What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2023-11-17 compared with 2022-11-18 · 125 added, 150 removed, 158 unchanged (64% of the section changed)

Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities

Market for Registrant ’

s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Holders of Record

19 unchanged sentences

Plan Category

Number of Securities

to be Issued upon

Outstanding Options,

Warrants and Rights

Weighted-average

Exercise Price of

Outstanding Options,

Warrants and Rights

Number of Securities

Remaining Available

for Future Issuance

Compensation Plans

(Excluding Securities

Reflected in Column

Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a)

Weighted-average Exercise Price of Outstanding Options, Warrants and Rights (b)

Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)

(In dollars per share)

Equity Compensation Plans Approved

by Security Holders (1)

Equity Compensation Plans Not

Approved by Security Holders

Equity Compensation Plans Approved by Security Holders (1)

Equity Compensation Plans Not Approved by Security Holders

The number of securities shown in column (c) represents number of securities remaining available for issuance under the Company’s 2014 Long Term Incentive Plan, as amended (the “2014 Plan”).

1 unchanged sentence

For purposes of calculating the number of securities remaining under the 2014 Plan in column (c), Full Value Awards are counted as 1.5 shares for each share awarded.

The number of securities shown

in column (a) of the table above represents restricted stock unit awards outstanding under the 2014 Plan.

The number of securities shown in column (a) of the table above represents restricted stock unit awards outstanding under the 2014 Plan.

Column (b) excludes restricted stock unit awards.

1 unchanged sentence

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

9 unchanged sentences

Statements that contain these words should be read carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other forward-looking information.

Examples of forward-looking statements include, among others, statements that we make regarding our expected operating results, the adoption, results and success of our rollout of our Aquana smart water valves and cloud-based control platform, future demand for our Quantum security solutions, the adoption and sale of our products in various geographic regions, potential tenders for PRM systems, future demand for OBX systems, the completion of new orders for our channels of our GCL system, the fulfillment of customer payment obligations, the impact of and the recovery from the impact of the coronavirus (or COVID-19) pandemic, the impact of the current armed conflict between Russia and Ukraine, our ability to manage changes and the continued health or availability of management personnel, volatility and direction of oil prices, anticipated levels of capital expenditures and the sources of funding therefor, and our strategy for growth, product development, market position, financial results and the provision of accounting reserves.

product monitoring of subsurface reservoirs, the completion of new orders for our channels of our GCL system, the fulfillment of customer payment obligations, the impact of and the recovery from the impact of the coronavirus (or COVID-19) pandemic, the impact of the current armed conflict between Russia and Ukraine, our ability to manage changes and the continued health or availability of management personnel, volatility and direction of oil prices, anticipated levels of capital expenditures and the sources of funding 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.

1 unchanged sentence

The factors listed under the caption “Risk Factors”, as well as cautionary language in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

Such examples include, but are not limited to, the failure of the Quantum or OptoSeis ® or Aquana technology transactions to yield positive operating results, decreases in commodity price levels and continued adverse impact of COVID-19 which could reduce demand for our products, the failure of our products to achieve market acceptance (despite substantial investment by us) our sensitivity to short term backlog, delayed or cancelled customer orders, product obsolescence resulting from poor industry conditions or new technologies, bad debt write-offs associated with customer accounts, inability to collect on promissory notes, lack of further orders for our OBX systems, failure of our Quantum products to be adopted by the border and perimeter security market, or a decrease in such market due to governmental changes, and infringement or failure to protect intellectual property.

Such examples include, but are not limited to, the failure of the Quantum or OptoSeis®

or Aquana technology transactions to yield positive operating results, decreases in commodity price levels and continued adverse impact of COVID-19 which could reduce demand for our products, the failure of our products to achieve market acceptance (despite substantial investment by us) our sensitivity to short term backlog, delayed or cancelled customer orders, product obsolescence resulting from poor industry conditions or new technologies, bad debt write-offs associated with customer accounts, inability to collect on promissory notes, lack of further orders for our OBX rental equipment, failure of our Quantum products to be adopted by the border and perimeter security market, or a decrease in such market due to governmental changes, and infringement or failure to protect intellectual property.

The occurrence of the events described in these risk factors and elsewhere in this Annual Report on Form 10-K could have a material adverse effect on our business, results of operations and financial position, and actual events and results of operations may vary materially from our current expectations.

We assume no obligation to revise or update any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable securities laws and regulations.

We design and manufacture seismic instruments and equipment and primarily market these products to the oil and gas industry to locate, characterize and monitor hydrocarbon producing reservoirs.

1 unchanged sentence

We design and manufacture other products of a non-seismic nature, including water meter products, imaging equipment and provide contract manufacturing services.

For further informtion on the nature of our operations, see the information under the heading “Business”

For further information on the nature of our operations, see the information under the heading “Business”

in this Annual Report on Form 10-K.

10 unchanged sentences

Total revenue

Operating loss

Operating income (loss)

Adjacent Markets

4 unchanged sentences

Emerging Markets

Operating income (loss)

Operating loss

Consolidated Totals

Operating loss

Consolidated Totals

Operating income (loss)

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;

Crude oil prices held above $65 per barrel throughout 2022 and through September 2023;

however, a lag in time typically occurs between higher oil prices and greater demand for our Oil and Gas Markets segment products.

1 unchanged sentence

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.

As this lag persists, we expect the reduced levels of demand for our Oil and Gas Markets segment products.

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.

During the third quarter of fiscal year 2022, we began to experience an increase in rental demand for our marine nodal products in the form of additional rental contracts and requests for quotes from existing and new customers. 

The increase in demand has led to near full utilization of our marine wireless rental fleet, yet we continue to experience low levels of demand for our land-based wireless products. 

During the first quarter of fiscal year 2023, we implemented a plan to discontinue the manufacture of certain low margin, low revenue products and reconfigure our production facilities to lower our costs and raise efficiencies.

As part of the plan, reductions were made to our workforce which are expected to yield an annual savings of more than $2 million.

In connection with the plan, we incurred costs of $0.6 million in the first quarter of fiscal year 2023, primarily termination costs related to the workforce reduction.

The costs were recorded both to cost of revenue and operating expenses in the consolidated statement of operations.

No significant future costs are expected.

In light of current market conditions, the inventory balances in our Oil and Gas Markets business segment at September 30, 2023 continued to exceed levels we consider appropriate for the current level of product demand.

2 unchanged sentences

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.

Although the Oil and Gas Markets segment is seeing a recovery after experiencing difficult market conditions, we have been recording additional expenses for inventory obsolescence and will continue to do so in the future until product demand and/or resulting inventory turnover return to acceptable levels.

Armed Conflict Between Russia and Ukraine

A portion of our oil and gas product manufacturing is conducted through our wholly-owned subsidiary, Geospace Technologies Eurasia LLC, which is based in the Russian Federation.

A portion of our oil and gas product manufacturing is conducted through GTE, which is based in the Russian Federation.

Consequently, our oil and gas business could be directly affected by the current war between Russia and Ukraine.

2 unchanged sentences

Coronavirus (COVID-19)

The ongoing COVID-19 pandemic has negatively impacted worldwide economic activity and continues to create challenges in our markets, such as uncertainties regarding the duration and extent to which the COVID-19 pandemic will ultimately have a negative impact on the demand for our products and services or on our supply chain.

We continue to closely monitor the situation as information becomes readily available.

During the fiscal year ended September 30, 2022, our operations have, for the most part, remained open globally and the impact of the effects of COVID-19 to our personnel and operations has been limited.

Our supply chain has become increasingly strained due to increased pricing for raw material and supplies coupled with longer than expected lead times.

We initially experienced a reduction in demand for the rental of our OBX marine nodal products, which we believed was primarily the result of the pandemic;

however, demand has increased in fiscal year 2022.

We also believe our Adjacent Markets business segment has entered into a period of recovery from the initial effects of the COVID-19 pandemic, but we continue to be cautious about the pandemic’s effect on our other business segments and our supply chain.

As a result, we continually communicate with our suppliers and customers as information is available to best manage this difficult situation.

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

The COVID-19 pandemic and the related mitigation measures have disrupted our supply chain, resulting in longer lead times in materials available from suppliers and extended shipping time for these materials to reach our facilities. 

The occurrence or resurgence of global or regional health events such as the COVID-19 pandemic, and the related government responses, could result in a material adverse effect on our business, financial condition, results of operations and liquidity. 

As such, we will continue to closely monitor COVID-19 and will continue to reassess our strategy and operational structure on a regular, ongoing basis.

Fiscal Year 2023 Compared to Fiscal Year 2022

Consolidated revenue for fiscal year 2022 was $89.3 million, a decrease of $5.6 million, or 5.9%, from fiscal year 2021.

The decrease in revenue was primarily due to a reduction in revenue from our Emerging Markets segment related to our contract with the CBP and a decrease in revenue from sales of our wireless seismic products.

The decrease in revenue was partially offset by increased rental revenue from our OBX rental fleet and higher sales of our industrial and imaging products.

Consolidated gross profit for fiscal year 2022 was $18.0 million, an increase of $1.7 million, or 10.7%, from fiscal year 2021.

The increase in gross profit primarily resulted from (i) higher gross profit attributable to the increased utilization of our OBX rental fleet and (ii) the higher profit margins generated on wireless exploration product sales.

The increase was partially offset by the reduction in revenue and related gross profit from our contract with the CBP discussed above.

Consolidated operating expenses for fiscal year 2022 were $41.2 million, an increase of $8.0 million, or 24.2%, from fiscal year 2021.

The increase was due to (i) a $4.3 million goodwill impairment charge related to our Quantum acquisition, (ii) a $1.8 million increase in research and development project costs, (iii) a $1.4 million increase in personnel costs, (iv) $1.1 million in incremental operating costs associated with our acquisition of Aquana and (v) a $0.9 million increase in sales, marketing and other general business expenses.

The increase was partially offset by a $1.5 million increase in a favorable non-cash adjustment to the estimated fair value of contingent consideration related to our Quantum and OptoSeis ® acquisitions when compared to the prior fiscal year.

Consolidated other income for fiscal year 2022 was $0.5 million compared to $3.4 million from fiscal year 2021.

The decrease in other income was primarily due to (i) a gain recognized on the sale of our investment in a debt security in fiscal year 2021, (ii) an increase in foreign exchanges losses and (iii) a decrease in interest income.

Consolidated income tax expense for fiscal year 2022 was $0.2 million compared to $0.6 million from fiscal year 2021.

This decrease in income tax expense was primarily the result of a decrease in rental revenue earned in foreign jurisdictions requiring tax withholding.

We are currently unable to record any tax benefits from the tax losses we incur in the U.S., Canada and Russian Federation due to the uncertainty surrounding our ability to utilize such losses in the future to offset taxable income.

Consolidated revenue for fiscal year 2023 was $124.5 million, an increase of $35.3 million, or 39.5%, from fiscal year 2022.

The increase in revenue was largely due to higher rental revenue from our Oil and Gas Markets segment due to increased utilization of our OBX rental fleet and an increase in demand for our industrial products from our Adjacent Markets segment. 

The increase was partially offset by a decrease in sales of wireless exploration products. 

Wireless exploration product revenue for fiscal year 2023 also included $4.0 million from a rental customer as compensation for lost OBX nodes.

Consolidated gross profit for fiscal year 2023 was $51.7 million, an increase of $33.6 million, or 186.5%, from fiscal year 2022.

The increase in gross profit was primarily due to higher gross profits from the increased utilization of our OBX rental fleet and the increase in industrial product revenue and related gross profits. 

The increase was partially offset by the decrease in wireless exploration product revenue and related gross profits.

Consolidated operating expenses for fiscal year 2023 were $41.7 million, an increase of $0.5 million, or 1.2%, from fiscal year 2022. 

The increase was primarily due to a (i) $5.0 million favorable non-cash adjustment reported in the prior year period resulting from a change in the estimated fair value of contingent consideration related to our Quantum and OptoSeis®

acquisitions and (ii) an increase in incentive compensation attributable to the increase in revenue. 

The increase in operating expenses were partially offset by a (i) $4.3 million non-cash goodwill impairment charge reported in the prior fiscal year related to our Quantum acquisition, (ii) reduction in personnel costs attributable to our workforce reduction, (iii) lower research and development project expenditures and (iv) decrease in bad debt expense resulting from collections of previously reserved past due receivables.

In February 2023, we sold our real property located at 7310 Langfield Road in Houston, Texas for a cash sales price of $3.7 million, net of closing costs of $0.3 million. 

We recognized a gain of $1.3 million from the sale of this property in the second quarter of fiscal year 2023.

The sale was part of our plan to streamline operations and reduce costs. 

Consolidated other income for fiscal year 2023 was $1.2 million compared to $0.5 million from fiscal year 2022.

The increase in other income was primarily due to a increase in net foreign currency transaction gains. 

The increase was partially offset by a decrease in interest income attributable to lower note receivable balances between periods.

Segment Results of Operations

1 unchanged sentence

Oil and Gas Markets

Revenue from our Oil and Gas Markets products for fiscal year 2022 decreased $3.1 million, or 6.0%, from fiscal year 2021.

Our product and rental revenue in this segment continues to be negatively impacted by a lack of spending by oil and gas exploration companies despite higher crude oil prices.

The components of this decrease were as follows:

Traditional Exploration Product Revenue –

Revenue from our traditional products increased $2.1 million, or 46.0% from the prior fiscal year.

Revenue from our Oil and Gas Markets products for fiscal year 2023 increased $24.9 million, or 50.6%, from fiscal year 2022. 

The components of this increase were as follows:

Traditional Exploration Product Revenue  

– Revenue from our traditional products increased $5.6 million, or 84.7% from the prior fiscal year.

The increase primarily reflects higher demand for our sensor and marine products.

Wireless Exploration Product Revenue –

Revenue from our wireless exploration products decreased $5.1 million, or 11.1%, from the prior fiscal year.

The decrease was primarily due to the recognition of $12.5 million of revenue related to a land-based wireless system in the second quarter of fiscal year 2021 and a $9.9 million sale of used OBX rental

equipment in the first quarter of fiscal year 2021.

The decrease was partially offset by a $10.0 million sale of used OBX rental equipment in the second quarter of fiscal year 2022 and increased OBX rental revenue during fiscal year 2022.

Reservoir Product Revenue –

Revenue from our reservoir products decreased $0.1 million, or 5.3%, from the prior fiscal year.

The decrease in revenue was primarily due to lower reservoir monitoring service revenue.

The decrease was largely offset by higher demand for our borehole products.

Operating Loss

Operating loss from our Oil and Gas Markets products for fiscal year 2022 was $(7.5) million, a decrease of $(8.7) million, or 53.5%, from the prior fiscal year.

The decrease in operating loss was primarily due to (i) higher wireless rental revenue and related gross profits due to improved utilization of our OBX rental fleet and (ii) a $3.6 million increase to a favorable non-cash adjustment to the estimated fair value of contingent consideration related to our OptoSeis ® acquisition when compared to the same period of the prior fiscal year.

The decrease in operating loss was partially offset by an increase in research and development costs.

Wireless Exploration Product Revenue  – Revenue from our wireless exploration products increased $20.2 million, or 49.6%, from the prior fiscal year.

The increase was primarily due to increased rental revenue attributable to higher utilization of our OBX rental fleet. 

The increase was partially offset by a decrease in wireless product sales. 

Wireless product revenue for fiscal year 2023 also included the $4.0 million from a rental equipment customer as compensation for lost OBX nodes.

Operating Income (Loss)        

Operating income associated with our Oil and Gas Markets products for fiscal year 2023 was $15.8 million, compared to an operating loss of $(7.5) million from the prior fiscal year.

The increase in operating income was primarily due to higher wireless rental revenue and related gross profits due to improved utilization of our OBX rental fleet. 

The improvement in operating income was partially offset by a (i) decrease in wireless product revenue and related gross profits and (ii) $4.4 million favorable non-cash adjustment reported in the prior fiscal year related to the estimated fair value of contingent consideration related to our OptoSeis®

Adjacent Markets

Revenue from our Adjacent Markets products for fiscal year 2022 increased $6.8 million, or 20.8%, from the prior fiscal year.

While we experienced an increase in the demand for our Adjacent Markets products and services during fiscal year 2022 despite the global supply chain shortages, we cannot reasonably determine the lasting effects of the supply chain shortage on this operating segment.

The components of this increases were as follows:

Industrial Product Revenue and Services –

Revenue from our industrial products increased $4.3 million, or 20.2%, from the prior fiscal year.

The increase was primarily due to higher demand for water meter products and contract manufacturing services.

Imaging Product Revenue –

Revenue from our imaging products increased $2.4 million, or 22.1%, from the prior fiscal year.

The increase was primarily due to higher demand for our imaging equipment.

Revenue from our Adjacent Markets products for fiscal year 2023 increased $9.9 million, or 25.2%, from the prior fiscal year. 

The components of this increase were as follows:

Industrial Product Revenue and Services  – Revenue from our industrial products increased $11.2 million, or 43.8%, from the prior fiscal year.

The increase was primarily due to higher demand for our water meter products.

Imaging Product Revenue  – Revenue from our imaging products decreased $1.4 million, or 10.0%, from the prior fiscal year.

The decrease was primarily due to lower demand for our imaging equipment.

Operating Income

Operating income from our Adjacent Markets products for fiscal year 2022 was $6.0 million, a decrease of $0.4 million, or 6.3% from the prior fiscal year.

The decrease in operating income was primarily due (i) a $1.3 million increase in research and development expense, (ii) $1.0 million in incremental operating costs attributable to our acquisition of Aquana and (iii) a $0.4 million impairment charge on our manufacturing equipment.

The decrease was largely offset by an increase in revenue and related gross profits for fiscal year 2022.

Operating income from our Adjacent Markets products for fiscal year 2023 was $11.5 million, an increase of $5.5 million, or 90.8% from the prior fiscal year.

The increase in operating income was primarily due to the increase in revenue and related gross profits. 

The increase was partially offset by (i) an increase in operating expenses resulting from the increased revenue and (ii) higher research and development expense. 

Operating income for the prior fiscal year included a $0.4 million impairment charge on our manufacturing equipment.

Emerging Markets

Revenue from our Emerging Markets products for fiscal year 2022 was $0.7 million, compared to $10.2 million from the prior fiscal year.

The decrease was due to $10.1 million of revenue recognized on our contract with the CBP during the prior fiscal year.

We were awarded this contract during fiscal year 2020 to provide a technology solution to the Department of Homeland Security.

The majority of the revenue related to this contract was recognized in fiscal year 2021.

The contract was completed in the second quarter of fiscal year 2022.

Operating Income (Loss)

Operating income (loss) from our Emerging Markets products for fiscal year 2022 was $(9.1) million, compared to $5.0 million from the prior fiscal year.

The decrease for fiscal year 2022 was primarily due to the revenue and related gross profit recognized on our contract with the CBP in the prior fiscal year.

The decrease in operating income (loss) was also due (i) a non-cash goodwill impairment charge of $4.3 million and (ii) a $2.0 million decrease to a favorable non-cash adjustment to the estimated fair value of contingent consideration related to our Quantum acquisition when compared to the same period of the prior fiscal year.

Revenue from our Emerging Markets products for fiscal year 2023 was $1.2 million, compared to $0.7 million from the prior fiscal year. 

The increase in revenue was primarily due to revenue of $0.7 million recognized on a security related contract completed with a commercial customer. 

Operating Loss

Operating loss from our Emerging Markets products for fiscal year 2023 was $4.0 million, compared to $9.1 million from the prior fiscal year. 

The decrease in operating loss for fiscal year 2023 was primarily due a (i) non-cash goodwill impairment charge of $4.3 million reported in the prior fiscal year and (ii) lower personnel costs attributable to our workforce reduction. 

The decrease in operating loss was partially offset by a $0.7 million decrease to a favorable non-cash adjustment to the estimated fair value of contingent consideration related to our Quantum acquisition when compared to the same period of the prior fiscal year.

Liquidity and Capital Resources

Fiscal Year 2023

At September 30, 2022, we had approximately $17.0 million in cash and cash equivalents and short-term investments.

For the fiscal year ended September 30, 2022, we used $10.0 million of cash from operating activities.

Our net loss of $22.9 million was offset by

net non-cash charges of $24.6 million resulting from deferred income taxes, depreciation, amortization, asset impairments, accretion, inventory obsolescence, stock-based compensation, bad debt expense and changes in the estimated fair value of contingent consideration.

Other uses of cash in our operations primarily included (i) the removal of $11.1 million gross profit from the sale of used rental equipment as it is included in investing activities, (ii) a $0.8 million decrease in accounts payable due to the timing of payments to suppliers, (iii) a $2.4 million increase in inventories to meet an increase in demand for our Adjacent Markets products and (iv) a $0.7 million decrease in other liabilities primarily due to a decrease in customer deposits on rental equipment and a decrease in accrued compensation costs.

Offsetting these uses of cash primarily included (i) a $1.8 million decrease in trade accounts and notes receivable primarily due to the timing of collections from customers and (ii) a $1.1 million decrease in unbilled receivables resulting from the collection of billings to the CBP.

For the fiscal year ended September 30, 2022, we generated cash of $14.1 million in investing activities.

Sources of cash included (i) net proceeds of $8.5 million from the sale of short-term investments and (ii) proceeds of $11.6 million from the sale of used rental equipment.

Offsetting these sources were (i) $1.1 million for additions to our property, plant and equipment and (ii) $4.8 million for additions to our equipment rental fleet.

We expect our cash investments in our rental fleet to be approximately $6 million in fiscal year 2023.

We expect fiscal year 2023 cash investments in property, plant and equipment will be approximately $1 million during fiscal year 2023.

At September 30, 2023, we had approximately $33.7 million in cash, cash equivalents and short-term investments. 

For the fiscal year ended September 30, 2023, we generated $15.6 million of cash from operating activities. 

Sources of cash included our net income of $12.2 million and net non-cash charges of $19.6 million resulting from deferred income taxes, depreciation, amortization, accretion, inventory obsolescence, stock-based compensation and bad debt recovery. 

Other sources of cash included a (i) $5.4 million increase in other liabilities due to an increase in customer deposits on rental contracts and accrued employee compensation costs and (ii) $1.3 million decrease in other assets. 

These sources of cash were partially offset by (i) a $5.6 million increase in trade accounts and notes receivable primarily due to our increase in revenue and the timing of collections from customers, (ii) a $11.0 million increase in inventories to meet an increase in demand for our products, (iii) the removal of $4.4 million gross profit from the sale of used rental equipment and (iv) a $1.1 million of gain from the sale of property and equipment since they are included in investing activities. 

For the fiscal year ended September 30, 2023, we used cash of $11.9 million in investing activities.

Uses of cash included (i) $4.0 million for additions to our property, plant and equipment, (ii) $9.9 million for additions to our equipment rental fleet and (iii) net disbursements of $13.9 million for purchases of short-term investments. 

These uses of cash were partially offset by proceeds of (i) $11.5 million from the sale of used rental equipment and (ii) $4.4 million from the sale of property and equipment. 

We expect fiscal year 2024 cash investments into our rental fleet will be approximately $9 million. 

We expect fiscal year 2024 cash investments in our property, plant and equipment will be approximately $4 million. 

Our capital expenditures are expected to be funded from our cash on hand, internal cash flows, cash flows from our rental contracts or, if necessary, borrowings under our new credit agreement.

For the fiscal year ended September 30, 2022, we used $1.7 million from financing activities.

Uses of cash included (i) $0.8 million for contingent consideration payments to the former shareholders of Quantum, (ii) debt issuance costs of $0.2 million incurred in connection with our new credit agreement and (iii) $0.7 million for the purchase of treasury stock pursuant to a stock buy-back program authorized by our board of directors in November 2020.

The stock buy-back program authorized us to repurchase up to $7.5 million of our common stock in open market transactions.

The program was completed in November 2021.

Our available cash and cash equivalents and short-term investments totaled $17.0 million at September 30, 2022, which included $2.6 million of cash and cash equivalents held by our foreign subsidiaries and branch offices, of which $1.8 million was held by our subsidiary in the Russian Federation.

For the fiscal year ended September 30, 2023, we used cash of 

$0.5 million from financing activities consisting of (i) $0.4 million for debt issuance costs related to our new credit agreement and (ii) $0.2 million for final contingent consideration payments to the former shareholders of Quantum.

Our available cash, cash equivalents and short-term investments was $33.7 million at September 30, 2023, which included $3.8 million of cash and cash equivalents held by our foreign subsidiaries and branch offices, of which $2.5 million was held by our subsidiary in the Russian Federation.

In response to sanctions imposed by the U.S.

and others on Russia, the Russian government has imposed restrictions on companies’

abilities to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia.

As a result, this cash can be used in our Russian operations, but we may be unable to transfer it out of Russia without incurring substantial costs, if at all.

In addition, if we were to repatriate the cash held by our Russian subsidiary, we would be required to accrue and pay taxes on any amount repatriated.

In May 2022, we entered into a credit agreement (the “Agreement”) with Amerisource Funding, Inc., as administrative agent and as a lender, and Woodforest National Bank, as a lender.

Available borrowings under the Agreement are determined by a borrowing base with a maximum availability of $10 million.

The borrowing base is determined based upon certain of our domestic assets which include (i) 70% loan to value of our property located at 6410 Langfield Road in Houston, Texas (the “Property”), (ii) 50% of forced liquidation value of equipment, (iii) 80% of certain accounts receivable and (iv) 50% of forced liquidation value of certain inventory (inventory borrowing base limited to 100% of borrowing base credit given toward accounts receivable).

The Agreement is for a two-year term with all funds borrowed due at the expiration of the term.

The interest rate on borrowed funds is the Wall Street prime rate (with a minimum of 3.25%) plus 4.00%.

and other countries on the Russian Federation, the Russian government has imposed restrictions on companies' abilities to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia.

As a result, this cash can be used in our Russian operations, but we may be unable to transfer it out of Russia without incurring substantial costs, if at all. 

In addition, if we were to repatriate the cash held by our Russian subsidiary, we would be required to accrue and pay taxes on any amount repatriated. 

During fiscal year 2023, in light of recent volatility in the financial markets, we entered into an IntraFi Cash Service ("ICS") Deposit Placement Agreement with IntraFi Network LLC through our primary bank, Woodforest National Bank. 

The ICS program offers us access to unlimited Federal Deposit Insurance Corporation ("FDIC") insurance on domestically held cash in excess of $5.0 million, thereby mitigating our risk of falling outside of FDIC coverage limits.

In July 2023, we entered into a credit agreement (“the Agreement”) with Woodforest National Bank, as sole lender. 

The Agreement refinanced our credit agreement dated May 6, 2022, with Amerisource Funding, Inc., as administrative agent and as a lender, and Woodforest National Bank, as a lender. 

The Agreement provides a revolving credit facility with a maximum availability of $15 million. 

Availability under the Agreement is determined based upon a borrowing base comprised of certain of our domestic assets which include (i) 80% of eligible accounts receivable, plus (ii) 90% of eligible foreign insured accounts, plus (iii) 25% of eligible inventory plus (iv) 50% of the orderly liquidation value of eligible equipment, in each case subject to certain limitations and adjustments. 

Interest shall accrue on outstanding borrowings at a rate equal to Term SOFR (Secured Overnight Financing Rate) plus a margin equal to 3.25% per annum. 

We are required to make monthly interest payments on borrowed funds.

Borrowings under the Agreement will be principally secured by the Property and our domestic equipment, inventory and accounts receivables.

In addition, certain of our domestic subsidiaries have guaranteed our obligations under the Agreement and such subsidiaries have secured the obligations by pledging certain assets.

The Agreement requires us to maintain a minimum consolidated tangible net worth of $100 million.

We expect to remain in compliance with this requirement in fiscal year 2023.

At September 30, 2022, we had no borrowings outstanding and were compliant with all covenants under the Agreement.

Our borrowing availability at September 30, 2022 was $8.5 million.

We do not currently anticipate the need to borrow under the Agreement, however, we may decide to do so in the future, if needed.

Our available cash and cash equivalent and short-term investments decreased $6.6 million during fiscal year 2022.

In the absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future operations, including executed rental contracts, available borrowings under our Agreement through its expiration in May 2024, leveraging or sales of real estate assets, sales of rental assets and other liquidity sources which may be available to us.

We currently believe that our cash, cash equivalents and short-term investments will be sufficient to finance any future operating losses and planned capital expenditures through the next twelve months.

The Agreement is secured by substantially all of our assets, except for certain excluded property. 

The Agreement requires us to maintain a minimum (i) consolidated tangible net worth of $100 million, (ii) liquidity of $5 million, and (iii) current ratio no less than 2.00 to 1.00, in each case tested quarterly.

The Agreement also requires us to maintain a springing minimum interest coverage ratio of 1.50 to 1.00, tested quarterly whenever there is an outstanding balance. 

The Agreement expires in July 2025.

At September 30, 2023, we had no outstanding borrowings under the Agreement and our borrowing base availability under the Agreement was $13.1 million after consideration of a $0.1 million outstanding letter of credit. 

We were in compliance with all covenants under the Agreement. 

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, cash equivalents and short-term investments increased $17.0 million during fiscal year 2023. 

In the absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future operations, including executed rental contracts, available borrowings under the Agreement through its expiration in July 2025, 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 and cash equivalents 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.

Contractual Obligations

Contingent Consideration

We recorded an initial contingent consideration liability of $7.7 million in connection with our July 2018 acquisition of Quantum.

Subsequent to the acquisition, we reduced the liability to $0.2 million as of September 30, 2022 as a result of $2.3 million of earn-out payments made through June 2022 and $5.2 million in adjustments to reduce the value of expected future payments.

Contingent payments derived from eligible revenue generated during the four-year post-acquisition period ended July 2022 can be paid in the form of cash or Company stock.

In November 2022, the Company paid in cash the remaining $0.2 million liability to the former shareholders of Quantum.

Subsequent to this payment, there are no further contingent payment obligations related to this acquisition.

We recorded an initial contingent consideration liability of $4.3 million in connection with our November 2018 acquisition of all the intellectual property and related assets of the OptoSeis ® fiber optic sensing technology.

We decreased the estimated liability to zero as of September 30, 2022 as a result of the unlikelihood any eligible revenue will be generated during the earn-out period.

Contingent cash payments were to be derived from eligible revenue generated during a five-and-a-half year post-acquisition earn-out period ending in May 2024.

In order for revenue to be considered eligible, sales contracts must be entered into during the first four years of the earn-out period, which ended November 13, 2022.

No sales contracts were entered into during this period and we have no contingent payment obligations related to this acquisition.

Contingent Compensation Costs

51 unchanged sentences

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

Management’s Current Outlook and Assumptions

Management ’

s Current Outlook and Assumptions

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

3 unchanged sentences

(i) limited capital resources, (ii) lack of visibility into future demand for their seismic services and (iii) in some cases, under-utilized legacy equipment.

Crude oil prices have recently rebounded;

Crude oil prices have rebounded;

however, lasting higher levels of oil and gas commodity pricing may not stabilize in the long term, thus continuing the challenging industry conditions we have experienced in previous fiscal years.

Many of our land-based traditional seismic products can be damaged, destroyed or otherwise consumed during our customer’s field operations.

We expect fiscal year 2023 demand for our land-based traditional seismic products may increase slightly over fiscal year 2022 levels.

It is uncertain what revenue impact our land-based wireless data recorder will have during fiscal year 2023 in light of the tepid market demand for oil and gas seismic services and equipment, but we are optimistic demand during fiscal year 2023 will exceed fiscal year 2022 levels.

We expect fiscal year 2024 demand for our land-based traditional seismic products may increase slightly over fiscal year 2023 levels.

The vast majority of our oil and gas rental revenue in fiscal year 2023 was derived from short-term rentals of our OBX ocean-bottom recorder.

We believe our OBX rental revenue will increase substantially in fiscal year 2023 as a result of rental contracts executed during fiscal year 2022 and anticipated new rental contracts, but we can make no assurance in this regard.

We expect that fiscal year 2023 revenue from our oil and gas reservoir products, and principally our borehole tools and services, will increase slightly over fiscal year 2022 levels.

We believe our OBX rental revenue will increase in fiscal year 2024 as a result of rental contracts executed during fiscal year 2023 and anticipated new rental contracts, but we can make no assurance in this regard.

We expect that fiscal year 2024 revenue from our oil and gas reservoir products, and principally our borehole tools and services, will increase slightly over fiscal year 2023 levels.

We have not received any orders for a large-scale seabed PRM system since November 2012, although we do believe opportunities for PRM orders do exist in today's market.

If a large scale PRM order were received in fiscal year 2023, it could significantly impact our fiscal year 2023 or fiscal year 2024 revenue and profits.

We expect fiscal year 2023 revenue from our Adjacent Markets products to increase over fiscal year 2022 levels due to our acquisition of Aquana and intergration of Aquana's products into our business and optimisim that demand for our industrial, imaging products and contract manufacturing services will continue to increase in fiscal year 2023.

We expect fiscal year 2023 revenue from our Emerging Markets products to increase over 2022 levels largely due to optimism of obtaining new security-related contracts and opportunities with oil and gas industry customers.

If a large scale PRM order were received in fiscal year 2024, revenue would likely not be recognized until fiscal year 2025 and 2026.

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

We expect fiscal year 2024 revenue from our Emerging Markets products to increase over 2023 levels largely due to optimism of obtaining new security-related contracts and opportunities with oil and gas industry customers.

Quantitative and Qualitative Disclosures about Market Risk

Not required.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity