What changed in this filing

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Item 9A. Controls and Procedures

2021-11-19 compared with 2020-11-20 · 347 added, 343 removed, 751 unchanged (48% of the section changed)

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Changes in Internal Control Over Financial Reporting

We previously reported a material weakness in our internal control over financial reporting.

As of June 30, 2020 we did not maintain effective controls relating to our adoption of ASC 842 Leases .

In our financial statements for the first quarter ended December 31, 2019 we determined that the collection of future operating lease revenue from one of our customers was less than probable while the operating lease receivable was not impaired.

In our second quarter ended March 31, 2020, we determined the operating lease receivable was impaired and recorded a charge to bad debt expense to reflect the impairment.

In accordance with the guidance of ASC 842, when collectability of the future payments is not deemed probable, lease revenue is limited to cash received while any existing operating lease receivables are immediately charged-off through rental revenue.

This error was subsequently identified and corrected which resulted in a revision of our unaudited consolidated balance sheet as of December 31, 2019, our unaudited consolidated statement of operations for the three months ended December 31, 2019 and our unaudited consolidated statements of operations for the three and six months ended March 31, 2020.

The impact of this revision had no effect on our net loss for the nine months ended June 30, 2020.

Because of this material weakness, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019, March 31, 2020 and June 30, 2020, based on criteria described in Internal Control – Integrated Framework (2013) issued by COSO.

To remediate the material weakness described above, we have designed and implemented a quarterly control to capture all new accounting pronouncements, and when determined necessary, will seek outside technical assistance to enhance our understanding and application of these new pronouncements.

We believe that this measure remediates the material weakness identified and strengthens our internal controls over financial reporting.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

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McEntire (incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed December 9, 2011).*

Geospace Technologies Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed on December 11, 2013).*

Geospace Technologies Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed December 11, 2013).*

First Amendment to the Geospace Technologies Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed December 30, 2020).*

Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form S-8 filed May 21, 2014).*

Form of Employee Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 26, 2018).*

Description of Documents

Form of Employee Incentive Stock Option Award Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form S-8 filed May 21, 2014).*

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Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed May 3, 2019).*

Description of Documents

Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 26, 2018).*

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Sheen (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2009, filed February 5, 2010).*

Second Amendment effective November 17, 2020 to Employment Agreement dated as of August 1, 1997, between the Company and Michael J.

Sheen (incorporated by reference to the Registrant’s Current Report on Form 8-K filed November 23, 2020, File No.:

Loan Agreement dated September 27, 2013 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed October 1, 2013).

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Fifth Amendment to Loan Agreement dated November 9, 2018 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed November 13, 2018).

Description of Documents

Sixth Amendment to Loan Agreement dated March 29, 2019 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed March 29, 2019).

Seventh Amendment to Loan Agreement dated November 15, 2019 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed November 18, 2019, File No.:

Eight Amendment to Loan Agreement dated March 25, 2021 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed March 29, 2021, File No.:

Revolving Promissory Note effective May 4, 2015 by and between Geospace Technologies Corporation as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed May 8, 2015).

Waiver and Consent Letter to Loan Agreement effective April 6, 2015 among Geospace Technologies Corporation as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April 7, 2015).

Description of Documents

Commercial Contract – Improved Property, dated June 3, 2019 by and between GTC, Inc.

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November 19, 2021

/s/ KENNETH ASBURY

November 19, 2021

Kenneth Asbury

/s/ MARGARET S.

November 19, 2021

/s/ THOMAS L.

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Geospace Technologies Corporation and its subsidiaries (the Company) as of September 30, 2020 and 2019, and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

We have audited the accompanying consolidated balance sheets of Geospace Technologies Corporation and its subsidiaries (the Company) as of September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Inventory Valuation

As described in Note 1 to the consolidated financial statements, the Company’s consolidated inventories balance, which is stated at lower of cost or net realizable value, was $34.3 million as of September 30, 2021.

The valuation of inventories is based on the Company’s periodic review of the composition of its inventories to determine if market demand, product modifications, technology changes, excessive quantities on-hand and other factors hinder its ability to recover its investment in such inventories.

The Company’s assessment is based upon historical product demand, estimated future product demand and various other judgments and estimates.

Inventory obsolescence reserves are recorded when such assessments reveal that portions or components of the Company’s investment will not be realized in its operating activities.

We identified the valuation of inventories at the lower of cost or net realizable value as a critical audit matter due to the significant judgment and estimates required by management.

Determining whether a decline in value has occurred requires management to make complex judgments related to (i) historical and estimated future product demand in relation to quantities on hand and (ii) obsolescence of certain products based on changes in technology and demand.

Auditing these judgments is especially challenging and involved significant auditor judgment due to fluctuations in sales trends and evolving customer demands.

Our audit procedures related to the Company’s valuation of inventory included the following, among others:

We tested the reasonableness of management’s projections by comparing management’s estimates to historical results and tested the completeness and accuracy of the data used in the calculation.

We tested the mathematical accuracy of the calculation of the net realizable value by reperforming the calculation based on usage reports and inventory listings.

We evaluated management’s process for subsequent adjustment to the net realizable value reserves by testing the subsequent increases in the inventory values after the net realizable value had been established.

We compared actual purchases and sales data on an individual item basis and aggregated to perform an independent assessment of the net realizable value of inventory.

Valuation of Goodwill– Emerging Markets Reporting Unit

As discussed in Note 11 to the consolidated financial statements, the Company assessed $4.3 million of goodwill associated with its Emerging Markets reporting unit for impairment.

The fair value of the reporting unit was estimated by management using the expected present value of future cash flows and judgments, market data and using estimates, judgments and assumptions that management believe are appropriate in the circumstances.

Key assumptions in the impairment analysis include revenue and cash flow projections, discount rates, long-term growth rates, and the effective tax rate.

In determining the fair value of the Company’s Emerging Markets reporting unit, estimated future cash flows include the Company’s ability to obtain an additional contract with its significant customer.

We identified the valuation of goodwill for the Emerging Market's reporting unit as a critical audit matter because of the significant assumptions management makes in determining the estimate, including revenue and cash flow projections and the discount rate utilized.

Auditing management’s assumptions of revenue and cash flow projections and the discount rate involved a high degree of auditor judgment and increased audit effort, including the use of valuation specialists, as changes in these assumptions could have a significant impact on the fair value of the Emerging Market's reporting unit and potential impairment charges.

Our audit procedures related to the Company’s valuation of goodwill for the Emerging Markets reporting unit included the following, among others:

• We evaluated the reasonableness of management’s revenue and cash flow projections by comparing management’s prior forecasts to historical results for the Company.

• We evaluated management’s revenue projections by comparing to historical results and inquiry of management of the reporting unit regarding additional contracts with its significant customer.

• With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and the discount rates utilized by comparing them to comparable companies and market data.

Valuation of Contingent Consideration – OptoSeis

As described in Note 18 to the consolidated financial statements, the Company recognized contingent consideration related to the acquisition of the OptoSeis fiber optic sensing technology business in November 2018.

The Company recorded the initial fair value of the contingent consideration as a liability on the acquisition date.

The estimated earn-out payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings associated with the acquired entity.

As of September 30, 2021, the contingent consideration liability related to OptoSeis was $4.4 million.

The Company utilizes the services of independent valuation consultants to assist with the estimation of the fair value of the contingent consideration, which includes estimates and projections of future revenue, including the size, length, and timing of its future contracts.

We identified the valuation of contingent consideration related to OptoSeis as a critical audit matter because of the significant assumptions management makes when selecting a valuation model and determining the estimate, including the projections of future revenue, including the size, length and timing of future contracts.

Auditing management’s assumptions of revenue projections and the discount rate involved a high degree of auditor judgment and increased audit effort, including the use of valuation specialists, as changes in these assumptions could have a significant impact on the fair value of the contingent consideration.

Our audit procedures related to the Company’s valuation of contingent consideration related to OptoSeis included the following, among others:

• We tested management’s process for estimating the fair value of the contingent consideration, which included evaluating the significant assumptions related to estimated future customer demand and associated revenue and testing the completeness and accuracy of data used in the models.

• We utilized an internal valuation specialist to assist in:

o Evaluating the appropriateness of the valuation models utilized by management, and

o Developing independent estimates of the discount rates based on publicly available market data and comparing the resulting reporting unit fair values to management’s estimates.

/s/ RSM US LLP

We have served as the Company's auditor since 2018.

Houston, Texas

November 19, 2021

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Cash and cash equivalents

Short-term investments

Trade accounts and financing receivables, net of allowance of $ 428 and $ 496

Unbilled receivables

Inventories, net

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Property, plant and equipment, net

Operating right-of-use assets

Other intangible assets, net

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Accounts payable trade

Deferred revenue and other liabilities

Earn-out consideration payable

Operating lease liabilities

Deferred revenue and other current liabilities

Total current liabilities

Contingent consideration

Non-current contingent consideration

Non-current operating lease liabilities

Non-current deferred revenue and other liabilities

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Common stock, $ .01 par value, 20,000,000 shares authorized, 13,738,971 and

13,630,666 shares issued and outstanding

13,670,639 shares issued, respectively;

and 12,969,542 and 13,670,639 shares outstanding, respectively

Additional paid-in capital

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Accumulated other comprehensive loss

Treasury stock, at cost, 769,429 shares at September 30, 2021

Total stockholders’ equity

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Change in estimated fair value of contingent consideration

Bad debt expense

Bad debt expense (recovery)

Total operating expenses

Gain on disposal of property

Income (loss) from operations

Loss from operations

Other income (expense):

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Interest income

Foreign exchange gains, net

Gain on investments, net

Foreign exchange gains (losses), net

Total other income, net

Income (loss) before income taxes

Loss before income taxes

Income tax expense

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YEAR ENDED SEPTEMBER 30,

Other comprehensive income (loss):

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

Foreign currency translation adjustments

Other comprehensive loss:

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

Foreign currency translation adjustments

Total other comprehensive income (loss)

Total comprehensive loss

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Geospace Technologies Corporation and Subsidiaries

Consolidated Statement of Stockholders’ Equity

Consolidated Statements of Stockholders’ Equity

For the years ended September 30, 2021 and 2020

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Comprehensive

Treasury Stock

Balance at October 1, 2019

Other comprehensive loss

Issuance of restricted stock

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

Forfeiture of restricted stock

Issuance of common stock pursuant to the vesting of

restricted stock units

Issuance of common stock pursuant to exercise of options

Stock-based compensation

Balance at September 30, 2020

Other comprehensive loss

Issuance of common stock pursuant to the vesting of

restricted stock units

Other comprehensive income

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

Forfeiture of restricted stock

Purchase of treasury stock

Stock-based compensation

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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 by (used in) operating activities:

Deferred income tax expense

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Property, plant and equipment depreciation

Amortization of other intangible assets

Amortization of intangible assets

Goodwill impairment expense

Amortization of premiums on short-term investments

Accretion of discounts on short-term investments

Stock-based compensation expense

Bad debt expense

Bad debt expense (recovery)

Inventory obsolescence expense

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Gross profit from sale of used rental equipment

Gain on disposal of property

Gain on disposal of equipment

Realized loss on short-term investments

Gain on disposal of property, plant and equipment

Realized gain on sale of investments, net

Effects of changes in operating assets and liabilities:

Trade accounts and other receivables

Trade accounts and notes receivables

Unbilled receivables

Deferred cost of revenue and other assets

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Deferred revenue and other liabilities

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

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Investment in rental equipment

Proceeds from the sale of property

Proceeds from the sale of equipment

Proceeds from the sale of property, plant and equipment

Proceeds from the sale of used rental equipment

Purchase of short-term investments

Proceeds from the sale of short-term investments

Business acquisition, net of acquired cash

Payments for damages related to insurance claim

Proceeds from insurance claim

Net cash (used in) provided by investing activities

Proceeds from sale of investment in debt security

Net cash used in investing activities

Cash flows from financing activities:

Payments on contingent consideration

Proceeds from exercise of stock options and other

Net cash provided by (used in) 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

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All intercompany balances and transactions have been eliminated.

Reclassifications

Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation.

Such reclassifications had no effect on previously reported net loss, stockholders’ equity or cash flows.

Use of Estimates

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

The Company continually evaluates its estimates, including those related to bad debt reserves, collectability of rental revenue, inventory obsolescence reserves, self-insurance reserves, product warranty reserves, useful lives of long-lived assets, impairment of long-lived assets and intangible assets, contingent consideration, 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.

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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 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.

Concentrations of Credit and Supplier Risk

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Allowances are recognized for potential credit losses.

One customer comprised 48.2 % of the Company’s revenue during fiscal year 2020.

Three customers comprised 19.8 %, 16.4 % and 10.6 %, of the Company’s revenue during fiscal year 2021.

At September 30, 2021, the Company had trade accounts, financing receivables and unbilled receivables from these customers of $ 4.9 million, $ 7.4 million (of which $ 2.1 million was long-term) and $ 1.1 million, respectively.

One of the Company’s major customers in fiscal year 2021 also comprised 48.2 % of the Company’s revenue during fiscal year 2020.

At September 30, 2020, the Company had trade account receivables due from this customer of $ 7.3 million.

Two customers comprised 25.2 % and 19.7 %, of the

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Company’s revenue during fiscal year 2019.

At September 30, 2019, the Company had trade account receivables due from these two customers of $ 12.1 million and $ 6.7 million , respectively.

Certain models of the Company’s oil and gas marine wireless products require a timing device it purchases from a United States manufacturer.

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If this manufacturer were to discontinue its production of this timing device, were to become unwilling to contract with the Company on competitive terms or were unable to supply the component in sufficient quantities to meet its requirements, the Company’s ability to compete in the marine wireless marketplace could be impaired, which could adversely affect its financial performance.

Product sales requiring this device accounted for approximately 2 % of the Company’s revenue during fiscal year 2020.

The device is used in certain models of the Company’s rental equipment.

The Company had no product sales requiring this device in fiscal year 2021.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company purchases all of its thermal film from one manufacturer for its imaging products.

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Impairment charges are included as a component of cost of revenue in the Company’s consolidated statements of operations.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company conducts its evaluation of goodwill at the reporting unit level on an annual basis as of September 30 and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value.

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However, if an entity concludes otherwise, then a quantitative assessment must be performed.

If, based on the quantitative assessment, the Company determines that the fair value of a reporting unit is less that its carrying amount, a goodwill impairment is recognized equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of the goodwill.

At September 30, 2020, the Company assessed the goodwill associated with both its Oil and Gas Markets and Emerging Markets reporting units for impairment.

The assessment primarily utilized an income approach based on discounted cash flows.

As a result of the assessment, the Company determined that the fair market value of its Oil and Gas Markets reporting unit was less than its carrying amount and recorded an impairment charge of $ 0.7 million for the goodwill associated with this reporting unit.

No impairment was indicated on the goodwill associated with its Emerging Markets reporting unit.

The Company has no goodwill associated with its Adjacent Markets reporting unit.

If, based on the quantitative assessment, the Company determines that the fair value of a reporting unit is less that its carrying amount, a goodwill

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

impairment is recognized equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of the goodwill .

Other Intangible Assets

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See Note 2 to these consolidated financial statements.

Deferred Revenue

The Company records deferred revenue when customer funds are received prior to the recognition of the associated revenue.

Contingent Consideration

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The Company engaged the services of a valuation firm to measure the initial fair value of the earn-out liabilities as of the acquisition date for each business.

The valuation technique used to measure the fair value of the liability was derived from models utilizing market observable inputs.

The valuation technique used to measure the fair value of the liability was derived from models utilizing market observable inputs, internal estimates and the use of internal projections of future revenue and/or gross profits.

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

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Research and development costs include salaries, employee benefit costs, department supplies, direct project costs and other related costs.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Product Warranties

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The Company maintains a reserve for future warranty costs based on historical experience or, in the absence of historical product experience, management’s estimates.

Reserves for future warranty costs are included within accrued expenses and other current liabilities on the consolidated balance sheets.

Reserves for future warranty costs are included within deferred revenue and other current liabilities on the consolidated balance sheets.

Changes in the product warranty reserve are reflected in the following table (in thousands):

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Balance at September 30, 2021

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Stock-Based Compensation

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Level 3 represents valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Income taxes are presented in accordance with the Accounting Standards Codification Topic 740 (“Topic 740”) guidance for accounting for income taxes.

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The Company incurred no interest or penalties for the fiscal years ended September 30, 2021 and 2020.

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 write-off any lease receivables when assessment of collectability of future lease payments is not probable and the write-off 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 consolidated 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.

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 adopted this guidance on July 1, 2020 .

The adoption of this guidance was considered in our September 2020 goodwill impairment assessment.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Recently Issued Accounting Pronouncements

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

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued guidance surrounding credit losses for financial instruments that replaces the incurred loss impairment methodology in generally accepted accounting principles.

The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other financial instruments.

For available-for-sale debt securities with unrealized losses, credit losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

As a small reporting company, the Company must adopt this standard no later than the first quarter of its fiscal year ending September 30, 2024.

As a small reporting company, the Company must adopt this

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

standard no later than the first quarter of its fiscal year ending September 30, 2024.

Early adoption is permitted.

The standard’s provisions will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period.

The Company intends to adopt this standard during the first quarter of its fiscal year ending September 30, 2024 and is currently evaluating the impact of this new guidance on its consolidated financial statements.

The Company intends to adopt this standard during the first quarter of its fiscal year ending September 30, 2024 and is continuing to evaluat e 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.

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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.

The Company intends to adopt this standard during the first quarter of its fiscal year ending September 30, 2022 and does not expect the adoption of this guidance to have a material impact on its 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.

Revenue from these product sales, including the sale of used rental equipment, is recognized when obligations under the terms of a contract are satisfied, control is transferred and collectability of the sales price is probable.

The Company records deferred revenue when customer funds are received prior to shipment or delivery or performance has not yet occurred.

The Company assesses collectability during the contract assessment phase.

In situations where collectability of the sales price is not probable, the Company recognizes revenue when it determines that collectability is probable or non-refundable cash is received from its customers.

In situations where collectability of the sales price is not probable, the Company recognizes revenue when it determines that collectability is probable or when non-refundable cash is received from its customers and there is not a significant right of return.

Transfer of control generally occurs with shipment or delivery, depending on the terms of the underlying contract.

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The Company also generates revenue from short-term rentals under operating leases of its manufactured products.

Rental revenue is recognized as earned over the rental period if collectability of the rent is probable.

Rental revenue is recognized as earned over the rental period if collectability of the rent is reasonably assured.

Rentals of the Company’s equipment generally range from daily rentals to minimum rental periods of up to six months or longer.

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.

As permissible under ASC 606, sales taxes and transaction-based taxes are excluded from revenue.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

1 unchanged sentence

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

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company has elected to treat shipping and handling activities in a sales transaction after the customer obtains control of the good as a fulfillment cost and not as a promised good service.

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 sales.

The Company incurred shipping and handling expenses of $ 0.4 million and $ 0.3 million, respectively, for the fiscal years ended September 30, 2021 and 2020, respectively.

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

The note is for a three-year term with monthly principal and interest payments of $ 0.3 million.

Due to the financial condition of the customer, the Company has concerns over the probable collectability of the promissory note.

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 $ 4.6 million (exclusive of interest) as of September 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.

During the third quarter of fiscal year 2020, the Company was awarded a $ 10.7 million contract (inclusive of a subsequent contract amendment of $ 0.3 million) with the U.S.

Customs and Border Protection U.S.

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

Revenue recognized under the contract for fiscal year 2020 was $ 0.3 million.

Unrecognized revenue for unsatisfied performance obligations on this contract at September 30, 2020 was $ 10.4 million.

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

During the third quarter of fiscal year 2020, the Company was awarded a $ 10.5 million contract (inclusive of a subsequent contract amendment of $ 0.3 million) with the Bureau of Customs and Border Patrol (the “CBP”) to provide a technology solution to the Department of Homeland Security.

Revenue recognized under the contract for fiscal year 2020 and 2021 was $ 0.3 million and $ 10.1 million, respectively.

The Company had unbilled receivables of $ 1.1 million at September 30, 2021 under this contract.

Unrecognized revenue for unsatisfied performance obligations on this contract at September 30, 2021 was approximately $ 0.1 million.

The Company anticipates the revenue on the remaining performance obligation on this contract will be recognized in the first quarter

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

of fiscal year 2022 .

Unsatisfied performance obligations on all other contracts held by the Company at September 3 0, 2021 had an original duration of one year or less.

At September 30, 2020 and September 30, 2019, the Company had deferred contract liabilities of $ 0.2 million and zero , respectively, included as a component of deferred revenue.

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

During fiscal year 2020, the Company recognized no revenue or cost of revenue from deferred contract liabilities or deferred contract costs.

During the fiscal year ended September 30, 2019, the Company recognized revenue of $ 0.2 million from deferred contract liabilities and cost of revenue of $ 27,000 from deferred contract costs.

At September 30, 2021, the Company had no deferred contract costs or deferred contract liabilities.

At September 30, 2020, the Company had no deferred contract costs and $ 0.2 million deferred contract liabilities, which are included in current liabilities on the Company’s consolidated balance sheet as a component of deferred revenue and other liabilities.

During the fiscal years ended September 30, 2021 and 2020, no revenue and $ 0.2 million, respectively, was recognized from deferred contract liabilities.

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

The note has a three-year term with monthly principal and interest payments of $ 0.3 million.

Due to the financial condition of the customer, the Company had concerns over the probable collectability of the promissory note.

As a result, the Company did no t recognize any revenue or cost of revenue on the product sale through its first quarter of fiscal year 2021.

During the second quarter of fiscal year 2021, as a result of new information received from the customer, management determined that it is probable that the customer will satisfy its remaining payment obligations on the promissory note with the Company and recognized revenue of $ 12.5 million on the product sale.

During the fourth quarter of fiscal year 2021, the Company granted the customer a six-month principal payment forbearance.

The customer is expected to recommence its monthly payments to the Company in the second quarter of fiscal year 2022.

The customer has made payments totaling $ 7.2 million (exclusive of interest) as of September 30, 2021 related to the product sale.

Deferred contract costs associated with this sale was recognized in fiscal year 2021.

For each of the Company’s operating segments, the following table presents revenue only from the sale of products and the performance of services under contracts with customers (in thousands).

The table excludes all revenue earned from rental contracts.

Therefore, the table excludes all revenue earned from rental contracts.

YEAR ENDED SEPTEMBER 30,

Oil and Gas Markets Product and Services Revenue:

Traditional exploration

Wireless exploration

Oil and Gas Markets

Traditional exploration product revenue

Wireless exploration product revenue

Reservoir product revenue

Total revenue

Adjacent Markets Product and Services Revenue:

Adjacent Markets

Industrial product revenue

Imaging product revenue

Total revenue

Emerging Markets Product and Services Revenue:

Emerging Markets

See Note 20 for more information on the Company’s operating segments.

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The table excludes all revenue earned from rental contracts:

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

YEAR ENDED SEPTEMBER 30,

United States

Revenue is attributable to countries based on the ultimate destination of the product sold, if known.

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

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Revenue is attributable to countries based on the ultimate destination of the product sold, if known.

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

Business Acquisition

On November 13, 2018 , the Company acquired all of the intellectual property and related assets of the OptoSeis ® fiber optic sensing technology business from PGS Americas, Inc.

The assets of the OptoSeis ® business are included in the Company’s Oil and Gas Markets business segment.

The acquisition represented the Company’s strategy for the addition of breadth to its PRM and other products.

The acquisition purchase price consisted of cash at closing of approximately $ 1.8 million and contingent earn-out payments of up to $ 23.2 million over a five-and-a half year period beginning on the date of acquisition.

The contingent cash payments will be derived from certain eligible product and service revenue generated during the earn-out period.

In connection with the OptoSeis ® acquisition, the Company recorded goodwill of $ 0.7 million (deductible for tax purposes), other intangible assets of $ 3.7 million, fixed assets of $ 1.7 million and established an initial contingent earn-out liability of $ 4.3 million.

Legal costs of $ 0.2 million related to the OptoSeis ® acquisition are included in selling, general and administrative expenses for the fiscal year ended September 30, 2019.

For the fiscal year ended September 30, 2019, the estimated fair value of the acquired OptoSeis ® assets was revised, including a $ 1.8 million addition to machinery and equipment, which was offset by a $ 1.0 million decrease in goodwill and a $ 0.8 million decrease in other intangible assets.

On July 2, 2021 , we acquired 100 percent of the outstanding membership interest in Aquana, LLC, a comprehensive wireless water monitoring and control system provider.

Aquana will operate as a wholly-owned subsidiary of the Company and reside in the Company’s Adjacent Markets business segment.

The acquisition purchase price consisted of an initial cash down payment at closing of approximately $ 1.4 million, subject to adjustment, and additional contingent cash payments over a six year earn-out period.

The contingent earn-out payments, if any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by Aquana.

There is no maximum limit to the contingent cash payments that could be made.

The merger agreement with Aquana requires the continued employment of a certain key employee and former member of Aquana, LLC for the first four years of the six year earn-out period in order for any of Aquana’s former members to be eligible to any earn-out payments.

In accordance with ASC 805, Business Combinations , due to the continued employment requirement, no liability has been recorded for the estimated fair value of contingent earn-out payments for this transaction.

Earn-outs achieved, if any, will be recorded as compensation expense when incurred.

In connection with the Aquana acquisition, the Company recorded goodwill of $ 0.7 million, and other intangible assets of $ 0.7 million.

Current assets and current liabilities acquired in the transaction were nominal.

Legal and professional costs of $ 0.2 million related to the Aquana acquisition are included in selling, general and administrative expenses for the fiscal year ended September 30, 2021.

The Aquana acquisition represents the Company’s strategy to expand its product revenues, as well as its engineering and manufacturing competencies, to markets outside the oil and gas industry.

Short-term Investments

The Company classifies its short-term investments as available-for-sale securities.

Available-for-sale securities are carried at fair market value with net unrealized gains and losses reported as a component of accumulated other comprehensive loss in stockholders’ equity.

For the fiscal year ended September 30, 2021, the Company realized losses of $ 4,000 from the sale of short-term investments.

No gains or losses were realized during the fiscal year ended September 30, 2020 from the sale of short-term investments.

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

AS OF SEPTEMBER 30, 2021

Short-term investments:

Corporate bonds

The Company had no short-term investments at September 30, 2020.

The Company’s short-term investments had contractual maturities of $ 9.0 million due within one year and $ 0.5 million due from October 2022 to March 2023.

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 later 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.

The Company’s interest in the bond, which had 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 was secured by a third in line lien on the assets owned by the customer and had an 8 % interest rate with bi-annual interest and possible principal payments based on available excess cash flows.

Interest payments could 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 July 13, 2022 .

The bond is listed on the Oslo Alternative Bond Market;

however, the actual marketability 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 primarily due to its current unknown marketability.

Because of the distressed financial condition of the customer, the Company believes the fair value of the bond is nominal.

The Company has classified the investment as a held-to-maturity security.

Derivative Financial Instruments

At September 30, 2020 and 2019, the Company’s Canadian subsidiary had CAN$ 3.4 million and CAN$ 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 September 30, 2019, the Company had a short-term hedge contract of CAN$ 7.0 million with a United States bank to reduce the impact on cash flows from movements in the Canadian dollar/U.S.

dollar currency exchange rate, which was not designated as a hedge for accounting purposes.

The Company had no hedge contracts at September 30, 2020.

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

AS OF SEPTEMBER 30,

Foreign Currency Forward Contracts

Accrued Expenses and Other Current Liabilities

The following table summarizes the impact of the Company’s derivatives on the consolidated statements of operations (in thousands):

YEAR ENDED SEPTEMBER 30,

Derivative Instrument

Foreign Currency Forward Contracts

Other Income (Expense)

The bond’s scheduled maturity date was July 13, 2022 .

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Amounts in the above table include realized and unrealized derivative gains and losses.

Upon receipt of the senior secured bond, 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 determined that the investment is a Level 3 financial instrument primarily due to its unknown marketability.

Because of the distressed financial condition of the customer, the Company believ ed the fair value of the bond is nominal.

In January 2021, the Company transferred the security pursuant to a purchase agreement (the “Agreement”) entered into with a third party (the “Buyer”).

Pursuant to the Agreement, the Company received non-refundable consideration of $ 0.3 million and was entitled to receive additional cash compensation of $ 2.4 million from the Buyer if certain terms and conditions between the Buyer and the Company’s customer were met by December 31, 2021.

In the event these terms and conditions were not met, the Company had the option to reacquire the bond from the Buyer for one dollar US ($ 1.00 ).

The Company recognized a gain on investment of $ 0.3 million during the three months ended March 31, 2021 in connection with the transfer of the bond.

During the third quarter of fiscal year 2021, the Company agreed to a reduction to the additional cash compensation required from the Buyer to obtain full rights to the bond from $ 2.4 million to $ 1.8 million.

In June 2021, the Company received the $ 1.8 million from the Buyer and relinquished all rights to the bond.

The Company recognized a $ 1.7 million gain on the sale of the bond during the third quarter of fiscal year 2021.

Fair Value of Financial Instruments

The Company’s financial instruments generally included cash and cash equivalents, an investment in debt security, a foreign currency forward contract, trade and financing receivables and accounts payable.

Due to the short-term maturities of cash and cash equivalents, trade and financing receivables and accounts payable, the carrying amounts approximate fair value on the respective balance sheet dates.

The valuation technique used to measure the fair value of the contingent consideration and investment in debt security was derived from models utilizing market observable inputs.

The Company measures its contingent consideration and foreign currency forward contracts at fair value on a recurring basis.

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

The Company’s financial instruments generally include cash and cash equivalents, short-term investments, trade accounts, financing receivables and accounts payable.

Due to the short-term maturities of cash and cash equivalents, trade accounts receivable, financing receivables and accounts payable, the carrying amounts approximate fair value on the respective balance sheet dates.

The valuation technique used to measure the fair value of the contingent consideration was derived from models utilizing market observable inputs.

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

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

AS OF SEPTEMBER 30, 2021

2 unchanged sentences

Significant Other

Contingent consideration

Short-term investments:

Corporate bonds

Contingent consideration liabilities

Total liabilities

AS OF SEPTEMBER 30, 2020

3 unchanged sentences

Contingent consideration

Foreign currency forward contract

Assets and Liabilities Measured on a Nonrecurring Basis

The measurements utilized to determine the implied fair value of the Company’s long-lived assets as of September 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 fiscal years ended September 30, 2019 and 2020:

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The following table summarizes changes in the fair value of the Company’s Level 3 financial instruments for the fiscal year s ended September 30, 20 20 and 20 2 1 :

Balance at October 1, 2019

Business acquisition

Fair value adjustments

Payment of contingent consideration

Balance at September 30, 2020

1 unchanged sentence

Payment of contingent consideration

Consideration payable

Balance at September 30, 2021

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

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.

Adjustments to the fair value of the contingent consideration are based on Monte Carlo simulations or the probability-weighted expected return method 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 judgment involved.

Accumulated Other Comprehensive Loss

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

Unrealized Gains

Available-for-Sale

Balance at October 1, 2019

Other comprehensive income (loss)

Balance at September 30, 2019

Other comprehensive loss

Balance at September 30, 2020

Other comprehensive income (loss)

Balance at September 30, 2021

Accounts and Financing Receivables

Trade accounts receivable consisted of the following (in thousands):

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

AS OF SEPTEMBER 30,

4 unchanged sentences

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 fiscal year ended September 30, 2020 (in thousands):

Balance at October 1, 2019

Bad debt expense, net of recoveries

Balance at September 30, 2020

In fiscal year 2020, the Company entered into an agreement with an international seismic marine customer to transition $ 13.0 million of unpaid invoices and late fees into a senior secured bond having a face value of $ 13.0 million.

The bond was issued to the Company in July 2020.

The customer had 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.

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

During fiscal year 2020, the Company received cash payments of $ 8.1 million from this customer.

Since the inception of the lease during fiscal year 2018, the Company has received cash payments in excess of $ 24 million from this customer.

See Note 4 – Investment in Debt Security for more information on the Company’s senior secured bond.

Geospace Technologies Corporation and Subsidiaries

10 unchanged sentences

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.

The promissory notes receivable (including the unrecognized $ 10.0 million promissory note receivable disclosed below) mature at various times through January 2023 .

The promissory notes receivable mature at various times through January 2023 .

The Company has, on occasion, extended or renewed notes receivable as they mature, but there is no obligation to do so.

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

The note has a three-year term and bears interest at 7 % per year.

Principal and interest payments of $ 0.3 million are due monthly until maturity.

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.

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

The note has a three-year term with monthly principal and interest payments of $ 0.3 million.

Due to the financial condition of the customer, the Company had concerns over the probable collectability of the promissory note.

As a result, the promissory note was not reflected on the Company’s consolidated balance sheet through its first quarter of fiscal year 2021.

During the second quarter of fiscal year 2021, as a result of a new information received from the customer, management determined that it is probable that the customer will satisfy its remaining payment obligations to the Company and recognized the promissory note on its consolidated balance sheet as of March 31, 2021.

See Note 2 for more information on this matter.

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

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

At September 30, 2020, the Company had received all payment obligations required under the lease and ownership of equipment was transferred to the lessee.

During the third quarter of fiscal year 2021, the Company entered into a sales-type lease with a customer on land-based wireless seismic equipment from its rental fleet.

The lease has a term of six months .

Scheduled minimum payments due and outstanding under the lease at September 30, 2021 were $ 1.5 million.

Minimum leases payments of $ 1.0 million are due in the first quarter of fiscal year 2022.

Interest income of $ 37,000 was recognized during the fiscal year ended September 30, 2021.

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

Inventories consisted of the following (in thousands):

3 unchanged sentences

Raw materials

Obsolescence reserve

Obsolescence reserve (net realizable value adjustment)

Less current portion

2 unchanged sentences

Raw materials include semi-finished goods and component parts that totaled approximately $ 22.7 million and $ 24.3 million at September 30, 2021 and 2020, respectively.

Finished goods and raw materials that totaled $ 23.3 million and $ 21.8 million were fully reserved at September 30, 2021 and 2020, respectively.

Geospace Technologies Corporation and Subsidiaries

2 unchanged sentences

Such leases are expensed on a straight-line basis over the lease term.

The Company has one operating right-of use asset related to a leased facility in Austin, Texas.

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 September 30, 2020

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

Variable lease payments are excluded from the measurement of operating right-of-use assets and operating liabilities and recognized in the period in which the obligation for those payments is incurred.

As of September 30, 2021, the Company has two operating right-of use assets related to leased facilities in Austin, Texas and Melbourne, Florida.

Maturities of the operating lease liabilities as of September 30, 2021 were as follows (in thousands):

For fiscal years ending September 30,

Future minimum lease payments

Less interest

Supplemental cash flow information related to the operating leases is as follows (in thousands):

SEPTEMBER 30, 2020

Cash paid for amounts included in the measurement of lease liability

Right-of-use asset established upon adoption of ASC 842

Present value of minimum lease payments

Less current portion

Long-term portion

Lease costs recognized in the consolidated statements of operations for the fiscal years ended September 30, 2021 and 2020 is as follows (in thousands):

YEAR ENDED SEPTEMBER 30,

Right-of-use operating lease costs

Short-term lease costs

Right-of-use operating lease costs and short-term lease costs are included as a component of total operating expenses.

Other information related to operating leases is as follows (in thousands):

YEAR ENDED SEPTEMBER 30,

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

Operating cash flows from operating leases

Operating lease assets obtained in exchange for new lease liabilities

Weighted average remaining lease term

Weighted average discount rate

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The discount rate used on the operating right-of-use assets represented the Company’s incremental borrowing rate at lease inception.

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

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 at September 30, 2019.

The Company had no sales-type leases at September 30, 2020.

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

See Note 7 for more information on the Company’s sales-type lease.

The Company regularly evaluates the collectability of its lease receivables on a lease by lease basis.

1 unchanged sentence

The Company suspends revenue recognition when the collectability of amounts due are no longer probable and concurrently records a direct write-off of the lease receivable to rental revenue to limit rental revenue recognized to the cash collections received.

As of September 30, 2020, the Company had lease receivables from customers, net of reserves, of $ 9.3 million.

As of September 30, 2021, the Company’s trade accounts receivables included lease receivables of $ 7.5 million.

Rental revenue for fiscal years 2021 and 2020 was $ 19.0 million and $ 53.7 million, respectively.

At September 30, 2020, the Company had no future minimum lease obligations due from its leasing customers as all equipment leased was on month-to-month terms.

At September 30, 2021, future minimum lease obligations due from the Company’s leasing customers on operating leases (all in fiscal year 2022) were $ 0.8 million.

Rental equipment consisted of the following (in thousands):

3 unchanged sentences

Rental equipment depreciation expense was $ 15.1 million and $ 17.9 million in fiscal years 2021 and 2020, respectively.

Property, Plant and Equipment

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

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 September 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 September 30, 2020.

The Company believes the fair market value less

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

costs to sell of t he property exceeds its carrying value and that the property will be sold within the next 12-months.

The property is unencumbered.

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

On August 1, 2019, the Company sold its real property located at 7334-7340 Gessner Road, Houston, Texas for a cash price of $ 8.3 million and realized a gain on disposal of property of $ 7.0 million.

The property was unencumbered.

Property, Plant and Equipment

At September 30, 2020, the Company’s property located in Bogot á , Colombia was classified as held for sale on the accompanying consolidated balance sheet.

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

The Company has been marketing the property since the second quarter of fiscal year 2020.

The carrying value of the property was $ 0.6 million at September 30, 2020.

During the fourth quarter of fiscal year 2021, the Company commenced negotiations with a prospective tenant to lease the property and anticipates that a lease will be entered into during the first quarter of fiscal year 2022.

As a result of the anticipated leasing arrangement, Company has included the asset’s carrying value in property, plant and equipment on the accompanying consolidated balance sheet as of September 30, 2021.

Property, plant and equipment consisted of the following (in thousands):

11 unchanged sentences

Goodwill and Other Intangible Assets

In connection with the acquisition of Quantum in July 2018, the Company recorded goodwill of $ 4.3 million and other intangible assets of $ 8.2 million.

The operations of Quantum represent the Company’s Emerging Markets reporting unit.

In connection with the November 2018 acquisition of all the intellectual property and related assets of the OptoSeis ® fiber optic sensing technology business from PGS Americas, Inc., the Company recorded goodwill of $ 0.7 million and other intangible assets of $ 3.7 million.

The operations of OptoSeis ® are included as a component of the Company’s Oil and Gas Markets reporting unit.

Goodwill represents the excess cost of the businesses acquired over the fair market value of identifiable net assets at the dates of acquisition.

At September 30, 2020, the Company assessed the goodwill associated with both its Oil and Gas Markets and Emerging Markets reporting units for impairment.

The fair value of the reporting units were estimated using the expected present value of future cash flows and judgements, recent industry multiples and using estimates, judgements and assumptions that management believes were appropriate under the circumstances.

The estimates and judgments used in the assessment included multiples for EBITDA, the weighted average cost of capital, and the terminal growth rate.

The Company determined the future cash flow and industry multiple analyses provided the best estimate of the fair value of its reporting units.

In connection with the acquisition of Aquana in July 2021, the Company recorded goodwill of $ 0.7 million (deductible for tax purposes) and other intangible assets of $ 0.7 million.

The operations of Aquana are included as a component of the Company’s Adjacent Markets reporting unit.

At September 30, 2021, the Company had additional goodwill of $ 4.3 million and other intangible assets, net of $ 4.5 million attributable to its Emerging Markets reporting unit and other intangible assets, net of $ 2.1 million attributable to its Oil & Gas Markets reporting unit.

Goodwill represents the excess cost of a business acquired over the fair market value of identifiable net assets at the date of acquisition.

At September 30, 2021, the Company assessed the goodwill associated with both its Adjacent Markets and Emerging Markets reporting units for impairment.

The fair value of the reporting units were estimated using the expected present value of future cash flows, market data and using estimates, judgments and other assumptions that management believes were appropriate under the circumstances.

The estimates and judgments used in the assessment included consideration of market participant rates of return and the terminal value of the reporting units.

The Company determined future cash flows provided the best estimate of the fair value of its reporting units.

In determining fair value for the Company’s Emerging Markets reporting unit, estimated future cash flows included obtaining a second contract with the CBP.

Key assumptions in the impairment analysis include revenue and EBITDA projections, discount rates, long-term growth rates, and the effective tax rate the Company determined to be appropriate.

These estimates and projections can be unpredictable, particularly for Quantum as an emerging business.

T he total Company’s estimate of reporting unit fair values was reconciled to its then market capitalization (based upon the stock market price) plus an estimated control premium.

T he total Company’s estimate of reporting unit fair values was reconciled to its then market capitalization (based upon the stock market price) plus an implied control premium.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

As a result of the assessment, t he Company determined that the fair market value of its Oil and Gas Markets reporting unit was less than its carrying amount and recorded an impairment charge of $ 0.7 million for the entire goodwill associated with this reporting unit.

The primary factors impacting the decrease in fair value of the Oil and Gas Markets reporting unit was the decline in current market conditions, including our share price, and the current outlook for sales and operating performance.

No impairment was indicated on the goodwill associated with the Company’s Emerging Markets reporting unit.

The Company has no goodwill associated with its Adjacent Markets reporting unit.

The assessment determined that the fair market value of its Adjacent Markets and Emerging Markets reporting units were more than their carrying amount.

As a result, no impairment charges were recorded for the fiscal year ended September 30, 2021.

For the fiscal year ended September 30, 2020, the Company recorded an impairment charge of $ 0.7 million for the entire goodwill associated with its Oil and Gas Markets reporting unit.

Also see Note 1 to these consolidated financial statements.

As a result of these acquisitions, the Company’s consolidated goodwill and other intangible assets consisted of the following (in thousands):

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

Weighted-Average Remaining Useful Lives (in years)

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Accumulated amortization

Other intangible assets amortization expense was $ 1.7 million in each of fiscal years 2020 and 2019, respectively.

Other intangible assets amortization expense was $ 1.7 million for each of the fiscal years ended September 30, 2021 and 2020

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

As of September 30, 2021, future estimated amortization expense of other intangible assets is as follows (in thousands):

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The Original Credit Agreement has been amended periodically since 2011 (as so amended, the “Credit Agreement”).

In November 2018, the Company extended the maturity of the Credit Agreement from April 2019 to April 2020 .

In March 2019, the Company entered into an amendment to the Credit Agreement that altered the unencumbered liquid assets covenant to (i) reduce the minimum threshold from $ 10 million to $ 5 million and (ii) include unencumbered assets held outside the United States.

The amendment also added another financial covenant that requires the Company to maintain a tangible net worth of not less than $ 140 million.

Additionally, pursuant to the amendment, the Company’s principal place of business and the related real estate, located at 7007 Pinemont Drive, Houston, Texas was added as collateral securing its obligations under the credit agreement.

In November 2019 , we further amended the credit agreement to (i) extend the maturity date from April 2020 to April 2022 , (ii) increase the unencumbered liquid assets covenant threshold from $ 5 million to $ 10 million effective in the first quarter of fiscal year 2021, (iii) to increase the tangible net worth requirement from $ 140 million to $ 145 million in the first quarter of fiscal year 2021 and (iv) remove the requirement that we obtain the consent of Frost Bank prior to paying dividends or repurchasing stock so long as we are in compliance with the covenants

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

of the credit agreement.

Under the Credit Agreement, the Company can borrow up to $ 30.0 million with amounts available for borrowing determined by a borrowing base.

In November 2019, the credit agreement was amended to (i) extend the maturity date from April 2020 to April 2022 , (ii) increase the unencumbered liquid assets covenant threshold from $ 5 million to $ 10 million effective in the first quarter of fiscal year 2021, (iii) to increase the tangible net worth requirement from $ 140 million to $ 145 million in the first quarter of fiscal year 2021 and (iv) remove the requirement that we obtain the consent of Frost Bank prior to paying dividends or repurchasing stock so long as we are in compliance with the covenants of the credit agreement.

In March 2021, the Company further amended the Credit Agreement to reduce the maximum amount of available borrowing from $ 30 million to $ 20 million.

The March 2021 amendment also altered the tangible net worth requirement to decrease the minimum threshold from $ 145 million to $ 132 million commencing with the fiscal quarter ended March 31, 2021 and for each fiscal quarter thereafter.

Additionally, the March 2021 amendment added a funded debt to EBITDA ratio financial covenant which requires the Company to maintain, for a twelve-month period ending on the last day of each fiscal quarter commencing with the fiscal quarter ended March 31, 2021, and for each fiscal quarter thereafter, a ratio of funded debt to EBITDA not exceeding 1.50 to 1.00 .

The March 2021 amendment also amended the definition of “Eligible Accounts” to include certain unbilled receivables, and reduced the limit on the amount of “Eligible Inventory” that may be included in the borrowing base from $ 20 million to $ 15 million.

The borrowing base is determined based upon certain of the Company’s assets which include (i) 80 % of certain accounts receivable plus (ii) 50 % of certain notes receivable (such result not to exceed $ 10 million) plus (iii) 25 % of certain inventories (such result not to exceed $ 20 million).

Subject to the borrowing base calculation, as of September 30, 20 20 , the amount available for borrowing was $ 17.7 million.

Several of the Company’s domestic subsidiaries have guaranteed the obligations of the Company under the Credit Agreement and such subsidiaries have secured their obligations under such guarantees by the pledge of substantially all of the assets of such subsidiaries.

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The interest rate for borrowings under the Credit Agreement is based on the Wall Street Journal prime rate, which was 3.25 % at September 30, 2021.

At September 30, 20 20 , the Company was in compliance with all covenants under the Credit Agreement .

In October 2021, Frost Bank notified the Company that they will not be extending the credit agreement upon its expiration in April 2022, and in November 2021 we elected to cancel the credit agreement.

We are currently in negotiations with multiple lenders for a new credit facility arrangement;

however, we may not be successful in obtaining a credit facility on terms that are favorable to us.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Deferred Revenue and Other Liabilities

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Stockholders’ Equity

In September 1997, the board of directors and stockholders approved the 1997 Key Employee Stock Option Plan (as amended the “1997 Plan”) and, following amendments thereto, there has been reserved an aggregate of 2,250,000 shares of common stock for issuance thereunder.

The 1997 Plan expired in November 2017 .

In February 2014, the board of directors and stockholders approved the 2014 Long Term Incentive Plan (the “2014 Plan”), which replaced the 1997 Plan.

Under the 2014 Plan, an aggregate of 1,500,000 shares of common stock may be issued.

In February 2014, the board of directors and stockholders approved the 2014 Long Term Incentive Plan, as amended (the “2014 Plan”).

In February 2021, board of directors and stockholders approved an amendment which increased the aggregate amount of shares of common stock may be issued under the 2014 Plan from 1,500,000 to 3,000,000 .

The Company is authorized to issue nonqualified and incentive stock options to purchase common stock, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to key employees, directors and consultants under the 2014 Plan.

Options have a term not to

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

exceed ten years , with the exception of incentive stock options granted to employees owning ten percent or more of the outstanding shares of common stock, which have a term not to exceed five years .

Options have a term not to exceed ten years , with the exception of incentive stock options granted to employees owning ten percent or more of the outstanding shares of common stock, which have a term not to exceed five years .

The exercise price of any option may not be less than the fair market value of the common stock on the date of grant.

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At September 30, 2021, an aggregate of 1,653,236 shares of common stock were available for issuance under the 2014 Plan.

No further awards of stock options may be made under the 1997 Plan.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

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Outstanding at September 30, 2021

During fiscal years 2020 and 2019 the Company issued zero and 8,000 RSAs, respectively, to certain of its employees under the 2014 Plan, as amended.

The weighted average grant date fair value of each RSA issued for fiscal year 2019 was $ 14.59 per share.

The total grant date fair value of all RSAs issued for fiscal year 2019 was $ 0.1 million, which will be charged to expense over the next four years as the restrictions lapse.

Compensation expense for the RSAs was determined based on the closing market price of the Company’s stock on the date of grant applied to the total number of shares that are anticipated to fully vest.

Recipients of RSAs are entitled to vote such shares and are entitled to dividends, if paid.

During fiscal years 2021 and 2020, the Company issued 195,950 and 162,250 RSUs to certain of its employees, executive officers and directors under the 2014 Plan, as amended.

The RSUs issued include both time-based and performance-based vesting provisions.

The weighted average grant date fair value of each RSU issued for fiscal years 2020 and 2019 was $ 14.58 and $ 15.11 per unit.

The total grant date fair value of all RSUs issued for fiscal years 2020 and 2019 was $ 2.4 million and $ 2.4 million, respectively, which will be charged to expense over the next four years as the restrictions lapse.

The weighted average grant date fair value of each RSU issued for fiscal years 2021 and 2020 was $ 7.00 and $ 14.58 per unit, respectively.

The total grant date fair value of all RSUs issued for fiscal years 2021 and 2020 was $ 1.4 million and $ 2.4 million, respectively, which will be charged to expense over the next one to four years as the restrictions lapse.

Compensation expense for RSUs was determined based on the closing market price of the Company’s stock on the date of grant applied to the total number of units that are anticipated to fully vest.

No RSAs have been issued since fiscal year 2019

All RSAs, RSUs and stock options outstanding at September 30, 2021 and 2020 were issued from the 2014 Plan.

All remaining stock options outstanding were issued under the 2014 Plan.

All stock options outstanding are nonqualified options.

The total intrinsic value of the Company’s nonqualified stock options exercised during fiscal year 2019 was $ 0.1 million.

No nonqualified stock options were exercised during fiscal year 2020.

No nonqualified stock options were exercised during fiscal years 2021 and 2020.

The following table summarizes information about stock options outstanding and exercisable at September 30, 2021:

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Range of Exercise Prices

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company recognized $ 2.3 million of stock-based compensation expense for each of the fiscal years ended September 30, 2020 and 2019.

The Company accounts for forfeitures as they occur and records compensation costs under the assumption that the holder will complete the requisite service period.

Stock-based compensation expense recognized for the fiscal years ended September 30, 2021 and 2020 was $ 2.0 million and $ 2.3 million, respectively.

Company accounts for forfeitures as they occur and records compensation costs under the assumption that the holder will complete the requisite service period.

As of September 30, 2021, the Company had unrecognized compensation expense of $ 0.2 million relating to RSAs which is expected to be recognized over a weighted average period of 0.5 years.

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Income Taxes:

Components of income (loss) before income taxes were as follows (in thousands):

Components of loss before income taxes were as follows (in thousands):

YEAR ENDED SEPTEMBER 30,

United States

The provision (benefit) for income taxes consisted of the following (in thousands):

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The provision for income taxes consisted of the following (in thousands):

YEAR ENDED SEPTEMBER 30,

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YEAR ENDED SEPTEMBER 30,

Expense (benefit) for U.S federal income tax at statutory rate

Expense for U.S federal income tax at statutory rate

Effect of foreign income taxes

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Nondeductible expenses

Resolution of prior years’ tax matters

Change in valuation allowance

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Effective tax rate

The income tax expense for fiscal years 2021 and 2020 primarily reflects withholding tax on rental income earned in foreign jurisdictions.

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

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The income tax expense for fiscal years 2020 and 2019 primarily reflects withholding tax on rental income earned in foreign jurisdictions.

The Company is currently unable to record any tax benefits for its tax losses in the U.S.

and Canada due to the uncertainty surrounding its ability to utilize such losses in the future to offset taxable income.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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Accrued product warranty

Contingent earn-out consideration

Accrued compensated absences

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Allowance for doubtful accounts

Right-of-use assets

Intangible assets

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Deferred income tax liabilities, net

Deferred income tax liabilities, net are included as a component of non-current deferred revenue and other liabilities in the accompanying consolidated balance sheets.

The 2017 Tax Act was enacted in December 2017.

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At September 30, 2021 and 2020, the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately $ 6.5 million and $ 11.6 million, respectively.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Tax return filings which are subject to review by local tax authorities by major jurisdiction are as follows:

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State of Texas—fiscal years ended September 30, 2018 through 2021

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

State of New York—fiscal years ended September 30, 2019

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The Company’s NOLs originating after the 2017 Tax Act of $ 73.1 million do not expire.

Management of the Company has concluded that it was more-likely-than-not that its U.S., Canadian and Russian net deferred tax assets will not be realized in accordance with U.S.

The Company has not completed a Section 382 limitation study which may prevent it from using its NOLs in the future.

Management of the Company has concluded that it is more-likely-than-not that its U.S., Canadian and Russian net deferred tax assets will not be realized in accordance with U.S.

At September 30, 2021 and 2020, the Company had a valuation allowance against its U.S.

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At September 30, 2021 and 2020, the Company had a valuation allowance against Canadian net deferred tax assets of $ 5.4 million, and $ 5.6 million, respectively.

At September 30, 2020, the Company had a valuation allowance against its Russian net deferred tax assets of $ 0.2 million.

At September 30, 2021 and 2020, the Company had a valuation allowance against its Russian net deferred tax assets of $ 0.3 million and $ 0.2 million, respectively.

Loss Per Common Share

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Diluted loss per share is determined on the assumption that outstanding RSUs have been exchanged for common stock and outstanding dilutive stock options have been exercised and the aggregate proceeds as defined were used to reacquire common stock using the average price of such common stock for the period.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The following table summarizes the calculation of net loss and weighted average common shares and common equivalent shares outstanding for purposes of the computation of loss per share (in thousands, except share and per share amounts):

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For the calculation of diluted loss per share for fiscal years 2021 and 2020, stock options of 38,800 and 91,100 , respectively, and RSUs of 299,374 and 218,257 , respectively, were excluded in the calculation of weighted average shares outstanding as a result of their impact being antidilutive.

Exit and Disposal Activities

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

In July 2020, the Company initiated a program to reduce operating and manufacturing expenses in light of decreased demand for products in our Oil and Gas Markets and Adjacent Markets segments.

The program is expected to produce approximately $ 2.0 million of annualized cash savings starting in fiscal year 2021.

The cost reductions were primarily realized through a reduction of approximately 100 employees from the Company’s workforce.

In connection with the workforce reductions, the Company incurred $ 0.9 million of termination costs in our fourth quarter of fiscal year 2020.

The majority of these costs were incurred by the Company’s Oil & Gas Markets business segment.

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

There are no outstanding liabilities related to this program as of September 30, 2020.

Commitments and Contingencies

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For both acquisitions, the contingent payments are based on future receipt of contract awards and the resulting revenue derived from such contracts.

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

The Company utilizes the services of independent valuation consultants to assist with the estimation of the fair value of this contingent consideration.

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

During fiscal year 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 fiscal year 2020, the Company made cash earn-out payments of $ 0.1 million and recorded net adjustments of $ 1.1 million to increase the earn-out liability to an estimated fair value of $ 5.8 million.

The increase in the earn-out liability in fiscal year 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.

In fiscal year 2020, the Company made a cash earn-out payment of $ 0.1 million to the former shareholders of Quantum.

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

During fiscal year 2021, the Company recorded adjustments of $ 2.7 million to decrease the earn-out liability due to a decrease in projected future eligible revenue.

In September 2021 and October 2021, the Company made cash earn-out payments of $ 1.4 million and $ 0.8 million, respectively, to the former shareholders of Quantum.

The payments were primarily attributable to revenue earned on Quantum’s $ 10 million contract with the CBP to provide a technology solution to the Department of Homeland Security.

At September 30, 2021, the contingent earn-out liability was valued at $ 0.8 million related to projected future 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.

Contingent cash payments, if any, will be derived from eligible revenue generated during a five-and-a-half year earn-out period ending in May 2024 .

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

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

During fiscal year 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 fiscal year 2020, the Company recorded net adjustments of $ 0.1 million to increase the earn-out liability to an estimated value of $ 5.2 million.

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

At September 30, 2021, the contingent earn-out liability was valued at $ 5.2 million.

During fiscal year 2021, the Company recorded net adjustments of $ 0.8 million to decrease the earn-out liability to an estimated value of $ 4.4 million.

No earnout-payments have been made to date on the acquisition.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Contingent Compensation Costs

In connection with the acquisition of Aquana in July 2021, the Company is subject to additional contingent cash payments to the former members of Aquana, LLC.

over a six-year earn-out period.

The contingent payments, if any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by Aquana.

There is no maximum limit to the contingent cash payments that could be made.

As discussed in Note 3, due to the continued employment requirement, no liability has been recorded for the estimated fair value of contingent earn-out payments for this transaction.

Earn-outs achieved, if any, will be recorded as compensation expense when incurred.

Operating Leases

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

Rent expense was approximately $ 0.5 million and $ 0.6 million during fiscal years 2020 and 2019, respectively.

Future minimum lease obligations (all in fiscal year 2021) were $ 0.1 million.

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

Rent expense was approximately $ 0.5 million for each of fiscal years 2021 and 2020.

At September 30, 2021, future minimum lease payments was $ 1.4 million.

See Note 9 for additional information.

Legal Proceedings

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However, management believes that the most probable, ultimate resolution of current pending matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Supplemental Cash Flow Information

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Inventory transferred to property, plant and equipment

Property, plant and equipment acquired in connection with business acquisition

Extinguishment of financing receivable in connection with repossession of equipment added to rental fleet

Financing receivables recognized in connection with sale of used rental equipment

Segment and Geographic Information

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Oil and Gas Markets, Adjacent Markets and Emerging Markets.

The Oil and Gas Markets segment was previously referred to as our Seismic segment.

This segment’s products include wireless seismic data acquisition systems, reservoir characterization products and services, and traditional seismic exploration products such as geophones, hydrophones, leader wire, connectors, cables, marine streamer retrieval and steering devices and various other seismic products.

Our Adjacent Markets segment was previously referred to as our Non-Seismic segment.

This segment’s products include imaging equipment, water meter products, offshore cables, as well as 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 acquisition of Quantum, which designs and markets seismic products targeted at the border and perimeter security markets.

The Oil and Gas Markets segment’s products include wireless seismic data acquisition systems, reservoir characterization products and services, and traditional seismic exploration products such as geophones, hydrophones, leader wire, connectors, cables, marine streamer retrieval and steering devices and various other seismic products.

The Adjacent Markets segment’s products include imaging equipment, water meter products, remote shut-off valves and Internet of Things (IoT) platform, offshore cables, as well as seismic sensors used for vibration monitoring and geotechnical applications such as mine safety applications and earthquake detection.

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

Geospace Technologies Corporation and Subsidiaries

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Therefore, the Company does not segregate and report separate balance sheet accounts for each of its segments and, therefore, no such segment balance sheet information is presented in the table above.

“Corporate” revenue consists of rental revenue earned from an operating lease of a surplus building located in Houston, Texas.

“Corporate” loss from operations primarily consists of the Company’s Houston headquarters general and administrative expenses.

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Notes to Consolidated Financial Statements—(Continued)

The Company generates revenue from product sales, rentals and services from its subsidiaries located in the United States, Canada, Colombia, the Russian Federation and the United Kingdom.

Revenue information for the Company is as follows (in thousands):

The Company generates revenue from product sales, product rentals and services from its subsidiaries located in the United States, Canada, Colombia, the Russian Federation and the United Kingdom.

Revenue generated by the Company’s subsidiaries is as follows (in thousands):

YEAR ENDED SEPTEMBER 30,

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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 9A. Controls and Procedures