What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-02-04 compared with 2020-08-07 · 179 added, 346 removed, 305 unchanged (63% of the section changed)

3 unchanged sentences

(in thousands except share amounts)

June 30, 2020

December 31, 2020

September 30, 2020

1 unchanged sentence

Cash and cash equivalents

Trade accounts and financing receivables, net

Property held for sale

Trade accounts and notes receivable, net

Unbilled receivables

Inventories, net

Asset held for sale

Prepaid expenses and other current assets

Total current assets

Non-current inventories

Non-current notes receivable

Non-current inventories, net

Rental equipment, net

5 unchanged sentences

Accounts payable trade

Contingent consideration

Deferred revenue and other current liabilities

Total current liabilities

Contingent consideration

Non-current contingent consideration

Non-current deferred revenue and other liabilities

3 unchanged sentences

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

Common stock, $ .01 par value, 20,000,000 shares authorized, 13,664,614 and

13,630,666 shares issued and outstanding

Common stock, $ .01 par value, 20,000,000 shares authorized;

13,727,971 and 13,670,639 shares

issued, respectively;

and 13,610,334 and 13,670,639 shares outstanding, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive loss

Treasury stock, at cost, 117,637 shares at December 31, 2020

Total stockholders’ equity

5 unchanged sentences

Three Months Ended

Nine Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

December 31, 2020

December 31, 2019

Total revenue

12 unchanged sentences

Foreign exchange gains (losses), net

Total other income, net

Total other income (loss), net

Loss before income taxes

7 unchanged sentences

Three Months Ended

Nine Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Other comprehensive income (loss):

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

December 31, 2020

December 31, 2019

Other comprehensive income:

Foreign currency translation adjustments

Total other comprehensive income (loss)

Total other comprehensive income

Total comprehensive loss

2 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JUNE 30, 2020 AND 2019

FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 AND 2019

(in thousands, except share amounts)

1 unchanged sentence

Balance at October 1, 2020

Net loss (as revised)

Foreign currency translation adjustments

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

Purchase of treasury stock

Stock-based compensation

Balance at December 31, 2020

Net loss (as revised)

Balance at October 1, 2019

Foreign currency translation adjustments

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

Stock-based compensation

Balance at March 31, 2020

Foreign currency translation adjustments

Forfeiture of restricted stock

Stock-based compensation

Balance at June 30, 2020

Balance at October 1, 2018

Other comprehensive loss

Issuance of restricted stock

Forfeiture of restricted stock

Issuance of common stock pursuant to the exercise of stock options

Stock-based compensation

Balance at December 31, 2019

Other comprehensive income

Forfeiture of restricted stock

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

Stock-based compensation

Balance at March 31, 2019

Other comprehensive income

Forfeiture of restricted stock

Stock-based compensation

Balance at June 30, 2019

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

2 unchanged sentences

(in thousands)

Nine Months Ended

June 30, 2020

June 30, 2019

Three Months Ended

December 31, 2020

December 31, 2019

Cash flows from operating activities:

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

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

Deferred income tax expense (benefit)

2 unchanged sentences

Amortization of intangible assets

Amortization of premiums on short-term investments

Stock-based compensation expense

5 unchanged sentences

Gain on disposal of property, plant and equipment

Realized loss on short-term investments

Effects of changes in operating assets and liabilities:

Trade accounts and other receivables

Unbilled receivables

Deferred cost of revenue and other assets

1 unchanged sentence

Deferred revenue and other liabilities

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

3 unchanged sentences

Proceeds from the sale of used rental equipment

Proceeds from the sale of short-term investments

Business acquisition

Payments for damages related to insurance claim

Proceeds from insurance claim

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from the exercise of stock options

Net cash provided by financing activities

Purchase of treasury stock

Net cash used in financing activities

Effect of exchange rate changes on cash

Increase in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of fiscal year

3 unchanged sentences

Cash paid for income taxes

Inventory transferred to rental equipment

Note receivable in connection with sale of used rental equipment

Inventory transferred to (from) rental equipment

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

4 unchanged sentences

The consolidated balance sheet of Geospace Technologies Corporation and its subsidiaries (the “Company”) at September 30, 2020 was derived from the Company’s audited consolidated financial statements at that date.

The consolidated balance sheet at June 30, 2020 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three and nine months ended June 30, 2020 and 2019 were prepared by the Company without audit.

The consolidated balance sheet at December 31, 2020 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three months ended December 31, 2020 and 2019 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, 2020 are not necessarily indicative of the operating results for a full year or of future operations.

The results of operations for the three months ended December 31, 2020 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.

4 unchanged sentences

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP’) requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

The Company considers many factors in selecting appropriate operational and financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements.

The Company continually evaluates its estimates, including those related to bad debt reserves, inventory obsolescence reserves, self-insurance reserves, product warranty reserves, impairment of long-lived assets and deferred income tax assets.

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 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, investment in debt security and deferred income tax assets.

The Company bases its estimates on historical experience and various other factors that are believed to be reasonable under the circumstances.

2 unchanged sentences

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, 2020, cash and cash equivalents included $ 6.0 million held by the Company’s foreign subsidiaries and branch offices.

At December 31, 2020, cash and cash equivalents included $ 5.0 million held by the Company’s foreign subsidiaries and branch offices.

If the Company were to repatriate the cash held by its foreign subsidiaries, it could be required to accrue and pay taxes on any amount repatriated.

The Tax and Jobs Act (“2017 Tax Act”) creates new taxes on certain foreign earnings and also requires entities to pay a one-time transition tax on undistributed earnings of their foreign subsidiaries which were previously tax deferred.

The Tax Cut and Jobs Act (“2017 Tax Act”) creates new taxes on certain foreign earnings and also requires entities to pay a one-time transition tax on undistributed earnings of their foreign subsidiaries which were previously tax deferred.

The Company has determined it is no t required to pay transition tax on the undistributed earnings of its foreign subsidiaries since it had no accumulated foreign earnings on a consolidated basis.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance requiring a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months.

The recognition, measurement and presentation of expense and cash flows arising from a lease by a lessee primarily will depend on its classification of the lease as a finance or operating lease.

However, unlike prior guidance, which requires only capital leases to be recognized on the balance sheet, the new guidance requires operating leases of the lessee to be recognized on the balance sheet if the operating lease term is more than 12 months.

The guidance also requires lessors to (i) write-off any lease receivables when assessment of collectability of future lease payments changes (irrespective of the probability of their collectability), and (ii) the write-off must be recorded as a reduction of lease income as opposed to bad debt expense.

The guidance also requires disclosures to help investors and other financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases.

These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

The Company adopted this guidance on October 1, 2019 using the optional transition method, which allows it to initially apply the new guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings.

No adjustment to the opening balance of retained earnings was required upon adoption .

As a lessor of rental equipment, the adoption of this guidance had a material impact on the Company’s con solidated financial statements as it is now required to write-off existing operating lease receivables as a reduction of lease income when collectability of an operating lease receivable becomes less than probable.

In June 2018, the FASB issued guidance expanding the scope of ASC Topic 718, Compensation - Stock Compensation , to include share-based payment transactions for acquiring goods and services from non-employees.

The Company adopted this guidance on October 1, 2019.

The adoption of this guidance did not have any material impact on the consolidated financial statements.

In August 2018, the FASB issued guidance requiring certain existing disclosure requirements in ASC Topic 820, Fair Value Measurements and Disclosures , to be modified or removed, and certain new disclosure requirements to be added to this standard.

In addition, the guidance allows entities to exercise more discretion when considering fair value measurement disclosures.

The Company adopted this guidance on October 1, 2019.

The adoption of this guidance did not have any impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued guidance simplifying the current two-step goodwill impairment test by eliminating Step 2 of the test.

The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any.

This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis.

Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company will adopt this standard during the first quarter of its fiscal year ending September 30, 2021 and is currently evaluating the impact of this new guidance on its financial statements.

In June 2016, the FASB issued guidance surrounding credit losses for financial instruments that replaces the incurred loss impairment methodology in generally accepted accounting principles.

3 unchanged sentences

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 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 currently evaluating the impact of this new guidance on its consolidated financial statements.

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.

Certain amendments within the guidance are required to be applied on a retrospective basis for all periods presented;

others are to be applied using a modified retrospective approach with a cumulative-effect adjustment to retained earnings, if any, as of the beginning of the first reporting period in which the guidance is adopted;

and yet others are to be applied using either basis.

All other amendments not specified in the guidance should be applied on a prospective basis.

Early adoption is permitted.

An entity that elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period.

Additionally, an entity that elects early adoption must adopt all the amendments in the same period.

The Company intends to adopt this standard during the first quarter of its fiscal year ending September 30, 2022 and is currently evaluating the new guidance to determine the impact it will have on its condensed consolidated financial statements.

Revenue Recognition

On October 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

This new standard applies to contracts for the sale of products and services, and does not apply to contracts for the rental or lease of products.

The Company adopted the new standard using the modified retrospective method applied to those contracts that were not completed as of September 30, 2018.

Results for reporting periods beginning October 1, 2018 are presented under the new standard and prior period amounts were not restated.

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

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.

10 unchanged sentences

The Company has determined that ASC 606 does not apply to rental contracts, which are within the scope of ASC Topic 842, Leases .

The cumulative effect of the changes made to the Company’s consolidated balance sheet as of October 1, 2018 resulting from the adoption of ASC 606 the new standard was not material and did not impact beginning retained earnings.

The impact on the timing of sales and services for the fiscal year ended September 30, 2019 resulting from the application of the new standard was not material.

As permissible under the new standard, sales taxes and transaction-based taxes are excluded from revenue.

2 unchanged sentences

These costs are recorded in selling, general and administrative expenses.

At June 30, 2020 and September 30, 2019, the Company had deferred contract liabilities of $ 0.1 million and zero , respectively.

The Company had no deferred contract costs at June 30, 2020 and September 30, 2019.

The deferred contract liabilities are included in current liabilities on the Company’s consolidated balance sheet as a component of deferred revenue and other current liabilities.

During the three and nine months ended June 30, 2020, the Company recognized no revenue or cost of revenue from deferred contract liabilities or deferred contract costs.

During the three and nine months ended June 30, 2019, the Company recognized revenue of $ 42,000 and $ 0.1 million, respectively, from deferred contract liabilities and cost of revenue of $ 35,000 and $ 27,000 , respectively, from deferred contract costs.

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 $ 10.5 million contract (inclusive of a subsequent contract amendment of $ 0.3 million) with the U.S.

Customs and Border Protection (“CBP”) to provide a technology solution to the Department of Homeland Security.

Revenue recognized under the contract for fiscal year 2020 and for the three months ended December 31, 2020 was $ 0.3 million and $ 8.8 million, respectively.

The Company had unbilled receivables of $ 4.3 million at December 31, 2020 under this contract.

Unrecognized revenue for unsatisfied performance obligations on this contract at December 31, 2020 was approximately $ 1.6 million.

The Company anticipates the majority of the revenue on the remaining performance obligation on this contract will be recognized in the second or third quarter of fiscal year 2021.

Unsatisfied performance obligations on all other contracts held by the Company at December 31, 2020 had an original duration of one year or less.

At December 31, 2020 and September 30, 2020, the Company had deferred contract liabilities of zero dollars and $ 0.2 million, respectively, which are included in current liabilities on the Company’s consolidated balance sheet as a component of deferred revenue and other liabilities.

The Company had no deferred contract costs at December 31, 2020 and September 30, 2020.

During the three months ended December 31, 2020 and 2019, revenue of $ 0.2 million and zero dollars, respectively, was recognized from deferred contract liabilities.

No cost of revenue was recognized from deferred contract costs for the three months ended December 31, 2020 and 2019.

During the second quarter of fiscal year 2020, the Company partially financed a $ 12.5 million product sale by entering into a $ 10.0 million promissory note with the customer.

2 unchanged sentences

As a result, the Company has no t recognized any revenue or cost of revenue on the product sale.

The Company has received payments from the customer totaling $ 3.8 million (exclusive of interest) as of June 30, 2020 related to the product sale, which is reflected on the Company’s consolidated balance sheet as non-current deferred revenue.

Management does not intend to recognize revenue and cost of revenue from the sale until it becomes probable that the customer will satisfy its financial obligation to the Company.

The Company has received payments from the customer totaling $ 5.3 million (exclusive of interest) as of December 31, 2020 related to the product sale, which is reflected on the Company’s consolidated balance sheet as non-current deferred revenue.

Management does not intend to recognize revenue and cost of revenue from the product sale until it becomes probable that the customer will satisfy its financial obligation to the Company.

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).

1 unchanged sentence

Three Months Ended

Nine Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

December 31, 2020

December 31, 2019

Oil and Gas Markets

12 unchanged sentences

Three Months Ended

Nine Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

December 31, 2020

December 31, 2019

United States

1 unchanged sentence

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

Derivative Financial Instruments

At June 30, 2020 and September 30, 2019, the Company’s Canadian subsidiary had CAD $ 3.8 million and CAD $ 9.3 million, respectively, of Canadian dollar denominated intercompany accounts payable owed to one of the Company’s U.S.

subsidiaries.

In order to mitigate its exposure to movements in foreign currency rates between the U.S.

dollar and Canadian dollar, the Company routinely enters into foreign currency forward contracts to hedge a portion of its exposure to changes in the value of the Canadian dollar.

At June 30, 2020 and September 30, 2019, the Company had short-term hedge contracts of CAD $ 2.0 million and CAD $ 7.0 million, respectively, with a United States bank to reduce the impact on cash flows from movements in the Canadian dollar/U.S.

dollar currency exchange rate, but the contract has not been designated as a hedge for accounting purposes.

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

Derivative Instrument

June 30, 2020

September 30, 2019

Foreign Currency Forward Contracts

Accrued Expenses and Other Current Liabilities

The following table summarizes the Company’s realized gains (losses) on derivative instruments included in the consolidated statements of operations for the three and nine months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended

Nine Months Ended

Derivative Instrument

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Foreign Currency Forward Contracts

Other Income (Expense)

Investment in Debt Security

On July 13, 2020, the Company received an interest in a senior secured bond issued from an international seismic marine customer.

The Company’s interest in the bond, which has a face value of $ 13.0 million, was received in exchange for $

13.0 million of unpaid invoices and late fees owed by the customer.

The bond is secured by a third in line lien on the assets owned by the customer and has an 8 % interest rate with bi-annual interest and possible principal payments based on available excess cash flows.

Interest payments can be made either in cash or in-kind payments in the form of additional debt security.

In-kind interest payments require an 8.8 % interest rate.

The bond matures on July 13, 2022 .

The bond is listed on the Oslo Alternative Bond Market;

however, the actual marketability of the bond is unknown at this time.

As of September 30, 2020, the Company performed a fair value assessment of the investment to determine the bond’s initial carrying amount.

In accordance with ASC 825, “Fair Value Instruments”, the Company has determined that the investment is a Level 3 financial instrument primarily due to its current unknown marketability.

Because of the distressed financial condition of the customer, the Company believed the fair value of the bond was nominal at September 30, 2020.

In January 2021, the Company sold the bond for $ 0.3 million cash pursuant to a purchase agreement (the “Agreement”) entered with a third party (the “Buyer”).

Pursuant to the Agreement, the Company will also receive additional cash compensation of $ 2.4 million from the Buyer if certain terms and conditions between the Buyer and the Company’s customer are met by December 31, 2021.

In the event these terms and conditions are not met, the Company has the option to repurchase the bond from the Buyer for one dollar ($ 1.00 ).

Fair Value of Financial Instruments

The Company’s financial instruments generally include cash and cash equivalents, short-term investments, foreign currency forward contracts, trade and other receivables and accounts payable.

Due to the short-term maturities of cash and cash equivalents, trade and other 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 Company’s financial instruments generally include cash and cash equivalents, trade accounts, notes receivables and accounts payable.

Due to their short-term maturities, 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 derived from models utilizing market observable inputs.

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

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

As of June 30, 2020

The Company measures its contingent consideration at fair value on a recurring basis.

The following tables present the fair value of the Company’s contingent consideration by valuation hierarchy and input (in thousands):

As of December 31, 2020

Quoted Prices in

1 unchanged sentence

Identical Assets

Contingent Consideration

Foreign Currency Forward Contract

Contingent consideration - current portion

Non-current contingent consideration

As of September 30, 2020

2 unchanged sentences

Identical Assets

Contingent Consideration

Foreign Currency Forward Contract

Non-current contingent consideration

Assets and Liabilities Measured on a Nonrecurring Basis

The measurements utilized to determine the implied fair value of the Company’s contingent consideration as of June 30, 2020 represented significant unobservable inputs (Level 3).

The following table summarizes changes in the fair value of the Company’s Level 3 financial instruments for the nine months ended June 30, 2020:

The following table summarizes changes in the fair value of the Company’s Level 3 financial instruments for the three months ended December 31, 2020:

Balance at October 1, 2020

1 unchanged sentence

Balance at December 31, 2020

Fair value adjustments

Balance at March 31, 2020

Fair value adjustments

Balance at June 30, 2020

Adjustments to the fair value of the contingent consideration are based on Monte Carlo simulations utilizing inputs which include market comparable information and management assessments regarding potential future scenarios.

The Company believes its estimates and assumptions are reasonable, however, there is significant judgement involved.

Trade Accounts Receivable and Financing Receivables

Trade accounts receivable, net (excluding financing receivables) is reflected in the following table (in thousands):

June 30, 2020

Trade Accounts and Notes Receivable

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

December 31, 2020

September 30, 2020

2 unchanged sentences

The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses.

The Company determines the allowance based upon historical experience and a current review of its accounts receivable balances.

Accounts receivable balances are charged off against the allowance whenever it is probable that the receivable balance will not be recoverable.

The following table summarizes changes in the Company’s allowance for doubtful accounts for the nine months ended June 30, 2020:

Balance at October 1, 2019

Bad debt expense, net of recoveries

Balance at June 30, 2020

Trade accounts receivable at June 30, 2020 and September 30, 2019 includes $ 8.3 million and $ 8.5 million, respectively, due from an international seismic marine customer that, as of June 30, 2020, rented a significant amount of marine nodal equipment from the Company.

The Company has experienced cash collection difficulties with this customer throughout fiscal year 2019 and through the third quarter of fiscal year 2020 due to the customer’s inability to generate sufficient cash flows to pay its obligations in a timely manner.

As a result of the customer’s failure to adhere to an agreed-upon payment plan, in late November 2019, the Company ceased recognizing revenue from this customer and expects to continue to do so until the customer demonstrates its ability to routinely service its debts owed to the Company in the ordinary course of business.

At June 30, 2020, the total debt contractually owed by the customer to the Company is $ 14.0 million;

however, the customer’s trade accounts receivable balance of $ 8.3 million on the Company’s balance sheet at June 30, 2020 excludes $ 5.7 million of unrecognized rental revenue and late payment penalties invoiced by the Company during the nine months ended June 30, 2020.

During the nine months ended June 30, 2020, the Company received cash payments of $ 6.2 million from this customer, of which $ 3.6 million was recognized as revenue during the third quarter of fiscal year 2020.

The Company has received cash payments in excess of $ 24 million from this customer since the beginning of fiscal year 2018.

The Company has significant concerns about the customer’s ability to ultimately settle the debts owed to the Company because of (i) its distressed financial condition, (ii) the customer’s inability to generate sufficient cash flows to fund its past operations, (iii) the customer’s failure to make payments in accordance with its promises, (iv) the belief that the distressed state of the oil and gas exploration industry caused by the recent oversupply of crude oil on the world market will further compound the difficulties facing the customer and (v) the failure by the customer to present a plausible plan to overcome the difficulties it currently faces.

During fiscal year 2020, the Company recorded a reversal of an operating lease receivable and rental revenue of $ 8.0 million to reduce the carrying value of an operating lease receivable owed by the customer to zero.

On May 26, 2020 the Company entered into an agreement with the customer to transition $ 13 million of unpaid invoices and late fees into a 24 -month term debt security.

The debt is secured by a third in line lien on the assets owned by the customer and has an 8 % interest rate with bi-annual interest and principal payments .

Principal payments can be made either in cash or in-kind payments in the form of additional debt security.

In-kind principal payments require a 10 % premium of interest.

Subsequent to June 30, 2020, the customer completed their reorganization plan and issued the debt security on July 15, 2020 with a July 14, 2022 maturity date.

The customer is required to list the debt instrument on the Oslo Stock Exchange or Nordic ABM within six months.

However, the actual marketability of the debt security is unknown at this time.

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

June 30, 2020

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.

Notes receivable are reflected in the following table (in thousands):

December 31, 2020

September 30, 2020

Promissory notes

Sales-type lease

Total financing receivables

Unearned income:

Sales-type lease

Total unearned income

Total financing receivables, net of unearned income

Notes receivable

Less current portion

Non-current financing receivables

Non-current notes receivable

Promissory notes receivable are generally collateralized by the products sold, and bear interest at rates ranging up to 8 % per year.

5 unchanged sentences

Due to the financial condition of the customer, the note receivable is not reflected on the Company’s consolidated balance sheet due to collectability concerns.

See Note 2 for more information on this sale.

The Company entered into a sales-type lease in September 2017 resulting from the sale of rental equipment.

The sales-type lease has a term of three years .

Future minimum lease payments required under the lease at June 30, 2020 were $ 0.7 million, including $ 5,000 of unearned income.

The final future minimum lease payment is due in September 2020.

Interest income earned on the lease for the three months ended June 30, 2020 and 2019 was $ 10,000 and $ 0.1 million, respectively.

Interest income earned on the lease for the nine months ended June 30, 2020 and 2019 was $ 38,000 and $ 0.1 million, respectively.

The ownership of the equipment will transfer to the lessee at the end of the lease term.

See Note 2 for more information on this matter.

During the first quarter of fiscal year 2021, the Company entered into a $ 13.2 million short-term promissory note with a customer related to the sale of rental equipment and an outstanding receivable balance.

The note bears interest at 8 % per annum and is due on or before March 31, 2021 .

Principal payments due under the note of $ 6.0 million were received from the customer in January 2021.

Inventories consist of the following (in thousands):

June 30, 2020

December 31, 2020

September 30, 2020

5 unchanged sentences

Non-current portion

Raw materials included semi-finished goods and component parts that totaled approximately $ 22.8 million and $ 25.2 million at June 30, 2020 and September 30, 2019, respectively.

The Company has elected not to record operating right-of-use assets or operating lease liabilities with a term of 12 months or less on its consolidated balance sheet.

Raw materials include semi-finished goods and component parts that totaled approximately $ 24.6 million and $ 24.3 million at December 31, 2020 and September 30, 2020, respectively.

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.

1 unchanged sentence

The lease commenced in May 2019 and is for a two-year term.

The operating right-of-use asset had a balance of $ 0.1 million as of June 30, 2020.

Future minimum lease payments related to the operating lease as of June 30, 2020 were as follows (in thousands):

For fiscal years ending September 30,

2020 (remainder)

Future minimum lease payments

Less interest

Present value of future minimum lease payments

The discount rate used on the lease was 5 %, which represented the Company’s incremental borrowing rate at the lease’s inception.

The operating right-of-use asset had a balance of $ 40,000 as of December 31, 2020.

Future minimum lease payments related to the operating lease as of December 31, 2020 was $ 42,000 , all of which is due in fiscal year 2021.

Operating lease costs are recorded in a single expense in the consolidated statements of operations and allocated to the right-of-use asset and the related lease liability as amortization expense and interest expense, respectively.

Right-of-use asset operating lease costs of $ 38,000 and $ 0.1 million, and short-term lease costs of $ 0.1 million and $ 0.2 million, both included as a component of total operating expenses, were recognized for the three and nine months ended June 30, 2020, respectively.

Supplemental cash flow information related to the operating lease is a follows (in thousands):

Nine Months Ended

June 30, 2020

Right-of-use asset operating lease costs of $ 38,000 and $ 38,000 and short-term lease costs of $ 74,000 and $ 76,000 , both included as a component of total operating expenses, were recognized for the three months ended December 30, 2020 and 2019, respectively.

The discount rate used on the operating right-of-use asset was 5 %, which represented the Company’s incremental borrowing rate at the lease’s inception.

Supplemental cash flow information related to the operating right-of-use asset is a follows (in thousands):

Three Months Ended

December 31, 2020

December 31, 2019

Cash paid for amounts included in the measurement of lease liability

Operating lease asset obtained in exchange for new lease liability

The Company has entered into a new operating lease on a facility in Austin, Texas which commences in March 2021.

The Company will record the lease as an operating right-of-use asset in the second quarter of fiscal year 2021.

The lease has a seven-year term with future minimum lease payments of $ 0.9 million.

The Company leases equipment to customers primarily for terms of six months or less.

All of the Company’s leasing arrangements as lessor are classified as operating leases.

The majority of the Company’s rental revenue is generated from its marine-based wireless seismic data acquisition system.

All of the Company’s leasing arrangements as lessor are classified as operating leases except for one sales-type lease.

See Note 5 for more information on this lease.

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 records a direct write-off of the lease receivable to rental revenue.

As of June 30, 2020, the Company had lease receivables from customers, net of reserves, of $ 10.1 million .

Rental revenue for the three and nine months ended June 30, 2020 was $ 15.7 million and $ 40.7 million, respectively.

Rental revenue for the three and nine months ended June 30, 2019 was and $ 10.7 million and $ 32.4 million, respectively.

At June 30, 2020, future minimum lease obligations due from the Company’s leasing customers (all in fiscal year 2020) were $ 7.2 million, which excludes future lease payments on leases in which collection is not deemed probable.

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 December 31, 2020, the Company had lease receivables from customers, net of reserves, of $ 3.9 million.

Rental revenue for the three months ended December 31, 2020 and 2019 was $ 1.7 million and $ 8.6 million, respectively.

At December 31, 2020, future minimum lease obligations due from the Company’s leasing customers (all in fiscal year 2021) were $ 3.0 million.

Rental equipment consisted of the following (in thousands):

June 30, 2020

December 31, 2020

September 30, 2020

1 unchanged sentence

Accumulated depreciation and impairment

Property Held for Sale

Asset Held for Sale

The Company owns a property located in Bogot á , Colombia that it is marketing for sale.

The property was used for product sales and service support to its customers in South America as well as warehousing for its rental equipment operations.

The property’s carrying value at June 30, 2020 was $ 0.6 million and has been reclassified from property, plant and equipment to property held for sale in the accompanying consolidated balance sheet as of June 30, 2020.

The property was used for warehousing its rental equipment operations, product sales and service support to its customers in South America.

The property’s carrying value at December 31, 2020 and September 31, 2020 of $ 0.7 million and $ 0.6 million, respectively, is classified as assets held for sale in the accompanying consolidated balance sheets as of December 31, 2020 and September 30, 2020.

The Company believes the fair market value of the property exceeds its carrying value and that the property will be sold within the next 12-months.

The Company continues to operate on a reduced scale in Colombia.

Goodwill and Other Intangible Assets

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Lives (in years)

June 30, 2020

December 31, 2020

September 30, 2020

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Accumulated amortization

At June 30, 2020, the Company determined there were no triggering events requiring an assessment of its goodwill and other intangible assets, as of, or during its fiscal quarter ended June 30, 2020.

Other intangible assets amortization expense for each of the three and nine months ended June 30, 2020 was $ 0.4 million and $ 1.3 million, respectively.

Other intangible assets amortization expense for the three and nine months ended June 30, 2019 was $ 0.4 million and $ 1.2 million, respectively.

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

The Company’s goodwill is entirely associated with its Emerging Markets reporting unit.

At December 31, 2020, the Company determined there were no triggering events requiring an impairment assessment of its goodwill and other intangible assets.

Other intangible assets amortization expense for each of the three months ended December 31, 2020 and 2019 was $ 0.4 million.

As of December 31, 2020, future estimated amortization expense of other intangible assets is as follows (in thousands):

For fiscal years ending September 30,

2021 (remainder)

Accumulated Other Comprehensive Loss

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

Nine Months Ended June 30, 2020

Balance at October 1, 2019

Foreign currency translation adjustments

Balance at June 30, 2020

Nine Months Ended June 30, 2019

Balance at October 1, 2018

Changes in unrealized gain on available-for-sale securities, net of tax

Foreign currency translation adjustments

Balance at June 30, 2019

Stock-Based Compensation

During the nine months ended June 30, 2020, the Company issued 162,250 restricted stock units (“RSUs”) under its 2014 Long Term Incentive Plan, as amended (the “Plan”).

During the three months ended December 31, 2020, the Company issued 154,950 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.

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Each RSU represents a contingent right to receive one share of the Company’s common stock upon vesting.

As of June 30, 2020, the Company had unrecognized compensation expense of $ 3.2 million relating to RSUs that is expected to be recognized over a weighted average period of 2.9 years.

As of June 30, 2020, the Company had $ 1.2 million of unrecognized compensation expense related to restricted stock awards (“RSAs”) that is expected to be recognized over a weighted average period of 1.4 years.

As of June 30, 2020, there were 264,375 RSUs, 119,274 RSAs and 103,100 nonqualified stock options outstanding.

As of December 31, 2020, the Company had unrecognized compensation expense of $ 3.1 million relating to RSUs that is expected to be recognized over a weighted average period of 3.2 years.

As of December 31, 2020, the Company had $ 0.7 million of unrecognized compensation expense related to restricted stock awards (“RSAs”) that is expected to be recognized over a weighted average period of 1.1 years.

As of December 31, 2020, there were 315,375 RSUs, 53,472 RSAs and 38,800 nonqualified stock options outstanding.

Loss Per Common Share

1 unchanged sentence

Three Months Ended

Nine Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

December 31, 2020

December 31, 2019

Loss allocable to unvested restricted stock

8 unchanged sentences

Loss per share:

For the calculation of diluted loss per share for the three and nine months ended June 30, 2020, 103,100 stock options and 264,375 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, 2019, 163,800 stock options and 161,300 non-vested RSUs, respectively, 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 months ended December 31, 2020, 38,800 stock options and 315,375 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 months ended December 31, 2019, 165,600 stock options and 253,320 non-vested RSUs, respectively, were excluded in the calculation of weighted average shares outstanding since their impact on diluted loss per share was antidilutive.

Commitments and Contingencies

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The maximum amount of contingent payments is $ 23.5 million over the four-year earn-out period.

At September 30, 2019, the Company recorded a $ 2.9 million adjustment to decrease the initial earn-out liability to an estimated fair value of $ 4.8 million.

During the nine months ended June 30, 2020, the Company recorded net adjustments of $ 1.4 million to increase the earn-out liability to an estimated fair value of $ 6.2 million.

The increase in the earn-out liability for the nine months ended June 30, 2020 was due to an increase in projected eligible revenue.

In April 2020, Quantum was awarded a $ 10 million contract with the U.S.

Customs and Border Protection U.S.

Border Patrol to provide a technology solution to the Department of Homeland Security.

The Company does not expect any significant revenue from this contract to be recognized until the first quarter of fiscal year 2021.

At September 30, 2020, the contingent earn-out liability was valued at $ 5.8 million.

During the three months ended December 31, 2020, the Company recorded an adjustment of $ 0.8 million to decrease the liability to an estimated fair value of $ 5.0 million.

The decrease in the earn-out liability for the three months ended December 31, 2020 was due to a decrease in projected eligible revenue.

The Company recorded an initial contingent earn-out liability of $ 4.3 million in connection with its November 2018 acquisition of all the intellectual property and related assets of the OptoSeis ® fiber optic sensing technology.

1 unchanged sentence

The maximum amount of contingent payments is $ 23.2 million over the five-and-a-half year earn-out period.

At September 30, 2019, the Company recorded a $ 0.8 million adjustment to increase the initial earn-out liability to an estimated value of $ 5.1 million.

During the nine months ended June 30, 2020 , the Company recorded net adjustment s of $ 0.3 million to in crease the earn-out liability to an estimated value of $ 5.4 million.

At September 30, 2020, the contingent earn-out liability was valued at $ 5.2 million.

During the three months ended December 31, 2020, the Company recorded an adjustment of $ 0.1 million to increase the liability to an estimated value of $ 5.3 million.

The Company reviews and assesses the fair value of its contingent earn-out liabilities on a quarterly basis.

Operating Leases

The Company leases office space and certain equipment for terms of two years or less.

For the remaining three months of fiscal year 2020 and for fiscal year 2021, future minimum lease obligations for the Company’s operating right-of-use asset and other short-term leases were $ 0.1 million and $ 0.1 million, respectively.

The Company leases office space and certain equipment for terms of seven years or less.

As of December 31, 2020, future minimum lease obligations, inclusive of leases which have not yet commenced, were $ 0.9 million.

Legal Proceedings

7 unchanged sentences

The Adjacent Markets segment products include imaging equipment, water meter products, offshore cables, and seismic sensors used for vibration monitoring and geotechnical applications such as mine safety applications and earthquake detection.

The Emerging Markets segment was added in conjunction with the Company’s acquisition of Quantum, which designs and markets seismic products targeted at the border and perimeter security markets.

The Emerging Markets segment provides seismic products targeted at the border and perimeter security markets.

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

Three Months Ended

Nine Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

December 31, 2020

December 31, 2019

Oil and Gas Markets

5 unchanged sentences

Emerging Markets

Consolidated income tax expense for the three months ended June 30, 2020 and 2019 was $ 0.6 million and $ 0.7 million, respectively.

Consolidated income tax expense for the three months ended December 31, 2020 and 2019 was $ 0.1 million and $ 1.4 million, respectively.

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

Consolidated income tax expense for the nine months ended June 30, 2020 and 2019 was $ 2.6 million and $ 1.3 million, respectively.

This increase in income tax expense was primarily the result of an increase in rental

revenue earned in foreign jurisdictions requiring tax withholding .

The Company is currently unable to record any tax benefits from the tax losses it incurs in the U.S., Canada and Russian Federation due to the uncertainty surrounding its ability to utilize such losses in the future to offset taxable income.

1 unchanged sentence

Concentration of Credit Risk

The Company’s revenue for the nine months ended June 30, 2020 includes $ 34.9 million from three customers which are affiliated with a common parent company.

As of June 30, 2020, trade accounts receivables due from these customers was $ 10.4 million.

As of December 31, 2020, the Company had a note receivable of $ 13.2 million due from one customer, of which $ 6.0 million was received in January 2021.

Revenue recognized from this customer during the three months ended December 31, 2020 was $ 11.2 million.

Current assets at December 31, 2020 also included unbilled receivables from one customer of $ 4.3 million.

Revenue recognized from this customer during the three months ended December 31, 2020 was $ 8.8 million.

COVID-19 Pandemic

The present COVID-19 pandemic, has spread across the globe and is impacting worldwide economic activity, including the global demand for oil and natural gas.

The COVID-19 pandemic poses 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, including due to the spread of the disease within these groups or restrictions that may be requested or mandated by governmental authorities, including quarantines of certain geographic areas, restrictions on travel and other restrictions that prohibit employees from going to work, both around the world as well as in certain jurisdictions in the United States.

The Company has experienced a reduction in demand for certain products, cancellation of rental contracts and difficulty with field employees and salespeople traveling domestically and abroad to conduct the Company’s business.

Subsequent to the end of the Company’s third fiscal quarter ended June 30, 2020, the Company has taken cost reducing steps (reduction of force) to adjust operating and manufacturing expenses in response to the reduction in sales as an effect of the COVID-19 pandemic.

The continued spread of COVID–19 and the related mitigation measures may disrupt the Company’s supply chain potentially resulting in a significant decrease in business from its customers and/or cause its customers to be unable to meet existing payment or other obligations to the Company.

If COVID–19 continues to spread or the response to contain COVID–19 pandemic is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and liquidity.

The ongoing COVID-19 pandemic has spread across the globe and has negatively impacted worldwide economic activity, including the global demand for oil and natural gas, and continues to create challenges in 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.

Following the initial outbreak of the virus, the Company experienced disruptions in its supply chain , a reduction in demand for certain products, cancellation of rental contracts and difficulty with field employees and salespeople traveling domestically and abroad to conduct the Company’s business.

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, including due to spread of the disease within these groups or due to restrictions that may be requested or mandated by governmental authorities, including quarantines of certain geographic areas, restrictions on travel and other restrictions that prohibit employees from going to work, both around the world as well as in certain jurisdictions in the United States.

The continued spread of COVID–19 and the related mitigation measures ha ve disrupt ed the Company’s supply chain, resulting in longer lead times in materials shipped 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 .

Decrease in Oil Commodity Price Levels

1 unchanged sentence

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 products.

Conversely, in periods when these energy commodity prices deteriorate, capital spending budgets of oil and natural gas operators tend to contract and the demand for our products generally weakens.

Historically, the markets for oil and gas have been volatile and are subject to wide fluctuations in response to changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors that are beyond our control, such as the impact of the global COVID-19 pandemic.

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 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 and the demand for the Company’s products generally weakens.

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, 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 recent sharp decline in oil prices, oil and gas exploration and production companies are expected to experience a significant reduction in cash flows, which could result in reductions in their capital spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities.

Demand for the Company’s seismic products targeted at customers in our Oil and Gas Markets segment, which segment has historically accounted for the majority of the Company’s revenue, could significantly diminish during fiscal year 2020 or beyond as a result of significant uncertainty in the outlook for oil and gas exploration.

In light of the decline in oil prices caused by the COVID-19 pandemic in 2020, oil and gas exploration and production companies experienced a significant reduction in cash flows, which resulted in reductions in their capital spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities.

Demand for the sale of the Company’s seismic products targeted at customers in its Oil and Gas Markets segment, which segment has historically accounted for the majority of its revenue, significantly declined during fiscal year 2020, and both product sales and rental revenue could significantly diminish during the remainder of fiscal year 2021 or beyond as a result of significant uncertainty in the outlook for oil and gas exploration.

Specifically, the Company expects these challenging industry conditions to result in decreased demand for its marine wireless nodal products and its land-based seismic products, as the demand for such products has been, and will likely continue to be, vulnerable to downturns in the economy and the oil and gas industry in general.

1 unchanged sentence

Slowdowns in economic activity would likely reduce worldwide demand for energy and result in an extended period of lower crude oil and natural gas prices.

Any material changes in oil and gas prices or other market trends that

adversely impact seismic exploration activity would likely affect the demand for the Company’s products and could materially and adversely affect its results of operations and liquidity.

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

Prior to the issuance of the Company’s consolidated financial statements for the third quarter ended June 30, 2020, the Company concluded that its previously issued consolidated financial statements for the first quarter ended December 31, 2019 and second quarter ended March 31, 2020 contained accounting errors with respect to the application of ASC 842 (Leases) and the reserve against an operating lease receivable.

In the first quarter ended December 31, 2019, the Company determined the collection of future operating lease revenue from a customer was less than probable and ceased recognizing additional rental revenue while the existing operating lease receivable was deemed by the Company to be collectible.

In the second quarter ended March 31, 2020, the Company recorded a reserve against the operating lease receivable to bad debt expense due to a subsequent determination that collection of the receivable had become less than probable.

In accordance with the guidance of ASC 842, when collectability of the rental payments is not deemed probable then lease revenue is limited to cash received with an off-setting adjustment through rental revenue for any existing operating lease receivables and recording a reserve against operating lease receivables as an increase to bad debt expense is not permitted.

As such, the outstanding operating lease receivable should have been reversed against rental revenue in the first quarter ended December 31, 2019 rather than recognized as bad debt expense in the second quarter ended March 31, 2020.

The Company has revised its unaudited consolidated balance sheet at December 31, 2019, its unaudited statements of operations for the three months ended December 31, 2019, and its unaudited statements of operations for the three and six months ended March 31, 2020 to correct the identified errors.

The Company concluded that these financial statements should be revised because of the accounting errors with respect to its application of ASC 842.

The revision had no net impact on cash flows from operating activities for the three months ended December 31, 2019 and for the three and six months ended March 31, 2020.

The impact of the correction of the errors on our unaudited consolidated balance sheet at December 31, 2019 was as follows (in thousands):

As of December 31, 2019

Current assets:

Cash and cash equivalents

Trade accounts and financing receivables, net

Property held for sale

Prepaid expenses and other current assets

Total current assets

Non-current inventories

Rental equipment, net

Property, plant and equipment, net

Other intangible assets, net

Deferred cost of revenue and other assets

Total liabilities

Stockholders’ equity:

Preferred stock

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

The impact of the correction of the error on our unaudited consolidated statement of operations for the three months ended December 31, 2019 was as follows (in thousands):

Three Months Ended December 31, 2019

Total revenue

Cost of revenue

Total operating expenses

Income (loss) from operations

Other income (expense), net

Income (loss) before income taxes

Income tax expense

Loss per common share:

The impact of the correction of the error on our unaudited consolidated statements of operations for the three and six months ended March 31, 2020 was as follows (in thousands):

Three Months Ended March 31, 2020

Six Months Ended March 31, 2020

Total revenue

Cost of revenue

Operating expenses:

Selling, general and administrative

Research and development

Change in estimated fair value of contingent consideration

Bad debt expense

Total operating expenses

Loss from operations

Other income, net

Loss before income taxes

Income tax expense

Loss per common share:

Subsequent Events

In July 2020, the Company initiated a program to reduce operating costs in light of the decrease in demand for products in its Oil and Gas Markets and Adjacent Markets segments.

The majority of the cost reductions will be realized through a reduction of over 100 employees, primarily from the Company’s Houston area workforce.

In connection with the workforce reductions, the Company will incur approximately $ 0.8 million of termination costs in the fourth quarter of fiscal year 2020.

The termination costs will be included as a component of both cost of revenue and operating expenses in the Company’s consolidated statement of operations.

Any material changes in oil and gas prices or other market trends that adversely impact seismic exploration activity would likely affect the demand for the Company’s products and could materially and adversely affect its results of operations and liquidity.

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.

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-Q

Item 1. Financial Statements