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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of the major elements of our consolidated financial statements. You should read this discussion and analysis together with our consolidated financial statements, including the accompanying notes, and other detailed information appearing elsewhere in this Annual Report on Form 10-K, including under the heading “Risk Factors.” The discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the demand for our products and services and our future plans and results. These statements are based on assumptions that we consider to be reasonable, but that could prove to be incorrect. For more information regarding our assumptions, you should refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements and Assumptions” below.

Cautionary Note Regarding Forward-Looking Statements and Assumptions

This Annual Report on Form 10-K and the documents incorporated by reference herein, if any, contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “evaluating” or similar words. Statements that contain these words should be read carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other forward-looking information. Examples of forward-looking statements include, among others, statements that we make regarding our expected operating results, the adoption, results and success of our rollout of our Aquana smart water valves and cloud-based control platform, future demand for our Quantum security solutions, the adoption and sale of our products in various geographic regions, potential tenders for PRM systems, future demand for OBX systems, the completion of new orders for our channels of our GCL system, the fulfillment of customer payment obligations, the impact of and the recovery from the impact of the coronavirus (or COVID-19) pandemic, the impact of the current armed conflict between Russia and Ukraine, our ability to manage changes and the continued health or availability of management personnel, volatility and direction of oil prices, anticipated levels of capital expenditures and the sources of funding therefor, and our strategy for growth, product development, market position, financial results and the provision of accounting reserves. These forward-looking statements reflect our current judgment about future events and trends based on the information currently available to us. However, there will likely be events in the future that we are not able to predict or control. The factors listed under the caption “Risk Factors”, as well as cautionary language in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Such examples include, but are not limited to, the failure of the Quantum or OptoSeis® or Aquana technology transactions to yield positive operating results, decreases in commodity price levels and continued adverse impact of COVID-19 which could reduce demand for our products, the failure of our products to achieve market acceptance (despite substantial investment by us) our sensitivity to short term backlog, delayed or cancelled customer orders, product obsolescence resulting from poor industry conditions or new technologies, bad debt write-offs associated with customer accounts, inability to collect on promissory notes, lack of further orders for our OBX systems, failure of our Quantum products to be adopted by the border and perimeter security market, or a decrease in such market due to governmental changes, and infringement or failure to protect intellectual property. The occurrence of the events described in these risk factors and elsewhere in this Annual Report on Form 10-K could have a material adverse effect on our business, results of operations and financial position, and actual events and results of operations may vary materially from our current expectations. We assume no obligation to revise or update any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable securities laws and regulations.

Background

We design and manufacture seismic instruments and equipment and primarily market these products to the oil and gas industry to locate, characterize and monitor hydrocarbon producing reservoirs. We also market our seismic products to other industries for vibration monitoring, border and perimeter security and various geotechnical applications. We design and manufacture other products of a non-seismic nature, including water meter products, imaging equipment and provide contract manufacturing services. For further informtion on the nature of our operations, see the information under the heading “Business” in this Annual Report on Form 10-K.

Consolidated Results of Operations

As we have reported in the past, our revenue and operating profits have varied significantly from quarter-to-quarter, and even year-to-year, and are expected to continue that trend in the future, especially when our quarterly or annual financial results are impacted by the presence or absence of relatively large, but somewhat erratic, sales of our oil and gas PRM systems and/or wireless seismic data acquisition systems for land and marine applications.

We report and evaluate financial information for three segments: Oil and Gas Markets, Adjacent Markets and Emerging Markets. Summary financial data by business segment follows (in thousands):

YEAR ENDED SEPTEMBER 30,

Oil and Gas Markets

Traditional exploration product revenue $ 6,597 $ 4,518

Adjacent Markets

Emerging Markets

Corporate

Consolidated Totals

Overview

Although in an already depressed oil and gas industry, demand further decreased in February 2020 because of the oversupply of crude oil due to failed OPEC negotiations that led to a dramatic drop in crude oil prices when combined with the impact of the COVID-19 pandemic. These declines in the demand for oil and gas have caused oil and gas exploration and production companies to experience a significant reduction in cash flows, which have resulted in reductions in their capital spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities. Recently, crude oil prices have rebounded and held above February 2020 levels; however, a lag in time typically occurs between higher oil prices and greater demand for our Oil and Gas Markets segment products. We believe this lag is the result of exploration and production (“E&P”) companies allocating their cash flow towards shareholder reward initiatives, such as stock buy-back programs and dividend payments, or in debt reduction. We believe this lag is a short-term trend that will continue until E&P companies decide to reinvest capital into exploration activities. As this lag persists, we expect the reduced levels of demand for our Oil and Gas Markets segment products and our rental marine wireless nodal products to continue. We also expect our land-based traditional and wireless products will continue to experience low levels of product demand until our customers consume their excess levels of underutilized equipment. During the third quarter of fiscal year 2022, we experienced increased rental demand for our marine nodal products in the form of additional rental contracts and requests for quotes from existing and new customers.

In light of current market conditions, the inventory balances in our Oil and Gas Markets business segment at September 30, 2022 continued to exceed levels we consider appropriate for the current level of product demand. We are continuing to work aggressively to reduce these legacy inventory balances; however, we are also adding new inventories for new wireless product developments and for other product demand in our Adjacent Markets segment. During periods of excessive inventory levels, our policy has been, and will continue to be, to record obsolescence expense as we experience reduced product demand and as our inventories continue to age. As difficult market conditions continue for the products in our Oil and Gas Markets segment, we are recording additional expenses for inventory obsolescence and will continue to do so in the future until product demand and/or resulting inventory turnover return to acceptable levels.

Armed Conflict Between Russia and Ukraine

A portion of our oil and gas product manufacturing is conducted through our wholly-owned subsidiary, Geospace Technologies Eurasia LLC, which is based in the Russian Federation. Consequently, our oil and gas business could be directly affected by the current war between Russia and Ukraine. Please see “Part I—Item 1A.—Risk Factors” for more information.

Coronavirus (COVID-19)

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

During the fiscal year ended September 30, 2022, our operations have, for the most part, remained open globally and the impact of the effects of COVID-19 to our personnel and operations has been limited. Our supply chain has become increasingly strained due to increased pricing for raw material and supplies coupled with longer than expected lead times. We initially experienced a reduction in demand for the rental of our OBX marine nodal products, which we believed was primarily the result of the pandemic; however, demand has increased in fiscal year 2022. We also believe our Adjacent Markets business segment has entered into a period of recovery from the initial effects of the COVID-19 pandemic, but we continue to be cautious about the pandemic’s effect on our other business segments and our supply chain. As a result, we continually communicate with our suppliers and customers as information is available to best manage this difficult situation.

Fiscal Year 2022 Compared to Fiscal Year 2021

Consolidated revenue for fiscal year 2022 was $89.3 million, a decrease of $5.6 million, or 5.9%, from fiscal year 2021. The decrease in revenue was primarily due to a reduction in revenue from our Emerging Markets segment related to our contract with the CBP and a decrease in revenue from sales of our wireless seismic products. The decrease in revenue was partially offset by increased rental revenue from our OBX rental fleet and higher sales of our industrial and imaging products.

Consolidated gross profit for fiscal year 2022 was $18.0 million, an increase of $1.7 million, or 10.7%, from fiscal year 2021. The increase in gross profit primarily resulted from (i) higher gross profit attributable to the increased utilization of our OBX rental fleet and (ii) the higher profit margins generated on wireless exploration product sales. The increase was partially offset by the reduction in revenue and related gross profit from our contract with the CBP discussed above.

Consolidated operating expenses for fiscal year 2022 were $41.2 million, an increase of $8.0 million, or 24.2%, from fiscal year 2021. The increase was due to (i) a $4.3 million goodwill impairment charge related to our Quantum acquisition, (ii) a $1.8 million increase in research and development project costs, (iii) a $1.4 million increase in personnel costs, (iv) $1.1 million in incremental operating costs associated with our acquisition of Aquana and (v) a $0.9 million increase in sales, marketing and other general business expenses. The increase was partially offset by a $1.5 million increase in a favorable non-cash adjustment to the estimated fair value of contingent consideration related to our Quantum and OptoSeis® acquisitions when compared to the prior fiscal year.

Consolidated other income for fiscal year 2022 was $0.5 million compared to $3.4 million from fiscal year 2021. The decrease in other income was primarily due to (i) a gain recognized on the sale of our investment in a debt security in fiscal year 2021, (ii) an increase in foreign exchanges losses and (iii) a decrease in interest income.

Consolidated income tax expense for fiscal year 2022 was $0.2 million compared to $0.6 million from fiscal year 2021. This decrease in income tax expense was primarily the result of a decrease in rental revenue earned in foreign jurisdictions requiring tax withholding. We are currently unable to record any tax benefits from the tax losses we incur in the U.S., Canada and Russian Federation due to the uncertainty surrounding our ability to utilize such losses in the future to offset taxable income.

Segment Results of Operations

Fiscal Year 2022 Compared to Fiscal Year 2021

Oil and Gas Markets

Revenue

Revenue from our Oil and Gas Markets products for fiscal year 2022 decreased $3.1 million, or 6.0%, from fiscal year 2021. Our product and rental revenue in this segment continues to be negatively impacted by a lack of spending by oil and gas exploration companies despite higher crude oil prices. The components of this decrease were as follows:

•

Traditional Exploration Product Revenue– Revenue from our traditional products increased $2.1 million, or 46.0% from the prior fiscal year. The increase primarily reflects higher demand for our sensor and marine products.

•

Wireless Exploration Product Revenue – Revenue from our wireless exploration products decreased $5.1 million, or 11.1%, from the prior fiscal year. The decrease was primarily due to the recognition of $12.5 million of revenue related to a land-based wireless system in the second quarter of fiscal year 2021 and a $9.9 million sale of used OBX rental

equipment in the first quarter of fiscal year 2021. The decrease was partially offset by a $10.0 million sale of used OBX rental equipment in the second quarter of fiscal year 2022 and increased OBX rental revenue during fiscal year 2022.

•

Reservoir Product Revenue – Revenue from our reservoir products decreased $0.1 million, or 5.3%, from the prior fiscal year. The decrease in revenue was primarily due to lower reservoir monitoring service revenue. The decrease was largely offset by higher demand for our borehole products.

Operating Loss

Operating loss from our Oil and Gas Markets products for fiscal year 2022 was $(7.5) million, a decrease of $(8.7) million, or 53.5%, from the prior fiscal year. The decrease in operating loss was primarily due to (i) higher wireless rental revenue and related gross profits due to improved utilization of our OBX rental fleet and (ii) a $3.6 million increase to a favorable non-cash adjustment to the estimated fair value of contingent consideration related to our OptoSeis® acquisition when compared to the same period of the prior fiscal year. The decrease in operating loss was partially offset by an increase in research and development costs.

Adjacent Markets

Revenue

Revenue from our Adjacent Markets products for fiscal year 2022 increased $6.8 million, or 20.8%, from the prior fiscal year. While we experienced an increase in the demand for our Adjacent Markets products and services during fiscal year 2022 despite the global supply chain shortages, we cannot reasonably determine the lasting effects of the supply chain shortage on this operating segment. The components of this increases were as follows:

•

Industrial Product Revenue and Services – Revenue from our industrial products increased $4.3 million, or 20.2%, from the prior fiscal year. The increase was primarily due to higher demand for water meter products and contract manufacturing services.

•

Imaging Product Revenue – Revenue from our imaging products increased $2.4 million, or 22.1%, from the prior fiscal year. The increase was primarily due to higher demand for our imaging equipment.

Operating Income

Operating income from our Adjacent Markets products for fiscal year 2022 was $6.0 million, a decrease of $0.4 million, or 6.3% from the prior fiscal year. The decrease in operating income was primarily due (i) a $1.3 million increase in research and development expense, (ii) $1.0 million in incremental operating costs attributable to our acquisition of Aquana and (iii) a $0.4 million impairment charge on our manufacturing equipment. The decrease was largely offset by an increase in revenue and related gross profits for fiscal year 2022.

Emerging Markets

Revenue

Revenue from our Emerging Markets products for fiscal year 2022 was $0.7 million, compared to $10.2 million from the prior fiscal year. The decrease was due to $10.1 million of revenue recognized on our contract with the CBP during the prior fiscal year. We were awarded this contract during fiscal year 2020 to provide a technology solution to the Department of Homeland Security. The majority of the revenue related to this contract was recognized in fiscal year 2021. The contract was completed in the second quarter of fiscal year 2022.

Operating Income (Loss)

Operating income (loss) from our Emerging Markets products for fiscal year 2022 was $(9.1) million, compared to $5.0 million from the prior fiscal year. The decrease for fiscal year 2022 was primarily due to the revenue and related gross profit recognized on our contract with the CBP in the prior fiscal year. The decrease in operating income (loss) was also due (i) a non-cash goodwill impairment charge of $4.3 million and (ii) a $2.0 million decrease to a favorable non-cash adjustment to the estimated fair value of contingent consideration related to our Quantum acquisition when compared to the same period of the prior fiscal year.

Liquidity and Capital Resources

Fiscal Year 2022

At September 30, 2022, we had approximately $17.0 million in cash and cash equivalents and short-term investments. For the fiscal year ended September 30, 2022, we used $10.0 million of cash from operating activities. Our net loss of $22.9 million was offset by

net non-cash charges of $24.6 million resulting from deferred income taxes, depreciation, amortization, asset impairments, accretion, inventory obsolescence, stock-based compensation, bad debt expense and changes in the estimated fair value of contingent consideration. Other uses of cash in our operations primarily included (i) the removal of $11.1 million gross profit from the sale of used rental equipment as it is included in investing activities, (ii) a $0.8 million decrease in accounts payable due to the timing of payments to suppliers, (iii) a $2.4 million increase in inventories to meet an increase in demand for our Adjacent Markets products and (iv) a $0.7 million decrease in other liabilities primarily due to a decrease in customer deposits on rental equipment and a decrease in accrued compensation costs. Offsetting these uses of cash primarily included (i) a $1.8 million decrease in trade accounts and notes receivable primarily due to the timing of collections from customers and (ii) a $1.1 million decrease in unbilled receivables resulting from the collection of billings to the CBP.

For the fiscal year ended September 30, 2022, we generated cash of $14.1 million in investing activities. Sources of cash included (i) net proceeds of $8.5 million from the sale of short-term investments and (ii) proceeds of $11.6 million from the sale of used rental equipment. Offsetting these sources were (i) $1.1 million for additions to our property, plant and equipment and (ii) $4.8 million for additions to our equipment rental fleet. We expect our cash investments in our rental fleet to be approximately $6 million in fiscal year 2023. We expect fiscal year 2023 cash investments in property, plant and equipment will be approximately $1 million during fiscal year 2023. Our capital expenditures are expected to be funded from our cash on hand, internal cash flows, cash flows from our rental contracts or, if necessary, borrowings under our new credit agreement.

For the fiscal year ended September 30, 2022, we used $1.7 million from financing activities. Uses of cash included (i) $0.8 million for contingent consideration payments to the former shareholders of Quantum, (ii) debt issuance costs of $0.2 million incurred in connection with our new credit agreement and (iii) $0.7 million for the purchase of treasury stock pursuant to a stock buy-back program authorized by our board of directors in November 2020. The stock buy-back program authorized us to repurchase up to $7.5 million of our common stock in open market transactions. The program was completed in November 2021.

Our available cash and cash equivalents and short-term investments totaled $17.0 million at September 30, 2022, which included $2.6 million of cash and cash equivalents held by our foreign subsidiaries and branch offices, of which $1.8 million was held by our subsidiary in the Russian Federation. . In response to sanctions imposed by the U.S. and others on Russia, the Russian government has imposed restrictions on companies’ abilities to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia. As a result, this cash can be used in our Russian operations, but we may be unable to transfer it out of Russia without incurring substantial costs, if at all. In addition, if we were to repatriate the cash held by our Russian subsidiary, we would be required to accrue and pay taxes on any amount repatriated.

In May 2022, we entered into a credit agreement (the “Agreement”) with Amerisource Funding, Inc., as administrative agent and as a lender, and Woodforest National Bank, as a lender. Available borrowings under the Agreement are determined by a borrowing base with a maximum availability of $10 million. The borrowing base is determined based upon certain of our domestic assets which include (i) 70% loan to value of our property located at 6410 Langfield Road in Houston, Texas (the “Property”), (ii) 50% of forced liquidation value of equipment, (iii) 80% of certain accounts receivable and (iv) 50% of forced liquidation value of certain inventory (inventory borrowing base limited to 100% of borrowing base credit given toward accounts receivable). The Agreement is for a two-year term with all funds borrowed due at the expiration of the term. The interest rate on borrowed funds is the Wall Street prime rate (with a minimum of 3.25%) plus 4.00%. We are required to make monthly interest payments on borrowed funds. Borrowings under the Agreement will be principally secured by the Property and our domestic equipment, inventory and accounts receivables. In addition, certain of our domestic subsidiaries have guaranteed our obligations under the Agreement and such subsidiaries have secured the obligations by pledging certain assets. The Agreement requires us to maintain a minimum consolidated tangible net worth of $100 million. We expect to remain in compliance with this requirement in fiscal year 2023.

At September 30, 2022, we had no borrowings outstanding and were compliant with all covenants under the Agreement. Our borrowing availability at September 30, 2022 was $8.5 million. We do not currently anticipate the need to borrow under the Agreement, however, we may decide to do so in the future, if needed.

Our available cash and cash equivalent and short-term investments decreased $6.6 million during fiscal year 2022. In the absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future operations, including executed rental contracts, available borrowings under our Agreement through its expiration in May 2024, leveraging or sales of real estate assets, sales of rental assets and other liquidity sources which may be available to us. We currently believe that our cash, cash equivalents and short-term investments will be sufficient to finance any future operating losses and planned capital expenditures through the next twelve months.

We do not have any obligations which meet the definition of an off-balance sheet arrangement and which have or are reasonably likely to have a current or future effect on our financial statements or the items contained therein that are material to investors.

Contractual Obligations

Contingent Consideration

We recorded an initial contingent consideration liability of $7.7 million in connection with our July 2018 acquisition of Quantum. Subsequent to the acquisition, we reduced the liability to $0.2 million as of September 30, 2022 as a result of $2.3 million of earn-out payments made through June 2022 and $5.2 million in adjustments to reduce the value of expected future payments. Contingent payments derived from eligible revenue generated during the four-year post-acquisition period ended July 2022 can be paid in the form of cash or Company stock. In November 2022, the Company paid in cash the remaining $0.2 million liability to the former shareholders of Quantum. Subsequent to this payment, there are no further contingent payment obligations related to this acquisition.

We recorded an initial contingent consideration liability of $4.3 million in connection with our November 2018 acquisition of all the intellectual property and related assets of the OptoSeis® fiber optic sensing technology. We decreased the estimated liability to zero as of September 30, 2022 as a result of the unlikelihood any eligible revenue will be generated during the earn-out period. Contingent cash payments were to be derived from eligible revenue generated during a five-and-a-half year post-acquisition earn-out period ending in May 2024. In order for revenue to be considered eligible, sales contracts must be entered into during the first four years of the earn-out period, which ended November 13, 2022. No sales contracts were entered into during this period and we have no contingent payment obligations related to this acquisition.

Contingent Compensation Costs

In connection with the acquisition of Aquana in July 2021, we are subject to additional contingent cash payments to the former members of Aquana over a six-year earn-out period. The contingent payments, if any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by Aquana. There is no maximum limit to the contingent cash payments that could be made. The merger agreement with Aquana requires the continued employment of a certain key employee and former member of Aquana for the first four years of the six year earn-out period in order for any of Aquana’s former members to be eligible to receive any earn-out payments. In accordance with ASC 805, Business Combinations, due to the continued employment requirement, no liability has been recorded for the estimated fair value of contingent earn-out payments for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when incurred.

See Note 18 to our consolidated financial statements in this Annual Report on Form 10-K for more information on our contractual contingencies.

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider many factors in selecting appropriate operational and financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. We continually evaluate our estimates, including those related to revenue recognition, bad debt reserves, inventory obsolescence reserves, goodwill and long-lived asset impairment. We base our estimates on historical experience and various other factors, including the impact from the current economic conditions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.

Our normal credit terms for trade receivables are 30 days. In certain situations, credit terms for trade receivables may be extended to 60 days or longer and such receivables generally do not require collateral. Additionally, we provide long-term financing in the form of promissory notes and sales-type leases when competitive conditions require such financing and, in such cases, we may require collateral. We perform ongoing credit evaluations of our accounts and financing receivables, and allowances are recognized for potential credit losses.

Our long-lived assets are reviewed for impairment whenever an event or change in circumstances indicates the carrying amount of an asset or group of assets may not be recoverable. The impairment review, if necessary, includes a comparison of expected future cash flows (undiscounted and without interest charges) to be generated by an asset group with the associated carrying value of the related assets. If the carrying value of the asset group exceeds the expected future cash flows, an impairment loss is recognized to the extent that the carrying value of the asset group exceeds its fair value.

We conduct our evaluation of goodwill at the reporting unit level on an annual basis as of September 30 and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. The guidance on the testing of goodwill for impairment provides the option to first assess qualitative factors to determine if the fair value of a reporting unit exceeds its carrying amount. If, based on the qualitative assessment of events or circumstances, an entity determines it is more likely than not that the fair value of a reporting unit is more than its carrying amount then it is not necessary to perform a quantitative assessment. However, if an entity concludes otherwise, then a quantitative assessment must be performed. If, based on the quantitative assessment, we determine that the fair value of a reporting unit is less that its carrying amount, a goodwill impairment is recognized equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of the goodwill.

We record a write-down of our inventories when the cost basis of any manufactured product, including any estimated future costs to complete the manufacturing process, exceeds its net realizable value. Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out method, except that our subsidiaries in the Russian Federation and the United Kingdom use an average cost method to value their inventories.

We periodically review the composition of our inventories to determine if market demand, product modifications, technology changes, excessive quantities on-hand and other factors hinder our ability to recover our investment in such inventories. Management’s assessment is based upon historical product demand, estimated future product demand and various other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that portions or components of our inventory investment will not be realized in our operating activities.

The value of our inventories not expected to be realized in cash, sold or consumed during our next operating cycle are classified as non-current assets in our consolidated balance sheets.

We recognize revenue from product sales and services in accordance with ASC Topic 606, Revenue from Contracts with Customers. This standard applies to contracts for the sale of products and services and does not apply to contracts for the rental or lease of products. Under this standard, we recognize revenue when performance of contractual obligations are satisfied, generally when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. Revenue from product sales is recognized when obligations under the terms of a contract are satisfied, control is transferred and collectability of the sales price is reasonably assured. Transfer of control generally occurs with shipment or delivery, depending on the terms of the underlying contract. Our products are generally sold without any customer acceptance provisions, and our standard terms of sale do not allow customers to return products for credit. Most of our products do not require installation assistance or sophisticated instruction. We offer a standard product warranty, which obligates us to repair or replace our products having manufacturing defects. We maintain a reserve for future warranty costs based on historical experience or, in the absence of historical experience, management estimates. Revenue from engineering services is recognized as services are rendered over the duration of a project or as billed on a per hour basis. Field service revenue is recognized when services are rendered and is generally priced on a per day rate. We recognize rental revenue as earned over the rental period. Rentals of our equipment generally range from daily rentals to rental periods of up to six months or longer.

We recognize rental revenue in accordance with ASC Topic 842, Leases. In the event collectability of lease payments is not probable at the lease commencement date, we recognize revenue when payments are received. We regularly evaluate the collectability of our lease receivables on a lease by lease basis. The evaluation primarily consists of reviewing past due account balances and other factors such as the credit quality of the customer, historical trends of the customer and current economic conditions. We suspend the recognition of rental revenue when the collectability of amounts due are no longer probable and record a direct write-off of the lease receivable to rental revenue.

Recent Accounting Pronouncements

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

Management’s Current Outlook and Assumptions

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

Regarding our Oil and Gas Markets business segment, demand for our products are subject to volatile fluctuations in crude oil prices. As a result of substantial declines in crude oil prices in recent years combined with the recent reduced global demand for oil and gas as a result of the COVID-19 pandemic, oil and gas exploration and production companies experienced a significant reduction in cash flows resulting in sharp reductions in their capital spending budgets for oil and gas exploration-focused activities including seismic data acquisition activities. While we have experienced stronger marine nodal rental activity in fiscal year 2022, the need for new seismic equipment, particularly land-based equipment, remains restrained due to our customers’ (i) limited capital resources, (ii) lack of visibility into future demand for their seismic services and (iii) in some cases, under-utilized legacy equipment. Crude oil prices have recently rebounded; however, lasting higher levels of oil and gas commodity pricing may not stabilize in the long term, thus continuing the challenging industry conditions we have experienced in previous fiscal years.

Many of our land-based traditional seismic products can be damaged, destroyed or otherwise consumed during our customer’s field operations. We expect fiscal year 2023 demand for our land-based traditional seismic products may increase slightly over fiscal year 2022 levels.

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

The vast majority of our oil and gas rental revenue in fiscal year 2022 was derived from short-term rentals of our OBX ocean-bottom recorder. We believe our OBX rental revenue will increase substantially in fiscal year 2023 as a result of rental contracts executed during fiscal year 2022 and anticipated new rental contracts, but we can make no assurance in this regard.

We expect that fiscal year 2023 revenue from our oil and gas reservoir products, and principally our borehole tools and services, will increase slightly over fiscal year 2022 levels. We have not received any orders for a large-scale seabed PRM system since November 2012, although we do believe opportunities for PRM orders do exist in today's market. If a large scale PRM order were received in fiscal year 2023, it could significantly impact our fiscal year 2023 or fiscal year 2024 revenue and profits.

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

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements, including the reports thereon, the notes thereto and supplementary data begin at page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in our reports.

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

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2022. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control Integrated Framework (2013). Based on this assessment, our management concluded that, as of September 30, 2022, our internal control over financial reporting is effective based on those criteria.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of September 30, 2022 in connection with our 2023 Annual Meeting of Stockholders under the captions “Election of Directors,” “Executive Officers and Compensation,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Ethics” and is incorporated herein by reference.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of September 30, 2022 in connection with our 2023 Annual Meeting of Stockholders under the caption “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference, and in Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” contained in Part II hereof.

Item 13. Certain Relationships and Related Transactions and Director Independence

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

Financial Statements and Financial Statement Schedules

The financial statements and financial statement schedules listed on the accompanying Index to Financial Statements (see page F-1) are filed as part of this Annual Report on Form 10-K.

Exhibits

ExhibitNumber Description of Documents

21.1 Subsidiaries of the Registrant.**

23.1 Consent of RSM US LLP.**

* This exhibit is a management contract or a compensatory plan or arrangement.

** Filed herewith.

Item 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GEOSPACE TECHNOLOGIES CORPORATION

By: /s/ WALTER R. WHEELER

Walter R. Wheeler, Director, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Title Date

Walter R. Wheeler (Principal Executive Officer)

Robert L. Curda (Principal Financial Officer and Principal Accounting Officer)

/s/ GARY D. OWENS Chairman of the Board November 18, 2022

Gary D. Owens

/s/ MARGARET S. ASHWORTH Director November 18, 2022

Margaret S. Ashworth

/s/ THOMAS L. DAVIS Director November 18, 2022

Thomas L. Davis

/s/ EDGAR R. GIESINGER, JR. Director November 18, 2022

Edgar R. Giesinger, Jr.

/s/ TINA M. LANGTRY Director November 18, 2022

Tina M. Langtry

/s/ RICHARD F. MILES Director November 18, 2022

Richard F. Miles

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

Reports of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of September 30, 2022 and 2021 F-5

Notes to Consolidated Financial Statements F-10

Schedule II—Valuation and Qualifying Accounts F-34

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Geospace Technologies Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Geospace Technologies Corporation and its subsidiaries (the Company) as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Inventory Valuation

As described in Note 1 to the consolidated financial statements, the Company’s consolidated inventories balance, which is stated at lower of cost or net realizable value, was $32.5 million as of September 30, 2022. The valuation of inventories is based on the Company’s periodic review of the composition of its inventories to determine if market demand, product modifications, technology changes, excessive quantities on-hand and other factors hinder its ability to recover its investment in such inventories. The Company’s assessment is based upon historical product demand, estimated future product demand and various other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that portions or components of the Company’s investment will not be realized in its operating activities.

We identified the valuation of inventories at the lower of cost or net realizable value as a critical audit matter due to the significant judgment and estimates required by management. Determining whether a decline in value has occurred requires management to make complex judgments related to (i) historical and estimated future product demand in relation to quantities on hand and (ii) obsolescence of certain products based on changes in technology and demand. Auditing these judgments is especially challenging and involved significant auditor judgment due to fluctuations in sales trends and evolving customer demands.

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

•

We evaluated management’s calculation of the inventory valuation reserve by testing the mathematical accuracy of the calculation.

•

We tested the completeness, accuracy, and relevance of the reports and inputs used in the Company’s analysis

F-2

•

We evaluated the appropriateness and consistency of management's methods and assumptions used in developing their estimate of the inventory valuation reserve, which included consideration of recent changes in historical usage information.

•

We evaluated management’s process for subsequent adjustments to net realizable value by performing a retrospective review on an individual item basis to test for subsequent changes in the inventory values after the net realizable value had been established.

•

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

Valuation of Goodwill—Emerging Markets Reporting Unit

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

Houston, Texas

November 18, 2022

F-3

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Geospace Technologies Corporation

Our audits of the consolidated financial statements referred to in our report dated November 18, 2022, (included elsewhere in this Annual Report on Form 10-K) also included the financial statement schedule of Geospace Technologies Corporation and its subsidiaries, listed in Item 15(a) of this Form 10-K. This schedule is the responsibility of Geospace Technologies Corporation's management. Our responsibility is to express an opinion based on our audits of the consolidated financial statements.

In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

Houston, Texas

November 18, 2022

F-4

Geospace Technologies Corporation and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share amounts)

AS OF SEPTEMBER 30,

ASSETS

Current assets:

Trade accounts and financing receivables, net 20,886 17,159

Unbilled receivables — 1,051

Prepaid expenses and other current assets 2,077 2,062

Non-current financing receivables — 2,938

Operating right-of-use assets 957 1,191

Other non-current assets 506 457

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Contingent consideration 175 807

Operating lease liabilities 241 225

Non-current contingent consideration — 5,210

Non-current operating lease liabilities 769 1,009

Deferred tax liabilities, net 13 31

Commitments and contingencies (Note 18)

Stockholders’ equity:

Accumulated other comprehensive loss (15,313 ) (16,320 )

Total liabilities and stockholders’ equity $ 135,056 $ 163,929

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

F-5

Geospace Technologies Corporation and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

YEAR ENDED SEPTEMBER 30,

Revenue:

Cost of revenue:

Operating expenses:

Goodwill impairment 4,336 —

Change in estimated fair value of contingent consideration (5,035 ) (3,524 )

Bad debt expense (recovery) 292 (76 )

Other income (expense):

Interest expense (65 ) —

Gain (loss) on investments, net (22 ) 1,993

Foreign exchange losses, net (397 ) (41 )

Other, net (39 ) —

Loss per common share:

Weighted average common shares outstanding:

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

F-6

Geospace Technologies Corporation and Subsidiaries

Consolidated Statements of Comprehensive Loss

(In thousands)

YEAR ENDED SEPTEMBER 30,

Other comprehensive income (loss):

Change in unrealized losses on available-for-sale securities, net of tax — (15 )

Foreign currency translation adjustments 1,007 393

Total other comprehensive income, net 1,007 378

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

F-7

Geospace Technologies Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the years ended September 30, 2022 and 2021

(In thousands, except share amounts)

Common Stock Accumulated

Other comprehensive income — — — — 378 — 378

Forfeiture of restricted stock (2,500 ) — — — — — —

Stock-based compensation — — 1,970 — — — 1,970

Other comprehensive income — — — — 1,007 — 1,007

Purchase of treasury stock (72,563 ) — — — — (695 ) (695 )

Stock-based compensation — — 1,734 — — — 1,734

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

F-8

Geospace Technologies Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

YEAR ENDED SEPTEMBER 30,

Cash flows from operating activities:

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

Deferred income tax expense (benefit) (17 ) 3

Property, plant and equipment depreciation 4,143 3,956

Amortization of intangible assets 1,677 1,746

Goodwill impairment expense 4,336 —

Property, plant and equipment impairment expense 401 —

Accretion of discounts on short-term investments 96 96

Stock-based compensation expense 1,734 1,970

Bad debt expense (recovery) 292 (76 )

Inventory obsolescence expense 3,222 3,001

Change in estimated fair value of contingent consideration (5,035 ) (3,524 )

Gross profit from sale of used rental equipment (11,061 ) (6,678 )

Gain on disposal of property, plant and equipment (54 ) —

Realized loss (gain) on sale of investments, net 22 (1,993 )

Effects of changes in operating assets and liabilities:

Trade accounts and notes receivables 1,751 (2,973 )

Net cash used in operating activities (10,035 ) (7,172 )

Cash flows from investing activities:

Purchase of property, plant and equipment (1,130 ) (3,188 )

Investment in rental equipment (4,832 ) (2,121 )

Proceeds from the sale of property, plant and equipment 54 16

Proceeds from the sale of used rental equipment 11,583 10,626

Purchase of short-term investments (450 ) (12,544 )

Proceeds from the sale of short-term investments 8,924 3,170

Business acquisition, net of acquired cash — (1,346 )

Proceeds from sale of investment in debt security — 2,069

Net cash provided by (used in) investing activities 14,149 (3,318 )

Cash flows from financing activities:

Payments of contingent consideration (807 ) (1,421 )

Debt issuance costs (211 ) —

Purchase of treasury stock (695 ) (6,805 )

Net cash used in financing activities (1,713 ) (8,226 )

Effect of exchange rate changes on cash (358 ) 96

Increase (decrease) in cash and cash equivalents 2,043 (18,620 )

Cash and cash equivalents, beginning of fiscal year 14,066 32,686

Cash and cash equivalents, end of fiscal year $ 16,109 $ 14,066

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

F-9

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies:

The Company

Geospace Technologies Corporation (“Geospace”) designs and manufactures instruments and equipment used by the oil and gas industry to acquire seismic data in order to locate, characterize and monitor hydrocarbon producing reservoirs. Geospace also designs and manufactures Adjacent Markets products including industrial products, imaging equipment, and provides contract manufacturing services, and Emerging Market products consisting of border and perimeter security products. Geospace and its subsidiaries are referred to collectively as the “Company”.

Basis of Presentation

The accompanying financial statements present the consolidated financial position, results of operations and cash flows of the Company in accordance with U.S. generally accepted accounting principles ("GAAP'). All significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company considers many factors in selecting appropriate operational and financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. The Company continually evaluates its estimates, including those related to revenue recognition, bad debt reserves, collectability of rental revenue, inventory obsolescence reserves, self-insurance reserves, product warranty reserves, useful lives of long-lived assets, impairment of long-lived assets, impairment of goodwill and other intangible assets, contingent consideration and deferred income tax assets. The Company bases its estimates on historical experience and various other factors that are believed to be reasonable under the circumstances. While management believes current estimates are reasonable and appropriate, actual results may differ from these estimates under different conditions or assumptions.

Cash and Cash Equivalents

The Company considers all highly-liquid investments purchased with an original or remaining maturity at the time of purchase of three months or less to be cash equivalents. At September 30, 2022, the Company had restricted cash of $0.2 million on deposit with a bank which serves as collateral on employee issued credit cards. The Company had no restricted cash at September 30, 2021. At September 30, 2022, cash and cash equivalents included $2.6 million held by the Company’s foreign subsidiaries and branch offices, including $1.8 million held by its subsidiary in the Russian Federation. In response to sanctions imposed by the U.S. and others on Russia, the Russian government has imposed restrictions on companies’ abilities to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia. As a result, this cash can be used in our Russian operations, but the Company may be unable to transfer it out of Russia without incurring substantial costs, if at all. In addition, if the Company were to repatriate the cash held by its Russian subsidiary, it would be required to accrue and pay taxes on any amount repatriated.

Concentrations of Risk

Credit

The Company maintains its cash in bank deposit accounts that, at times, exceed federally insured limits. Management of the Company believes that the financial strength of the financial institutions holding such deposits minimizes the credit risk of such deposits.

The Company sells products to customers throughout the United States and various foreign countries. The Company’s normal credit terms for trade receivables are 30 days. In certain situations, credit terms may be extended to 60 days or longer. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for its trade receivables. Additionally, the Company provides long-term financing in the form of promissory notes and sales-type leases when competitive conditions require such financing. In such cases, the Company may require collateral. Allowances are recognized for potential credit losses. One customer comprised 29.3% of the Company’s revenue during fiscal year 2022. At September 30, 2022, the Company had trade accounts and financing receivables from this customer of $5.5 million. Three customers comprised 19.8%, 16.4% and 10.6%, of the Company’s revenue during fiscal year 2021. At September 30, 2021, the Company had trade accounts and financing receivables from these customers of $4.9 million, $7.4 million and $1.1 million, respectively.

Supplier

F-10

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Certain models of the Company’s oil and gas marine wireless products require a timing device it purchases from a United States manufacturer. The Company currently does not possess the ability to manufacture this component and has no other reliable source for this device. If this manufacturer were to discontinue its production of this timing device, were to become unwilling to contract with the Company on competitive terms or were unable to supply the component in sufficient quantities to meet its requirements, the Company’s ability to compete in the marine wireless marketplace could be impaired, which could adversely affect its financial performance. The device is used in certain models of the Company’s rental equipment. Product sales requiring this device represented approximately 11% of the Company's revenue in fiscal year 2022. There were no product sales requiring this device in fiscal year 2021.

The Company purchases all of its thermal film from one manufacturer for its imaging products. Except for the film sold to the Company by this manufacturer, the Company knows of no other source for thermal film that performs as well in its imaging equipment. If the manufacturer were to discontinue producing thermal film, were to become unwilling to contract with the Company on competitive terms or were unable to supply thermal film in sufficient quantities to meet its requirements, the Company’s ability to compete in the direct thermal imaging marketplace could be impaired, which could adversely affect its financial performance. Thermal film sales represented approximately 8% and 7% of the Company’s revenue in fiscal year 2022 and 2021, respectively.

Armed Conflict Between Russia and Ukraine

A portion of the Company's oil and gas product manufacturing is conducted through its wholly-owned subsidiary Geospace Technologies Eurasia LLC, which is based in the Russian Federation. In February 2022, the Russian Federation launched a full-scale military invasion of Ukraine. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions in addition to any direct impact on the Company's operations in Russia. The United States, the United Kingdom, the EU and other countries have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in and associated with Russia, and additional sanction packages to constrain Russia have been and continue to be proposed and adopted. United States sanctions against Russia have been expanded to preclude the export of oil and gas equipment anywhere in the world that involve persons designated under the sanctions and to include projects in which persons subject to the sanctions have a 33% ownership interest or a majority of voting interests. The rapid changes in rules and implementation of new rules on imports and exports of goods involving Russia has also led to serious delays in getting goods to or from Russia as port authorities struggle to keep up with the changing environment. If imports of these products from the Russian Federation are restricted by government regulation, the Company may be forced to find other sources for the manufacturing of these products at potentially higher costs. Likewise, restrictions on the Company's ability to send products to our subsidiary in Russia, may force our subsidiary to have to find other sources for the manufacturing of these products at potentially higher costs; however, the Company's exports to Geospace Technologies Eurasia LLC have historically been limited. The risk of doing business in the Russian Federation and other economically or politically volatile areas could adversely affect the Company's operations and earnings.

The Company is actively monitoring the situation in Ukraine and Russia and assessing its impact on its business, including its wholly-owned subsidiary Geospace Technologies Eurasia LLC. The net carrying value of this subsidiary on the Company's consolidated balance sheet at September 30, 2022 was $6.0 million. The subsidiary generated $1.9 million in revenue from domestic sales and the Company imported $1.9 million of products from the subsidiary in fiscal year 2022. The Company has no way to predict the duration, progress or outcome of the military conflict in Ukraine. The extent and duration of the military action, sanctions, and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and the Company's business for an unknown period of time.

Inventories

The Company records a write-down of its inventories when the cost basis of any manufactured product, including any estimated future costs to complete the manufacturing process, exceeds its net realizable value. Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in, first-out method, except that certain of the Company’s foreign subsidiaries use an average cost method to value their inventories.

The Company periodically reviews the composition of its inventories to determine if market demand, product modifications, technology changes, excessive quantities on-hand and other factors hinder our ability to recover its investment in such inventories. The Company’s assessment is based upon historical product demand, estimated future product demand and various other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that portions or components of the Company’s inventory investment will not be realized in its operating activities.

The Company reviews it inventories for classification purposes. The value of inventories not expected to be realized in cash, sold or consumed during its next operating cycle are classified as noncurrent assets.

F-11

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Property, Plant and Equipment and Rental Equipment

Property, plant and equipment and rental equipment are stated at cost. Depreciation expense is calculated using the straight-line method over the following estimated useful lives:

Years

Rental equipment 2-5

Property, plant and equipment:

Machinery and equipment 3-15

Buildings and building improvements 10-50

Expenditures for renewals and betterments are capitalized. Repairs and maintenance expenditures are charged to expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any gain or loss thereon is reflected in the statements of operations.

Impairment of Long-lived Assets

The Company’s long-lived assets are reviewed for impairment whenever an event or change in circumstances indicates the carrying amount of an asset or group of assets may not be recoverable. The impairment review, if necessary, includes a comparison of expected future cash flows (undiscounted and without interest charges) to be generated by an asset group with the associated carrying value of the related assets. If the carrying value of the asset group exceeds the expected future cash flows, an impairment loss is recognized to the extent that the carrying value of the asset group exceeds its fair value.

At March 31, 2022, in light of the Company’s losses from operations for the six months ended March 31, 2022 and for fiscal year 2021 and the current war between Russia and Ukraine, management reviewed the recoverability of the carrying value of certain asset groups based on future undiscounted cash flows and determined that their expected future cash flows exceeded their carrying value. No additional indicators of impairment related to this asset group were observed at September 30, 2022.

At September 30, 2022, in light of the Company's impairment of its goodwill associated with its Emerging Markets reporting unit, the Company reviewed the recoverability of the carrying value of the long-lived assets of this reporting unit and determined that their undiscounted cash flows exceeded their carrying value. As a result, no impairment charges were necessary to the Company's long-lived assets associated with its Emerging Markets reporting unit.

At September 30, 2022, in light of the Company's decision to dispose of certain manufacturing cabling equipment, the Company reviewed the recoverability of the carrying value of these assets and determined that their carrying value exceeded their fair value. As a result of the fair value analysis, an impairment charge of $0.4 million was recorded in the fourth quarter of fiscal year 2022 related to the equipment. The impairment charge is included as a component of cost of revenue in the Company’s consolidated statements of operations.

Goodwill

The Company conducts its evaluation of goodwill at the reporting unit level on an annual basis as of September 30 and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. The guidance on the testing of goodwill for impairment provides the option to first assess qualitative factors to determine if the fair value of a reporting unit exceeds its carrying amount. If, based on the qualitative assessment of events or circumstances, an entity determines it is more likely than not that the fair value of a reporting unit is more than its carrying amount then it is not necessary to perform a quantitative assessment. However, if an entity concludes otherwise, then a quantitative assessment must be performed. If, based on the quantitative assessment, the Company determines that the fair value of a reporting unit is less that its carrying amount, a goodwill impairment is recognized equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of the goodwill. At September 30, 2022, the Company impaired its goodwill associated with its Emerging Markets reporting unit. See Note 11 for more information.

Other Intangible Assets

Intangible assets are carried at cost, net of accumulated amortization. The estimated useful life of the Company’s other intangible assets are evaluated each reporting period to determine whether events or circumstances warrant a revision to the remaining amortization

F-12

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

period. If the estimate of an intangible asset’s remaining useful life is changed, the amortization period should be changed prospectively. Amortization expense is calculated using the straight-line method over the following estimated useful lives:

Years

Developed technology 18

Trade names 5

Customer relationships 4

Non-compete agreements 4

Revenue Recognition

See Note 2 to these consolidated financial statements.

Contingent Consideration

The Company established earn-out liabilities in connection with its business acquisitions in fiscal year 2018 and 2019. The Company engaged the services of a valuation firm to measure the initial fair value of the earn-out liabilities as of the acquisition date for each business. The valuation technique used to measure the fair value of the liability was derived from models utilizing market observable inputs, internal estimates and the use of internal projections of future revenue and/or gross profits. The Company reviews the fair value of its contingent earn-out liabilities on a quarterly basis. Adjustments to the liabilities are included as a component of earnings in the consolidated statements of operations. See Note 18 to these consolidated financial statements for additional information.

Research and Development Costs

The Company expenses research and development costs as incurred. Research and development costs include salaries, employee benefit costs, department supplies, direct project costs and other related costs.

Product Warranties

Most of the Company’s products do not require installation assistance or sophisticated instructions. The Company offers a standard product warranty obligating it to repair or replace equipment with manufacturing defects. The Company maintains a reserve for future warranty costs based on historical experience or, in the absence of historical product experience, management’s estimates. Reserves for future warranty costs are included within other current liabilities on the consolidated balance sheets.

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

Accruals for warranties issued during the year 814

Settlements made (in cash or in kind) during the year (693 )

Accruals for warranties issued during the year 1,431

Settlements made (in cash or in kind) during the year (1,286 )

Stock-Based Compensation

The Company accounts for stock-based compensation, including grants of restricted awards and unqualified stock options in accordance with Accounting Standards Codification Topic 718, which requires that all share-based payments (to the extent that they are compensatory) be recognized as an expense in the Company’s consolidated statements of operations based on their fair values on the award date and the estimated number of shares it ultimately expects to vest.

The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award. The Company’s stock-based compensation plan and awards are more fully described in Note 15 to these consolidated financial statements.

F-13

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Foreign Currency Gains and Losses

The assets and liabilities of the Company’s foreign subsidiaries and branch offices that have a foreign currency as their functional currency have been translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Results of operations have been translated using the average exchange rates during the year. Resulting translation adjustments have been recorded as a component of accumulated other comprehensive loss in stockholders’ equity. Foreign currency transaction gains and losses are included in the statements of operations as they occur. Transaction gains and losses on intra-entity foreign currency transactions and balances, including advances and demand notes payable on which settlement is not planned or anticipated in the foreseeable future, are recorded in “accumulated other comprehensive loss” on our consolidated balance sheets.

Fair Value

Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. GAAP has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Level 1 represents unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 represents quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly. Level 3 represents valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Also see Note 5 to these consolidated financial statements.

Income Taxes

Income taxes are presented in accordance with the Accounting Standards Codification Topic 740 (“Topic 740”) guidance for accounting for income taxes. The estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carrybacks and carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company periodically reviews the recoverability of tax assets recorded on the balance sheet and provides valuation allowances if it is more likely than not that such assets will not be realized.

The Company follows the guidance of Topic 740 to analyze all tax positions that are less than certain. Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In accordance with Topic 740, the Company recognizes in its financial statements the impact of a tax position if that position is “more likely than not” to be sustained on audit, based on the technical merits of the position. The Company’s estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time.

The Company classifies interest and penalties associated with the payment of income taxes, if any, in the Other Income (Expense) section of its consolidated statements of operations. The Company incurred no interest or penalties for the fiscal years ended September 30, 2022 and 2021.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued guidance on simplifying the accounting for income taxes. The guidance eliminates certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this standard during the first quarter of fiscal year 2022. The adoption of this guidance did not have any impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued guidance surrounding credit losses for financial instruments that replaces the incurred loss impairment methodology in generally accepted accounting principles. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other financial instruments. For available-for-sale debt securities with unrealized losses, credit losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a smaller reporting company, the Company must adopt this standard no later than the first quarter of its fiscal year ending September 30, 2024, although early adoption is permitted. The standard’s provisions will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company intends to adopt this standard during the

F-14

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

first quarter of its fiscal year ending September 30, 2024 and is continuing to evaluate the impact of this new guidance on its consolidated financial statements.

2. Revenue Recognition

In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when performance of contractual obligations are satisfied, generally when control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services.

The Company primarily derives product revenue from the sale of its manufactured products. Revenue from these product sales, including the sale of used rental equipment, is recognized when obligations under the terms of a contract are satisfied, control is transferred and collectability of the sales price is probable. The Company records deferred revenue when customer funds are received prior to shipment or delivery or performance has not yet occurred. The Company assesses collectability during the contract assessment phase. In situations where collectability of the sales price is not probable, the Company recognizes revenue when it determines that collectability is probable or when non-refundable cash is received from its customers and there is not a significant right of return. Transfer of control generally occurs with shipment or delivery, depending on the terms of the underlying contract. The Company’s products are generally sold without any customer acceptance provisions, and the Company’s standard terms of sale do not allow customers to return products for credit.

Revenue from engineering services is recognized as services are rendered over the duration of a project, or as billed on a per hour basis. Field service revenue is recognized when services are rendered and is generally priced on a per day rate.

The Company also generates revenue from short-term rentals under operating leases of its manufactured products. Rental revenue is recognized as earned over the rental period if collectability of the rent is reasonably assured. Rentals of the Company’s equipment generally range from daily rentals to minimum rental periods of up to one year. The Company has determined that ASC 606 does not apply to rental contracts, which are within the scope of ASC Topic 842, Leases.

As permissible under ASC 606, sales taxes and transaction-based taxes are excluded from revenue. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Additionally, the Company expenses costs incurred to obtain contracts when incurred because the amortization period would have been one year or less. These costs are recorded in selling, general and administrative expenses.

The Company has elected to treat shipping and handling activities in a sales transaction after the customer obtains control of the goods as a fulfillment cost and not as a promised service. Accordingly, fulfillment costs related to the shipping and handling of goods are accrued at the time of shipment. Amounts billed to a customer in a sales transaction related to reimbursable shipping and handling costs are included in revenue and the associated costs incurred by the Company for reimbursable shipping and handling expenses are reported in cost of revenue. The Company incurred shipping and handling expenses of $0.6 million and $0.4 million, respectively, for the fiscal years ended September 30, 2022 and 2021, respectively.

During the third quarter of fiscal year 2020, the Company was awarded an approximate $10.5 million contract (inclusive of a subsequent contract amendment of $0.3 million) with the U.S. Customs and Border Protection (the “CBP”) to provide a technology solution to the Department of Homeland Security. Revenue recognized under the contract for the fiscal years ended September 30, 2022 and 2021 was $0.3 million and $9.9 million, respectively. The Company has recognized revenue on the entire amount of the contract and no performance obligations remain under the contract except for on-going service and maintenance. Unsatisfied performance obligations on all other contracts held by the Company at September 30, 2022 had an original duration of one year or less.

At September 30, 2022 and September 30, 2021, the Company had no deferred contract costs or deferred contract liabilities. During the fiscal years ended September 30, 2022 and 2021, no revenue was recognized from deferred contract liabilities and no cost of revenue was recognized from deferred contract costs.

During the second quarter of fiscal year 2020, the Company partially financed a $12.5 million product sale by entering into a $10.0 million promissory note with the customer. The note has a three-year term with monthly principal and interest payments of $0.3 million. Due to the financial condition of the customer, the Company had concerns over the probable collectability of the promissory note. As a result, the Company did not recognize any revenue or cost of revenue on the product sale through its first quarter of fiscal year 2021. During the second quarter of fiscal year 2021, as a result of new information received from the customer, management determined that it was probable that the customer would satisfy its remaining payment obligations on the promissory note with the Company and recognized revenue of $12.5 million on the product sale. During the fourth quarter of fiscal year 2021, the Company granted the customer a six-month principal payment forbearance. The customer recommenced its monthly payments to the Company in the second quarter of fiscal year 2022. In October 2022, the Company granted the customer an additional six-month payment forbearance. The customer has made payments totaling $9.5 million (exclusive of interest) as of September 30, 2022 related to the product sale, and the

F-15

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

balance outstanding on the promissory note at September 30, 2022 was $3.0 million. Deferred contract costs associated with this sale were recognized in the second quarter of fiscal year 2021.

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

YEAR ENDED SEPTEMBER 30,

Oil and Gas Markets

Traditional exploration product revenue $ 6,558 $ 4,518

Adjacent Markets

Emerging Markets

Corporate

Revenue 50 —

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

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

YEAR ENDED SEPTEMBER 30,

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.

3. Business Acquisition

F-16

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

On July 2, 2021, we acquired 100 percent of the outstanding membership interest in Aquana, LLC ("Aquana") a comprehensive wireless water monitoring and control system provider. Aquana operates as a wholly-owned subsidiary of the Company and resides in the Company’s Adjacent Markets business segment. The acquisition purchase price consisted of an initial cash down payment at closing of approximately $1.4 million and additional contingent cash payments over a six year earn-out period. The contingent earn-out payments, if any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by Aquana. There is no maximum limit to the contingent cash payments that could be made. The merger agreement with Aquana requires the continued employment of a certain key employee and former member of Aquana for the first four years of the six year earn-out period in order for any of Aquana’s former members to be eligible to any earn-out payments. In accordance with ASC 805, Business Combinations, due to the continued employment requirement, no liability has been recorded for the estimated fair value of contingent earn-out payments for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when incurred.

In connection with the Aquana acquisition, the Company recorded goodwill of $0.7 million, and other intangible assets of $0.7 million. Current assets and current liabilities acquired in the transaction were nominal.

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

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

4. Investments

Short-term Investments

The Company classifies its short-term investments as available-for-sale securities. Available-for-sale securities are carried at fair market value with net unrealized gains and losses reported as a component of accumulated other comprehensive loss in stockholders’ equity. For the fiscal years ended September 30, 2022 and 2021, the Company realized losses of $22,000 and $4,000, respectively, from the sale of short-term investments.

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

AmortizedCost UnrealizedGains UnrealizedLosses EstimatedFair Value

Short-term investments:

AmortizedCost UnrealizedGains UnrealizedLosses EstimatedFair Value

Short-term investments:

The Company’s short-term investments have contractual maturities ranging from February 2023 to March 2023.

Investment in Debt Security

During the fiscal year ended September 30, 2021, the Company recognized a gain of $2.0 million in connection with the sale of its interest in a senior secured bond originally issued from an international seismic marine customer.

5. Fair Value of Financial Instruments

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

F-17

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

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):

Short-term investments:

Corporate bonds $ — $ 894 $ — $ 894

Total assets $ — $ 894 $ — $ 894

Contingent consideration liabilities $ — $ — $ 175 $ 175

Total liabilities $ — $ — $ 175 $ 175

Short-term investments:

Contingent consideration liabilities:

Current portion $ — $ — $ 807 $ 807

Total liabilities $ — $ — $ 6,017 $ 6,017

Assets and Liabilities Measured on a Nonrecurring Basis

The measurements utilized to determine the implied fair value of the Company's Emerging Markets reporting unit as of September 30, 2022 represented significant unobservable inputs (Level 3). See Note 11 for discussion of these inputs.

The following table summarizes changes in the fair value of the Company’s Level 3 financial instruments for the fiscal years ended September 30, 2022 and 2021:

Contingent Consideration balance at October 1, 2020 $ 10,962

Fair value adjustments (3,524 )

Payment of contingent consideration (1,421 )

Fair value adjustments (5,035 )

Payment of contingent consideration (807 )

F-18

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Adjustments to the fair value of the contingent consideration are based on internal estimates and management assessments regarding potential future scenarios. The Company believes its estimates and assumptions are reasonable; however, there is significant judgment involved. Also see Note 18.

6. Accumulated Other Comprehensive Loss

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

Other comprehensive income (loss) (15 ) 393 378

7. Trade Accounts and Financing Receivables

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

AS OF SEPTEMBER 30,

Allowance for doubtful accounts (591 ) (428 )

The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses. The Company determines the allowance based upon historical experience and a current review of its accounts receivable balances. Accounts receivable balances are charged off against the allowance whenever it is probable that the receivable balance will not be recoverable.

F-19

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

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

AS OF SEPTEMBER 30,

Sales-type lease — 2,464

Unearned income:

Sales-type lease — (6 )

Total unearned income — (6 )

Total financing receivables, net of unearned income 8,225 7,890

Non-current notes receivable $ — $ 2,938

Promissory notes receivable are generally collateralized by the products sold, and bear interest at rates ranging from 7.0% to 9.5% per year. After consideration of the forbearance discussed in Note 2, the promissory notes receivable mature at various times through January 2024. The Company has, on occasion, extended or renewed notes receivable as they mature, but there is no obligation to do so.

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

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

During the third quarter of fiscal year 2021, the Company entered into a sales-type lease with a customer for rental equipment. The lease, which had a term of six months, was paid during the second quarter of fiscal year 2022.

During the second quarter of fiscal year 2020, the Company partially financed a $12.5 million product sale by entering into a $10.0 million promissory note with the customer. The note has a three-year term with monthly principal and interest payments of $0.3 million. Due to the financial condition of the customer, the Company had concerns over the probable collectability of the promissory note. As a result, the promissory note was not reflected on the Company’s consolidated balance sheet through its first quarter of fiscal year 2021. During the second quarter of fiscal year 2021, as a result of new information received from the customer, management determined that it was probable that the customer would satisfy its remaining payment obligations to the Company and, therefore, the Company recognized the promissory note on its consolidated balance sheet as of March 31, 2021. See Note 2 for more information on this matter.

8. Inventories

Inventories consisted of the following (in thousands):

AS OF SEPTEMBER 30,

Obsolescence reserve (net realizable value adjustment) (13,971 ) (13,636 )

Inventory obsolescence expense totaled approximately $3.2 million and $3.0 million during fiscal years 2022 and 2021, respectively. Raw materials include semi-finished goods and component parts that totaled approximately $20.7 million and $22.7 million at September 30, 2022 and 2021, respectively.

F-20

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

9. Leases

As Lessee

The Company has elected not to record operating right-of-use assets or operating lease liabilities on its consolidated balance sheet for leases having a minimum term of 12 months or less. Such leases are expensed on a straight-line basis over the lease term. Variable lease payments are excluded from the measurement of operating right-of-use assets and operating liabilities and recognized in the period in which the obligation for those payments is incurred. As of September 30, 2022, the Company has two operating right-of use assets related to leased facilities in Austin, Texas and Melbourne, Florida.

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

For fiscal years ending September 30,

Future minimum lease payments $ 1,089

Less interest (79 )

Present value of minimum lease payments $ 1,010

Less current portion (241 )

Long-term portion $ 769

Lease costs recognized in the consolidated statements of operations for the fiscal years ended September 30, 2022 and 2021 is as follows (in thousands):

YEAR ENDED SEPTEMBER 30,

Right-of-use operating lease costs $ 272 $ 246

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 $ 262 $ 211

Operating lease assets obtained in exchange for new lease liabilities — 1,336

Weighted average remaining lease term 4.7 years 5.6 years

Weighted average discount rate 3.25 % 3.25 %

F-21

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.

As Lessor

Equipment

The Company leases equipment to customers which generally range from daily rentals to minimum rental periods of up to one year. All of the Company's current leasing arrangements, with the Company acting as lessor, are classified as operating leases. The majority of the Company’s rental revenue is generated from its marine-based wireless seismic data acquisition system.

The Company regularly evaluates the collectability of its lease receivables on a lease-by-lease basis. The evaluation primarily consists of reviewing past due account balances and other factors such as the credit quality of the customer, historical trends of the customer and current economic conditions. The Company suspends revenue recognition when the collectability of amounts due are no longer probable and concurrently records a direct write-off of the lease receivable to rental revenue to limit rental revenue recognized to the cash collections received. As of September 30, 2022, the Company’s trade accounts receivables included lease receivables of $3.2 million.

Rental revenue related to leased equipment for fiscal years 2022 and 2021 was $24.9 million and $19.0 million, respectively.

Future minimum lease obligations due from the Company's leasing customers as of September 30, 2022 were $24.6 million, all of which is expected to be due within the next 12 months.

Rental equipment consisted of the following (in thousands):

AS OF SEPTEMBER 30,

Rental equipment, primarily wireless recording equipment $ 83,887 $ 95,827

Accumulated depreciation and impairment (55,688 ) (56,922 )

Rental equipment depreciation expense was $13.7 million and $15.1 million in fiscal years 2022 and 2021, respectively.

Property

During the first quarter of fiscal year 2022, the Company leased a portion of its property located in Calgary, Alberta, Canada and fully leased its warehouse in Bogotá, Colombia. The lease in Canada commenced in November 2021 and is for a five-year term. The lease on the warehouse in Bogotá commenced in December 2021 and is for a one-year term.

Rental revenue related to these two properties for fiscal year 2022 was $0.2 million.

Future minimum lease payments due to the Company as of September 30, 2022 were as follows (in thousands):

For fiscal years ending September 30,

F-22

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

10. Property, Plant and Equipment

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

AS OF SEPTEMBER 30,

Land and land improvements $ 7,855 $ 7,932

Transportation equipment 74 75

Accumulated depreciation and impairment (70,330 ) (66,239 )

Property, plant and equipment depreciation expense was $4.1 and $4.0 million for the fiscal years ended September 30, 2022 and 2021. Impairment expense of $0.4 million was incurred on certain manufacturing equipment in fiscal year 2022. The impairment expense is included as a component of cost of revenue in the consolidated statement of operations.

11. Goodwill and Other Intangible Assets

At September 30, 2022, the Company had goodwill of $0.7 million and other intangible assets, net of $0.6 million attributable to its Adjacent Markets reporting unit; other intangible assets, net of $3.5 million attributable to its Emerging Markets reporting unit; and other intangible assets, net of $1.5 million attributable to its Oil and Gas Markets reporting unit. Goodwill represents the excess cost of a business acquired over the fair market value of identifiable net assets at the date of acquisition.

At September 30, 2022, the Company assessed the goodwill associated with both its Adjacent Markets and Emerging Markets reporting units for impairment. The fair value of the reporting units were estimated using the expected present value of future cash flows, market data and using estimates, judgments and other assumptions that management believes were appropriate under the circumstances. The estimates and judgments used in the assessment included consideration of market participant rates of return and the terminal value of the reporting units. The Company determined future cash flows provided the best estimate of the fair value of its reporting units. Key assumptions in determining the fair value in the impairment analysis include revenue and cash flow projections, discount rates, long-term growth rates, and the effective tax rate the Company determined to be appropriate. In determining fair value for the Company's Emerging Markets reporting unit, cash flow projections included obtaining additional contracts from the CBP and considered competition in the marketplace. These estimates and projections can be unpredictable, particularly for Quantum Technology Sciences, Inc. ("Quantum") as an emerging business. The total Company’s estimate of reporting unit fair values was reconciled to its then market capitalization (based upon the stock market price) plus an implied control premium.

As a result of the assessment, the Company determined that the fair value its Emerging Markets reporting unit was less than its carrying amount and recorded an impairment charge of $4.3 million for the entire goodwill associated with this reporting unit for the fiscal year ended September 30, 2022. The primary factors impacting the decrease in the fair value of the Emerging Markets reporting unit was historical operating losses and the current outlook for sales and operating performance. The carrying value of the reporting unit exceeded the fair value by approximately $8 million as a result of the assessment. In measuring sensitivity, changes to key assumptions, each of which would cause an approximate $1.0 million change in the fair value of the reporting unit include (i) a 3% change in the discount rate, (ii) a 4% change in revenue, (iii) a 10% change in cost of revenue or (iv) a 13% change in research and development expense. No impairment charge to the Emerging Markets asset group was necessary as its future undiscounted cash flows exceeded the carrying value. The Emerging Markets asset group could incur future impairment charges to its other intangible assets if it is unable to obtain additional contracts from the CBP or other customers. No impairment charge was necessary on the Company's Adjacent Markets reporting unit as a result of the assessment. Also see Note 1 to these consolidated financial statements.

F-23

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

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

Weighted-Average Remaining Useful Lives (in years) AS OF SEPTEMBER 30,

Goodwill:

Emerging Markets reporting unit $ 4,336 $ 4,336

Adjacent Markets reporting unit 736 736

Accumulated impairment losses (4,336 ) —

Other intangible assets:

Accumulated amortization (7,010 ) (5,333 )

Other intangible assets amortization expense was $1.7 million for each of the fiscal years ended September 30, 2022 and 2021.

F-24

Geospace Technologies Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

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

For fiscal years ending September 30,

12. Long-Term Debt

The Company had no long-term debt outstanding at September 30, 2022 or 2021.

In May 2022, the Company entered into a credit agreement (the “Agreement”) with Amerisource Funding, Inc, as administrative agent and as a lender, and Woodforest National Bank, as a lender. Available borrowings under the Agreement are determined by a borrowing base with a maximum availability of $10 million. The borrowing base is determined based upon certain of the Company's domestic assets which include (i) 70% loan to value of the Company's property located at 6410 Langfield Road in Houston, Texas (the “Property”), (ii) 50% of forced liquidation value of equipment, (iii) 80% of certain accounts receivable and (iv) 50% of forced liquidation value of certain inventory (inventory borrowing base limited to 100% of borrowing base credit given toward accounts receivable). The Agreement is for a two-year term with all funds borrowed due at the expiration of the term. The interest rate on borrowed funds is the Wall Street prime rate (with a minimum of 3.25%) plus 4.00%. The Company is required to make monthly interest payments on borrowed funds. Borrowings under the Agreement will be principally secured by the Property and the Company's domestic equipment, inventory and accounts receivables. In addition, certain domestic subsidiaries of the Company have guaranteed the obligations of the Company under the Agreement and such subsidiaries have secured the obligations by pledging certain assets. The Agreement requires the Company to maintain a minimum consolidated tangible net worth of $100 million. At September 30, 2022, the Company was compliant with all covenants under the Agreement and its borrowing availability was $8.5 million.

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

F-25

Geospace Technologies Corporation and Subsidiaries

GEOS US Equity

GEOS · 10-K · period ended 2022-09-30

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

GEOS US Equity☆

GEOS · 10-K · period ended 2022-09-30

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

GEOS US Equity