas product manufacturing is conducted through our wholly-owned subsidiary, Geospace Technologies
Eurasia LLC, 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. In fiscal year 2022, we imported $1.9 million of products from Geospace Technologies Eurasia LLC for resale elsewhere in the
world. The rapid changes in rules and implementation of new rules on imports and exports of goods involving Russia has also led to
serious delays in getting goods to or from Russia as port authorities struggle to keep up with the changing environment. If imports of
these products from the Russian Federation are restricted by government regulation, we may be forced to find other sources for the
manufacturing of these products at potentially higher costs. Likewise, restrictions on our ability to send products to our subsidiary in
Russia may force our subsidiary to have to find other sources for the manufacturing of these products at potentially higher costs;
however, our exports to Geospace Technologies Eurasia LLC 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 Geospace Technologies Eurasia LLC or other business in Russia.
We are actively monitoring the situation in Ukraine and Russia and assessing its impact on our business, including our wholly-owned
subsidiary Geospace Technologies Eurasia LLC. The net carrying value of this subsidiary on our consolidated balance sheet at
September 30, 2022 was $6.0 million, including cash of $1.8 million. In response to sanctions imposed by the U.S. and others on Russia,
the Russian government has imposed restrictions on companies’ abilities to repatriate or otherwise remit cash from their Russian-based
operations to locations outside of Russia. As a result, this cash can be used in our Russian operations, but we may be unable to transfer
it out of Russia without incurring substantial costs, if at all. In addition to the $1.9 million of products we imported from Geospace
Technologies Eurasia LLC in fiscal year 2022, the subsidiary also generated $1.9 million in revenue from domestic sales in fiscal year
2022. We have no way to predict the duration, progress or outcome of the military conflict in Ukraine. The extent and duration of the
military action, sanctions, and resulting market disruptions could be significant and could potentially have substantial impact on the
global economy and our business for an unknown period of time.
Our Foreign Subsidiaries and Foreign Marketing Efforts Are Subject to Additional Political, Economic, Legal and Other
Uncertainties Not Generally Associated with Domestic Operations
Based on customer billing data, revenue to customers outside the United States accounted for approximately 60% of our revenue
during fiscal year 2022; 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 2023 and subsequent years.
Foreign revenue is subject to special risks inherent in doing business outside of the United States, including the risk of war, terrorist
activities, civil disturbances, embargo and government activities, shifting foreign attitudes about conducting business activities with the
United States, restrictions of the movement and exchange of funds, inhibitions of our ability to collect accounts receivable or repossess
our rental equipment, international sanctions, expropriation and nationalization of our assets or those of our customers, currency
fluctuations, devaluations and conversion restrictions, confiscatory taxation or other adverse tax policies and governmental actions that
may result in the deprivation of our contractual rights, all of which may disrupt markets or our operations.
Foreign revenue is also generally subject to the risk of compliance with additional laws, including tariff regulations and import and
export restrictions. International revenue transactions for our products containing hydrophones require prior U.S. government approval
in the form of an export license, which may be withheld by the U.S. government based upon factors which we cannot predict.
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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 2022, customers outside the United States accounted for approximately 60% 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, could have a negative impact on our
business 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
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equipment for sale than we do and may offer financing arrangements to customers on terms that we may not be able to match.
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 Business
Economic slowdowns, currently or in the future, in the United States, China or India, could adversely affect our business in ways
that we cannot predict. During times of economic slowdown, our customers may reduce their capital expenditures and defer or cancel
pending projects and product orders. Such developments occur even among customers that are not experiencing financial difficulties.
During times of economic slowdowns, some of our customers have (and other customers may have) undergone restructuring or
bankruptcy that has or could adversely impact our revenues and profitability. Any economic downturn may adversely affect the demand
for oil and gas generally or cause volatility in oil and gas commodity prices and, therefore, adversely affect the demand for delivery of
our oil and gas products. It could also adversely affect the demand for consumer and industrial products, which could in turn adversely
affect our Adjacent Markets business segment. To the extent these factors adversely affect other companies in the industries we serve,
there could be an oversupply of products and services and downward pressure on pricing for our products and services, which could
adversely affect us. Additionally, bankruptcies or financial difficulties among our oil and gas customers could reduce our cash flows
and adversely impact our liquidity and profitability. For a discussion of the customers of our oil and gas products, see “The Limited
Market for Our Oil and Gas Products Can Affect Our Revenue,” below.
Risks Associated with Our Business Strategy and Operations
Our New Products Require a Substantial Investment by Us in Research and Development Expense and May Not Achieve Market
Acceptance
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 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 that we will realize our expectations regarding acceptance of and revenue generated by our new products
and services in existing or new markets.
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The Short-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 Operations
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
Circumstances
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. 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 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.
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 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 Markets Products Can Affect Our Revenue
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
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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 systems 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 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. 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.
We Cannot Be Certain of the Effectiveness of Patent Protection on Our Products
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 Assets
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 Successful
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 in this market makes it difficult to estimate our financial returns from this business. In addition,
some of the customers for this business will be governmental entities and contracting with those entities can be difficult, costly, and
unpredictable. We do not have extensive experience in government contracting, and so we may not win, retain, or perform under such
future contracts in a manner that is profitable. If we are not successful in this emerging market segment, it will negatively impact our
financial performance and could negatively impact our reputation and harm our other business segments.
Cybersecurity Breaches and Other Disruptions of Our Information Technology Network and Systems Could Adversely Affect Our
Business
We rely on information technology networks and systems, some of which are owned and operated by third parties, to process,
In particular, we depend on our information technology infrastructure for a variety of
transmit and store electronic information.
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
14
timely detected and removed, could collect and disclose sensitive information relating to our customers, employees or others, exposing
us to legal liability and causing us to suffer reputational damage. It could also lead to disruptions in critical systems or the corruption
or destruction of critical data. If we are unable to prevent such outages and breaches, these events could damage our reputation and lead
to financial losses from remedial actions, loss of business or potential liability.
We Rely on Key Suppliers for Certain Components Used in Our Products
Certain models of our oil and gas marine wireless products require a timing device we purchase from a United States manufacturer.
We currently do not possess the ability to manufacture this component and have no other reliable source for this device.
If this
manufacturer were to discontinue its production of this timing device, were to become unwilling to contract with us on competitive
terms or were unable to supply the component in sufficient quantities to meet our requirements, our ability to compete in the marine
wireless marketplace could be impaired, which could adversely affect our financial performance.
For our imaging products, we purchase all of our thermal film from one manufacturer. Except for the film sold to us by this
manufacturer, we know of no other source for thermal film that performs as well in our imaging equipment. If the manufacturer were
to discontinue producing thermal film, were to become unwilling to contract with us on competitive terms or were unable to supply
thermal film in sufficient quantities to meet our requirements, our ability to compete in the direct thermal imaging marketplace could be
impaired, which could adversely affect our financial performance.
Our Success Depends Upon a Limited Number of Key Personnel
Our success depends on attracting and retaining highly skilled professionals. A number of our employees are highly-skilled engineers
and other professionals. In addition, our success depends to a significant extent upon the abilities and efforts of the members of our
senior management team. If we fail to continue to attract and retain such professionals, our ability to compete in the industry could be
adversely affected.
We Have a Minimal Disaster Recovery Program at Our Houston Facilities
Due to its proximity to the Texas Gulf Coast, our facilities in Houston, Texas are annually subject to the threat of hurricanes, and
the aftermath that follows. Hurricanes may cause, among other types of damage, the loss of electrical power for extended periods of
time. If we lost electrical power at our Pinemont facility, or if a fire or other natural disaster occurred, we would be unable to continue
our manufacturing operations during the power outage because we do not own a generator or any other back-up power source large
enough to provide for our manufacturing power consumption needs. Additionally, we do not have an alternative manufacturing or
operating location in the United States. Therefore, a significant disruption in our manufacturing operations could materially and
adversely affect our business operations during an extended period of a power outage, fire or other natural disaster. We have a back-up
generator to provide power for our information technology operations. We store our back-up data offsite and we replicate our mission
critical data to an alternative cloud-based data center on a real-time basis. In the event of a major service interruption in our data center,
we believe we would be able to activate our mission critical applications within less than 24 hours.
Our Credit Agreement Imposes Restrictions on Our Business
We and several of our subsidiaries domiciled in the United States are parties to a credit agreement. Amounts available for borrowing
under the credit agreement are determined by a borrowing base, which is determined based upon certain of our domestic assets.
Borrowings under the credit agreement will be principally secured by certain domestic assets.
In addition, certain of our domestic
subsidiaries have guaranteed our obligations under the credit agreement and such subsidiaries have secured the obligations by pledging
certain assets. The credit agreement limits the incurrence of additional indebtedness, contains a covenant that requires us to maintain a
certain amount of consolidated tangible net worth and 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
our 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 such debt. While we intend to seek alternative sources of cash in such a situation, there is
no guarantee that any alternative cash source would be available or would be available on terms favorable to us.
15
Reliance on Third Party Subcontractors Could Adversely Affect Our Results of Operations and Reputation
We may rely on subcontractors to complete certain projects. The quality and timing of production and services by our subcontractors
is not totally under our control. Reliance on subcontractors gives us less control over a project and exposes us to significant risks,
including late delivery, substandard quality and high costs. The failure of our subcontractors to deliver quality products or services in a
timely manner could adversely affect our profitability and reputation.
The High Fixed Costs of Our Operations Could Adversely Affect Our Results of Operations
We have a high fixed cost structure primarily consisting of (i) depreciation expenses associated with our rental equipment and (ii)
fixed manufacturing costs including salaries and benefits, taxes, insurance, maintenance, depreciation and other fixed manufacturing
costs. In regards to our rental equipment, large declines in the demand for rental equipment could result in substantial operating losses
due to the on-going 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.
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 and the United Kingdom, in addition to our offices in
the United States. In addition to the risks 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 Us
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 Volatile
At September 30, 2022, we have approximately 12.2 million shares outstanding held by non-affiliates. This limited number of shares
outstanding results in a relatively limited market for our common stock. Our daily trading volume for the year ended September 30,
2022 averaged approximately 48,000 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 Operations
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
16
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, Chinese and Colombian 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, 2022, approximately 8% of our consolidated revenue was related to the
operations of our foreign subsidiaries and branches.
Our Long-Lived Assets May be Subject to Impairment
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 related to our
Aquana acquisition if sufficient cash flows are not generated to recover the carrying value of such assets. If we are forced to write down
the value of our long-lived assets, these noncash asset impairments could adversely affect our results of operations.
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 Stock
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.
Item 2. Properties
As of September 30, 2022, our operations included the following locations:
Location
Houston, Texas.................................
Houston, Texas.................................
Houston, Texas.................................
Austin, Texas....................................
Melbourne, Florida...........................
Ufa, Bashkortostan, Russia ..............
Calgary, Alberta, Canada .................
Luton, Bedfordshire, England ..........
Beijing, China ..................................
Bogotá, Colombia ............................
Owned/Leased
Owned
Owned
Owned
Leased
Leased
Owned
Owned
Owned
Leased
Owned
Approximate
Square
Footage/Acreage
Use
387,000
30,000
17.3 acres
9,000
7,000
See Note 1 below
See Note 2 below
See Note 3 below
See Note 4 below
See Note 5 below
120,000 Manufacturing, sales and service
45,000 Manufacturing, sales and service
8,000
1,000
19,000
Sales and service
Sales and service
Sales and service
Segment
(see notes below)
6 and 7
6
6
6
8
6
6 and 7
7
6
6
(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 Road in Houston, Texas. This facility provides additional warehousing and maintenance
and repair capacity for our marine rental equipment operations.
(3) 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) This property is located at 8701 Cross Park Drive, Suite 100, in Austin, Texas. This facility supports the majority of our OptoSeis®
research and development and engineering operations.
17
(5) This property is located at 5700 N. Harbor City Blvd., Suite 100, in Melbourne, Florida. This facility contains all the operations of
Quantum.
(6) Oil and Gas Markets.
(7) 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
PART II
Item 5. Market for Registrant’s 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, 2022, there were
approximately 139 holders of record of our common stock, and the closing price per share on such date was $4.04 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, 2022:
Low
High
Fourth Quarter ........................................................................ $
Third Quarter..........................................................................
Second Quarter.......................................................................
First Quarter ...........................................................................
Year Ended September 30, 2021:
Fourth Quarter ........................................................................ $
Third Quarter..........................................................................
Second Quarter.......................................................................
First Quarter ...........................................................................
4.10 $
4.64
4.97
6.41
7.78 $
7.30
8.15
5.02
5.45
6.72
8.88
10.27
10.94
9.36
12.40
10.29
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.
Securities Authorized for Issuance under Equity Compensation Plans
The following equity plan information is provided as of September 30, 2022:
Equity Compensation Plan Information
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(a)
(In shares)
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
(In dollars per share)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a)) (c)
(In shares)
323,859
—
323,859
N/A
—
N/A
1,468,916
—
1,468,916
Plan Category
Equity Compensation Plans Approved
by Security Holders (1).............................
Equity Compensation Plans Not
Approved by Security Holders..................
Total .............................................................
(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”). 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
19
in column (a) of the table above represents restricted stock unit awards outstanding under the 2014 Plan. Column (b) 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.
20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the major elements of our consolidated financial statements. You should
read this discussion and analysis together with our consolidated financial statements, including the accompanying notes, and other
detailed information appearing elsewhere in this Annual Report on Form 10-K, including under the heading “Risk Factors.” The
discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the
demand for our products and services and our future plans and results. These statements are based on assumptions that we consider to
be reasonable, but that could prove to be incorrect. For more information regarding our assumptions, you should refer to the section
entitled “Cautionary Note Regarding Forward-Looking Statements and Assumptions” below.
Cautionary Note Regarding Forward-Looking Statements and Assumptions
This Annual Report on Form 10-K and the documents incorporated by reference herein, if any, contain “forward-looking” statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “intend”, “expect”,
“plan”, “budget”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “evaluating” or similar words.
Statements that contain these words should be read carefully because they discuss our future expectations, contain projections of our
future results of operations or of our financial position or state other forward-looking information. Examples of forward-looking
statements include, among others, statements that we make regarding our expected operating results, the adoption, results and success
of our rollout of our Aquana smart water valves and cloud-based control platform, future demand for our Quantum security solutions,
the adoption and sale of our products in various geographic regions, potential tenders for PRM systems, future demand for OBX systems,
the completion of new orders for our channels of our GCL system, the fulfillment of customer payment obligations, the impact of and
the recovery from the impact of the coronavirus (or COVID-19) pandemic, the impact of the current armed conflict between Russia and
Ukraine, our ability to manage changes and the continued health or availability of management personnel, volatility and direction of oil
prices, anticipated levels of capital expenditures and the sources of funding therefor, and our strategy for growth, product development,
market position, financial results and the provision of accounting reserves. These forward-looking statements reflect our current
judgment about future events and trends based on the information currently available to us. However, there will likely be events in the
future that we are not able to predict or control. The factors listed under the caption “Risk Factors”, as well as cautionary language in
this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements. Such examples include, but are not limited to, the
failure of the Quantum or OptoSeis® or Aquana technology transactions to yield positive operating results, decreases in commodity
price levels and continued adverse impact of COVID-19 which could reduce demand for our products, the failure of our products to
achieve market acceptance (despite 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, 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 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, except as required by applicable securities laws and regulations.
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 and provide contract manufacturing services. For further informtion
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.
21
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):
Oil and Gas Markets
Traditional exploration product revenue ............................................ $
Wireless exploration product revenue ................................................
Reservoir product revenue..................................................................
Total revenue ......................................................................................
Operating loss .....................................................................................
Adjacent Markets
Industrial product revenue ..................................................................
Imaging product revenue ....................................................................
Total revenue ......................................................................................
Operating income ...............................................................................
Emerging Markets
Revenue ..............................................................................................
Operating income (loss)......................................................................
Corporate
Revenue ..............................................................................................
Operating loss .....................................................................................
Consolidated Totals
Revenue ..............................................................................................
Operating loss .....................................................................................
YEAR ENDED SEPTEMBER 30,
2022
2021
$
6,597
40,667
1,877
49,141
(7,539)
25,640
13,531
39,171
6,021
711
(9,128)
230
(12,490)
89,253
(23,136)
4,518
45,751
1,983
52,252
(16,229)
21,335
11,084
32,419
6,423
10,193
5,033
—
(12,098)
94,864
(16,871)
Overview
Although in an already depressed oil and gas industry, demand further decreased in February 2020 because of the oversupply of
crude oil due to failed OPEC negotiations that led to a dramatic drop in crude oil prices when combined with the impact of the COVID-19
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 reductions in their capital spending budgets for oil and gas exploration-
focused activities, including seismic data acquisition activities. Recently, crude oil prices have rebounded and held above February
2020 levels; however, a lag in time typically occurs between higher oil prices and greater demand for our Oil and Gas Markets segment
products. We believe this lag is the result of exploration and production (“E&P”) companies allocating their cash flow towards
shareholder reward initiatives, such as stock buy-back programs and dividend payments, or in debt reduction. We believe this lag is a
short-term trend that will continue until E&P companies decide to reinvest capital into exploration activities. As this lag persists, we
expect the reduced levels of demand for our Oil and Gas Markets segment products and our rental marine wireless nodal products to
continue. We also expect our land-based traditional and wireless products will continue to experience low levels of product demand
until our customers consume their excess levels of underutilized equipment. During the third quarter of fiscal year 2022, we experienced
increased rental demand for our marine nodal products in the form of additional rental contracts and requests for quotes from existing
and new customers.
In light of current market conditions, the inventory balances in our Oil and Gas Markets business segment at September 30, 2022
continued to exceed levels we consider appropriate for the current level of product demand. We are continuing to work aggressively to
reduce these legacy inventory 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. As
difficult market conditions continue for the products in our Oil and Gas Markets segment, we are recording additional expenses for
inventory obsolescence and will continue to do so in the 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 our wholly-owned subsidiary, Geospace Technologies Eurasia
LLC, 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.
22
Coronavirus (COVID-19)
The ongoing COVID-19 pandemic has negatively impacted worldwide economic activity and continues to create challenges in our
markets, such as uncertainties regarding the duration and extent to which the COVID-19 pandemic will ultimately have a negative
impact on the demand for our products and services or on our supply chain. We continue to closely monitor the situation as information
becomes readily available.
During the fiscal year ended September 30, 2022, 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. Our supply chain has become increasingly strained due to
increased pricing for raw material and supplies coupled with longer than expected lead times. We initially experienced a reduction in
demand for the rental of our OBX marine nodal products, which we believed was primarily the result of the pandemic; however, demand
has increased in fiscal year 2022. We also believe our Adjacent Markets business segment has entered into a period of recovery from
the initial effects of the COVID-19 pandemic, but we continue to be cautious about the pandemic’s effect on our other business segments
and our supply chain. As a result, we continually communicate with our suppliers and customers as information is available to best
manage this difficult situation.
Fiscal Year 2022 Compared to Fiscal Year 2021
Consolidated revenue for fiscal year 2022 was $89.3 million, a decrease of $5.6 million, or 5.9%, from fiscal year 2021. The decrease
in revenue was primarily due to a reduction in revenue from our Emerging Markets segment related to our contract with the CBP and a
decrease in revenue from sales of our wireless seismic products. The decrease in revenue was partially offset by increased rental revenue
from our OBX rental fleet and higher sales of our industrial and imaging products.
Consolidated gross profit for fiscal year 2022 was $18.0 million, an increase of $1.7 million, or 10.7%, from fiscal year 2021. The
increase in gross profit primarily resulted from (i) higher gross profit attributable to the increased utilization of our OBX rental fleet and
(ii) the higher profit margins generated on wireless exploration product sales. The increase was partially offset by the reduction in
revenue and related gross profit from our contract with the CBP discussed above.
Consolidated operating expenses for fiscal year 2022 were $41.2 million, an increase of $8.0 million, or 24.2%, from fiscal year
2021. The increase was due to (i) a $4.3 million goodwill impairment charge related to our Quantum acquisition, (ii) a $1.8 million
increase in research and development project costs, (iii) a $1.4 million increase in personnel costs, (iv) $1.1 million in incremental
operating costs associated with our acquisition of Aquana and (v) a $0.9 million increase in sales, marketing and other general business
expenses. The increase was partially offset by a $1.5 million increase in a favorable non-cash adjustment to the estimated fair value of
contingent consideration related to our Quantum and OptoSeis® acquisitions when compared to the prior fiscal year.
Consolidated other income for fiscal year 2022 was $0.5 million compared to $3.4 million from fiscal year 2021. The decrease in
other income was primarily due to (i) a gain recognized on the sale of our investment in a debt security in fiscal year 2021, (ii) an
increase in foreign exchanges losses and (iii) a decrease in interest income.
Consolidated income tax expense for fiscal year 2022 was $0.2 million compared to $0.6 million from fiscal year 2021. This decrease
in income tax expense was primarily the result of a decrease 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 2022 Compared to Fiscal Year 2021
Oil and Gas Markets
Revenue
Revenue from our Oil and Gas Markets products for fiscal year 2022 decreased $3.1 million, or 6.0%, from fiscal year 2021. Our
product and rental revenue in this segment continues to be negatively impacted by a lack of spending by oil and gas exploration
companies despite higher crude oil prices. The components of this decrease were as follows:
•
Traditional Exploration Product Revenue – Revenue from our traditional products increased $2.1 million, or 46.0% from
the prior fiscal year. The increase primarily reflects higher demand for our sensor and marine products.
• Wireless Exploration Product Revenue – Revenue from our wireless exploration products decreased $5.1 million, or
11.1%, from the prior fiscal year. The decrease was primarily due to the recognition of $12.5 million of revenue related
to a land-based wireless system in the second quarter of fiscal year 2021 and a $9.9 million sale of used OBX rental
23
equipment in the first quarter of fiscal year 2021. The decrease was partially offset by a $10.0 million sale of used OBX
rental equipment in the second quarter of fiscal year 2022 and increased OBX rental revenue during fiscal year 2022.
•
Reservoir Product Revenue – Revenue from our reservoir products decreased $0.1 million, or 5.3%, from the prior fiscal
year. The decrease in revenue was primarily due to lower reservoir monitoring service revenue. The decrease was largely
offset by higher demand for our borehole products.
Operating Loss
Operating loss from our Oil and Gas Markets products for fiscal year 2022 was $(7.5) million, a decrease of $(8.7) million, or 53.5%,
from the prior fiscal year. The decrease in operating loss was primarily due to (i) higher wireless rental revenue and related gross profits
due to improved utilization of our OBX rental fleet and (ii) a $3.6 million increase to a favorable non-cash adjustment to the estimated
fair value of contingent consideration related to our OptoSeis® acquisition when compared to the same period of the prior fiscal year.
The decrease in operating loss was partially offset by an increase in research and development costs.
Adjacent Markets
Revenue
Revenue from our Adjacent Markets products for fiscal year 2022 increased $6.8 million, or 20.8%, from the prior fiscal year. While
we experienced an increase in the demand for our Adjacent Markets products and services during fiscal year 2022 despite the global
supply chain shortages, we cannot reasonably determine the lasting effects of the supply chain shortage on this operating segment. The
components of this increases were as follows:
•
•
Industrial Product Revenue and Services – Revenue from our industrial products increased $4.3 million, or 20.2%, from
The increase was primarily due to higher demand for water meter products and contract
the prior fiscal year.
manufacturing services.
Imaging Product Revenue – Revenue from our imaging products increased $2.4 million, or 22.1%, from the prior fiscal
year. The increase was primarily due to higher demand for our imaging equipment.
Operating Income
Operating income from our Adjacent Markets products for fiscal year 2022 was $6.0 million, a decrease of $0.4 million, or 6.3%
from the prior fiscal year. The decrease in operating income was primarily due (i) a $1.3 million increase in research and development
expense, (ii) $1.0 million in incremental operating costs attributable to our acquisition of Aquana and (iii) a $0.4 million impairment
charge on our manufacturing equipment. The decrease was largely offset by an increase in revenue and related gross profits for fiscal
year 2022.
Emerging Markets
Revenue
Revenue from our Emerging Markets products for fiscal year 2022 was $0.7 million, compared to $10.2 million from the prior fiscal
year. The decrease was due to $10.1 million of revenue recognized on our contract with the CBP during the prior fiscal year. We were
awarded this contract during fiscal year 2020 to provide a technology solution to the Department of Homeland Security. The majority
of the revenue related to this contract was recognized in fiscal year 2021. The contract was completed in the second quarter of fiscal
year 2022.
Operating Income (Loss)
Operating income (loss) from our Emerging Markets products for fiscal year 2022 was $(9.1) million, compared to $5.0 million
from the prior fiscal year. The decrease for fiscal year 2022 was primarily due to the revenue and related gross profit recognized on our
contract with the CBP in the prior fiscal year. The decrease in operating income (loss) was also due (i) a non-cash goodwill impairment
charge of $4.3 million and (ii) a $2.0 million decrease to a favorable non-cash adjustment to the estimated fair value of contingent
consideration related to our Quantum acquisition when compared to the same period of the prior fiscal year.
Liquidity and Capital Resources
Fiscal Year 2022
At September 30, 2022, we had approximately $17.0 million in cash and cash equivalents and short-term investments. For the fiscal
year ended September 30, 2022, we used $10.0 million of cash from operating activities. Our net loss of $22.9 million was offset by
24
net non-cash charges of $24.6 million resulting from deferred income taxes, depreciation, amortization, asset impairments, accretion,
inventory obsolescence, stock-based compensation, bad debt expense and changes in the estimated fair value of contingent
consideration. Other uses of cash in our operations primarily included (i) the removal of $11.1 million gross profit from the sale of used
rental equipment as it is included in investing activities, (ii) a $0.8 million decrease in accounts payable due to the timing of payments
to suppliers, (iii) a $2.4 million increase in inventories to meet an increase in demand for our Adjacent Markets products and (iv) a $0.7
million decrease in other liabilities primarily due to a decrease in customer deposits on rental equipment and a decrease in accrued
compensation costs. Offsetting these uses of cash primarily included (i) a $1.8 million decrease in trade accounts and notes receivable
primarily due to the timing of collections from customers and (ii) a $1.1 million decrease in unbilled receivables resulting from the
collection of billings to the CBP.
For the fiscal year ended September 30, 2022, we generated cash of $14.1 million in investing activities. Sources of cash included
(i) net proceeds of $8.5 million from the sale of short-term investments and (ii) proceeds of $11.6 million from the sale of used rental
equipment. Offsetting these sources were (i) $1.1 million for additions to our property, plant and equipment and (ii) $4.8 million for
additions to our equipment rental fleet. We expect our cash investments in our rental fleet to be approximately $6 million in fiscal year
2023. We expect fiscal year 2023 cash investments in property, plant and equipment will be approximately $1 million during fiscal year
2023. 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, borrowings under our new credit agreement.
For the fiscal year ended September 30, 2022, we used $1.7 million from financing activities. Uses of cash included (i) $0.8 million
for contingent consideration payments to the former shareholders of Quantum, (ii) debt issuance costs of $0.2 million incurred in
connection with our new credit agreement and (iii) $0.7 million for the purchase of treasury stock pursuant to a stock buy-back program
authorized by our board of directors in November 2020. The stock buy-back program authorized us to repurchase up to $7.5 million of
our common stock in open market transactions. The program was completed in November 2021.
Our available cash and cash equivalents and short-term investments totaled $17.0 million at September 30, 2022, which included
$2.6 million of cash and cash equivalents held by our foreign subsidiaries and branch offices, of which $1.8 million was held by our
subsidiary in the Russian Federation. . 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, 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.
In May 2022, we entered into a credit agreement (the “Agreement”) with Amerisource Funding, Inc., as administrative agent and as
a lender, and Woodforest National Bank, as a lender. Available borrowings under the Agreement are determined by a borrowing base
with a maximum availability of $10 million. The borrowing base is determined based upon certain of our domestic assets which include
(i) 70% loan to value of our property located at 6410 Langfield Road in Houston, Texas (the “Property”), (ii) 50% of forced liquidation
value of equipment, (iii) 80% of certain accounts receivable and (iv) 50% of forced liquidation value of certain inventory (inventory
borrowing base limited to 100% of borrowing base credit given toward accounts receivable). The Agreement is for a two-year term
with all funds borrowed due at the expiration of the term. The interest rate on borrowed funds is the Wall Street prime rate (with a
minimum of 3.25%) plus 4.00%. We are required to make monthly interest payments on borrowed funds. Borrowings under the
Agreement will be principally secured by the Property and our domestic equipment, inventory and accounts receivables. In addition,
certain of our domestic subsidiaries have guaranteed our obligations under the Agreement and such subsidiaries have secured the
obligations by pledging certain assets. The Agreement requires us to maintain a minimum consolidated tangible net worth of $100
million. We expect to remain in compliance with this requirement in fiscal year 2023.
At September 30, 2022, we had no borrowings outstanding and were compliant with all covenants under the Agreement. Our
borrowing availability at September 30, 2022 was $8.5 million. We do not currently anticipate the need to borrow under the Agreement,
however, we may decide to do so in the future, if needed.
Our available cash and cash equivalent and short-term investments decreased $6.6 million during fiscal year 2022. 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 Agreement through its expiration in May 2024, leveraging or sales of real
estate assets, sales of rental assets and other liquidity sources which may be available to us. We currently believe that our cash, cash
equivalents and short-term investments will be sufficient to finance any future operating losses and planned capital expenditures through
the next twelve months.
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.
25
Contractual Obligations
Contingent Consideration
We recorded an initial contingent consideration liability of $7.7 million in connection with our July 2018 acquisition of Quantum.
Subsequent to the acquisition, we reduced the liability to $0.2 million as of September 30, 2022 as a result of $2.3 million of earn-out
payments made through June 2022 and $5.2 million in adjustments to reduce the value of expected future payments. Contingent
payments derived from eligible revenue generated during the four-year post-acquisition period ended July 2022 can be paid in the form
of cash or Company stock. In November 2022, the Company paid in cash the remaining $0.2 million liability to the former shareholders
of Quantum. Subsequent to this payment, there are no further contingent payment obligations related to this acquisition.
We recorded an initial contingent consideration 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. We decreased the estimated liability to zero
as of September 30, 2022 as a result of the unlikelihood any eligible revenue will be generated during the earn-out period. Contingent
cash payments were to be derived from eligible revenue generated during a five-and-a-half year post-acquisition earn-out period ending
in May 2024. In order for revenue to be considered eligible, sales contracts must be entered into during the first four years of the earn-
out period, which ended November 13, 2022. No sales contracts were entered into during this period and we have no contingent payment
obligations related to this acquisition.
Contingent Compensation Costs
In connection with the acquisition of Aquana in July 2021, we are subject to additional contingent cash payments to the former
members of Aquana over a six-year earn-out period. The contingent payments, if any, will be derived from certain eligible revenue
generated during the earn-out period from products and services sold by Aquana. There is no maximum limit to the contingent cash
payments that could be made. The merger agreement with Aquana requires the continued employment of a certain key employee and
former member of Aquana for the first four years of the six year earn-out period in order for any of Aquana’s former members to be
eligible to receive any earn-out payments. In accordance with ASC 805, Business Combinations, due to the continued employment
requirement, no liability has been recorded for the estimated fair value of contingent earn-out payments for this transaction. Earn-outs
achieved, if any, will be recorded as compensation expense when incurred.
See Note 18 to our consolidated financial statements in this Annual Report on Form 10-K for more information on our contractual
contingencies.
Critical Accounting Estimates
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, goodwill and 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.
We conduct our 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, we determine
26
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.
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 lease basis. The evaluation primarily consists of reviewing past due account balances and other factors
such as the credit quality of the customer, historical trends of the customer and current economic conditions. We suspend the recognition
of rental revenue when the collectability of amounts due are no longer probable and record a direct write-off of the lease receivable to
rental revenue.
Recent Accounting Pronouncements
Please refer to Note 1 to our consolidated financial statements contained in this Annual Report for a discussion of recent accounting
pronouncements.
Management’s Current Outlook and Assumptions
As further discussed above, there remains uncertainties regarding the duration and to what extent the COVID-19 pandemic will
ultimately impact the demand for our products and services or with our supply chain.
Regarding our Oil and Gas Markets business segment, demand for our products are subject to volatile fluctuations in crude oil prices.
As a result of substantial declines in crude oil prices in recent years combined with the recent reduced global demand for oil and gas as
a result of the COVID-19 pandemic, oil and gas exploration and production companies experienced a significant reduction in cash flows
resulting in sharp reductions in their capital spending budgets for oil and gas exploration-focused activities including seismic data
acquisition activities. While we have experienced stronger marine nodal rental activity in fiscal year 2022, 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 recently
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 2023 demand for our land-based traditional seismic products may increase slightly over fiscal year
2022 levels.
27
It is uncertain what revenue impact our land-based wireless data recorder will have during fiscal year 2023 in light of the tepid
market demand for oil and gas seismic services and equipment, but we are optimistic demand during fiscal year 2023 will exceed fiscal
year 2022 levels.
The vast majority of our oil and gas rental revenue in fiscal year 2022 was derived from short-term rentals of our OBX ocean-bottom
recorder. We believe our OBX rental revenue will increase substantially in fiscal year 2023 as a result of rental contracts executed
during fiscal year 2022 and anticipated new rental contracts, but we can make no assurance in this regard.
We expect that fiscal year 2023 revenue from our oil and gas reservoir products, and principally our borehole tools and services, will
increase slightly over fiscal year 2022 levels. We have not received any orders for a large-scale seabed PRM system since November
2012, although we do believe opportunities for PRM orders do exist in today's market. If a large scale PRM order were received in
fiscal year 2023, it could significantly impact our fiscal year 2023 or fiscal year 2024 revenue and profits.
We expect fiscal year 2023 revenue from our Adjacent Markets products to increase over fiscal year 2022 levels due to our
acquisition of Aquana and intergration of Aquana's products into our business and optimisim that demand for our industrial, imaging
products and contract manufacturing services will continue to increase in fiscal year 2023.
We expect fiscal year 2023 revenue from our Emerging Markets products to increase over 2022 levels largely due to optimism of
obtaining new security-related contracts and 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.
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, 2022 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, 2022.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2022. In making
this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO")
in Internal Control Integrated Framework (2013). Based on this assessment, our management concluded that, as of September 30,
2022, our internal control over financial reporting is effective based on those criteria.
28
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the
Exchange Act) during the fiscal quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information
None.
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, 2022 in connection with our 2023 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, 2022 in connection with our 2023 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, 2022 in connection with our 2023 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, 2022 in connection with our 2023 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, 2022 in connection with our 2023 Annual Meeting of Stockholders under the caption “Independent Public Accountants” and is
incorporated herein by reference.
30
Item 15. Exhibits and Financial Statement Schedules
Financial Statements and Financial Statement Schedules
PART IV
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
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
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).
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).
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)).*
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).*
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).*
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).*
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 11, 2013).*
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).*
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).*
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).*
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).*
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).*
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).*
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).*
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).*
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).*
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).*
31
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
14.1
21.1
23.1
31.1
31.2
32.1
32.2
101
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).*
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).*
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).*
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).*
First Amendment effective October 1, 2008 to Employment Agreement dated as of August 1, 1997, between the Company
and Michael J. Sheen (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 31, 2009, filed February 5, 2010).*
Second Amendment effective November 17, 2020 to Employment Agreement dated as of August 1, 1997, between the
Company and Michael J. Sheen (incorporated by reference to the Registrant’s Current Report on Form 8-K filed November
23, 2020, File No.: 001-13601).*
Revolving Loan and Security Agreement dated May 6, 2022 among Geospace Technologies Corporation and GTC, Inc.,
as borrowers, Amerisource Funding, Inc. and Woodforest National Bank, as lenders, and Amerisource Funding, Inc., as
administrative agent for lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-
K filed May 10, 2022).
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).
Consulting Agreement dated November 21, 2019 between Geospace Technologies Corporation 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).
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).
Subsidiaries of the Registrant.**
Consent of RSM US LLP.**
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
Certification of the Company’s Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
Certification of the Company’s Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended September
30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets as
of September 30, 2022 and September 30, 2021, (ii) the Consolidated Statements of Operations for the years ended
September 30, 2022 and 2021, (iii) the Consolidated Statements of Comprehensive Loss for the years ended September
30, 2022 and 2021, (iv) the Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2022 and
2021, (v) the Consolidated Statements of Cash Flows for the years ended September 30, 2022 and 2021 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, 2022 formatted
in iXBRL. **
* This exhibit is a management contract or a compensatory plan or arrangement.
** Filed herewith.
Item 16. Form 10-K Summary
None.
32
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.
SIGNATURES
GEOSPACE TECHNOLOGIES CORPORATION
By:
/s/ WALTER R. WHEELER
Walter R. Wheeler, Director, President and Chief Executive
Officer
November 18, 2022
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
Walter R. Wheeler
Director, President and Chief Executive Officer
(Principal Executive Officer)
/s/ ROBERT L. CURDA
Robert L. Curda
Vice President, Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting
Officer)
November 18, 2022
November 18, 2022
/s/ GARY D. OWENS
Gary D. Owens
Chairman of the Board
November 18, 2022
/s/ MARGARET S. ASHWORTH
Margaret S. Ashworth
/s/ THOMAS L. DAVIS
Thomas L. Davis
Director
Director
/s/ EDGAR R. GIESINGER, JR.
Director
Edgar R. Giesinger, Jr.
November 18, 2022
November 18, 2022
November 18, 2022
/s/ TINA M. LANGTRY
Director
November 18, 2022
Tina M. Langtry
/s/ RICHARD F. MILES
Richard F. Miles
Director
November 18, 2022
33
GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reports of Independent Registered Public Accounting Firm ..........................................................................................................
Consolidated Balance Sheets as of September 30, 2022 and 2021..................................................................................................
Consolidated Statements of Operations for the Years Ended September 30, 2022 and 2021 .........................................................
Consolidated Statements of Comprehensive Loss for the Years Ended September 30, 2022 and 2021 .........................................
Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2022 and 2021 .........................................
Consolidated Statements of Cash Flows for the Years Ended September 30, 2022 and 2021 ........................................................
F-2
F-5
F-6
F-7
F-8
F-9
Notes to Consolidated Financial Statements....................................................................................................................................
F-10
Schedule II—Valuation and Qualifying Accounts ..........................................................................................................................
F-32
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders 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, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, 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, 2022 and 2021, 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.
Critical 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 $32.5 million as of September 30, 2022. 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
F-2
•
•
•
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 Goodwill—Emerging Markets Reporting Unit
As discussed in Note 11 to the consolidated financial statements, the Company assessed $4.3 million of goodwill and $3.5 million of
other intangible assets associated with its Emerging Markets reporting unit, which was also determined to be an asset group for
purposes of its long-lived asset recoverability assessment, for impairment. The Company performed a quantitative assessment on the
goodwill at its Emerging Markets reporting unit. As part of this quantitative assessment, the Company determines the fair value of the
reporting unit using a discounted cash flow model. The Company also performed a recoverability assessment on the long-lived assets
of the 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. Key assumptions in the analyses include revenue
and cash flow projections. Discount rates, long-term growth rates, and the effective tax rate are also key assumptions for the goodwill
impairment assessment. Estimated future cash flows of the Company’s Emerging Markets reporting unit include the Company’s ability
to obtain an additional contract with its significant customer.
We identified the valuation of goodwill and long-lived assets for the Emerging Market's reporting unit as a critical audit matter because
of the significant assumptions management makes in determining the estimate, including revenue and cash flow projections and the
discount rate utilized. Auditing management’s assumptions of revenue and cash flow projections and the discount rate involved a high
degree of auditor judgment and increased audit effort, including the use of valuation specialists, as management’s assumptions are
subjective, and changes in these assumptions could have a significant impact on the fair value of the Emerging Market's reporting unit
and potential impairment charges.
Our audit procedures related to the Company’s valuation of goodwill and long-lived assets for the Emerging Markets reporting unit
included the following, among others:
•
•
•
We evaluated the reasonableness of management’s revenue and cash flow projections by comparing management’s prior
forecasts to historical results for the Company.
We evaluated management’s cash flow projections by comparing to historical results, inquiry of management of the
reporting unit 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.
With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology
and the discount rates utilized by comparing them to comparable companies and market data.
We have served as the Company’s auditor since 2018.
Houston, Texas
November 18, 2022
F-3
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 18, 2022, (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.
Houston, Texas
November 18, 2022
F-4
Geospace Technologies Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
AS OF SEPTEMBER 30,
2022
2021
Current assets:
ASSETS
Cash and cash equivalents............................................................................................... $
Short-term investments ...................................................................................................
Trade accounts and financing receivables, net................................................................
Unbilled receivables ........................................................................................................
Inventories, net ................................................................................................................
Prepaid expenses and other current assets.......................................................................
Total current assets......................................................................................................
Non-current financing receivables ......................................................................................
Non-current inventories, net................................................................................................
Rental equipment, net..........................................................................................................
Property, plant and equipment, net......................................................................................
Operating right-of-use assets...............................................................................................
Goodwill..............................................................................................................................
Other intangible assets, net..................................................................................................
Other non-current assets......................................................................................................
Total assets .................................................................................................................. $
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable trade ................................................................................................... $
Contingent consideration.................................................................................................
Operating lease liabilities ................................................................................................
Other current liabilities....................................................................................................
Total current liabilities ................................................................................................
Non-current contingent consideration .................................................................................
Non-current operating lease liabilities ................................................................................
Deferred tax liabilities, net ..................................................................................................
Total liabilities.............................................................................................................
Commitments and contingencies (Note 18)
Stockholders’ equity:
$
$
$
16,109
894
20,886
—
19,995
2,077
59,961
—
12,526
28,199
26,598
957
736
5,573
506
135,056
5,595
175
241
6,616
12,627
—
769
13
13,409
14,066
9,496
17,159
1,051
16,196
2,062
60,030
2,938
18,103
38,905
29,983
1,191
5,072
7,250
457
163,929
6,391
807
225
7,799
15,222
5,210
1,009
31
21,472
Preferred stock, 1,000,000 shares authorized, no shares issued and outstanding ...........
Common stock, $.01 par value, 20,000,000 shares authorized, 13,863,233 and
13,738,971 shares issued, respectively; and 13,021,241 and 12,969,542 shares
outstanding, respectively .................................................................................................
Additional paid-in capital................................................................................................
Retained earnings ............................................................................................................
Accumulated other comprehensive loss ..........................................................................
Treasury stock, at cost, 841,992 and 769,429 shares, respectively.................................
Total stockholders’ equity ...........................................................................................
Total liabilities and stockholders’ equity .................................................................... $
—
—
139
94,667
49,654
(15,313)
(7,500)
121,647
135,056
$
137
92,935
72,510
(16,320)
(6,805)
142,457
163,929
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
Revenue:
Products .............................................................................................................................. $
Rental equipment................................................................................................................
Total revenue..................................................................................................................
Cost of revenue:
Products ..............................................................................................................................
Rental equipment................................................................................................................
Total cost of revenue ......................................................................................................
Gross profit.............................................................................................................................
Operating expenses:
Selling, general and administrative ....................................................................................
Research and development.................................................................................................
Goodwill impairment .........................................................................................................
Change in estimated fair value of contingent consideration ..............................................
Bad debt expense (recovery) ..............................................................................................
Total operating expenses ................................................................................................
YEAR ENDED SEPTEMBER 30,
2022
2021
$
64,109
25,144
89,253
51,649
19,561
71,210
18,043
23,482
18,104
4,336
(5,035)
292
41,179
75,864
19,000
94,864
58,884
19,686
78,570
16,294
21,926
14,839
—
(3,524)
(76)
33,165
Loss from operations ..............................................................................................................
(23,136)
(16,871)
Other income (expense):
Interest expense ..................................................................................................................
Interest income ...................................................................................................................
Gain (loss) on investments, net ..........................................................................................
Foreign exchange losses, net ..............................................................................................
Other, net ............................................................................................................................
Total other income, net...................................................................................................
Loss before income taxes .......................................................................................................
Income tax expense ................................................................................................................
Net loss ................................................................................................................................... $
Loss per common share:
Basic ................................................................................................................................... $
Diluted ................................................................................................................................ $
(65)
976
(22)
(397)
(39)
453
(22,683)
173
(22,856)
(1.76)
(1.76)
$
$
$
—
1,441
1,993
(41)
—
3,393
(13,478)
578
(14,056)
(1.05)
(1.05)
Weighted average common shares outstanding:
Basic ...................................................................................................................................
Diluted ................................................................................................................................
12,987,996
12,987,996
13,358,930
13,358,930
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Comprehensive Loss
(In thousands)
Net loss ................................................................................................................................... $
Other comprehensive income (loss):
Change in unrealized losses on available-for-sale securities, net of tax ............................
Foreign currency translation adjustments...........................................................................
Total other comprehensive income, net .................................................................................
Total comprehensive loss ....................................................................................................... $
YEAR ENDED SEPTEMBER 30,
2022
2021
(22,856)
$
(14,056)
—
1,007
1,007
(21,849)
$
(15)
393
378
(13,678)
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the years ended September 30, 2022 and 2021
(In thousands, except share amounts)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
137 $ 90,965 $ 86,566 $
Accumulated
Other
Comprehensive
Loss
(16,698) $
Balance at October 1, 2020 ........................... 13,670,639 $
Net loss ..........................................................
Other comprehensive income ........................
Issuance of common stock pursuant to the
70,832
vesting of restricted stock units .....................
(2,500)
Forfeiture of restricted stock .........................
(769,429)
Purchase of treasury stock .............................
Stock-based compensation ............................
—
Balance at September 30, 2021 ..................... 12,969,542
—
—
Net loss ..........................................................
Other comprehensive income ........................
Issuance of common stock pursuant to the
vesting of restricted stock units .....................
Purchase of treasury stock .............................
Stock-based compensation ............................
Balance at September 30, 2022 ..................... 13,021,241 $
124,262
(72,563)
—
—
—
—
—
—
—
—
137
—
—
— (14,056)
—
—
—
—
—
—
1,970
92,935
—
72,510
— (22,856)
—
—
—
378
—
—
—
(16,320)
—
1,007
Treasury
Stock
Total
— $160,970
— (14,056)
378
—
—
—
(6,805)
—
(6,805)
—
—
(6,805)
1,970
142,457
— (22,856)
1,007
—
2
—
—
139 $ 94,667 $ 49,654 $
(2)
—
1,734
—
—
—
—
—
—
—
(695)
1,734
(15,313) $ (7,500) $121,647
—
(695)
—
The accompanying notes are an integral part of the consolidated financial statements.
F-8
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net loss ................................................................................................................................ $
Adjustments to reconcile net loss to net cash used in operating activities:
(22,856)
$
(14,056)
YEAR ENDED SEPTEMBER 30,
2022
2021
Deferred income tax expense (benefit).................................................................................
Rental equipment depreciation............................................................................................
Property, plant and equipment depreciation..........................................................................
Amortization of intangible assets ........................................................................................
Goodwill impairment expense ............................................................................................
Property, plant and equipment impairment expense ..............................................................
Accretion of discounts on short-term investments.................................................................
Stock-based compensation expense .....................................................................................
Bad debt expense (recovery)...............................................................................................
Inventory obsolescence expense..........................................................................................
Change in estimated fair value of contingent consideration....................................................
Gross profit from sale of used rental equipment....................................................................
Gain on disposal of property, plant and equipment................................................................
Realized loss (gain) on sale of investments, net ....................................................................
Effects of changes in operating assets and liabilities:
Trade accounts and notes receivables ..............................................................................
Unbilled receivables ......................................................................................................
Inventories....................................................................................................................
Other assets ..................................................................................................................
Accounts payable trade ..................................................................................................
Other liabilities .............................................................................................................
Net cash used in operating activities............................................................................
Cash flows from investing activities:
Purchase of property, plant and equipment...............................................................................
Investment in rental equipment ...............................................................................................
Proceeds from the sale of property, plant and equipment ...........................................................
Proceeds from the sale of used rental equipment.......................................................................
Purchase of short-term investments .........................................................................................
Proceeds from the sale of short-term investments .....................................................................
Business acquisition, net of acquired cash................................................................................
Proceeds from sale of investment in debt security.....................................................................
Net cash provided by (used in) investing activities........................................................
Cash flows from financing activities:
Payments of contingent consideration......................................................................................
Debt issuance costs................................................................................................................
Purchase of treasury stock ......................................................................................................
Net cash used in financing activities............................................................................
Effect of exchange rate changes on cash ......................................................................................
Increase (decrease) in cash and cash equivalents...........................................................................
Cash and cash equivalents, beginning of fiscal year ......................................................................
Cash and cash equivalents, end of fiscal year ............................................................................... $
(17)
13,740
4,143
1,677
4,336
401
96
1,734
292
3,222
(5,035)
(11,061)
(54)
22
1,751
1,051
(2,357)
349
(786)
(683)
(10,035)
(1,130)
(4,832)
54
11,583
(450)
8,924
—
—
14,149
(807)
(211)
(695)
(1,713)
(358)
2,043
14,066
16,109
$
3
15,075
3,956
1,746
—
—
96
1,970
(76)
3,001
(3,524)
(6,678)
—
(1,993)
(2,973)
(1,051)
(7,674)
5,368
4,712
(5,074)
(7,172)
(3,188)
(2,121)
16
10,626
(12,544)
3,170
(1,346)
2,069
(3,318)
(1,421)
—
(6,805)
(8,226)
96
(18,620)
32,686
14,066
The accompanying notes are an integral part of the consolidated financial statements.
F-9
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 U.S. generally accepted accounting principles ("GAAP'). All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
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. 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 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-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, 2022, the Company had restricted cash of $0.2 million on deposit with a
bank which serves as collateral on employee issued credit cards. The Company had no restricted cash at September 30, 2021. At
September 30, 2022, cash and cash equivalents included $2.6 million held by the Company’s foreign subsidiaries and branch offices,
including $1.8 million held by its subsidiary in the Russian Federation. 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 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 Russian subsidiary, it would be required to accrue and pay taxes on any amount repatriated.
Concentrations of Risk
Credit
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 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 $5.5 million. Three customers comprised 19.8%, 16.4% and 10.6%, of the Company’s revenue during
fiscal year 2021. At September 30, 2021, the Company had trade accounts and financing receivables from these customers of $4.9
million, $7.4 million and $1.1 million, respectively.
F-10
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Supplier
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 represented approximately 11%
of the Company's revenue in fiscal year 2022. There were no product sales requiring this device in fiscal year 2021.
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 8% and 7% of the Company’s revenue in fiscal year 2022 and 2021, 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, 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. The United States, the United
Kingdom, the EU and other countries have each imposed export controls on certain products and financial and economic sanctions on
certain industry sectors and parties in and associated with Russia, and additional sanction packages to constrain Russia have been and
continue to be proposed and adopted. 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. 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 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, the Company's exports to Geospace
Technologies Eurasia LLC 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 its
wholly-owned subsidiary Geospace Technologies Eurasia LLC. The net carrying value of this subsidiary on the Company's consolidated
balance sheet at September 30, 2022 was $6.0 million. The subsidiary generated $1.9 million in revenue from domestic sales and the
Company imported $1.9 million of products from the subsidiary in fiscal year 2022. 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-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 noncurrent 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:
Rental equipment...........................................................................
Property, plant and equipment:
Machinery and equipment .........................................................
Buildings and building improvements.......................................
Other ..........................................................................................
Years
2-5
3-15
10-50
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.
At March 31, 2022, in light of the Company’s losses from operations for the six months ended March 31, 2022 and for fiscal year
2021 and the current war between Russia and Ukraine, management reviewed the recoverability of the carrying value of certain asset
groups based on future undiscounted cash flows and determined that their expected future cash flows exceeded their carrying value. No
additional indicators of impairment related to this asset group were observed at September 30, 2022.
At September 30, 2022, in light of the Company's impairment of its goodwill associated with its Emerging Markets reporting unit,
the Company reviewed the recoverability of the carrying value of the long-lived assets of this reporting unit and determined that their
undiscounted cash flows exceeded their carrying value. As a result, no impairment charges were necessary to the Company's long-lived
assets associated with its Emerging Markets reporting unit.
At September 30, 2022, in light of the Company's decision to dispose of certain manufacturing cabling equipment, the Company
reviewed the recoverability of the carrying value of these assets and determined that their carrying value exceeded their fair value. As
a result of the fair value analysis, an impairment charge of $0.4 million was recorded in the fourth quarter of fiscal year 2022 related to
the equipment. The impairment charge is included as a component of cost of revenue in the Company’s consolidated statements of
operations.
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, 2022, the Company impaired its goodwill associated with its Emerging Markets reporting unit. See
Note 11 for more information.
F-12
Geospace Technologies Corporation and 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:
Developed technology.........................................................................................
Trade names ........................................................................................................
Customer relationships ........................................................................................
Non-compete agreements ....................................................................................
Years
18
5
4
4
Revenue Recognition
See Note 2 to these consolidated financial statements.
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, internal estimates and the use of internal projections of future revenue and/or gross profits. The Company reviews the fair value
of its contingent earn-out liabilities on a quarterly basis. Adjustments to the liabilities are included as a component of earnings in the
consolidated statements of operations. See Note 18 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.
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 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, 2020........................................................... $
Accruals for warranties issued during the year.............................
Settlements made (in cash or in kind) during the year..................
Balance at September 30, 2021.....................................................
Accruals for warranties issued during the year.............................
Settlements made (in cash or in kind) during the year..................
Balance at September 30, 2022..................................................... $
258
814
(693)
379
1,431
(1,286)
524
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 15 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. 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)
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 5 to these consolidated financial statements.
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 no interest or penalties for the fiscal years ended September
30, 2022 and 2021.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued guidance on simplifying the accounting for
income taxes. The guidance eliminates certain exceptions 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. The Company adopted this standard during the first quarter of fiscal year 2022. The adoption of
this guidance did not have any impact on the Company's consolidated financial statements.
F-14
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. 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 smaller reporting company, the Company must adopt this standard no later than the first quarter of its fiscal year ending
September 30, 2024, although early adoption is permitted. 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 to adopt this standard during the
first quarter of its fiscal year ending September 30, 2024 and is continuing to evaluate the impact of this new guidance on its consolidated
financial statements.
2. Revenue Recognition
In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), 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 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 reasonably assured. Rentals of the Company’s equipment
generally range from daily rentals to minimum rental periods of up to 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.
As permissible under 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.
The Company has elected to treat shipping and handling activities in a sales transaction after the customer obtains control of the
goods as a fulfillment cost and not as a promised 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 revenue. The Company incurred shipping and handling expenses of $0.6 million and $0.4 million, respectively, for
the fiscal years ended September 30, 2022 and 2021, respectively.
During the third quarter of fiscal year 2020, the Company was awarded an approximate $10.5 million contract (inclusive of a
subsequent contract amendment of $0.3 million) with the U.S. Customs and Border Protection (the “CBP”) to provide a technology
solution to the Department of Homeland Security. Revenue recognized under the contract for the fiscal years ended September 30, 2022
and 2021 was $0.3 million and $9.9 million, respectively. The Company has recognized revenue on the entire amount of the contract
and no performance obligations remain under the contract except for on-going service and maintenance. Unsatisfied performance
obligations on all other contracts held by the Company at September 30, 2022 had an original duration of one year or less.
At September 30, 2022 and September 30, 2021, the Company had no deferred contract costs or deferred contract liabilities. During
the fiscal years ended September 30, 2022 and 2021, no revenue was recognized from deferred contract liabilities and no cost of revenue
was recognized from deferred contract costs.
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 has a three-year term with monthly principal and interest payments of $0.3 million.
F-15
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Due to the financial condition of the customer, the Company had concerns over the probable collectability of the promissory note. As
a result, the Company did not recognize any revenue or cost of revenue on the product sale through its first quarter of fiscal year 2021.
During the second quarter of fiscal year 2021, as a result of new information received from the customer, management determined that
it was probable that the customer would satisfy its remaining payment obligations on the promissory note with the Company and
recognized revenue of $12.5 million on the product sale. During the fourth quarter of fiscal year 2021, the Company granted the
customer a six-month principal payment forbearance. The customer recommenced its monthly payments to the Company in the second
quarter of fiscal year 2022. In October 2022, the Company granted the customer an additional six-month payment forbearance. The
customer has made payments totaling $9.5 million (exclusive of interest) as of September 30, 2022 related to the product sale, and the
balance outstanding on the promissory note at September 30, 2022 was $3.0 million. Deferred contract costs associated with this sale
were recognized in the second quarter of fiscal year 2021.
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). Therefore, the table excludes all revenue earned from rental
contracts.
Oil and Gas Markets
Traditional exploration product revenue.................................................. $
Wireless exploration product revenue .....................................................
Reservoir product revenue .....................................................................
Total revenue .......................................................................................
Adjacent Markets
Industrial product revenue .....................................................................
Imaging product revenue .......................................................................
Total revenue .......................................................................................
Emerging Markets
Revenue...............................................................................................
Corporate
Revenue...............................................................................................
YEAR ENDED SEPTEMBER 30,
2022
2021
$
6,558
15,822
1,968
24,348
25,640
13,360
39,000
711
50
4,518
27,016
1,877
33,411
21,335
10,925
32,260
10,193
—
Total ....................................................................................................... $
64,109
$
75,864
See Note 20 for more information on the Company’s operating segments.
For each of the geographic areas where the Company operates, the following table presents revenue from the sale of products and
performance of services under contracts with customers (in thousands). Therefore, the table excludes all revenue earned from rental
contracts.
YEAR ENDED SEPTEMBER 30,
2021
2022
Asia ...................................................................................
Canada...............................................................................
Europe ...............................................................................
South America ..................................................................
United States .....................................................................
Other .................................................................................
$
$
10,978
890
15,705
719
33,778
2,039
64,109
$
$
17,268
1,550
7,693
287
47,101
1,965
75,864
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
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
3. Business Acquisition
On July 2, 2021, we acquired 100 percent of the outstanding membership interest in Aquana, LLC ("Aquana") a comprehensive
wireless water monitoring and control system provider. Aquana operates as a wholly-owned subsidiary of the Company and resides in
the Company’s Adjacent Markets business segment. The acquisition purchase price consisted of an initial cash down payment at closing
of approximately $1.4 million and additional contingent cash payments over a six year earn-out period. The contingent earn-out
payments, if any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by
Aquana. There is no maximum limit to the contingent cash payments that could be made. The merger agreement with Aquana requires
the continued employment of a certain key employee and former member of Aquana for the first four years of the six year earn-out
period in order for any of Aquana’s former members to be eligible to any earn-out payments. In accordance with ASC 805, Business
Combinations, due to the continued employment requirement, no liability has been recorded for the estimated fair value of contingent
earn-out payments for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when incurred.
In connection with the Aquana acquisition, the Company recorded goodwill of $0.7 million, and other intangible assets of $0.7
million. Current assets and current liabilities acquired in the transaction were nominal.
Legal and professional costs of $0.2 million related to the Aquana acquisition are included in selling, general and administrative
expenses for the fiscal year ended September 30, 2021.
The Aquana 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.
4. Investments
Short-term Investments
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. For the fiscal years ended September 30, 2022 and 2021, the Company realized losses of $22,000 and $4,000, respectively, from
the sale of short-term investments.
The Company’s short-term investments were composed of the following (in thousands):
Short-term investments:
Corporate bonds.................................................. $
Total.................................................................... $
909 $
909 $
— $
— $
(15) $
(15) $
894
894
Amortized
Cost
AS OF SEPTEMBER 30, 2022
Unrealized
Losses
Unrealized
Gains
Estimated
Fair Value
Short-term investments:
Corporate bonds................................................... $
Total ..................................................................... $
9,511 $
9,511 $
— $
— $
(15) $
(15) $
9,496
9,496
Amortized
Cost
AS OF SEPTEMBER 30, 2021
Unrealized
Losses
Unrealized
Gains
Estimated
Fair Value
The Company’s short-term investments have contractual maturities ranging from February 2023 to March 2023.
Investment in Debt Security
During the fiscal year ended September 30, 2021, the Company recognized a gain of $2.0 million in connection with the sale of its
interest in a senior secured bond originally issued from an international seismic marine customer.
5. Fair Value of Financial Instruments
The Company’s financial instruments generally include cash and cash equivalents, short-term investments, trade accounts, financing
receivables and accounts payable. Due to the short-term maturities of cash and cash equivalents, trade accounts receivable, financing
F-17
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
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 was derived from models utilizing market observable inputs.
The Company measures its short-term investments and contingent consideration at fair value on a recurring basis.
The following tables present the fair value of the Company’s short-term investments and contingent consideration by valuation
hierarchy and input (in thousands):
AS OF SEPTEMBER 30, 2022
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable
(Level 2)
Significant
Unobservable
(Level 3)
Totals
Short-term investments:
Corporate bonds ....................................................................... $
Total assets............................................................................... $
Contingent consideration liabilities ............................................. $
Total liabilities ......................................................................... $
— $
— $
— $
— $
894
894
$
$
— $
— $
— $
— $
175
175
$
$
894
894
175
175
AS OF SEPTEMBER 30, 2021
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable
(Level 2)
Significant
Unobservable
(Level 3)
Totals
Short-term investments:
Corporate bonds.............................................................................. $
Total assets.................................................................................... $
Contingent consideration liabilities:
Current portion ............................................................................... $
Non-current portion .........................................................................
Total liabilities ............................................................................... $
— $
— $
— $
—
— $
9,496
9,496
$
$
— $
— $
— $
—
— $
807
5,210
6,017
$
$
9,496
9,496
807
5,210
6,017
Assets and Liabilities Measured on a Nonrecurring Basis
The measurements utilized to determine the implied fair value of the Company's Emerging Markets reporting unit as of September
30, 2022 represented significant unobservable inputs (Level 3). See Note 11 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, 2022 and 2021:
Contingent Consideration balance at October 1, 2020 .................................................... $
Fair value adjustments .....................................................................................................
Payment of contingent consideration...............................................................................
Balance at September 30, 2021........................................................................................
Fair value adjustments .....................................................................................................
Payment of contingent consideration...............................................................................
Balance at September 30, 2022........................................................................................ $
10,962
(3,524)
(1,421)
6,017
(5,035)
(807)
175
Adjustments to the fair value of the contingent consideration are based on internal estimates and management assessments regarding
potential future scenarios. The Company believes its estimates and assumptions are reasonable; however, there is significant judgment
involved. Also see Note 18.
F-18
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
6. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following (in thousands):
Unrealized
Losses on
Available-for-
Sale
Securities
Foreign
Currency
Translation
Adjustments
Balance at October 1, 2020 .................................................... $
Other comprehensive income (loss) ...................................
Balance at September 30, 2021 .............................................. $
Other comprehensive income .............................................
Balance at September 30, 2022 .............................................. $
— $
(15)
(15)
—
(15) $
(16,698) $
393
(16,305)
1,007
(15,298) $
Total
(16,698)
378
(16,320)
1,007
(15,313)
7. Trade Accounts and Financing Receivables
Trade accounts receivable, net (excluding financing receivables) are reflected in the following table (in thousands):
Trade accounts receivable .......................................................... $
Allowance for doubtful accounts ...............................................
$
AS OF SEPTEMBER 30,
2021
2022
13,252 $
(591)
12,661 $
12,635
(428)
12,207
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.
Financing receivables are reflected in the following table (in thousands):
AS OF SEPTEMBER 30,
2021
2022
Promissory notes ........................................................................ $
Sales-type lease ..........................................................................
Total financing receivables ....................................................
Unearned income:
Sales-type lease ......................................................................
Total unearned income .......................................................
Total financing receivables, net of unearned income.................
Less current portion....................................................................
Non-current notes receivable ..................................................... $
8,225 $
—
8,225
—
—
8,225
(8,225)
— $
5,432
2,464
7,896
(6)
(6)
7,890
(4,952)
2,938
Promissory notes receivable are generally collateralized by the products sold, and bear interest at rates ranging from 7.0% to 9.5%
per year. After consideration of the forbearance discussed in Note 2, the promissory notes receivable mature at various times through
January 2024. The Company has, on occasion, extended or renewed notes receivable as they mature, but there is no obligation to do so.
During the first quarter of fiscal year 2022, the Company financed a sale of rental equipment by entering into a $3.7 million
promissory note with a customer. The note has a term of nine months, with principal and interest payments due monthly until maturity.
During the second quarter of fiscal year 2022, the Company partially financed a $10.0 million sale of rental equipment by entering
into an $8.0 million promissory note with a customer. The note has a one-year term, with principal and interest payments due quarterly
until maturity.
During the third quarter of fiscal year 2021, the Company entered into a sales-type lease with a customer for rental equipment. The
lease, which had a term of six months, was paid during the second quarter of fiscal year 2022.
F-19
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
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 has a three-year term with monthly principal and interest payments of $0.3 million.
Due to the financial condition of the customer, the Company had concerns over the probable collectability of the promissory note. As a
result, the promissory note was not reflected on the Company’s consolidated balance sheet through its first quarter of fiscal year 2021.
During the second quarter of fiscal year 2021, as a result of new information received from the customer, management determined that
it was probable that the customer would satisfy its remaining payment obligations to the Company and, therefore, the Company
recognized the promissory note on its consolidated balance sheet as of March 31, 2021. See Note 2 for more information on this matter.
8. Inventories
Inventories consisted of the following (in thousands):
Finished goods ........................................................................... $
Work in process..........................................................................
Raw materials.............................................................................
Obsolescence reserve (net realizable value adjustment)............
Less current portion....................................................................
Non-current portion.................................................................... $
AS OF SEPTEMBER 30,
2021
2022
14,653 $
6,230
25,609
(13,971)
32,521
19,995
12,526 $
14,968
8,247
24,720
(13,636)
34,299
16,196
18,103
Inventory obsolescence expense totaled approximately $3.2 million and $3.0 million during fiscal years 2022 and 2021, respectively.
Raw materials include semi-finished goods and component parts that totaled approximately $20.7 million and $22.7 million at
September 30, 2022 and 2021, respectively.
9. 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. Variable
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, 2022, the Company has two operating right-of use assets
related to leased facilities in Austin, Texas and Melbourne, Florida.
Maturities of the operating lease liabilities as of September 30, 2022 were as follows (in thousands):
For fiscal years ending September 30,
2023......................................................................................................................
2024......................................................................................................................
2025......................................................................................................................
2026......................................................................................................................
2027......................................................................................................................
2028......................................................................................................................
Future minimum lease payments .........................................................................
Less interest .........................................................................................................
Present value of minimum lease payments..........................................................
Less current portion .............................................................................................
Long-term portion................................................................................................
$
$
$
$
270
278
186
130
134
91
1,089
(79)
1,010
(241)
769
F-20
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Lease costs recognized in the consolidated statements of operations for the fiscal years ended September 30, 2022 and 2021 is as
follows (in thousands):
Right-of-use operating lease costs ..................................................... $
Short-term lease costs ........................................................................
Total ................................................................................................... $
272
190
462
$
$
246
239
485
YEAR ENDED SEPTEMBER 30,
2022
2021
Right-of-use operating lease costs and short-term lease costs are included as a component of total operating expenses.
Other information related to operating leases is as follows (in thousands):
YEAR ENDED SEPTEMBER 30,
2022
2021
Cash paid for amounts included in the measurement of lease
liabilities:
Operating cash flows from operating leases.................................... $
Operating lease assets obtained in exchange for new lease
262
$
liabilities .............................................................................................
—
211
1,336
Weighted average remaining lease term ............................................
Weighted average discount rate .........................................................
4.7 years
3.25%
5.6 years
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 which generally range from daily rentals to minimum rental periods of 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.
The Company regularly evaluates the collectability of its lease receivables on a lease-by-lease basis. The evaluation primarily
consists of reviewing past due account balances and other factors such as the credit quality of the customer, historical trends of the
customer and current economic conditions. 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, 2022, the Company’s trade accounts receivables included lease receivables of
$3.2 million.
Rental revenue related to leased equipment for fiscal years 2022 and 2021 was $24.9 million and $19.0 million, respectively.
Future minimum lease obligations due from the Company's leasing customers as of September 30, 2022 were $24.6 million, all of
which is expected to be due within the next 12 months.
Rental equipment consisted of the following (in thousands):
Rental equipment, primarily wireless recording equipment ...... $
Accumulated depreciation and impairment ...............................
$
AS OF SEPTEMBER 30,
2021
2022
83,887 $
(55,688)
28,199 $
95,827
(56,922)
38,905
Rental equipment depreciation expense was $13.7 million and $15.1 million in fiscal years 2022 and 2021, respectively.
F-21
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
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 for a one-year term.
Rental revenue related to these two properties for fiscal year 2022 was $0.2 million.
Future minimum lease payments due to the Company as of September 30, 2022 were as follows (in thousands):
For fiscal years ending September 30,
2023.......................................................................................................
2024.......................................................................................................
2025.......................................................................................................
2026.......................................................................................................
2027.......................................................................................................
$
$
136
128
131
132
11
538
10. Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
Land and land improvements..................................................... $
Building and building improvements.........................................
Machinery and equipment..........................................................
Furniture and fixtures.................................................................
Tools and molds .........................................................................
Construction in progress ............................................................
Transportation equipment ..........................................................
Accumulated depreciation and impairment ...............................
$
AS OF SEPTEMBER 30,
2022
2021
7,855
24,588
59,393
1,434
3,243
341
74
96,928
(70,330)
26,598
$
$
7,932
24,646
56,828
1,417
3,036
2,288
75
96,222
(66,239)
29,983
Property, plant and equipment depreciation expense was $4.1 and $4.0 million for the fiscal years ended September 30, 2022 and
Impairment expense of $0.4 million was incurred on certain manufacturing equipment in fiscal year 2022. The impairment
2021.
expense is included as a component of cost of revenue in the consolidated statement of operations.
11. Goodwill and Other Intangible Assets
At September 30, 2022, the Company had goodwill of $0.7 million and other intangible assets, net of $0.6 million attributable to its
Adjacent Markets reporting unit; other intangible assets, net of $3.5 million attributable to its Emerging Markets reporting unit; and
other intangible assets, net of $1.5 million attributable to its Oil and Gas Markets reporting unit. Goodwill represents the excess cost of
a business acquired over the fair market value of identifiable net assets at the date of acquisition.
At September 30, 2022, the Company assessed the goodwill associated with both its Adjacent 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,
market data and using estimates, judgments and other assumptions that management believes were appropriate under the circumstances.
The estimates and judgments used in the assessment included consideration of market participant rates of return and the terminal value
of the reporting units. The Company determined future cash flows provided the best estimate of the fair value of its reporting units.
Key assumptions in determining the fair value in the impairment analysis include revenue and cash flow projections, discount rates,
long-term growth rates, and the effective tax rate the Company determined to be appropriate. In determining fair value for the Company's
Emerging Markets reporting unit, cash flow projections included obtaining additional contracts from the CBP and considered
competition in the marketplace. These estimates and projections can be unpredictable, particularly for Quantum Technology Sciences,
Inc. ("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 implied 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 value its Emerging Markets reporting unit was less than its
carrying amount and recorded an impairment charge of $4.3 million for the entire goodwill associated with this reporting unit for the
fiscal year ended September 30, 2022. The primary factors impacting the decrease in the fair value of the Emerging Markets reporting
unit was historical operating losses and the current outlook for sales and operating performance. The carrying value of the reporting
In measuring sensitivity, changes to key
unit exceeded the fair value by approximately $8 million as a result of the assessment.
assumptions, each of which would cause an approximate $1.0 million change in the fair value of the reporting unit include (i) a 3%
change in the discount rate, (ii) a 4% change in revenue, (iii) a 10% change in cost of revenue or (iv) a 13% change in research and
development expense. No impairment charge to the Emerging Markets asset group was necessary as its future undiscounted cash flows
exceeded the carrying value. The Emerging Markets asset group could incur future impairment charges to its other intangible assets if
it is unable to obtain additional contracts from the CBP or other customers. No impairment charge was necessary on the Company's
Adjacent Markets reporting unit as a result of the assessment. Also see Note 1 to these consolidated financial statements.
The Company’s consolidated goodwill and other intangible assets consisted of the following (in thousands):
Weighted-
Average
Remaining
Useful Lives (in
years)
Goodwill:
Emerging Markets reporting unit.................................
Adjacent Markets reporting unit ..................................
Total goodwill..................................................................
Accumulated impairment losses ......................................
Other intangible assets:
Developed technology .................................................
Customer relationships ................................................
Trade names.................................................................
Non-compete agreements ............................................
Total other intangible assets ............................................
Accumulated amortization...............................................
14.2
0.5
1.0
0.3
7.5
AS OF SEPTEMBER 30,
2021
2022
$
$
$
$
4,336
736
5,072
(4,336)
736
6,475
3,900
2,022
186
12,583
(7,010)
5,573
$
$
$
$
4,336
736
5,072
—
5,072
6,475
3,900
2,022
186
12,583
(5,333)
7,250
Other intangible assets amortization expense was $1.7 million for each of the fiscal years ended September 30, 2022 and 2021.
As of September 30, 2022, future estimated amortization expense of other intangible assets is as follows (in thousands):
For fiscal years ending September 30,
2023..................................................................................................................
2024..................................................................................................................
2025..................................................................................................................
2026..................................................................................................................
2027..................................................................................................................
Thereafter .........................................................................................................
$
$
768
395
381
374
360
3,295
5,573
12. Long-Term Debt
The Company had no long-term debt outstanding at September 30, 2022 or 2021.
In May 2022, the Company entered into a credit agreement (the “Agreement”) with Amerisource Funding, Inc, as administrative
agent and as a lender, and Woodforest National Bank, as a lender. Available borrowings under the Agreement are determined by a
borrowing base with a maximum availability of $10 million. The borrowing base is determined based upon certain of the Company's
domestic assets which include (i) 70% loan to value of the Company's property located at 6410 Langfield Road in Houston, Texas (the
“Property”), (ii) 50% of forced liquidation value of equipment, (iii) 80% of certain accounts receivable and (iv) 50% of forced liquidation
value of certain inventory (inventory borrowing base limited to 100% of borrowing base credit given toward accounts receivable). The
F-23
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Agreement is for a two-year term with all funds borrowed due at the expiration of the term. The interest rate on borrowed funds is the
Wall Street prime rate (with a minimum of 3.25%) plus 4.00%. The Company is required to make monthly interest payments on
borrowed funds. Borrowings under the Agreement will be principally secured by the Property and the Company's domestic equipment,
inventory and accounts receivables. In addition, certain domestic subsidiaries of the Company have guaranteed the obligations of the
Company under the Agreement and such subsidiaries have secured the obligations by pledging certain assets. The Agreement requires
the Company to maintain a minimum consolidated tangible net worth of $100 million. At September 30, 2022, the Company was
compliant with all covenants under the Agreement and its borrowing availability was $8.5 million.
Debt issuance costs of $0.2 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.
13. Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
AS OF SEPTEMBER 30,
2021
2022
Deferred revenue....................................................................................... $
Compensated absences..............................................................................
Payroll .......................................................................................................
Property and sales taxes ............................................................................
Legal and professional fees.......................................................................
Medical claims ..........................................................................................
Product warranty .......................................................................................
Income taxes .............................................................................................
Other .........................................................................................................
$
629
1,849
804
991
346
590
524
56
827
6,616
$
$
1,346
1,728
1,579
1,038
360
574
379
29
766
7,799
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.
14. Employee Benefits
The Company’s U.S. employees are participants in the Geospace Technologies Corporation’s Employee’s 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 $1.0 million
and $0.9 million in fiscal years 2022 and 2021, respectively.
The Company’s stock incentive plans in which key employees may participate are discussed in Note 15 to these consolidated
financial statements.
15. Stockholders’ Equity
In February 2014, the board of directors and stockholders approved the 2014 Long Term Incentive Plan, as amended (the “2014
Plan”). Under the 2014 Plan, an aggregate of 3,000,000 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 exceed ten years, with the
exception of incentive stock options granted to employees owning ten 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, 2022, an aggregate of 1,468,916 shares of common stock were available for issuance under the 2014 Plan.
F-24
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The following table summarizes the combined activity under the equity incentive plans for the indicated periods:
Outstanding at October 1, 2020 ..............
Granted.......................................
Exercised ....................................
Forfeited .....................................
Vested........................................
Outstanding at September 30, 2021..........
Granted.......................................
Exercised ....................................
Forfeited .....................................
Vested........................................
Outstanding at September 30, 2022.......... $
Number of
Nonqualified
Options
Outstanding
Weighted
Average
Exercise
Price per
Share
Number of
RSAs
Weighted
Average
Grant-date
Fair Value
per Share
$
91,100
—
—
(52,300)
—
38,800
—
—
(38,800)
—
— $
17.66
—
—
16.47
—
21.42
—
—
21.42
—
—
110,374
—
—
(2,500)
(65,777)
42,097
—
—
—
(41,097)
1,000
$
$
16.66
—
—
14.78
17.28
15.95
—
—
—
14.67
14.59
Weighted
Average
Grant-date
Fair Value
per Unit
14.82
7.00
—
7.14
14.63
10.87
8.49
—
9.17
11.20
9.54
Number of
RSUs
218,257
195,950
—
(44,001)
(70,832)
299,374
200,350
—
(51,603)
(124,262)
323,859
$
$
During fiscal years 2022 and 2021, the Company issued 200,350 and 195,950 RSUs to certain of its employees, executive officers
and directors under the 2014 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 2022 and 2021 was $8.49 and $7.00 per unit, respectively. The total
grant date fair value of all RSUs issued for fiscal years 2022 and 2021 was $1.7 million and $1.4 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. No RSAs have been issued since fiscal year 2019.
All RSAs and RSUs outstanding at September 30, 2022 and 2021 were issued from the 2014 Plan.
Stock-based compensation expense recognized for the fiscal years ended September 30, 2022 and 2021 was $1.7 million and $2.0
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, 2022, the Company had unrecognized compensation expense
of $2,000 relating to RSAs which is expected to be recognized in the first quarter of fiscal year 2023. As of September 30, 2022, the
Company had unrecognized compensation expense of $1.9 million relating to RSUs which is expected to be recognized over a weighted
average period of 2.3 years.
16. Income Taxes:
Components of loss before income taxes were as follows (in thousands):
United States ............................................................................................. $
Foreign ......................................................................................................
$
The provision for income taxes consisted of the following (in thousands):
Current
Federal .................................................................................................. $
Foreign ..................................................................................................
State ......................................................................................................
Deferred:
Federal ..................................................................................................
Foreign ..................................................................................................
$
F-25
YEAR ENDED SEPTEMBER 30,
2022
2021
(19,425) $
(3,258)
(22,683) $
(10,628)
(2,850)
(13,478)
YEAR ENDED SEPTEMBER 30,
2022
2021
(12) $
202
—
190
—
(17)
(17)
173
$
14
561
—
575
—
3
3
578
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Actual income tax expense differs from income tax expense computed by applying the U.S. statutory federal tax rate of 21% for
each of the fiscal years ended September 30, 2022 and 2021 as follows (in thousands):
Expense (benefit) for U.S federal income tax at statutory rate ............ $
Effect of foreign income taxes .............................................................
Research and experimentation tax credit..............................................
State income taxes, net of federal income tax benefit ..........................
Nondeductible expenses .......................................................................
Change in valuation allowance.............................................................
Impact on deferred taxes due to change in tax rate ..............................
Change in fair value of contingent consideration.................................
Foreign income tax withholding...........................................................
Disallowance of stock compensation adjustments in excess of book ..
Other items ...........................................................................................
$
Effective tax rate...................................................................................
YEAR ENDED SEPTEMBER 30,
2022
2021
(4,763)
3
6
(265)
927
3,768
-
(278)
114
217
444
173
(0.8%)
$
$
(2,834)
1
(223)
153
44
2,893
563
(569)
419
334
(203)
578
(4.3%)
The income tax expense for fiscal years 2022 and 2021 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., Canada and the Russian Federation
due to the uncertainty surrounding its ability to utilize such losses in the future to offset taxable income.
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 assets (liabilities) were as follows (in thousands):
AS OF SEPTEMBER 30, 2022
Non U.S.
Total
U.S.
AS OF SEPTEMBER 30, 2021
Non U.S.
U.S.
Total
Deferred income tax assets:
Allowance for doubtful accounts ..................... $
Inventories ........................................................
Loss and tax credit carry-forwards...................
Stock-based compensation ...............................
Accrued product warranty ................................
Contingent earn-out consideration ...................
Accrued compensated absences .......................
Property and equipment ...................................
Prepaid income taxes........................................
Other reserves...................................................
Subtotal deferred income tax assets .....................
Valuation allowance .............................................
Net deferred income tax assets.............................
Deferred income tax liabilities:
Allowance for doubtful accounts .....................
Inventories ........................................................
Right-of-use assets ..........................................
Intangible assets ...............................................
Property, plant and equipment and other .........
Total deferred income tax liabilities.....................
Net deferred income tax liabilities ....................... $
$
109
8,295
29,606
262
99
—
347
—
—
30
38,748
(35,462)
3,286
—
—
(109)
(356)
(2,821)
(3,286)
— $
$
6
218
5,037
—
8
—
—
578
92
15
5,954
(5,914)
40
—
—
—
—
(53)
(53)
(13) $
115
8,513
34,643
262
107
—
347
578
92
45
44,702
(41,376)
3,326
—
—
(109)
(356)
(2,874)
(3,339)
$
80 $
8,042
27,578
398
77
917
320
—
—
114
37,526
(31,668)
5,858
—
—
(131)
(642)
(5,085)
(5,858)
(13) $
— $
$
4
—
4,945
—
2
—
—
487
266
11
5,715
(5,704)
11
84
8,042
32,523
398
79
917
320
487
266
125
43,241
(37,372)
5,869
—
(6)
—
—
(36)
(42)
(31) $
—
(6)
(131)
(642)
(5,121)
(5,900)
(31)
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
F-26
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
in these foreign operations would cause the excess to become taxable. At September 30, 2022, the Company had $2.6 million of cash
and cash equivalents held by its foreign subsidiaries. At September 30, 2022 and 2021, the temporary difference related to undistributed
earnings for which no deferred taxes have been provided was approximately $6.9 million and $6.5 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, 2019 through 2022
•
•
•
•
•
•
State of Texas—fiscal years ended September 30, 2019 through 2022
State of New York—fiscal year ended September 30, 2020
State of California – fiscal years ended September 30, 2019 through 2022
State of Pennsylvania – fiscal year ended September 30, 2019
Russian Federation—calendar years 2020 through 2022
Canada—fiscal years ended September 30, 2019 through 2022
• United Kingdom—fiscal years ended September 30, 2021 through 2022
•
Colombia—calendar years 2020 through 2022
The Company had no unrecognized tax liabilities as of September 30, 2022 and 2021.
As of September 30, 2022, the Company had net operating loss (“NOL”) carry-forwards of approximately $106.2 million in the
United States, $19.8 million in Canada and $2.3 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 $28.0 million begins to expire in 2028. The Company’s NOLs
originating after the 2017 Tax Act of $77.9 million do not expire. The Company has not completed a Section 382 limitation study which
may prevent it from using its NOLs in the future.
Management of the Company has concluded that it is more-likely-than-not that its U.S., Canadian and Russian net deferred tax assets
will not be realized in accordance with GAAP. At September 30, 2022 and 2021, the Company had a valuation allowance against its
U.S. net deferred tax assets of $35.5 million and $31.7 million, respectively. At September 30, 2022 and 2021, the Company had a
valuation allowance against Canadian net deferred tax assets of $5.2 million, and $5.4 million, respectively. At September 30, 2022
and 2021, the Company had a valuation allowance against its Russian net deferred tax assets of $0.7 million and $0.3 million,
respectively.
17. Loss Per Common Share
Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common
shares used in basic loss per share during the period. Diluted 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.
F-27
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The following table summarizes the calculation of net loss and weighted average common shares and common equivalent shares
outstanding for purposes of the computation of loss per share (in thousands, except share and per share amounts):
Net loss ..................................................................................................... $
Less: Loss allocable to unvested restricted stock .....................................
Loss attributable to common shareholders
YEAR ENDED SEPTEMBER 30,
2022
(22,856) $
—
2021
(14,056)
—
for diluted earnings per share ................................................................ $
(22,856) $
(14,056)
Weighted average number of common share equivalents:
Common shares used in basic loss per share ........................................
Common share equivalents outstanding related to
stock options and RSUs .....................................................................
Total weighted average common shares and common share
12,987,996
13,358,930
—
—
equivalents used in diluted loss per share..............................................
12,987,996
13,358,930
Loss per shares:
Basic ..................................................................................................... $
Diluted .................................................................................................. $
(1.76) $
(1.76) $
(1.05)
(1.05)
For the calculation of diluted loss per share for fiscal years 2022 and 2021, stock options of zero and 38,800, respectively, and RSUs
of 323,859 and 299,374, respectively, were excluded in the calculation of weighted average shares outstanding as a result of their impact
being antidilutive.
18. Commitments and Contingencies
Contingent Consideration
In connection with its acquisitions of Quantum and the OptoSeis® fiber optic sensing technology business, the Company recorded
contingent purchase price 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 reviews
and assesses the fair value of its contingent consideration on a quarterly basis. 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 value of the contingent consideration increases or decreases, respectively.
The Company recorded an initial contingent consideration 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 during a four-year earn-out period, which ended in July 2022. The maximum amount of contingent payments was $23.5
million over the four-year earn-out period. In fiscal year 2020, the Company made cash contingent consideration payments of $0.1
million to the former shareholders of Quantum. In September 2021 and October 2021, the Company made additional cash earn-out
payments of $1.4 million and $0.8 million, respectively, to the former shareholders of Quantum. The payments were primarily
attributable to revenue earned on Quantum’s $10.5 million contract with the CBP to provide a technology solution to the Department of
Homeland Security. At September 30, 2021, the contingent consideration liability was valued at $0.8 million related to projected future
eligible revenue. During the fiscal year ended September 30, 2022, the Company recorded an adjustment of $0.6 million to decrease the
liability to $0.2 million. The decrease for the fiscal year ended September 30, 2022 was primarily the result of timing in securing a
potential second contract with the CBP caused by federal budget delays. In November 2022, the Company made a final payment of
$0.2 million to the former shareholders of Quantum and has no further earn-out obligations related to this acquisition.
The Company recorded an initial contingent consideration 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 eligible revenue generated during a five-and-a-half year earn-out period ending in May 2024. In order for revenue to
be considered eligible, sales contracts must be entered into during the first four years of the earn-out period ending November 13, 2022.
The maximum amount of contingent payments is $23.2 million over the five-and-a-half year earn-out period. At September 30, 2021,
the contingent consideration liability was valued at $4.4 million. During the fiscal year ended September 30, 2022, the Company
recorded an adjustment of $4.4 million to decrease the liability to zero. The decrease for the fiscal year ended September 30, 2022 was
F-28
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
the result of the unlikelihood of entering into a sales contract prior to the eligibility date. No sales contracts were entered into by the
November 13, 2022 eligibility date. The Company had no further earn-out obligations related to this acquisition.
Contingent Compensation Costs
In connection with the acquisition of Aquana in July 2021, the Company is subject to additional contingent cash payments to the
former members of Aquana over a six-year earn-out period. The contingent payments, if any, will be derived from certain eligible
revenue generated during the earn-out period from products and services sold by Aquana. There is no maximum limit to the contingent
cash payments that could be made. The merger agreement with Aquana requires the continued employment of a certain key employee
and former member of Aquana for the first four years of the six year earn-out period in order for any of Aquana’s former members to
be eligible to any earn-out payments. As discussed in Note 3, due to the continued employment requirement, no liability has been
recorded for the estimated fair value of contingent earn-out payments for this transaction. Earn-outs achieved, if any, will be recorded
as compensation expense when incurred.
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.
19. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
Cash paid for income taxes ................................................................... $
169
$
Non-cash investing and financing activities:
Inventory transferred to rental equipment .............................................
Inventory transferred to property, plant and equipment........................
Issuance of notes receivables in connection with sale of used rental
equipment ..............................................................................................
1,148
172
11,745
551
4,038
286
2,665
YEAR ENDED SEPTEMBER 30,
2022
2021
20. Segment and Geographic Information
The Company reports and evaluates financial information for three operating business segments: Oil and Gas Markets, Adjacent
Markets and Emerging Markets. The Oil and Gas Markets 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. The Adjacent Markets
segment’s products include imaging equipment, water meter products, 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 designs and markets seismic products targeted at the border and perimeter security markets.
F-29
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The following tables summarize the Company’s segment information:
Revenue:
Oil and Gas Markets ............................................................................. $
Adjacent Markets ..................................................................................
Emerging Markets.................................................................................
Corporate...............................................................................................
Total ......................................................................................................
Income (loss) from operations:
Oil and Gas Markets .............................................................................
Adjacent Markets ..................................................................................
Emerging Markets.................................................................................
Corporate...............................................................................................
Total ......................................................................................................
Depreciation and amortization expenses:
Oil and Gas Markets .............................................................................
Adjacent Markets ..................................................................................
Emerging Markets.................................................................................
Corporate...............................................................................................
Total ......................................................................................................
Impairment, inventory obsolescence and stock-based compensation
expenses:
Oil and Gas Markets .............................................................................
Adjacent Markets ..................................................................................
Emerging Markets.................................................................................
Corporate...............................................................................................
Total ......................................................................................................
Interest income:
Oil and Gas Markets .............................................................................
Adjacent Markets ..................................................................................
Emerging Markets.................................................................................
Corporate...............................................................................................
Total ......................................................................................................
Interest expense:
Oil and Gas Markets .............................................................................
Adjacent Markets ..................................................................................
Emerging Markets.................................................................................
Corporate...............................................................................................
Total ......................................................................................................
YEAR ENDED SEPTEMBER 30,
2022
2021
$
49,141
39,171
711
230
89,253
(7,539)
6,021
(9,128)
(12,490)
(23,136)
16,947
743
1,068
802
19,560
3,612
932
4,423
727
9,694
850
—
—
126
976
65
—
—
—
65
52,252
32,419
10,193
—
94,864
(16,229)
6,423
5,033
(12,098)
(16,871)
18,199
440
1,209
929
20,777
3,850
223
100
798
4,971
1,409
1
—
31
1,441
—
—
—
—
—
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” loss from operations primarily consists of the Company’s Houston headquarters general and administrative expenses.
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 generated by the Company’s subsidiaries is as follows
(in thousands):
United States ............................................................................................. $
Canada.......................................................................................................
Russian Federation....................................................................................
United Kingdom........................................................................................
$
A summary of revenue by geographic area is as follows (in thousands):
Africa ........................................................................................................ $
Asia ...........................................................................................................
Canada.......................................................................................................
Europe .......................................................................................................
South America ..........................................................................................
United States .............................................................................................
Other .........................................................................................................
$
YEAR ENDED SEPTEMBER 30,
2022
2021
82,332
1,615
1,922
3,384
89,253
$
$
88,776
1,132
1,746
3,210
94,864
YEAR ENDED SEPTEMBER 30,
2022
2021
471
13,823
1,225
28,381
7,547
35,171
2,635
89,253
$
$
2,507
23,299
997
13,801
2,514
49,541
2,205
94,864
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):
United States .............................................................................. $
Canada........................................................................................
Colombia ....................................................................................
Russian Federation .....................................................................
United Kingdom.........................................................................
China ..........................................................................................
$
AS OF SEPTEMBER 30,
2021
2022
71,742 $
1,459
449
1,010
422
13
75,095 $
98,395
3,653
590
689
559
13
103,899
F-31
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, 2022
Allowance for doubtful accounts on accounts and financing
receivables...............................................................................$
428 $
292 $
— $
(129) $
591
Year ended September 30, 2021
Allowance for doubtful accounts on accounts and financing
receivables...............................................................................$
496 $
(76) $
— $
8 $
428
Year ended September 30, 2022
Inventory obsolescence reserve..................................................$
Year ended September 30, 2021
Inventory obsolescence reserve..................................................$
36,936 $
3,222 $
— $
(787) $
39,371
34,960 $
3,001 $
— $
(1,025) $
36,936
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged
to Other
Assets
(Deductions)
and
Additions
Balance at
End of
Period
F-32
COMP ANY LEADERSHIP
Edgar R. Giesinger, Jr.
Retired Managing Partner
KPMG, LLP
Tina M. Langtry
Retired Senior Manager
ConocoPhillips
Richard F. Miles
Private Investor
Walter R. Wheeler
President & CEO
BOARD OF DIRECTORS
Gary D. Owens
Chairman of the Board
Margaret “Sid” Ashworth
Retired Legislative Affairs
Northrop Grumman
Thomas L. Davis, Ph.D.
Professor of Geophysics
Colorado School of Mines
OFFICERS
Walter R. Wheeler
President &
Chief Executive Officer
Robbin B. Adams
Executive Vice President &
Chief Project Engineer
Robert L. Curda
Vice President &
Chief Financial Officer
Michael J. Sheen
Senior Vice President &
Chief Technical Officer
Left to Right - Sheen, Wheeler, Curda, Adams
CORP O RA T E HEA DQU ARTERS
Geospace Technologies Corporation, Inc.
7007 Pinemont Drive
Houston, Texas 77040 USA
(713) 986-4444 | geospace.com
GLOBA L L OCAT IONS
Geospace Technologies
Eurasia LLC
Kirovogradskaya, 36,
Ufa, Bashkortostan, Russia 450001
(7) 3472 25 3973 | geospace-ufa.ru
Geospace Technologies
Canada, Inc.
2735-37 Avenue, N.E.
Calgary, Alberta, Canada T1Y 5R8
(403) 250-9600 | geospacetech.ca
Geospace Technologies, China
Room 700, 7th Floor
Lido Office Tower, Lido Place
Jichang Road
Beijing 100004, P. R. China
86-10-64378768 | geospace.com
Geospace Technologies,
Sucursal Sudamericana
Av. Cra. 9 No. 115-06/30 Piso 17,
Edificio Tierra Firme
Bogotá D.C. - Colombia
57 (1) 639-8313 | geospacetech.co
S UB SID IARY CO MPA NIES
TM
Aquana, LLC
7007 Pinemont Drive
Houston, Texas 77040
(713) 986-4444
aquana.com
EXILE Technologies Ltd.
7007 Pinemont Drive
Houston, Texas 77040
(713) 986-4444
exiletech.com
EXILE Technologies Ltd.
F3 Bramingham Business Park
Enterprise Way, Luton,
Bedfordshire LU3 4BU, England
44 (0) 1582 573 980
exiletech.co.uk
Quantum Technology
Sciences, Inc.
5700 N. Harbor City Blvd. Suite 100
Melbourne, FL 32940
(321) 868-0288
qtsi.com