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Geospace Technologies Corp. – ‘10-Q’ for 6/30/22

On:  Wednesday, 8/10/22, at 2:46pm ET   ·   For:  6/30/22   ·   Accession #:  950170-22-16396   ·   File #:  1-13601

Previous ‘10-Q’:  ‘10-Q’ on 5/12/22 for 3/31/22   ·   Next:  ‘10-Q’ on 2/9/23 for 12/31/22   ·   Latest:  ‘10-Q’ on 2/8/24 for 12/31/23   ·   2 References:   

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/10/22  Geospace Technologies Corp.       10-Q        6/30/22   78:10M                                    Donnelley … Solutions/FA

Quarterly Report   —   Form 10-Q

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML   2.92M 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     28K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     28K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     24K 
 5: EX-32.2     Certification -- §906 - SOA'02                      HTML     24K 
11: R1          Document and Entity Information                     HTML     75K 
12: R2          Consolidated Balance Sheets (Unaudited)             HTML    138K 
13: R3          Consolidated Balance Sheets (Unaudited)             HTML     40K 
                (Parenthetical)                                                  
14: R4          Consolidated Statements of Operations (Unaudited)   HTML    138K 
15: R5          Consolidated Statements of Comprehensive Loss       HTML     48K 
                (Unaudited)                                                      
16: R6          Consolidated Statements of Stockholders' Equity     HTML     87K 
                (Unaudited)                                                      
17: R7          Consolidated Statements of Cash Flows (Unaudited)   HTML    128K 
18: R8          Significant Accounting Policies                     HTML     39K 
19: R9          Revenue Recognition                                 HTML    219K 
20: R10         Investments                                         HTML     72K 
21: R11         Fair Value of Financial Instruments                 HTML    164K 
22: R12         Trade Accounts and Financing Receivables            HTML     90K 
23: R13         Inventories                                         HTML     57K 
24: R14         Leases                                              HTML    156K 
25: R15         Goodwill and Other Intangible Assets                HTML     98K 
26: R16         Long-Term Debt                                      HTML     35K 
27: R17         Stock-Based Compensation                            HTML     32K 
28: R18         Loss Per Common Share                               HTML    109K 
29: R19         Commitments and Contingencies                       HTML     46K 
30: R20         Segment Information                                 HTML    128K 
31: R21         Income Taxes                                        HTML     28K 
32: R22         Risks and Uncertainties                             HTML     47K 
33: R23         Significant Accounting Policies (Policies)          HTML     50K 
34: R24         Revenue Recognition (Tables)                        HTML    199K 
35: R25         Investments (Tables)                                HTML     65K 
36: R26         Fair Value of Financial Instruments (Tables)        HTML    163K 
37: R27         Trade Accounts and Financing Receivables (Tables)   HTML     80K 
38: R28         Inventories (Tables)                                HTML     54K 
39: R29         Leases (Tables)                                     HTML    145K 
40: R30         Goodwill and Other Intangible Assets (Tables)       HTML     94K 
41: R31         Loss Per Common Share (Tables)                      HTML    106K 
42: R32         Segment Information (Tables)                        HTML    124K 
43: R33         Significant Accounting Policies - Additional        HTML     79K 
                Information (Details)                                            
44: R34         Revenue Recognition - Additional Information        HTML     79K 
                (Details)                                                        
45: R35         Revenue Recognition - Additional Information        HTML     26K 
                (Details 1)                                                      
46: R36         Revenue Recognition - Summary of Revenue from the   HTML     52K 
                Sale of Products and Performance of Services Under               
                Contracts with Customers Excludes All Revenue                    
                Earned from Rental Contracts by Operating Segments               
                (Details)                                                        
47: R37         Revenue Recognition - Summary of Revenue from the   HTML     42K 
                Sale of Products and Services Under Contracts with               
                Customers Excludes All Revenue Earned from Rental                
                Contracts by Geographic Areas (Details)                          
48: R38         Investments - Additional Information (Details)      HTML     29K 
49: R39         Investments - Summary of Short-Term Investments     HTML     31K 
                (Details)                                                        
50: R40         Fair Value of Financial Instruments - Fair Value    HTML     43K 
                of Company's Short-Term Investment and Contingent                
                Consideration by Valuation Hierarchy (Details)                   
51: R41         Fair Value of Financial Instruments - Changes in    HTML     31K 
                Fair Value of Company Level 3 Financial                          
                Instruments (Details)                                            
52: R42         Trade Accounts and Financing Receivables - Trade    HTML     30K 
                Accounts Receivable, Net (Details)                               
53: R43         Trade Accounts and Financing Receivables -          HTML     39K 
                Financing Receivables (Details)                                  
54: R44         Trade Accounts and Financing Receivables -          HTML     54K 
                Additional Information (Details)                                 
55: R45         Inventories - Inventories (Details)                 HTML     36K 
56: R46         Inventories - Additional Information (Details)      HTML     26K 
57: R47         Leases - Additional Information (Details)           HTML     54K 
58: R48         Leases - Summary of Maturities of Operating Lease   HTML     45K 
                Liabilities (Details)                                            
59: R49         Leases - Summary of Lease Costs (Details)           HTML     29K 
60: R50         Leases - Summary of Other Information Related to    HTML     31K 
                Operating Leases (Details)                                       
61: R51         Leases - Rental Equipment (Details)                 HTML     27K 
62: R52         Leases - Future Minimum Lease Payment (Details)     HTML     36K 
63: R53         Goodwill and Other Intangible Assets - Schedule of  HTML     46K 
                Goodwill and Other Intangible Assets (Details)                   
64: R54         Goodwill and Other Intangible Assets - Additional   HTML     41K 
                Information (Details)                                            
65: R55         Goodwill and Other Intangible Assets - Future       HTML     37K 
                Estimated Amortization Expense Of Other intangible               
                Assets (Details)                                                 
66: R56         Long-Term Debt - Additional Information (Details)   HTML     49K 
67: R57         Stock-Based Compensation - Additional Information   HTML     49K 
                (Details)                                                        
68: R58         Loss Per Common Share - Calculation of Net Loss     HTML     63K 
                and Weighted Average Common Shares and Common                    
                Equivalent Shares Outstanding for Computation of                 
                Loss Per Share (Details)                                         
69: R59         Loss Per Common Share - Additional Information      HTML     29K 
                (Details)                                                        
70: R60         Commitments and Contingencies - Additional          HTML     71K 
                Information (Details)                                            
71: R61         Segment Information - Summary of Company's Segment  HTML     46K 
                Information (Details)                                            
72: R62         Income Taxes - Additional Information (Details)     HTML     26K 
73: R63         Risks and Uncertainties - Additional Information    HTML     62K 
                (Details)                                                        
76: XML         IDEA XML File -- Filing Summary                      XML    141K 
74: XML         XBRL Instance -- geos-20220630_htm                   XML   2.76M 
75: EXCEL       IDEA Workbook of Financial Reports                  XLSX    130K 
 7: EX-101.CAL  XBRL Calculations -- geos-20220630_cal               XML    211K 
 8: EX-101.DEF  XBRL Definitions -- geos-20220630_def                XML    476K 
10: EX-101.LAB  XBRL Labels -- geos-20220630_lab                     XML   1.22M 
 6: EX-101.PRE  XBRL Presentations -- geos-20220630_pre              XML    861K 
 9: EX-101.SCH  XBRL Schema -- geos-20220630                         XSD    178K 
77: JSON        XBRL Instance as JSON Data -- MetaLinks              423±   651K 
78: ZIP         XBRL Zipped Folder -- 0000950170-22-016396-xbrl      Zip    313K 


‘10-Q’   —   Quarterly Report

Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Part I. Financial Information
"Item 1. Financial Statements
"Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"I tem 3. Quantitative and Qualitative Disclosures about Market Risk
"Item 4. Controls and Procedures
"Item 1A. Risk Factors
"Item 6. Exhibits

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM  i 10-Q

 

(Mark One)

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

for the Quarterly Period Ended i  June 30, 2022 OR

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

for the transition period from ____ to ____

Commission file number  i 001-13601

 

 i GEOSPACE TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 i Texas

 i 76-0447780

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 i 7007 Pinemont,

 i Houston,  i Texas

 i 77040

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: ( i 713)  i 986-4444

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

 i Common Stock

 

 i GEOS

 

 i The Nasdaq Global Select Market

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.  i 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  i Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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

 

 

 

 

 

 

 

 

 i Non-accelerated filer

 

 

 

 

Smaller reporting company

 i 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 i 

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

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

As of July 31, 2022, the registrant had  i 13,021,241 shares of common stock, $0.01 par value per share outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

Number

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements

 

3

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

29

 

 

 

Item 4. Controls and Procedures

 

30

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1A. Risk Factors

 

30

 

 

 

Item 6. Exhibits

 

32

 

2


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands except share amounts)

(unaudited)

 

 

 

June 30, 2022

 

 

September 30, 2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

 i 7,468

 

 

$

 i 14,066

 

Short-term investments

 

 

 i 1,598

 

 

 

 i 9,496

 

Trade accounts and financing receivables, net

 

 

 i 26,400

 

 

 

 i 17,159

 

Unbilled receivables

 

 

 

 

 

 i 1,051

 

Inventories, net

 

 

 i 18,868

 

 

 

 i 16,196

 

Prepaid expenses and other current assets

 

 

 i 2,614

 

 

 

 i 2,062

 

Total current assets

 

 

 i 56,948

 

 

 

 i 60,030

 

 

 

 

 

 

 

 

Non-current financing receivables

 

 

 i 306

 

 

 

 i 2,938

 

Non-current inventories, net

 

 

 i 13,992

 

 

 

 i 18,103

 

Rental equipment, net

 

 

 i 30,910

 

 

 

 i 38,905

 

Property, plant and equipment, net

 

 

 i 27,835

 

 

 

 i 29,983

 

Operating right-of-use assets

 

 

 i 1,011

 

 

 

 i 1,191

 

Goodwill

 

 

 i 5,072

 

 

 

 i 5,072

 

Other intangible assets, net

 

 

 i 5,911

 

 

 

 i 7,250

 

Other assets

 

 

 i 411

 

 

 

 i 457

 

Total assets

 

$

 i 142,396

 

 

$

 i 163,929

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable trade

 

$

 i 4,163

 

 

$

 i 6,391

 

Contingent consideration

 

 

 i 168

 

 

 

 i 807

 

Operating lease liabilities

 

 

 i 237

 

 

 

 i 225

 

Other current liabilities

 

 

 i 7,744

 

 

 

 i 7,799

 

Total current liabilities

 

 

 i 12,312

 

 

 

 i 15,222

 

 

 

 

 

 

 

 

Non-current contingent consideration

 

 

 

 

 

 i 5,210

 

Non-current operating lease liabilities

 

 

 i 836

 

 

 

 i 1,009

 

Non-current other liabilities

 

 

 i 16

 

 

 

 i 31

 

Total liabilities

 

 

 i 13,164

 

 

 

 i 21,472

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

      Common Stock, $ i  i .01 /  par value,  i  i 20,000,000 /  shares authorized;  i 13,861,233 and
        
 i 13,738,971 shares issued, respectively; and  i 13,019,241 and  i 12,969,542 shares
        outstanding, respectively

 

 

 i 139

 

 

 

 i 137

 

Additional paid-in capital

 

 

 i 94,276

 

 

 

 i 92,935

 

Retained earnings

 

 

 i 57,694

 

 

 

 i 72,510

 

Accumulated other comprehensive loss

 

 

( i 15,377

)

 

 

( i 16,320

)

Treasury stock, at cost,  i 841,992 and  i 769,429 shares, respectively

 

 

( i 7,500

)

 

 

( i 6,805

)

Total stockholders’ equity

 

 

 i 129,232

 

 

 

 i 142,457

 

Total liabilities and stockholders’ equity

 

$

 i 142,396

 

 

$

 i 163,929

 

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

3


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

 i 13,463

 

 

$

 i 17,679

 

 

$

 i 48,060

 

 

$

 i 66,005

 

Rental

 

 

 i 7,228

 

 

 

 i 5,404

 

 

 

 i 15,322

 

 

 

 i 9,430

 

Total revenue

 

 

 i 20,691

 

 

 

 i 23,083

 

 

 

 i 63,382

 

 

 

 i 75,435

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

 i 12,460

 

 

 

 i 12,907

 

 

 

 i 37,310

 

 

 

 i 47,492

 

Rental

 

 

 i 4,580

 

 

 

 i 4,549

 

 

 

 i 13,909

 

 

 

 i 14,744

 

Total cost of revenue

 

 

 i 17,040

 

 

 

 i 17,456

 

 

 

 i 51,219

 

 

 

 i 62,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 i 3,651

 

 

 

 i 5,627

 

 

 

 i 12,163

 

 

 

 i 13,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

 i 6,373

 

 

 

 i 5,243

 

 

 

 i 18,108

 

 

 

 i 16,075

 

Research and development

 

 

 i 4,108

 

 

 

 i 3,658

 

 

 

 i 14,050

 

 

 

 i 10,943

 

Change in estimated fair value of contingent consideration

 

 

( i 384

)

 

 

( i 795

)

 

 

( i 5,042

)

 

 

( i 1,713

)

Bad debt expense (recovery)

 

 

 i 88

 

 

 

( i 40

)

 

 

 i 116

 

 

 

( i 32

)

Total operating expenses

 

 

 i 10,185

 

 

 

 i 8,066

 

 

 

 i 27,232

 

 

 

 i 25,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

( i 6,534

)

 

 

( i 2,439

)

 

 

( i 15,069

)

 

 

( i 12,074

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

( i 26

)

 

 

 

 

 

( i 26

)

 

 

 

Interest income

 

 

 i 402

 

 

 

 i 151

 

 

 

 i 722

 

 

 

 i 1,284

 

Gain (loss) on investments, net

 

 

( i 4

)

 

 

 i 1,727

 

 

 

( i 22

)

 

 

 i 1,996

 

Foreign exchange gains (losses), net

 

 

( i 341

)

 

 

( i 49

)

 

 

( i 230

)

 

 

 i 64

 

Other, net

 

 

( i 3

)

 

 

( i 8

)

 

 

( i 21

)

 

 

( i 3

)

Total other income, net

 

 

 i 28

 

 

 

 i 1,821

 

 

 

 i 423

 

 

 

 i 3,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

( i 6,506

)

 

 

( i 618

)

 

 

( i 14,646

)

 

 

( i 8,733

)

Income tax expense

 

 

 i 68

 

 

 

 i 169

 

 

 

 i 170

 

 

 

 i 288

 

Net loss

 

$

( i 6,574

)

 

$

( i 787

)

 

$

( i 14,816

)

 

$

( i 9,021

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

( i 0.51

)

 

$

( i 0.06

)

 

$

( i 1.14

)

 

$

( i 0.67

)

Diluted

 

$

( i 0.51

)

 

$

( i 0.06

)

 

$

( i 1.14

)

 

$

( i 0.67

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 i 13,013,616

 

 

 

 i 13,353,254

 

 

 

 i 12,977,146

 

 

 

 i 13,464,177

 

Diluted

 

 

 i 13,013,616

 

 

 

 i 13,353,254

 

 

 

 i 12,977,146

 

 

 

 i 13,464,177

 

 

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

4


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Net loss

 

$

( i 6,574

)

 

$

( i 787

)

 

$

( i 14,816

)

 

$

( i 9,021

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 i 5

 

 

 

( i 6

)

 

 

( i 2

)

 

 

( i 9

)

Foreign currency translation adjustments

 

 

 i 2,636

 

 

 

 i 278

 

 

 

 i 945

 

 

 

 i 541

 

Total other comprehensive income

 

 

 i 2,641

 

 

 

 i 272

 

 

 

 i 943

 

 

 

 i 532

 

Total comprehensive loss

 

$

( i 3,933

)

 

$

( i 515

)

 

$

( i 13,873

)

 

$

( i 8,489

)

 

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

5


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JUNE 30, 2022 AND 2021

(in thousands, except share amounts)

(unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

 

 

 

 

Outstanding

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Total

 

Balance at October 1, 2021

 

 

 i 12,969,542

 

 

$

 i 137

 

 

$

 i 92,935

 

 

$

 i 72,510

 

 

$

( i 16,320

)

 

$

( i 6,805

)

 

$

 i 142,457

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

( i 6,768

)

 

 

 

 

 

 

 

 

( i 6,768

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( i 142

)

 

 

 

 

 

( i 142

)

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

 

 

 i 84,762

 

 

 

 i 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 i 1

 

Purchase of treasury stock

 

 

( i 72,563

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( i 695

)

 

 

( i 695

)

Stock-based compensation

 

 

 

 

 

 

 

 

 i 536

 

 

 

 

 

 

 

 

 

 

 

 

 i 536

 

Balance at December 31, 2021

 

 

 i 12,981,741

 

 

 

 i 138

 

 

 

 i 93,471

 

 

 

 i 65,742

 

 

 

( i 16,462

)

 

 

( i 7,500

)

 

 

 i 135,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

( i 1,474

)

 

 

 

 

 

 

 

 

( i 1,474

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( i 1,556

)

 

 

 

 

 

( i 1,556

)

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

 

 

 i 37,500

 

 

 

 i 1

 

 

 

( i 1

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 i 418

 

 

 

 

 

 

 

 

 

 

 

 

 i 418

 

Balance at March 31, 2022

 

 

 i 13,019,241

 

 

 

 i 139

 

 

 

 i 93,888

 

 

 

 i 64,268

 

 

 

( i 18,018

)

 

 

( i 7,500

)

 

 

 i 132,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

( i 6,574

)

 

 

 

 

 

 

 

 

( i 6,574

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 i 2,641

 

 

 

 

 

 

 i 2,641

 

Stock-based compensation

 

 

 

 

 

 

 

 

 i 388

 

 

 

 

 

 

 

 

 

 

 

 

 i 388

 

Balance at June 30, 2022

 

 

 i 13,019,241

 

 

$

 i 139

 

 

$

 i 94,276

 

 

$

 i 57,694

 

 

$

( i 15,377

)

 

$

( i 7,500

)

 

$

 i 129,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 1, 2020

 

 

 i 13,670,639

 

 

$

 i 137

 

 

$

 i 90,965

 

 

$

 i 86,566

 

 

$

( i 16,698

)

 

$

 

 

$

 i 160,970

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

( i 1,050

)

 

 

 

 

 

 

 

 

( i 1,050

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 i 197

 

 

 

 

 

 

 i 197

 

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

 

 

 i 57,332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

( i 117,637

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( i 828

)

 

 

( i 828

)

Stock-based compensation

 

 

 

 

 

 

 

 

 i 548

 

 

 

 

 

 

 

 

 

 

 

 

 i 548

 

Balance at December 31, 2020

 

 

 i 13,610,334

 

 

 

 i 137

 

 

 

 i 91,513

 

 

 

 i 85,516

 

 

 

( i 16,501

)

 

 

( i 828

)

 

 

 i 159,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

( i 7,184

)

 

 

 

 

 

 

 

 

( i 7,184

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 i 63

 

 

 

 

 

 

 i 63

 

Forfeiture of restricted stock

 

 

( i 375

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 i 13,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

( i 157,551

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( i 1,500

)

 

 

( i 1,500

)

Stock-based compensation

 

 

 

 

 

 

 

 

 i 479

 

 

 

 

 

 

 

 

 

 

 

 

 i 479

 

Balance at March 31, 2021

 

 

 i 13,465,908

 

 

 

 i 137

 

 

 

 i 91,992

 

 

 

 i 78,332

 

 

 

( i 16,438

)

 

 

( i 2,328

)

 

 

 i 151,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

( i 787

)

 

 

 

 

 

 

 

 

( i 787

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 i 272

 

 

 

 

 

 

 i 272

 

Forfeiture of restricted stock

 

 

( i 2,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

( i 148,511

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( i 1,260

)

 

 

( i 1,260

)

Stock-based compensation

 

 

 

 

 

 

 

 

 i 483

 

 

 

 

 

 

 

 

 

 

 

 

 i 483

 

Balance at June 30, 2021

 

 

 i 13,315,397

 

 

$

 i 137

 

 

$

 i 92,475

 

 

$

 i 77,545

 

 

$

( i 16,166

)

 

$

( i 3,588

)

 

$

 i 150,403

 

 

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

 

6


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

( i 14,816

)

 

$

( i 9,021

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Deferred income tax benefit

 

 

( i 12

)

 

 

( i 3

)

Rental equipment depreciation

 

 

 i 10,500

 

 

 

 i 11,332

 

Property, plant and equipment depreciation

 

 

 i 3,112

 

 

 

 i 2,956

 

Amortization

 

 

 i 1,365

 

 

 

 i 1,299

 

Accretion of discounts on short-term investments

 

 

 i 89

 

 

 

 i 45

 

Stock-based compensation expense

 

 

 i 1,342

 

 

 

 i 1,510

 

Bad debt expense (recovery)

 

 

 i 116

 

 

 

( i 32

)

Inventory obsolescence expense

 

 

 i 2,310

 

 

 

 i 1,702

 

Change in estimated fair value of contingent consideration

 

 

( i 5,042

)

 

 

( i 1,713

)

Gross profit from sale of used rental equipment

 

 

( i 10,801

)

 

 

( i 6,546

)

(Gain) loss on disposal of property, plant and equipment

 

 

( i 9

)

 

 

 i 6

 

Realized loss (gain) on sale of investments, net

 

 

 i 22

 

 

 

( i 1,996

)

Effects of changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts and notes receivables

 

 

 i 1,455

 

 

 

( i 4,621

)

Unbilled receivables

 

 

 i 1,051

 

 

 

( i 1,561

)

Inventories

 

 

( i 1,705

)

 

 

( i 4,920

)

Other assets

 

 

( i 250

)

 

 

 i 6,756

 

Accounts payable trade

 

 

( i 2,223

)

 

 

 i 1,372

 

Other liabilities

 

 

 i 215

 

 

 

( i 4,080

)

Net cash used in operating activities

 

 

( i 13,281

)

 

 

( i 7,515

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

( i 913

)

 

 

( i 2,451

)

Proceeds from the sale of property, plant and equipment

 

 

 i 9

 

 

 

 i 3

 

Investment in rental equipment

 

 

( i 4,121

)

 

 

( i 1,528

)

Proceeds from the sale of used rental equipment

 

 

 i 5,929

 

 

 

 i 9,994

 

Purchases of short-term investments

 

 

( i 450

)

 

 

( i 10,844

)

Proceeds from the sale of short-term investments

 

 

 i 8,224

 

 

 

 i 1,100

 

Proceeds from sale of investment in debt security

 

 

 

 

 

 i 2,069

 

Net cash provided by (used in) investing activities

 

 

 i 8,678

 

 

 

( i 1,657

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Payments on contingent consideration

 

 

( i 807

)

 

 

 

Debt issuance costs

 

 

( i 211

)

 

 

 

Purchase of treasury stock

 

 

( i 695

)

 

 

( i 3,588

)

Net cash used in financing activities

 

 

( i 1,713

)

 

 

( i 3,588

)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

( i 282

)

 

 

 i 144

 

Decrease in cash, cash equivalents and restricted cash

 

 

( i 6,598

)

 

 

( i 12,616

)

Cash and cash equivalents, beginning of fiscal year

 

 

 i 14,066

 

 

 

 i 32,686

 

Cash, cash equivalents and restricted cash, end of fiscal period

 

$

 i 7,468

 

 

$

 i 20,070

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid for income taxes

 

$

 i 168

 

 

$

 i 284

 

Issuance of notes receivable in connection with sale of used rental equipment

 

 

 i 11,745

 

 

 

 

Inventory transferred to rental equipment

 

 

 i 1,194

 

 

 

 i 3,777

 

Inventory transferred to property, plant and equipment

 

 

 i 172

 

 

 

 

 

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

7


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 i 

1. Significant Accounting Policies

 i 

Basis of Presentation

The consolidated balance sheet of Geospace Technologies Corporation and its subsidiaries (the “Company”) at September 30, 2021 was derived from the Company’s audited consolidated financial statements at that date. The consolidated balance sheet at June 30, 2022 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three and nine months ended June 30, 2022 and 2021 were prepared by the Company without audit. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows were made. All intercompany balances and transactions have been eliminated. The results of operations for the three and nine months ended June 30, 2022 are not necessarily indicative of the operating results for a full year or of future operations.

Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to the rules of the Securities and Exchange Commission. The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2021.

 i 

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 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 and 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.

 i 

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 June 30, 2022, the Company had restricted cash of $ i 0.1 million on deposit with a bank which serves as collateral on employee issued credit cards. The Company had  i no restricted cash at September 30, 2021. At June 30, 2022, cash and cash equivalents included $ i 2.6 million held by the Company’s foreign subsidiaries and branch offices, including $ i 1.4 million held by its subsidiary in the Russian Federation. 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.

 / 
 i 

Impairment of Long-lived Assets

The Company's long-lived assets are reviewed for impairment whenever an event or circumstance indicates that the carrying amount of an asset or group of assets may not be recoverable. The impairment review, if necessary, includes a comparison of the 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 were observed at June 30, 2022. As a result, no impairment charges have been necessary for the nine months ended June 30, 2022.

 i 

Recently Adopted Accounting Pronouncements

In December 2019, 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  i adopted this guidance during the first quarter of fiscal year 2022. The adoption of this guidance did  i not have any impact on the Company's consolidated financial statements.

8


 

 i 

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (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 small 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.

 / 
 i 

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.

During the third quarter of fiscal year 2020, the Company was awarded an approximate $ i 10.5 million contract (inclusive of a subsequent contract amendment of $ i 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 nine months ended June 30, 2022 and 2021 was $ i 0.3 million and $ i 9.9 million, respectively. The Company completed this contract in the second quarter of fiscal year 2022 and has recognized revenue on the entire amount of the contract. No performance obligations remain under the contract. Unsatisfied performance obligations on all other contracts held by the Company at June 30, 2022 had an original duration of  i one year or less.

At June 30, 2022 and September 30, 2021, the Company had  i  i no /  deferred contract costs or deferred contract liabilities. During the three and nine months ended June 30, 2022 and 2021,  i  i  i  i no /  /  /  revenue was recognized from deferred contract liabilities and  i  i  i  i no /  /  /  cost of revenue was recognized from deferred contract costs.

During the second quarter of fiscal year 2020, the Company partially financed a $ i 12.5 million product sale by entering into a $ i 10.0 million promissory note with the customer. The note has a  i three-year term with  i monthly principal and interest payments of $ i 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 Company did  i  i no / t 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

9


 

Company and recognized revenue of $ i 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. The customer has made payments totaling $ i 8.7 million (exclusive of interest) as of June 30, 2022 related to the product sale, and the balance outstanding on the promissory note at June 30, 2022 was $ i 3.8 million. Deferred contract costs associated with this sale were recognized in the second quarter of fiscal year 2021.

 i 

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.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Oil and Gas Markets

 

 

 

 

 

 

 

 

 

 

 

 

Traditional exploration product revenue

 

$

 i 1,592

 

 

$

 i 1,949

 

 

$

 i 3,389

 

 

$

 i 3,736

 

Wireless exploration product revenue

 

 

 i 100

 

 

 

 i 4,264

 

 

 

 i 14,358

 

 

 

 i 26,923

 

Reservoir product revenue

 

 

 i 692

 

 

 

 i 1,071

 

 

 

 i 1,513

 

 

 

 i 1,565

 

Total revenue

 

 

 i 2,384

 

 

 

 i 7,284

 

 

 

 i 19,260

 

 

 

 i 32,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjacent Markets

 

 

 

 

 

 

 

 

 

 

 

 

Industrial product revenue

 

 

 i 7,465

 

 

 

 i 6,451

 

 

 

 i 18,471

 

 

 

 i 15,835

 

Imaging product revenue

 

 

 i 3,429

 

 

 

 i 2,883

 

 

 

 i 9,708

 

 

 

 i 7,923

 

Total revenue

 

 

 i 10,894

 

 

 

 i 9,334

 

 

 

 i 28,179

 

 

 

 i 23,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emerging Markets

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 i 135

 

 

 

 i 1,061

 

 

 

 i 571

 

 

 

 i 10,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 i 50

 

 

 

 

 

 

 i 50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 i 13,463

 

 

$

 i 17,679

 

 

$

 i 48,060

 

 

$

 i 66,005

 

 / 

 

See Note 13 for more information on the Company’s operating segments.

 i 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Asia

 

$

 i 1,223

 

 

$

 i 4,088

 

 

$

 i 7,580

 

 

$

 i 16,554

 

Canada

 

 

 i 577

 

 

 

 i 279

 

 

 

 i 1,634

 

 

 

 i 1,167

 

Europe

 

 

 i 1,625

 

 

 

 i 3,223

 

 

 

 i 14,368

 

 

 

 i 6,102

 

United States

 

 

 i 9,297

 

 

 

 i 9,401

 

 

 

 i 22,621

 

 

 

 i 40,820

 

Other

 

 

 i 741

 

 

 

 i 688

 

 

 

 i 1,857

 

 

 

 i 1,362

 

Total

 

$

 i 13,463

 

 

$

 i 17,679

 

 

$

 i 48,060

 

 

$

 i 66,005

 

 / 

 

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.

 / 

 

 i 

3. 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 three and nine months ended June 30, 2022, the Company realized losses of $ i 4,000 and $ i 22,000, respectively, from the

10


 

sale of short-term investments. For each of the three and nine months ended June 30, 2021, the Company realized losses of $ i  i 1,000 /  from the sale of short-term investments.

 i 

The Company’s short-term investments were composed of the following (in thousands):

 

 

 

As of June 30, 2022 (in thousands)

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair
Value

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 i 1,615

 

 

$

 

 

$

( i 17

)

 

$

 i 1,598

 

 

 

 

 

As of September 30, 2021 (in thousands)

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair
Value

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 i 9,511

 

 

$

 

 

$

( i 15

)

 

$

 i 9,496

 

 / 

 

The Company’s short-term investments at June 30, 2022 had contractual maturities ranging from July 2022 to March 2023.

Investment in Debt Security

During the three and nine months ended June 30, 2021, the Company recognized a gain of $ i 1.7 million and $ i 2.0 million, respectively, in connection with the sale of its interest in a senior secured bond originally issued from an international seismic marine customer.

 / 

 

4.  i  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 and financing receivables and accounts payable, the carrying amounts of these financial instruments are deemed to approximate their fair value on the respective balance sheet dates. The valuation technique used to measure the fair value of the contingent consideration was based on internal estimates and the use of internal projections of future revenue.

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

 i 

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 June 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

 

$

 

 

$

 i 1,598

 

 

$

 

 

$

 i 1,598

 

Total assets

 

$

 

 

$

 i 1,598

 

 

$

 

 

$

 i 1,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Current portion

 

 

 

 

 

 

 

 

 i 168

 

 

 

 i 168

 

Non-current portion

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

$

 

 

$

 

 

$

 i 168

 

 

$

 i 168

 

 

11


 

 

 

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

 

$

 

 

$

 i 9,496

 

 

$

 

 

$

 i 9,496

 

       Total assets

 

$

 

 

$

 i 9,496

 

 

$

 

 

$

 i 9,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

       Current portion

 

$

 

 

$

 

 

$

 i 807

 

 

$

 i 807

 

 Non-current portion

 

 

 

 

 

 

 

 

 i 5,210

 

 

 

 i 5,210

 

Total liabilities

 

$

 

 

$

 

 

$

 i 6,017

 

 

$

 i 6,017

 

 / 
 i 

The following table summarizes changes in the fair value of the Company’s Level 3 financial instruments for the nine months ended June 30, 2022 and 2021

 

Balance at October 1, 2021

$

 i 6,017

 

Fair value adjustments

 

( i 5,042

)

Payment of contingent consideration

 

( i 807

)

Balance at June 30, 2022

$

 i 168

 

 

 

 

Balance at October 1, 2020

$

 i 10,962

 

Fair value adjustments

 

( i 1,713

)

Payment of contingent consideration

 

 

Balance at June 30, 2021

$

 i 9,249

 

 / 

 

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 12.

 i 

5. Trade Accounts and Financing Receivables

 i 

Trade accounts receivable, net (excluding notes receivable) are reflected in the following table (in thousands):

 

 

 

June 30, 2022

 

 

September 30, 2021

 

Trade accounts receivable

 

$

 i 12,832

 

 

$

 i 12,635

 

Allowance for doubtful accounts

 

 

( i 542

)

 

 

( i 428

)

Total

 

$

 i 12,290

 

 

$

 i 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 trade accounts receivable balances. Trade accounts receivable balances are charged off against the allowance whenever it is probable that the receivable balance will not be recoverable.

 i 

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

 

 

June 30, 2022

 

 

September 30, 2021

 

Promissory notes

 

$

 i 14,416

 

 

$

 i 5,432

 

Sales-type leases

 

 

 

 

 

 i 2,464

 

     Total financing receivables

 

$

 i 14,416

 

 

$

 i 7,896

 

Unearned income:

 

 

 

 

 

 

     Sales-type leases

 

 

 

 

 

( i 6

)

         Total unearned income

 

 

 

 

 

( i 6

)

Total financing receivables, net of unearned income

 

 

 i 14,416

 

 

 

 i 7,890

 

Less current portion

 

 

( i 14,110

)

 

 

( i 4,952

)

Non-current notes receivable

 

$

 i 306

 

 

$

 i 2,938

 

 

12


 

 / 

 

Promissory notes receivable are generally collateralized by the products sold, and bear interest at rates ranging from  i 7.0% to  i 9.5% per year. The promissory notes receivable mature at various times through  i July 2023. The Company has, on occasion, extended or renewed notes receivable as they mature, but there is no obligation to do so.

During the second quarter of fiscal year 2022, the Company partially financed a $ i 10.0 million sale of rental equipment by entering into a $ i 8.0 million promissory note with a customer. The note has a  i one-year term, with principal and interest payments due quarterly until maturity.

During the first quarter of fiscal year 2022, the Company financed a sale of rental equipment by entering into a $ i 3.7 million promissory note with a customer. The note has a term of  i nine months, with principal and interest payments due monthly 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 term of  i six months, was paid during the second quarter of fiscal year 2022.

During the second quarter of fiscal year 2020, the Company partially financed a $ i 12.5 million product sale by entering into a $ i 10.0 million promissory note with the customer. The note has a  i three-year term with  i monthly principal and interest payments of $ i 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.

 / 

 

6.  i Inventories

 i 

Inventories consist of the following (in thousands):

 

 

 

June 30, 2022

 

 

September 30, 2021

 

Finished goods

 

$

 i 18,592

 

 

$

 i 19,368

 

Work in process

 

 

 i 3,758

 

 

 

 i 8,247

 

Raw materials

 

 

 i 48,816

 

 

 

 i 43,620

 

Obsolescence reserve

 

 

( i 38,306

)

 

 

( i 36,936

)

 

 

 

 i 32,860

 

 

 

 i 34,299

 

Less current portion

 

 

 i 18,868

 

 

 

 i 16,196

 

Non-current portion

 

$

 i 13,992

 

 

$

 i 18,103

 

 / 

 

Raw materials include semi-finished goods and component parts that totaled $ i 23.1 million and $ i 22.7 million at June 30, 2022 and September 30, 2021, respectively. Finished goods and raw materials that totaled $ i 27.1 million and $ i 23.3 million were fully reserved at June 30, 2022 and September 30, 2021, respectively.

 i 

7. 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 lease liabilities and are

13


 

recognized in the period in which the obligation for those payments is incurred. As of June 30, 2022, the Company has  i two operating right-of-use assets related to leased facilities in Austin, Texas and Melbourne, Florida.

 i 

Maturities of the operating lease liabilities as of June 30, 2022 were as follows: (in thousands):

 

For fiscal years ending September 30,

 

 

 

2022 (remainder)

 

$

 i 72

 

2023

 

 

 i 270

 

2024

 

 

 i 278

 

2025

 

 

 i 186

 

2026

 

 

 i 130

 

Thereafter

 

 

 i 225

 

Future minimum lease payments

 

 

 i 1,161

 

Less interest

 

 

( i 88

)

Present value of minimum lease payments

 

 

 i 1,073

 

Less current portion

 

 

( i 237

)

Long-term portion

 

$

 i 836

 

 / 
 i 

Lease costs recognized in the consolidated statements of operations for the three and nine months ended June 30, 2022 and 2021 were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Right-of-use operating lease costs

 

$

 i 68

 

 

$

 i 67

 

 

$

 i 204

 

 

$

 i 178

 

Short-term lease costs

 

 

 i 52

 

 

 

 i 52

 

 

 

 i 148

 

 

 

 i 192

 

Total

 

$

 i 120

 

 

$

 i 119

 

 

$

 i 352

 

 

$

 i 370

 

 / 

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):

 

 i 

 

Nine Months Ended

 

 

June 30, 2022

 

 

June 30, 2021

 

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

 

 

 

 

 

   Operating cash flows from operating leases

$

 i 190

 

 

$

 i 142

 

   Operating lease assets obtained in exchange for new lease liabilities

 

 

 

 

 i 1,336

 

 

 

 

 

 

 

Weighted average remaining lease term

 i 4.9 years

 

 

 i 5.8 years

 

Weighted average discount rate

 

 i 3.25

%

 

 

 i 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  i one year. All of the Company’s current leasing arrangements, which 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 systems.

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 and limits future rental revenue recognition to cash received. As of June 30, 2022, the Company’s trade accounts receivables included lease receivables of $ i 5.4 million.

Rental revenue related to leased equipment for the three and nine months ended June 30, 2022 was $ i 7.1 million and $ i 15.2 million, respectively. Rental revenue related to leased equipment for the three and nine months ended June 30, 2021 was $ i 5.4 million and $ i 9.4 million, respectively.

Future minimum lease obligations due from the Company’s leasing customers on operating leases executed as of June 30, 2022 were $ i 7.9 million, all of which is expected to be due within the next 12 months. An additional  i one-year operating lease was recently

14


 

executed and scheduled to begin in the fourth quarter of fiscal year 2022 with future minimum lease obligations of $ i 11.9 million, the majority of which is expected to be due in fiscal year 2023.

 i 

Rental equipment consisted of the following (in thousands):

 

 

 

June 30, 2022

 

 

September 30, 2021

 

Rental equipment, primarily wireless recording equipment

 

$

 i 85,912

 

 

$

 i 95,827

 

Accumulated depreciation and impairment

 

 

( i 55,002

)

 

 

( i 56,922

)

 

 

$

 i 30,910

 

 

$

 i 38,905

 

 / 

 

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  i November 2021 and is for a  i five-year term. The lease on the warehouse in Bogotá commenced in  i December 2021 and is for a  i one-year term.

 

Rental revenue related to these  i  i two /  property leases for each of the three and nine months ended June 30, 2022 was $ i  i 0.1 /  million, respectively.

 

 i 

Future minimum lease payments due to the Company as of June 30, 2022 on these two leases were as follows (in thousands):

 

For fiscal years ending September 30,

 

 

 

2022 (remainder)

 

$

 i 49

 

2023

 

 

 i 136

 

2024

 

 

 i 128

 

2025

 

 

 i 131

 

2026

 

 

 i 132

 

Thereafter

 

 

 i 11

 

 

 

$

 i 587

 

 

 / 
 / 

8.  i Goodwill and Other Intangible Assets

 i 

The Company’s consolidated goodwill and other intangible assets consisted of the following (in thousands):

 

 

Weighted-

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Remaining Useful

 

 

 

 

 

 

 

Lives (in years)

 

June 30, 2022

 

 

September 30, 2021

 

Goodwill

 

 

$

 i 5,072

 

 

$

 i 5,072

 

 

 

 

 

 

 

 

 

Other intangible assets:

 

 

 

 

 

 

 

Developed technology

 i 14.4

 

$

 i 6,475

 

 

$

 i 6,475

 

Customer relationships

 i 0.2

 

 

 i 3,900

 

 

 

 i 3,900

 

Trade names

 i 1.3

 

 

 i 2,022

 

 

 

 i 2,022

 

Non-compete agreements

 i 0.2

 

 

 i 186

 

 

 

 i 186

 

Total other intangible assets

 i 7.7

 

 

 i 12,583

 

 

 

 i 12,583

 

Accumulated amortization

 

 

 

( i 6,672

)

 

 

( i 5,333

)

 

 

 

$

 i 5,911

 

 

$

 i 7,250

 

 / 

 

At June 30, 2022, the Company had goodwill of $ i 4.3 million and other intangible assets, net of $ i 3.6 million attributable to its Emerging Markets reporting unit; goodwill of $ i 0.7 million and other intangible assets, net of $ i 0.6 million attributable to its Adjacent Markets reporting unit; and other intangible assets, net of $ i 1.7 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 June 30, 2022, the Company determined there were no triggering events requiring an impairment assessment of its goodwill and other intangible assets. The Company performs its annual goodwill impairment test in the fourth quarter. If the Company determines that the future cash flows anticipated to be generated from its reporting units will not be sufficient to recover the carrying amount of the respective reporting unit, it will need to recognize an impairment charge 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.

15


 

Other intangible asset amortization expense for each of the three and nine months ended June 30, 2022 and 2021 was $ i  i 0.4 /  million and $ i  i 1.3 /  million, respectively.

 i 

As of June 30, 2022, future estimated amortization expense of other intangible assets is as follows (in thousands):

 

For fiscal years ending September 30,

 

 

2022 (remainder)

$

 i 338

 

2023

 

 i 768

 

2024

 

 i 395

 

2025

 

 i 381

 

2026

 

 i 374

 

Thereafter

 

 i 3,655

 

 

$

 i 5,911

 

 / 

 

 i 

9. Long-Term Debt

The Company had no long-term debt outstanding at June 30, 2022 and September 30, 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 $ i 10 million. The borrowing base is determined based upon certain of the Company's domestic assets which include (i)  i 70% loan to value of the Company's property located at 6410 Langfield Road in Houston, Texas (the “Property”), (ii)  i 50% of forced liquidation value of equipment, (iii)  i 80% of certain accounts receivable and (iv)  i 50% of forced liquidation value of certain inventory (inventory borrowing base limited to  i 100% of borrowing base credit given toward accounts receivable). The Agreement is for a  i 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  i 3.25%) plus  i 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 $ i 100 million. At June 30, 2022, the Company was compliant with all covenants under the Agreement and its borrowing availability was $ i 8.5 million.

Debt issuance costs of $ i 0.2 million were incurred in connection with the Agreement. These costs were capitalized in other assets on the consolidated balance sheet and are being amortized to interest expense over the term of the Agreement.

 / 

10 i . Stock-Based Compensation

During the nine months ended June 30, 2022, the Company issued  i 200,350 restricted stock units (“RSUs”) under its 2014 Long Term Incentive Plan, as amended (the “Plan”). The RSUs issued include both time-based and performance-based vesting provisions. The weighted average grant date fair value of each RSU was $ i 8.49 per unit. The grant date fair value of the RSUs was $ i 1.7 million, which will be charged to expense over the next  i four years as the restrictions lapse. Compensation expense for the 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.  i Each RSU represents a contingent right to receive one share of the Company’s common stock upon vesting. As of June 30, 2022, the Company had unrecognized compensation expense of $ i 2.6 million relating to RSUs that is expected to be recognized over a weighted average period of  i 2.5 years.

As of June 30, 2022, the Company had $ i 11,000 of unrecognized compensation expense related to restricted stock awards (“RSAs”) that is expected to be recognized over a weighted average period of  i 0.2 years.

As of June 30, 2022, there were  i 369,859 RSUs and  i 5,625 RSAs outstanding. As of June 30, 2022,  i no nonqualified stock options were outstanding.

16


 

11.  i Loss Per Common Share

 i 

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 data):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Net loss

 

$

( i 6,574

)

 

$

( i 787

)

 

$

( i 14,816

)

 

$

( i 9,021

)

Less: Loss allocable to unvested restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

Loss attributable to common shareholders for
   diluted earnings per share

 

$

( i 6,574

)

 

$

( i 787

)

 

$

( i 14,816

)

 

$

( i 9,021

)

Weighted average number of common share equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares used in basic loss per share

 

 

 i 13,013,616

 

 

 

 i 13,353,254

 

 

 

 i 12,977,146

 

 

 

 i 13,464,177

 

Common share equivalents outstanding related to
   stock options and RSUs

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 i 13,013,616

 

 

 

 i 13,353,254

 

 

 

 i 12,977,146

 

 

 

 i 13,464,177

 

Loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

( i 0.51

)

 

$

( i 0.06

)

 

$

( i 1.14

)

 

$

( i 0.67

)

Diluted

 

$

( i 0.51

)

 

$

( i 0.06

)

 

$

( i 1.14

)

 

$

( i 0.67

)

 / 

 

For the calculation of diluted loss per share for the three and nine months ended June 30, 2022,  i  i 369,859 /  non-vested RSUs were excluded in the calculation of weighted average shares outstanding since their impact on diluted loss per share was antidilutive. For the calculation of diluted loss per share for the three and nine months ended June 30, 2021,  i  i 38,800 /  stock options and  i  i 331,999 /  non-vested RSUs were excluded in the calculation of weighted average shares outstanding since their impact on diluted loss per share was antidilutive.

 i 

12. Commitments and Contingencies

Contingent Consideration

In connection with its acquisitions of Quantum Technology Sciences, Inc. (“Quantum”) and the OptoSeis® fiber optic sensing technology business, the Company 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 $ i 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  i four-year earn-out period ended  i July 2022. The maximum amount of contingent payments is $ i 23.5 million over the four-year earn-out period. In fiscal year 2020, the Company made cash contingent consideration payments of $ i 0.1 million to the former shareholders of Quantum. In September 2021 and October 2021, the Company made additional cash earn-out payments of $ i 1.4 million and $ i 0.8 million, respectively, to the former shareholders of Quantum. The payments were primarily attributable to revenue earned on Quantum’s $ i 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 $ i 0.8 million related to projected future eligible revenue. During the nine months ended June 30, 2022, the Company recorded an adjustment of $ i 0.6 million to decrease the liability to an estimated value of $ i 0.2 million. The decrease for the nine months ended June 30, 2022 was primarily the result of timing in securing a potential second contract with the CBP caused by federal budget delays.

The Company recorded an initial contingent consideration liability of $ i 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  i 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 in November 2022. The maximum amount of contingent payments is $ i 23.2 million over the five-and-a-half year earn-out period. At September 30, 2021, the contingent consideration liability was valued at $ i 4.4 million. During the nine months ended June 30, 2022, the

17


 

Company recorded an adjustment of $ i 4.4 million to decrease the liability to  i zero. The decrease for the nine months ended June 30, 2022 was the result of (i) the Company's decision not to provide a bid on a proposal from an oil and gas producer to manufacture a large-scale seabed permanent reservoir monitoring system under the terms and conditions presented and (ii) the unlikelihood of entering into a sales contract prior to the end of the eligibility date which is November 2022. No contingent consideration payments have been made to date on the acquisition.

 

Contingent Compensation Costs

In connection with the acquisition of Aquana, LLC (“Aquana”) in July 2021, the Company is subject to additional contingent cash payments to the former members of Aquana over a  i 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 for any earn-out payments. Due to the continued employment requirement, no liability has been recorded for the estimated fair value of earn-out payments for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when incurred.

 

Operating Leases

The Company leases office space and certain equipment for terms of  i seven years or less. Rent expense for the three and nine months ended June 30, 2022 was $ i 0.1 million and $ i 0.4 million, respectively. Rent expense for the three and nine months ended June 30, 2021 was $ i 0.1 million and $ i 0.4 million, respectively. See Note 7 for additional information.

 

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.

 / 
 i 

13. Segment Information

The Company reports and evaluates financial information for its operating segments: Oil and Gas Markets, Adjacent Markets and Emerging Markets segments. The Oil and Gas Markets segment 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 products include imaging equipment, water meter products, remote shut-off valves and Internet of Things (loT) platform, offshore cables, and seismic sensors used for vibration monitoring and geotechnical applications such as mine safety applications and earthquake detection. The Emerging Markets segment provides seismic products targeted at the border and perimeter security markets.

 i 

The following table summarizes the Company’s segment information (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Oil and Gas Markets

 

$

 i 9,517

 

 

$

 i 12,649

 

 

$

 i 34,317

 

 

$

 i 41,544

 

Adjacent Markets

 

 

 i 10,938

 

 

 

 i 9,373

 

 

 

 i 28,312

 

 

 

 i 23,868

 

Emerging Markets

 

 

 i 135

 

 

 

 i 1,061

 

 

 

 i 571

 

 

 

 i 10,023

 

Corporate

 

 

 i 101

 

 

 

 

 

 

 i 182

 

 

 

 

Total

 

$

 i 20,691

 

 

$

 i 23,083

 

 

$

 i 63,382

 

 

$

 i 75,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

Oil and Gas Markets

 

$

( i 3,695

)

 

$

( i 1,807

)

 

$

( i 6,209

)

 

$

( i 13,258

)

Adjacent Markets

 

 

 i 1,841

 

 

 

 i 1,997

 

 

 

 i 4,341

 

 

 

 i 4,819

 

Emerging Markets

 

 

( i 1,405

)

 

 

( i 4

)

 

 

( i 3,609

)

 

 

 i 5,286

 

Corporate

 

 

( i 3,275

)

 

 

( i 2,625

)

 

 

( i 9,592

)

 

 

( i 8,921

)

Total

 

$

( i 6,534

)

 

$

( i 2,439

)

 

$

( i 15,069

)

 

$

( i 12,074

)

 / 
 / 

 

18


 

 i 

14. Income Taxes

Consolidated income tax expense for the three and nine months ended June 30, 2022 was $ i 0.1 million and $ i 0.2 million, respectively. Consolidated income tax expense for the three and nine months ended June 30, 2021 was $ i 0.2 million and $ i 0.3 million, respectively. The Company is currently unable to record any tax benefits from the tax losses it incurs 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.

 i 

15. Risks and Uncertainties

 

Concentration of Credit Risk

As of June 30, 2022, the Company had combined trade accounts and financing receivables from  i three customers of $ i 11.4 million, $ i 3.8 million and $ i 3.1 million, respectively. During the three months ended June 30, 2022, revenue recognized from these  i three customers was $ i 3.9 million, $ i 0.7 million and  i zero. During the nine months ended June 30, 2022, revenue recognized from these  i three customers was $ i 19.7 million, $ i 5.7 million and $ i 0.9 million, respectively.

COVID-19 Pandemic

 

The ongoing COVID-19 pandemic has spread across the globe and has negatively impacted worldwide economic activity and continues to create challenges in the Company’s markets. In addition to measures the Company has taken voluntarily, the government authorities in the Company’s 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 the Company or its 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 has allowed the continued spread of COVID–19. COVID-19 and the related mitigation measures have 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. If COVID–19 continues to spread or the response to contain the COVID–19 pandemic is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and liquidity.

Oil Commodity Price Levels

Demand for many of the Company’s products and the profitability of its 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 the Company’s 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 the Company’s 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 its 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 Russian 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 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 the Company’s 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 ("E&P") 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 the Company's seismic products targeted at customers in its Oil and Gas Markets segment, which has historically accounted for the majority of its 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 E&P companies. The Company believes E&P companies are allocating their increased levels of cash flow toward debt reduction and shareholder reward initiatives, such as stock buy-back programs and dividend payments. The Company expects low demand for its Oil and Gas Markets segment products until E&P companies redirect their cash flows towards 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 the Company's products and could materially and adversely affect its 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 the Company’s oil and gas products may be adversely affected when world supplies exceed demand.

 

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  i 33% ownership interest or a majority of voting interests. Together, these changes make it more difficult for the Company to support projects that have the potential to produce oil involving Russian energy companies. Furthermore, if an exporter is unable to determine whether its equipment will be used in such projects, the export is prohibited. In fiscal year 2021, the Company imported $ i 1.2 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, 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. Boycotts, protests, unfavorable regulations, additional governmental sanctions and other actions in the region could also adversely affect the Company's ability to operate profitably. Delays in obtaining governmental approvals can affect the Company's ability to timely deliver its products pursuant to contractual obligations, which could result in the Company being liable to its customers for damages. 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 June 30, 2022 was $ i 6.7 million, including cash of $ i 1.4 million. In addition to the $ i 1.2 million of products the Company imported from Geospace Technologies Eurasia LLC in fiscal year 2021, the subsidiary generated $ i 1.8 million in revenue from domestic sales in fiscal year 2021. The subsidiary generated $ i 1.2 million in revenue from domestic sales for the first nine months of 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.

 

 

 / 

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Item 2. 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 Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended September 30, 2021.

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated by reference herein 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 (the “Exchange Act”). These forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “could”, “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 permanent reservoir monitoring systems, future demand for OBX systems, the completion of new orders for 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” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, as well as other cautionary language in such Annual Report and this Quarterly Report on Form 10-Q, 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 and 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 rental equipment, failure of our Quantum products to be adopted by the border and security perimeter 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 Quarterly Report on Form 10-Q 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.

Business Overview

Unless otherwise specified, the discussion in this Quarterly Report on Form 10-Q 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.

Demand for our 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” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Available Information

We file annual, quarterly and current 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 on our website at www.geospace.com. From time to time, we may post investor presentations on our website under the “Investor Relations” tab. Please note that information contained on our website, whether currently posted or

21


 

posted in the future, is not a part of this Quarterly Report on Form 10-Q or the documents incorporated by reference in this Quarterly Report on Form 10-Q.

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 configuration. Since its introduction in 2008 and through June 30, 2022, we have sold 486,000 wireless channels and we currently have 74,000 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. Our deepwater versions of the OBX system can be deployed in depths of up to 3,450 meters. Since its introduction in 2010 and through June 30, 2022, we have sold 12,000 OBX stations and we currently have 26,000 OBX stations in our rental fleet.

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

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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.

In September 2020, we received a request from a major oil and gas producer for a proposal to manufacture a large-scale seabed PRM system. Under the offered terms and conditions as initially presented, we decided not to provide a bid. In August 2021, we received a new request from the producer, however we have also decided not to bid under the new offered terms and conditions. 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.

Industrial Products

Our industrial products include water meter products, remote shut-off water valves and IoT Platform, contract manufacturing products, offshore cables, and seismic sensors used for vibration monitoring and geotechnical applications such as mine safety applications and earthquake detection.

Imaging Products

Our imaging products include electronic pre-press products that employ direct thermal imaging 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. In addition to its commercial base of customers, Quantum’s customers primarily include various agencies of the U.S. government including the Department of Defense, Department of Energy, Department of Homeland Security and other agencies.

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Consolidated Results of Operations

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):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Oil and Gas Markets

 

 

 

 

 

 

 

 

 

 

 

 

Traditional exploration product revenue

 

$

1,592

 

 

$

1,950

 

 

$

3,428

 

 

$

3,736

 

Wireless exploration product revenue

 

 

7,233

 

 

 

9,628

 

 

 

29,467

 

 

 

36,137

 

Reservoir product revenue

 

 

692

 

 

 

1,071

 

 

 

1,422

 

 

 

1,671

 

Total revenue

 

 

9,517

 

 

 

12,649

 

 

 

34,317

 

 

 

41,544

 

Operating loss

 

 

(3,695

)

 

 

(1,807

)

 

 

(6,209

)

 

 

(13,258

)

Adjacent Markets

 

 

 

 

 

 

 

 

 

 

 

 

Industrial product revenue

 

 

7,465

 

 

 

6,451

 

 

 

18,471

 

 

 

15,835

 

Imaging product revenue

 

 

3,473

 

 

 

2,922

 

 

 

9,841

 

 

 

8,033

 

Total revenue

 

 

10,938

 

 

 

9,373

 

 

 

28,312

 

 

 

23,868

 

Operating income

 

 

1,841

 

 

 

1,997

 

 

 

4,341

 

 

 

4,819

 

Emerging Markets

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

135

 

 

 

1,061

 

 

 

571

 

 

 

10,023

 

Operating income (loss)

 

 

(1,405

)

 

 

(4

)

 

 

(3,609

)

 

 

5,286

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

101

 

 

 

 

 

182

 

 

 

 

Operating loss

 

 

(3,275

)

 

 

(2,625

)

 

 

(9,592

)

 

 

(8,921

)

Consolidated Totals

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

20,691

 

 

 

23,083

 

 

 

63,382

 

 

 

75,435

 

Operating loss

 

 

(6,534

)

 

 

(2,439

)

 

 

(15,069

)

 

 

(12,074

)

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 June 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.

 

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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 II—Item 1A.—Risk Factors” for more information.

Coronavirus (COVID-19)

The ongoing COVID-19 pandemic has negatively impacted worldwide economic activity and continues to create challenges in our markets, 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 nine months ended June 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.

Three and nine months ended June 30, 2022 compared to the three and nine months ended June 30, 2021

Consolidated revenue for the three months ended June 30, 2022 was $20.7 million, a decrease of $2.4 million, or 10.4%, from the corresponding period of the prior fiscal year. The decrease for the three months ended June 30, 2022 was primarily due to a decrease in revenue from our Oil and Gas Markets segment, primarily caused by lower wireless exploration product sales. The decrease in consolidated revenue was partially offset by increased rental revenue from our OBX rental fleet and increased revenue from our Adjacent Markets segment attributable to higher sales of our industrial and imaging products. Consolidated revenue for the nine months ended June 30, 2022 was $63.4 million, a decrease of $12.1 million, or 16.0%, from the corresponding period of the prior year. The decrease was primarily due to a reduction in revenue from our Emerging Markets segment related to our contract with the U.S. Customs and Border Protection (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 the three months ended June 30, 2022 was $3.7 million, a decrease of $2.0 million, or 35.1%, from the corresponding period of the prior fiscal year. The decrease in consolidated gross profit was primarily due to a reduction in revenue and related gross profit from wireless exploration product sales. The decrease was partially offset by higher gross profit attributable to the increased utilization of our OBX rental fleet discussed above. Consolidated gross profit for the nine months ended June 30, 2022 was $12.2 million, a decrease of $1.0 million, or 7.8%, from the corresponding period of the prior fiscal year. The decrease resulted from the reduction in revenue and related gross profit from our contract with the CBP discussed above. The decrease largely offset by (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.

Consolidated operating expenses for the three months ended June 30, 2022 were $10.2 million, an increase of $2.1 million, or 26.3%, from the corresponding period of the prior fiscal year. The increase in consolidated operating expenses for the three months ended June 30, 2022 was due to (i) a $0.9 million increase in personnel costs, (ii) $0.4 million in incremental operating costs associated with our recent acquisition of Aquana, (iii) a $0.3 million increase in sales, marketing and other general business expenses and (iv) a $0.5 million decrease 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 same period of the prior fiscal year. Consolidated operating expenses for the nine months ended June 30, 2022 were $27.2 million, an increase of $2.0 million, or 7.8%, from the corresponding period of the prior fiscal year. The increase was due to (i) a $1.5 million increase in research and development project costs, (ii) a $2.1 million increase in personnel costs, (iii) $0.9 million in incremental operating costs associated with our recent acquisition of Aquana and (iv) a $0.8 million increase in sales, marketing and other general business expenses. The increase was partially offset by a $3.3 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 same period of the prior fiscal year.

Consolidated other income for the three months ended June 30, 2022 was $28,000, compared to $1.8 million from the corresponding period of the prior fiscal year. Consolidated other income for the nine months ended June 30, 2022 was $0.4 million compared to $3.3 million from the corresponding period of the prior fiscal year. The decrease in other income for both periods was primarily due to (i) a gain recognized on the sale of our investment in a debt security in the third quarter of fiscal year 2021, (ii) foreign exchanges losses incurred in the third quarter of fiscal year 2022 and (iii) a decrease in interest income during the first six months of fiscal year 2022.

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Segment Results of Operations

Oil and Gas Markets

Revenue

Revenue from our Oil and Gas Markets products for the three months ended June 30, 2022 decreased $3.1 million, or 24.8%, from the corresponding period of the prior fiscal year. Revenue from our Oil and Gas Markets products for the nine months ended June 30, 2022 decreased $7.2 million, or 17.4%, from the corresponding period of the prior fiscal year. Our product revenue in this segment continues to be negatively impacted by a lack of capital spending by oil and gas exploration companies despite higher crude oil prices. The components of these decreases were as follows:

 

Traditional Exploration Product Revenue – For the three months ended June 30, 2022, revenue from our traditional products decreased $0.4 million, or 18.4%, from the corresponding period of the prior fiscal year. For the nine months ended June 30, 2022, revenue from our traditional products decreased $0.3 million, or 8.2%, from the corresponding period of the prior fiscal year. The decrease for both periods primarily reflects lower demand for our sensor products.
Wireless Exploration Product Revenue – For the three months ended June 30, 2022, revenue from our wireless exploration products decreased $2.4 million, or 24.9%, from the corresponding period of the prior fiscal year. This decrease in revenue was primarily due to a decrease in wireless product sales, largely attributable to a $2.9 million land-based seismic wireless product sale in the third quarter of fiscal year 2021. The decrease was partially offset by increased rental revenue attributable to higher utilization of our OBX rental fleet during the third quarter of fiscal year 2022. For the nine months ended June 30, 2022, revenue from our wireless exploration products decreased $6.7 million, or 18.5%, from the corresponding period of the prior fiscal year. This 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 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 the nine months ended June 30, 2022.
Reservoir Product Revenue – For the three months ended June 30, 2022, revenue from our reservoir products decreased $0.4 million, or 35.4%, from the corresponding period of the prior fiscal year. For the nine months ended June 30, 2022, revenue from our reservoir products decreased $0.2 million, or 14.9%, from the corresponding period of the prior fiscal year. The decrease in revenue for both periods was primarily due to lower reservoir monitoring service revenue.

Operating Loss

Operating loss associated with our Oil and Gas Markets products for the three months ended June 30, 2022 was $(3.7) million, compared to an operating loss of $(1.8) million from the corresponding period of the prior fiscal year. The increase in operating loss for the three months ended June 30, 2022 was primarily due to (i) a decrease in wireless product sales and related gross profits and (ii) an increase in operating expenses. The increase was partially offset by (i) higher OBX rental revenue and related gross profit and (ii) a $0.5 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. Operating loss associated with our Oil and Gas Markets products for the nine months ended June 30, 2022 was $(6.2) million, compared to an operating loss of $(13.3) million from the corresponding period of the prior fiscal year. The decrease in operating loss for the nine months ended June 30, 2022 was primarily due to (i) higher gross profits generated on wireless exploration product sales, (ii) higher wireless rental revenue and related gross profits due to improved utilization of our OBX rental fleet, and (iii) a $4.4 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 for the nine months ended June 30, 2022 was partially offset by an increase in research and development costs and other operating expenses.

Adjacent Markets

Revenue

Revenue from our Adjacent Markets products for the three months ended June 30, 2022 increased $1.6 million, or 16.7%, from the corresponding period of the prior fiscal year. Revenue from our Adjacent Markets products for the nine months ended June 30, 2022 increased $4.4 million, or 18.6%, from the corresponding period of the prior fiscal year. While we experienced an increase in the demand for our Adjacent Markets products and services during the three and nine months ended June 30, 2022 despite global supply

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chain shortages, we cannot reasonably determine the lasting affects of the supply chain shortages on this operating segment. The components of these increases were as follows:

 

Industrial Product Revenue and Services – For the three months ended June 30, 2022 revenue from our industrial products increased $1.0 million, or 15.7%, from the corresponding period of the prior fiscal year. For the nine months ended June 30, 2022 revenue from our industrial products increased $2.6 million, or 16.6%, from the corresponding period of the prior fiscal year. The increase in revenue for both periods was primarily due to higher demand for our water meter products, industrial sensor products and contract manufacturing services.
Imaging Product Revenue – For the three months ended June 30, 2022, revenue from our imaging products increased $0.6 million, or 22.6%, from the corresponding period of the prior fiscal year. For the nine months ended June 30, 2022, revenue from our imaging products increased $1.8 million, or 24.6%, from the corresponding period of the prior fiscal year. The increase for both periods was primarily due to higher demand for our imaging equipment and consumable film products.

Operating Income

The operating income from our Adjacent Markets products for the three months ended June 30, 2022 was $1.8 million, a decrease of $0.2 million, or 7.8%, from the corresponding period of the prior fiscal year. The operating income from our Adjacent Markets products for the nine months ended June 30, 2022 was $4.3 million, a decrease of $0.5 million, or 9.9%, from the corresponding period of the prior fiscal year. The decrease in operating income for both periods was primarily due to an increase in operating expenses, mostly caused by higher research and development expense and incremental operating costs attributable to our acquisition of Aquana. The decrease in operating income for both periods was partially offset by an increase in revenue and related gross profits.

Emerging Markets

Revenue

Revenue from our Emerging Markets products for the three months ended June 30, 2022 was $0.1 million, compared to $1.1 million from the corresponding period in the prior fiscal year. Revenue from our Emerging Markets products for the nine months ended June 30, 2022 was $0.6 million, compared to $10.0 million from the corresponding period in the prior fiscal year. The decrease in revenue for both periods was due to 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.

On January 20, 2021, President Biden ordered a pause on construction of the wall at the U.S. – Mexico border to assess the legality of the funding, contracting methods, as well as the consequences of stopping the construction. It remains uncertain at this time whether the executive order will result in a temporary halt or permanent cessation of the construction. The Biden administration may implement new or different policies or take further executive action regarding border security that could change the demand for our perimeter and security products.

Operating Income (Loss)

Operating loss from our Emerging Markets products for the three months ended June 30, 2022 was $(1.4) million, compared to $(4,000) from the corresponding period in the prior fiscal year. The increase in operating loss for the three months ended June 30, 2022 was primarily due to a decrease in revenue and related gross profits. The increase in operating loss was also due to a $0.9 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. Operating loss from our Emerging Markets products for the nine months ended June 30, 2022 was $(3.6) million, compared to operating income of $5.3 million from the corresponding period in the prior fiscal year. The decrease in operating income (loss) for the nine months ended June 30, 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 to a $1.0 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

At June 30, 2022, we had approximately $9.1 million in cash and cash equivalents and short-term investments. For the nine months ended June 30, 2022, we used $13.3 million of cash from operating activities. Our net loss of $14.8 million was offset by net non-cash charges of $13.8 million resulting from deferred income taxes, depreciation, amortization, accretion, inventory obsolescence, stock-based compensation, bad debt expense and changes in the estimated fair value of contingent consideration. Other uses of cash in our operations primarily included (i) the removal of $10.8 million gross profit from the sale of used rental equipment as it is included in

27


 

investing activities, (ii) a $2.2 million decrease in accounts payable due to the timing of payments to suppliers, and (iii) a $1.7 million increase in inventories to meet an increase in demand for our Adjacent Markets products. Offsetting these uses of cash primarily included (i) a $1.5 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 as a result of billings to the CBP.

For the nine months ended June 30, 2022, we generated cash of $8.7 million in investing activities. Sources of cash included (i) net proceeds of $7.7 million for the sale of short-term investments and (ii) proceeds of $5.9 million from the sale of used rental equipment. Offsetting these sources were (i) $0.9 million for additions to our property, plant and equipment and (ii) $4.1 million for additions to our equipment rental fleet. We do not expect our cash investments in our rental fleet and property, plant and equipment during fiscal year 2022 to be significant for the remainder of fiscal year 2022. 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 nine months ended June 30, 2022, we used $1.7 million from financing activities. Uses of cash included (i) $0.8 million 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. 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 $9.1 million at June 30, 2022, which included $2.6 million of cash and cash equivalents held by our foreign subsidiaries and branch offices, of which $1.4 million was held by our subsidiary in the Russian Federation. 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.

At June 30, 2022, we had no borrowings outstanding and were compliant with all covenants under the Agreement. Our borrowing availability at June 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 $14.5 million during the nine months ended June 30, 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.

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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 estimated liability to $0.2 million as of June 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, if any, may be paid in the form of cash or Company stock and will be derived from eligible revenue generated during the four-year post-acquisition period, which ended in July 2022. The maximum amount of contingent payments is $23.5 million.

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. Subsequent to the acquisition, we decreased the estimated liability to zero as of June 30, 2022 as a result of the unlikelihood any eligible revenue will be generated during the earn-out period. Contingent cash payments, if any, will 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 ending in November 2022. No payments have been made to date related to the contingent consideration liability. The maximum amount of contingent payments is $23.2 million.

We review and assess the fair value of our contingent consideration liabilities on a quarterly basis.

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 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.

See Note 12 to our consolidated financial statements in this Quarterly Report on Form 10-Q for more information on our contractual contingencies.

Critical Accounting Estimates

During the three months ended June 30, 2022, there has been no material change to our critical accounting estimates discussed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Recent Accounting Pronouncements

Please refer to Note 1 to our consolidated financial statements contained in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item, in accordance with Item 305(e) of Regulation S-K.

 

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Item 4. 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 the 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 our Company and consolidated subsidiaries to report material information otherwise required to be set forth in our reports.

In connection with the preparation of this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including the CEO and CFO, as of June 30, 2022, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2022.

Changes in Internal Control over Financial Reporting

There were no 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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

 

Item 1A. Risk Factors

Except for the risk factors set forth below, there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the Company's fiscal year ended September 30, 2021.

 

The Ongoing Armed Conflict Between Russia and Ukraine Could Adversely Affect Our Business, Financial Condition, and Results of Operations

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. 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. 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. Together, these changes make it more difficult for us to support projects that have the potential to produce oil involving Russian energy companies. Furthermore, if an exporter is unable to determine whether its equipment will be used in such projects, the export is prohibited. In fiscal year 2021, we imported $1.2 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.

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 June 30, 2022 was $6.7 million, including cash of $1.4 million. In addition to the $1.2 million of products we imported from Geospace Technologies Eurasia LLC in fiscal year 2021, the subsidiary generated $1.8 million in revenue from domestic sales in fiscal year 2021. The subsidiary generated $1.2 million in revenue from domestic sales for the first nine months of fiscal year 2022. We have no way to

30


 

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 and could exacerbate or heighten many of the other risk factors described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K.

 

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 CAA 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 established climate change as a primary foreign policy and national security consideration, affirms that achieving net-zero greenhouse gas emissions by or before midcentury is a critical priority, affirms the Biden Administration’s desire to establish the United States as a leader in addressing climate change, generally further integrates climate change and environmental justice considerations into government agencies’ decision-making, and eliminates fossil fuel subsidies, among other measures. Other actions impacting oil and natural gas production activities that could be pursued by the Biden administration may include more restrictive requirements for the establishment of pipeline infrastructure or the permitting of liquified natural gas export facilities.

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

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Item 6. Exhibits

The following exhibits are filed with this Report on Form 10-Q or are incorporated by reference

 

3.1

 

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

 

 

 

3.2

 

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

 

 

 

31.1*

 

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.

 

 

 

31.2*

 

Certification of the Chief Financial Officer pursuant Rule 13a-14(a) under the Securities and Exchange Act of 1934.

 

 

 

32.1**

 

Certification of the Chief Executive Officer pursuant 18 U.S.C. Section 1350.

 

 

 

32.2**

 

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

 

 

 

101*

 

The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets at June 30, 2022 and September 30, 2021, (ii) the Consolidated Statements of Operations for the three and nine months ended June 30, 2022 and 2021, (iii) the Consolidated Statements of Comprehensive Loss for the three and nine months ended June 30, 2022 and 2021, (iv) the Consolidated Statements of Stockholders’ Equity for the nine months ended June 30, 2022 and 2021, (v) the Consolidated Statements of Cash Flows for the nine months ended June 30, 2022 and 2021 and (vi) Notes to Consolidated Financial Statements.

 

 

 

104*

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 formatted in Inline XBRL.

 

* Filed with this Quarterly Report on Form 10-Q

** Furnished with this Quarterly Report on Form 10-Q

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

GEOSPACE TECHNOLOGIES CORPORATION

 

 

 

 

 

 

 

 

 

 

Date:

 

August 10, 2022

By:

 

/s/ Walter R. Wheeler

 

 

 

 

 

Walter R. Wheeler, President

 

 

 

 

 

and Chief Executive Officer

 

 

 

 

 

(duly authorized officer)

 

Date:

 

 August 10, 2022

By:

 

/s/ Robert L. Curda

 

 

 

 

 

Robert L. Curda, Vice President,

 

 

 

 

 

Vice President, Chief Financial Officer and Secretary

 

 

 

 

 

(principal financial officer)

 

33



Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
9/30/24
9/30/22
Filed on:8/10/228-K
7/31/22
For Period end:6/30/22
3/31/2210-Q
12/31/2110-Q,  SD
10/1/21
9/30/2110-K
6/30/2110-Q
3/31/2110-Q
1/20/21
12/31/2010-Q,  SD
12/15/20
10/1/20
 List all Filings 


2 Previous Filings that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 9/22/17  Geospace Technologies Corp.       8-K:5,9     9/21/17    3:99K                                    Donnelley … Solutions/FA
 5/08/15  Geospace Technologies Corp.       10-Q        3/31/15   66:7.3M                                   ActiveDisclosure/FA
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