Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

There were ~~13,563,491~~13,632,791 shares of the Registrant’s Common Stock outstanding as of the close of business on January 31, ~~2018.~~2019.

	December 31, 2017			September 30, 2017			December 31, 2018			September 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	13,923		$	15,092		$	17,111		$	11,934
Short-term investments		32,085			36,137			9,495			25,471
Trade accounts receivable, net		7,011			9,435			12,399			14,323
Financing receivables		5,793			3,055			3,843			4,258
Income tax receivable		263			273
Inventories		19,994			20,752			17,565			18,812
Prepaid expenses and other current assets		1,939			1,623			3,336			1,856
Total current assets		81,008			86,367			63,749			76,654

Rental equipment, net		15,542			16,462			52,394			39,545
Property, plant and equipment, net		36,475			37,399			33,302			33,624
Non-current inventories		56,184			55,935			31,003			31,655
Goodwill								5,980			4,343
Other intangible assets, net								12,163			8,006
Deferred income tax assets, net		305			259			264			246
Non-current financing receivables, net		7,032			8,195			3,793			4,740
Prepaid income taxes		56			450			57			54
Other assets		619			629			225			213
Total assets	$	197,221		$	205,696		$	202,930		$	199,080

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable trade	$	3,322		$	2,599		$	8,338		$	4,106
Accrued expenses and other current liabilities		6,516			6,338			6,391			6,826
Deferred revenue		1,461			1,568			4,620			3,752
Income tax payable								96			51
Total current liabilities		11,299			10,505			19,445			14,735

Contingent earn-out liabilities								12,055			7,713
Deferred income tax liabilities		29			37			33			45
Total liabilities		11,328			10,542			31,533			22,493

Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)

Stockholders’ equity:
Preferred stock, 1,000,000 shares authorized, no shares issued and outstanding		—			—			—			—
Common stock, $.01 par value, 20,000,000 shares authorized, 13,560,291 and 13,438,316 shares issued and outstanding		136			134
Common stock, $.01 par value, 20,000,000 shares authorized, 13,632,791 and 13,600,541 shares issued and outstanding								136			136
Additional paid-in capital		84,557			83,733			86,933			86,116
Retained earnings		115,686			125,517			100,101			105,954
Accumulated other comprehensive loss		(14,486	)		(14,230	)		(15,773	)		(15,619	)
Total stockholders’ equity		185,893			195,154			171,397			176,587
Total liabilities and stockholders’ equity	$	197,221		$	205,696		$	202,930		$	199,080

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

	Three Months Ended						Three Months Ended
	December 31, 2017			December 31, 2016			December 31, 2018			December 31, 2017
Revenue:
Products	$	13,425		$	10,297		$	10,459		$	13,274
Rental equipment		1,219			4,988
Rental								7,416			1,370
Total revenue		14,644			15,285			17,875			14,644
Cost of revenue:
Products		13,243			14,836			11,220			13,096
Rental equipment		2,369			3,776
Rental								3,565			2,516
Total cost of revenue		15,612			18,612			14,785			15,612

Gross profit (loss)		(968	)		(3,327	)		3,090			(968	)

Operating expenses:
Selling, general and administrative		5,129			5,094			6,085			5,129
Research and development		3,158			3,372			3,171			3,158
Bad debt expense (recovery)		350			(482	)		(103	)		350
Total operating expenses		8,637			7,984			9,153			8,637

Loss from operations		(9,605	)		(11,311	)		(6,063	)		(9,605	)

Other income (expense):
Interest expense		(64	)		(8	)		(34	)		(64	)
Interest income		263			130			272			263
Foreign exchange losses, net		(43	)		(65	)
Foreign exchange gains (losses), net								67			(43	)
Other, net		(25	)		(17	)		(88	)		(25	)
Total other income, net		131			40			217			131

Loss before income taxes		(9,474	)		(11,271	)		(5,846	)		(9,474	)
Income tax expense		6			434			7			6
Net loss	$	(9,480	)	$	(11,705	)	$	(5,853	)	$	(9,480	)

Loss per common share:
Basic	$	(0.72	)	$	(0.89	)	$	(0.44	)	$	(0.72	)
Diluted	$	(0.72	)	$	(0.89	)	$	(0.44	)	$	(0.72	)

Weighted average common shares outstanding:
Basic		13,202,384			13,094,809			13,339,408			13,202,384
Diluted		13,202,384			13,094,809			13,339,408			13,202,384

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

	Three Months Ended						Three Months Ended
	December 31, 2017			December 31, 2016			December 31, 2018			December 31, 2017
Net loss	$	(9,480	)	$	(11,705	)	$	(5,853	)	$	(9,480	)
Other comprehensive loss, net of tax
Change in unrealized losses on available-for-sale securities		(51	)		(62	)
Other comprehensive income (loss):
Change in unrealized gains (losses) on available-for-sale securities, net of tax								64			(51	)
Foreign currency translation adjustments		(205	)		(306	)		(218	)		(205	)
Total other comprehensive loss, net of tax		(256	)		(368	)
Total other comprehensive loss								(154	)		(256	)
Total comprehensive loss	$	(9,736	)	$	(12,073	)	$	(6,007	)	$	(9,736	)

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

	Common Stock											Accumulated
						Additional						Other
						Paid-In			Retained			Comprehensive
	Shares			Amount		Capital			Earnings			Loss			Total
Balance at October 1, 2018		13,600,541		$	136	$	86,116		$	105,954		$	(15,619	)	$	176,587
Net loss		—			—		—			(5,853	)		—			(5,853	)
Other comprehensive loss		—			—		—			—			(154	)		(154	)
Issuance of restricted stock		8,000			—		—			—			—			—
Forfeiture of restricted stock		(250	)		—		—			—			—			—
Issuance of common stock pursuant
to the exercise of stock options		24,500			—		215			—			—			215
Stock-based compensation		—			—		602			—			—			602
Balance at December 31, 2018		13,632,791		$	136	$	86,933		$	100,101		$	(15,773	)	$	171,397

Balance at October 1, 2017		13,438,616		$	134	$	83,733		$	125,166		$	(14,230	)	$	194,803
Net loss		—			—		—			(9,480	)		—			(9,480	)
Other comprehensive loss		—			—		—			—			(256	)		(256	)
Issuance of restricted stock		138,650			2		(2	)		—			—			—
Forfeiture of restricted stock		(16,675	)		—		—			—			—			—
Stock-based compensation		—			—		826			—			—			826
Balance at December 31, 2017		13,560,591		$	136	$	84,557		$	115,686		$	(14,486	)	$	185,893

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

	Three Months Ended						Three Months Ended
	December 31, 2017			December 31, 2016			December 31, 2018			December 31, 2017
Cash flows from operating activities:
Net loss	$	(9,480	)	$	(11,705	)	$	(5,853	)	$	(9,480	)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income tax expense (benefit)		(55	)		34
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Deferred income tax benefit								(61	)		(55	)
Rental equipment depreciation		2,247			3,308			2,711			2,247
Property, plant and equipment depreciation		1,095			1,313			919			1,095
Amortization of intangible assets								362			—
Accretion of discounts on short-term investments		13			16			(7	)		13
Stock-based compensation expense		826			1,375			602			826
Bad debt expense (recovery)		350			(482	)		(103	)		350
Inventory obsolescence expense		1,434			4,147			1,428			1,434
Gross profit from sale of used rental equipment		(2,566	)		(1,201	)		—			(2,566	)
Realized loss on short-term investments		—			1			59			—
Effects of changes in operating assets and liabilities:
Trade accounts receivable		2,562			2,312			1,824			2,562
Income tax receivable		10			—			—			10
Inventories		(2,865	)		(1,507	)		(6,302	)		(2,865	)
Prepaid expenses and other current assets		(329	)		(39	)		(1,472	)		(329	)
Prepaid income taxes		41			393			(12	)		41
Accounts payable trade		723			(348	)		4,240			723
Accrued expenses and other		267			(257	)		2,008			267
Deferred revenue		(65	)		771			879			(65	)
Income tax payable		—			(31	)		50			—
Net cash used in operating activities		(5,792	)		(1,900	)
Net cash provided by (used in) operating activities								1,272			(5,792	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(218	)		(106	)		(717	)		(218	)
Investment in rental equipment								(10,164	)		—
Proceeds from the sale of used rental equipment		997			1,915			728			997
Purchases of short-term investments		(1,905	)		—			—			(1,905	)
Proceeds from the sale of short-term investments		5,898			2,674			16,081			5,898
Business acquisition								(1,819	)		—
Payments for damages related to insurance claim								(118	)		—
Proceeds from insurance claim								78			—
Net cash provided by investing activities		4,772			4,483			4,069			4,772

Cash flows from financing activities:
Proceeds from the exercise of stock options		—			50			215			—
Net cash provided by financing activities		—			50			215			—

Effect of exchange rate changes on cash		(149	)		(101	)		(379	)		(149	)
Increase (decrease) in cash and cash equivalents		(1,169	)		2,532			5,177			(1,169	)
Cash and cash equivalents, beginning of fiscal year		15,092			10,262			11,934			15,092
Cash and cash equivalents, end of fiscal period	$	13,923		$	12,794		$	17,111		$	13,923

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

The consolidated balance sheet of Geospace Technologies Corporation and its subsidiaries (the “Company”) at September 30, ~~2017~~2018 was derived from the Company’s audited consolidated financial statements at that date. The consolidated balance sheet at December 31, ~~2017~~2018 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and the consolidated statements of cash flows for the three months ended December 31, ~~2017~~2018 and ~~2016~~2017 were prepared by the Company without audit. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows were made. The results of operations for the three months ended December 31, ~~2017~~2018 are not necessarily indicative of the operating results for a full year or of future operations.

Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to the rules of the Securities and Exchange Commission. The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, ~~2017.~~2018.

Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation. Such reclassifications had no effect on previously reported net loss, stockholders equity or cash flows.

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 consolidated financial statements. The Company continually evaluates its estimates, including those related to bad debt reserves, inventory obsolescence reserves, self-insurance reserves, product warranty reserves, impairment of long-lived assets and deferred income tax assets. The Company bases its estimates on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.

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.

~~The Company classifies its short-term investments consisting of corporate bonds, government bonds~~ At December 31, 2018, cash and other such similar investments as available-for-sale securities. Available-for-sale securities are carried at fair market value with net unrealized holding gains and losses reported each period as a component of accumulated other comprehensive loss in stockholders’ equity. See note 2 for additional information.

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 market value. Cost is determined on the first-in, first-out method, except that certain ofcash equivalents included $7.6 million held by 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 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 inventory investment will not be realized in its operating activities.

The Company reviews its 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.

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.branch offices. If the ~~carrying value of~~Company were to repatriate the ~~asset group exceeds the expected future~~ cash ~~flows, an impairment loss is recognized~~held by its foreign subsidiaries, it would be required to ~~the extent that the carrying value of the asset group exceeds its fair value.~~ accrue and pay taxes on any amount repatriated under rates enacted by The Tax Cuts and Jobs Act (“2017 Tax Act”).

The Company primarily derives revenue from the sale of its manufactured products, including revenue derived from the sale of its manufactured rental equipment. In addition, the Company generates revenue from the short-term rental under operating leases of its manufactured products. The Company recognizes revenue from product sales, including the sale of used rental equipment, when all of the following have occurred: (i) title passes to the customer, (ii) the customer assumes the risks and rewards of ownership, (iii) the product sales price has been determined, (iv) collectability of the sales price is reasonably assured, and (v) product delivery occurs as directed by the customer. Although infrequent, in cases where collectability is not reasonably assured, the installment or cost recovery method is used. Except for certain of the Company’s reservoir characterization products, 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. The Company recognizes rental revenue as earned over the rental period. Rentals of the Company’s equipment generally range from daily rentals to rental periods of up to six months or longer. 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 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.

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 accrued expenses and other current liabilities on the consolidated balance sheets. Changes in the warranty reserve are reflected in the following table (in thousands):

In ~~October~~November 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which eliminates the exception of recognizing, at the time of transfer, current and deferred income taxes for intercompany profits on intra-entity asset transfers other than inventory. The Company adopted this guidance in its first quarter of its fiscal year ending September 30, 2018 using the modified retrospective approach. The adoption resulted in a cumulative-effect adjustment to opening retained earnings of $0.4 million. Under prior guidance, the Company maintained a non-current prepaid income tax asset on its consolidated balance sheets representing income taxes paid in the U.S. on profits realized from the sale of rental equipment to its foreign subsidiaries. As this rental equipment was depreciated, the prepaid tax was recognized as a current income tax expense in the Company’s consolidated statement of operations. Under the new guidance, the Company is required to recognize a deferred tax asset related to the intercompany profits realized on the sale of non-inventory assets to its subsidiaries; however, profits realized from the intercompany sale of inventories will continue to be accounted for as a prepaid income tax asset in accordance with the prior guidance. Under the new guidance, the deferred tax asset resulting from the sale of non-inventory assets is recognized at the jurisdictional tax rate of the subsidiary which purchased the asset. Any differences between the subsidiary’s jurisdictional tax rate and the seller’s tax rate pertaining to the intercompany profit are charged to seller’s current income tax expense at the time of the sale. With the recent reduction in the U.S. income tax rate to 21%, and assuming that a majority of the Company’s equipment sales will continue to be made to its Canadian subsidiary having a higher statutory tax rate, the new guidance is expected to have a favorable impact on the Company’s provision for income taxes in future periods. Due to the fact the Company has a valuation allowance against its net deferred tax assets, the adoption of this guidance had no impact upon the Company’s income tax expense for the three months ended December 31, 2017.

In March 2016, the FASB issued guidance to simplify key components of employee share-based payment accounting. The new guidance simplifies several aspects of the accounting for share-based payment transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification of excess tax benefits from share-based payments on the statement of cash flows. The Company adopted this guidance in the first quarter of its fiscal year ending September 30, 2018. No cumulative effect adjustment to retained earnings was needed upon adoption as the Company has no unrecorded excess tax benefits residing in additional paid-in-capital account. Under the prior standard, the Company was required to track and record as a component of additional paid-in capital the tax impact of cumulative windfalls, net of any shortfalls, which resulted from excess tax benefits from share-based payments. As a result, the impact of net windfalls has not historically affected the Company’s provision for income taxes or its effective income tax rate. Under the new guidance, the Company will no longer track windfalls or shortfalls resulting from share-based payments since all future windfalls and shortfalls will be recorded as a component of the Company’s current provision for income taxes. Depending on the magnitude of future windfalls or shortfalls, this change could significantly affect the Company’s provision for income taxes in a positive or negative direction. Due to the fact the Company has a valuation allowance against its net deferred tax assets, the adoption of this guidance had no impact upon the Company’s income tax expense for the three months ended December 31, 2017.

In July 2015, the FASB issued guidance requiring management to measure inventory at the lower of cost or net realizable value. Under the new guidance, net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Since the Company is a manufacturer and the nature of its inventory is generally unique to its designs and applications thus preventing the gathering of relevant external market data, its existing practice for calculating net realizable value under the current standard is consistent with the practice prescribed by the new guidance. The Company adopted this standard in its first quarter of its fiscal year ending September 30, 2018. The adoption did not have a material effect upon the Company’s consolidated financial statements.

~~In November 2016, the FASB~~ issued guidance which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance ~~must be~~was adopted by the Company ~~no later than~~in its first quarter of fiscal year 2019. The adoption had no effect on the Company’s consolidated financial statements as it holds no restricted cash balances.

In May 2014, the FASB issued guidance requiring entities to recognize revenue from contracts with customers by applying a five-step model in accordance with the core principle to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this guidance specifies the accounting for some costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. In August 2015, the FASB issued guidance deferring the effective date of this guidance to annual periods

beginning after December 15, 2017, including interim reporting periods therein. This new standard supersedes existing revenue guidance and affected the Company's revenue recognition process and the presentations or disclosures of the Company's consolidated financial statements and footnotes. The Company adopted this standard on October 1, 2018 using the modified retrospective method. The adoption of this standard did not (i) result in a cumulative adjustment as of October 1, 2018 or (ii) have any impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued guidance requiring certain existing disclosure requirements in ASC Topic 820, Fair Value Measurements and Disclosures, to be modified or removed, and certain new disclosure requirements to be added to this standard. In addition, the guidance allows entities to exercise more discretion when considering fair value measurement disclosures. The guidance is effective for fiscal years beginnings after December 15, 2019 with early adoption permitted. The Company is in the process of evaluating the impact of this guidance on its consolidated financial statements.

In January 2017, the FASB issued guidance simplifying the current two-step goodwill impairment test by eliminating Step 2 of the test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a ~~retrospective transition~~prospective basis. Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company ~~has historically not held restricted cash balances and, therefore, does not expect~~is currently evaluating the impact of the adoption of this guidance ~~to have a material effect~~ on its consolidated financial statements. ~~However, upon adoption of this guidance, the Company will make any necessary changes to present restricted cash balances in accordance with the guidance.~~

In June 2016, the FASB issued guidance surrounding credit losses for financial instruments that replaces the incurred loss impairment methodology in ~~current U.S.~~ generally accepted accounting principles (“GAAP”). 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. The standard is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for a fiscal year beginning after December 15, 2018 is permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company expects to adopt this standard during the first quarter of its fiscal year ending September 30, 2021 and is currently evaluating the impact of this new guidance on its consolidated financial statements.

In February 2016, the FASB issued guidance requiring a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement and presentation of expense and cash flows arising from a lease by a lessee primarily will depend on its classification of the lease as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new guidance will also require operating leases of the lessee to be recognized on the balance sheet if the operating lease term is more than 12 months. The guidance also requires disclosures to help investors and other financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2018 and is to be applied using the modified retrospective approach. The Company expects to adopt this standard in its first quarter of its fiscal year ending September 30, 2020. The Company currently is not a lessee under any lease agreements with a term longer than one year. The Company is routinely a lessor in its rental contracts with ~~customers; however,~~customers. The term of these rental ~~agreements are~~contracts is generally short-term in nature, and the Company believes these rentals would be treated as operating leases under the new guidance; however, the Company has not completed a detailed review of its various lease and rental arrangements, and these conclusions are subject to change.

On October 1, 2018, the ~~FASB issued guidance requiring entities~~Company adopted ASC Topic 606, Revenue from Contracts with Customers. This new standard applies to ~~recognize~~contracts for the sale of products and services, and does not apply to contracts for the rental or lease of products. The Company adopted the new standard using the modified retrospective method applied to those contracts that were not completed as of September 30, 2018. Results for reporting periods beginning after September 30, 2018 are presented under the new standard, while prior period amounts are not restated.

Under the new standard, the Company recognizes revenue ~~from contracts with customers by applying a five-step model in accordance with~~when performance of contractual obligations are satisfied, generally when control of the ~~core principle to depict the transfer of~~ promised goods or services is transferred to its customers, in an amount that reflects the consideration ~~to which the entity~~it expects to be entitled to in exchange for those goods or services. ~~In addition, this guidance specifies~~

The Company primarily derives product revenue from the sale of its manufactured products and from the sale of its manufactured rental equipment. Revenue from these product sales, including the sale of used rental equipment, is recognized when all

of the following have occurred: (i) title passes to the customer, (ii) the customer assumes the risks and rewards of ownership, (iii) the product sales price has been determined, (iv) collectability of the sales price is reasonably assured, and (v) product delivery occurs as directed by the customer. 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. Rentals of the Company’s equipment generally range from daily rentals to rental periods of up to six months or longer. The Company has determined that the new standard does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.

The cumulative effect of the changes made to the Company’s consolidated balance sheet as of October 1, 2018 resulting from the adoption of the new standard was not material and did not impact opening retained earnings. The impact on the timing of sales and services for ~~some~~the three months ended December 31, 2018 resulting from the application of the new standard was not material.

As permissible under the new standard, sales and transaction-based taxes are excluded from revenue. Also, 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 ~~fulfill a contract with a customer~~less. These costs are recorded in selling, general and ~~expands disclosure requirements for revenue recognition. In August 2015, the FASB issued guidance deferring the effective date~~administrative expenses.

As of ~~this guidance to annual periods beginning after~~ December 15, 2017, including interim reporting periods therein. Entities have the option to adopt this guidance either retrospectively or through a modified retrospective transition method. This new standard will supersede existing revenue guidance31, 2018 and affect the Company's revenue recognition process and the presentations or disclosures of the Company's consolidated financial statements and footnotes. The Company recognizes revenue through three primary transactions types: (i) the immediate recognition of revenue through the routine delivery of products to its customers, (ii) the rental of equipment to its customers through short-term operating leases, and (iii) the recognition of revenue utilizing the percentage of completion method for the delivery of complex products requiring long manufacturing times and substantial engineering resources. The Company expects to adopt this standard in the first quarter of its fiscal year ending September 30, ~~2019~~2018 the Company had deferred contract liabilities of $0.1 million and is$0.2 million included in ~~the early stages~~deferred revenue and deferred contract assets of ~~evaluating the standard, including the method of adoption to determine the impact~~$36,000 and $27,000 included in prepaid expenses and other current assets on its consolidated balance sheets. During the three months ended December 31, 2018, the Company recognized revenue of $0.1 million included in its deferred contract liability balance and $8,000 included in its prepaid expenses and other current asset balance at the beginning of the period.

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

	Three Months Ended
	December 31, 2018		December 31, 2017
Oil and Gas Markets
Traditional exploration product revenue	$	2,726	$	3,599
Wireless exploration product revenue		144		2,623
Reservoir product revenue		888		618
Total revenue		3,758		6,840

Adjacent Markets
Industrial product revenue		3,562		3,676
Imaging product revenue		3,051		2,758
Total revenue		6,613		6,434

Emerging Markets
Revenue		88		—

Total	$	10,459	$	13,274

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

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.

On November 13, 2018, the Company acquired all of the intellectual property and related assets of the OptoSeis^® fiber optic sensing technology business. The assets of the OptoSeis business are included in the Company’s Oil and Gas Markets business segment. The acquisition purchase price consisted of cash at closing of approximately $1.8 million and contingent earn-out payments of up to $23.2 million over a five-and-a-half year period. The contingent cash payments will be derived from eligible revenue generated during the earn-out period from product and services.

In connection with the acquisition the Company recorded goodwill and other intangible assets of $6.1 million and established an initial contingent earn-out liability of $4.3 million. No current assets and liabilities were acquired in the transaction. The contingent earn-out payments will be derived from certain eligible revenue generated during the five-and-a-half year earn-out period.

Acquisition related legal costs of $0.2 million are included in selling, general and administrative expenses in the Company’s consolidated financial statements. ~~Further disclosures around policy changes or quantitative effects will be made as~~Due to the limited amount of time since the acquisition transaction, the valuation of the OptoSeis assets and liabilities and the determination of the fair value of the contingent consideration are considered by the Company ~~moves closer~~as preliminary and subject to ~~the adoption of this standard.~~change.

	As of December 31, 2017 (in thousands)									As of December 31, 2018 (in thousands)
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments
Short-term investments:
Corporate bonds	$	21,739	$	—	$	(67	)	$	21,672	$	6,289	$	—	$	(25	)	$	6,264
Government bonds		10,452		—		(39	)		10,413		3,224		7		—			3,231
Total	$	32,191	$	—	$	(106	)	$	32,085	$	9,513	$	7	$	(25	)	$	9,495

	As of September 30, 2017 (in thousands)									As of September 30, 2018 (in thousands)
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments
Short-term investments:
Corporate bonds	$	22,829	$	—	$	(31	)	$	22,798	$	17,851	$	—	$	(60	)	$	17,791
Government bonds		13,363		—		(24	)		13,339		7,702		—		(22	)		7,680
Total	$	36,192	$	—	$	(55	)	$	36,137	$	25,553	$	—	$	(82	)	$	25,471

The Company’s short-term investments have contractual maturities ranging from ~~January 2018~~February 2019 to ~~January~~November 2020.

At December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, the Company’s Canadian subsidiary had CAN$~~32.7~~19.6 million and CAD$~~26.1~~20.4 million, respectively, of Canadian dollar denominated intercompany accounts payable owed to one of the Company’s U.S subsidiaries. In order to mitigate its exposure to movements in foreign currency rates between the U.S. dollar and Canadian dollar, the Company routinely enters into foreign currency forward contracts to hedge a portion of its exposure to changes in the value of the Canadian dollar. On December ~~29, 2017,~~28, 2018, the Company entered into a ~~CAN$32.0~~CAD$15.0 million 90-day hedge contract ~~effective January 2, 2018~~ with a United States bank to reduce the impact on cash flows from movements in the Canadian dollar/U.S. dollar currency exchange rate, but has not been designated as a hedge for accounting purposes.

The ~~Company’s~~following table summarizes the gross fair value of all derivative instruments, ~~had no fair value~~which are not designated as ~~of December 31, 2017~~hedging instruments and ~~September 30, 2017.~~ their location in the consolidated balance sheets (in thousands).

The following table summarizes the Company’s realized gains on derivative instruments included in the consolidated statements of operations for the three months ended December 31, ~~2017~~2018 and ~~2016~~2017 (in thousands):

		Three Months Ended					Three Months Ended
Derivative Instrument	Location	December 31, 2017		December 31, 2016		Location	December 31, 2018		December 31, 2017
Foreign Currency Forward Contracts	Other Income (Expense)	$	158	$	72	Other Income (Expense)	$	856	$	158

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

At December 31, 2017, the Company’s financial instruments included cash and cash equivalents, short-term investments, derivative instruments, trade accounts and financing receivables and accounts payable. Due to the short-term maturities of cash and cash equivalents, trade and other receivables and accounts payable, the carrying amounts approximate fair value on the respective balance sheet dates.

The Company measures its short-term investments and derivative instruments at fair value on a recurring basis. The fair value measurement of the Company’s short-term investments and derivative instruments was determined using the following inputs (in thousands):

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

	December 31, 2017			September 30, 2017			December 31, 2018			September 30, 2018
Trade accounts receivable	$	8,265		$	10,830		$	13,385		$	15,776
Allowance for doubtful accounts		(1,254	)		(1,395	)		(986	)		(1,453	)
	$	7,011		$	9,435		$	12,399		$	14,323

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. Trade accounts receivable at December 31, 2018 includes $6.8 million due from a single customer.

	December 31, 2017			September 30, 2017			December 31, 2018			September 30, 2018
Promissory notes	$	7,062		$	4,306		$	5,170		$	5,646
Sales-type lease		7,807			8,581			4,590			5,533
Total financing receivables		14,869			12,887			9,760			11,179
Unearned income:
Promissory notes		(95	)		(90	)		(95	)		(95	)
Sales-type lease		(444	)		(527	)		(180	)		(237	)
Total unearned income		(539	)		(617	)		(275	)		(332	)
Total financing receivables, net of unearned income		14,330			12,270			9,485			10,847
Allowance for doubtful promissory notes		(1,505	)		(1,020	)		(1,849	)		(1,849	)
Less current portion		(5,793	)		(3,055	)		(3,843	)		(4,258	)
Non-current financing receivables	$	7,032		$	8,195		$	3,793		$	4,740

During the three months ended December 31, 2017, the Company issued a $2.8 million promissory note receivable to a customer in connection with the sale of rental equipment. Cash flows from financing receivables related to the sale of rental equipment for the three months ended December 31, 2017 of $0.9 million are presented in proceeds from the sale of used rental equipment in the consolidated statements of cash flows.

	December 31, 2017			September 30, 2017			December 31, 2018			September 30, 2018
Finished goods	$	32,768		$	33,690		$	14,712		$	18,802
Work in process		5,837			2,512			7,405			7,926
Raw material		68,078			70,099			57,099			54,290
Obsolescence reserve		(30,505	)		(29,614	)		(30,648	)		(30,551	)
		76,178			76,687			48,568			50,467

Less current portion		(19,994	)		(20,752	)		17,565			18,812
Non-current portion	$	56,184		$	55,935		$	31,003		$	31,655

During the three months ended December 31, ~~2017~~2018 and ~~2016,~~2017, the Company made non-cash inventory transfers of ~~$2.0~~$7.4 million and ~~$0.3~~$2.0 million, respectively, to rental equipment. Raw materials include semi-finished goods and component parts ~~which~~ totaled approximately ~~$44.1~~$26.7 million and ~~$43.2~~$29.0 million at December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, respectively.

In connection with the acquisition of all of the intellectual property and related assets of the OptoSeis fiber optic sensing technology business from PGS Americas, Inc. in November 2018, the Company recorded goodwill of $1.6 million and other intangible assets of $4.5 million. As a result of this acquisition and the acquisition of Quantum Technology Sciences (“Quantum”) in July 2018, the Company’s consolidated intangible assets consisted of the following (in thousands):

	Weighted-
	Average
	Remaining Useful
	Lives (in years)	December 31, 2018			September 30, 2018
Goodwill		$	5,980		$	4,343

Other intangible assets:
Developed technology	17.7		6,419			4,200
Customer relationships	3.7		4,200			2,500
Trade names	4.7		1,930			1,400
Non-compete agreements	3.7		170			100
Total other intangible assets	10.9		12,719			8,200
Accumulated amortization			(556	)		(194	)
		$	12,163		$	8,006

Intangible assets amortization expense was $0.4 million for the three months ended December 31, 2018. The Company had no ~~long-term debt outstanding at~~intangible asset amortization expense for the three months ended December 31, ~~2017 and September 30,~~ 2017.

On March 2, 2011, the Company entered into a credit agreement with Frost Bank with borrowing availability of $50.0 million (the “Credit Agreement”). On May 4, 2015, the Company amended the Credit Agreement which reduced its borrowing availability to $30.0 million with amounts available for borrowing determined by a borrowing base. On October 25, 2017, the Company entered into another amendment to the Credit Agreement which extended its maturity to April 30, 2019. The 2017 amendment also modified the borrowing base to be determined based upon certain of the Company’s assets which include (i) 80% of certain accounts receivable plus (ii) 50% of certain notes receivable (such result not to exceed $10 million) plus (iii) 25% of certain inventories (such result not to exceed $20 million) and requires the Company to maintain unencumbered liquid assets of $10 million. The 2017 amendment also removed a requirement that the Company maintain a financial ratio that compares certain of the Company’s assets to certain of its liabilities and imposed a new financial covenant that the Company maintain a minimum amount of certain liquid assets. As of December 31, ~~2017, the Company’s borrowing base was $26.6 million. As~~2018, future estimated amortization expense of December 31, 2017, the amount available for borrowing was $26.3 million after consideration of $0.3 million of outstanding letters of credit. The Company’s domestic subsidiaries have guaranteed the obligations of the Company under the Credit Agreement and such subsidiaries have secured their obligations under such guarantees by the pledge of substantially all of theother intangible assets ~~of such subsidiaries, except real property assets. The Company~~ is required to make monthly interest payments on borrowed funds. The Credit Agreement limits the incurrence of additional indebtedness, restricts the Company and its subsidiaries’ ability to pay cash dividends and contains other covenants customary in agreements of this type. The interest rate for borrowings under the Credit Agreement is based on the Wall Street Journal prime rate, which was 4.50% at December 31, 2017. At December 31, 2017, the Company was in compliance with all covenants under the Credit Agreement. as follows (in thousands):

Unrealized Losses on
Available-for-Sale
Securities

Foreign Currency
Translation
Adjustments

Totals

Balance at October 1, 2017

$
(58
)

$
(14,172
)

$
(14,230
)
Changes in unrealized losses on available-for-sale
securities

(51
)

—

(51
)
Foreign currency translation adjustments

—

(205
)

(205
)
Balance at December 31, 2017

$
(109
)

$
(14,377
)

$
(14,486
)

	Unrealized Losses on Available-for-Sale Securities			Foreign Currency Translation Adjustments			Totals
Balance at October 1, 2018	$	(82	)	$	(15,537	)	$	(15,619	)
Changes in unrealized gain on available-for-sale securities, net of tax		64			—			64
Foreign currency translation adjustments		—			(218	)		(218	)
Balance at December 31, 2018	$	(18	)	$	(15,755	)	$	(15,773	)

During the three months ended December 31, ~~2017,~~2018, the Company issued ~~138,650~~8,000 shares of restricted stock awards (“RSAs”) under its 2014 Long Term Incentive Plan, as ~~amended.~~amended (the “Plan”). The weighted average grant date fair value of ~~the restricted stock~~each RSA was ~~$15.54~~$14.59 per share. The total grant date fair value of ~~these awards~~all RSAs issued was ~~$2.2~~$0.1 million, which will be charged to expense over the next four years as the RSA vesting restrictions lapse. Compensation expense for ~~restricted stock awards~~the RSAs was determined based on the closing market price of the Company’s stock on the date of grant applied to the total number of shares that are anticipated to fully vest. Recipients of ~~restricted stock awards~~RSAs are entitled to vote such shares and are entitled to any dividends if paid.

As of December 31, ~~2017,~~2018, the Company had unrecognized compensation expense of ~~$4.8~~$3.7 million relating to ~~restricted stock awards. This unrecognized compensation expense~~RSAs that is expected to be recognized over a weighted average period of ~~3.1~~2.5 years. ~~In addition,~~

During the three months ended December 31, 2018, the Company issued 147,800 restricted stock units (“RSUs”) under the Plan. The RSUs issued include both time-based and performance-based vesting provisions. The weighted average grant date fair value of each RSU was $15.17 per unit. The grant date fair value of the RSUs was $2.2 million, which will be charged to expense over the next four years as the restrictions lapse. Compensation expense for the RSUs was determined based on the closing market price of the Company’s stock on the date of grant applied to the total number of units that are anticipated to fully vest. Each RSU represents a contingent right to receive one share of the Company’s common stock upon vesting. As of December 31, 2018, the Company had ~~$0.3~~unrecognized compensation expense of $2.2 million relating to RSUs that is expected to be recognized over a weighted average period of 3.9 years.

The Company had $0.1 million of unrecognized compensation expense related to nonqualified stock option awards ~~which~~that is expected to be recognized over a weighted average period of ~~1.2~~0.8 years.

As of December 31, ~~2017, a total of 300,675 shares of restricted stock~~2018, 236,562 RSAs, 147,800 RSUs and ~~201,800~~165,600 nonqualified stock options ~~shares~~ were unvested and outstanding.

The Company applies the ~~two -class~~two-class method in calculating per share data. The following table summarizes the calculation of net loss and weighted average common shares and common equivalent shares outstanding for purposes of the computation of loss per share (in thousands, except share and per share data):

	Three Months Ended						Three Months Ended
	December 31, 2017			December 31, 2016			December 31, 2018			December 31, 2017
Net loss	$	(9,480	)	$	(11,705	)	$	(5,853	)	$	(9,480	)
Less: Income allocable to unvested restricted stock		—			—
Less: Loss allocable to unvested restricted stock								—			—
Loss available to common shareholders		(9,480	)		(11,705	)		(5,853	)		(9,480	)
Reallocation of participating earnings		—			—			—			—
Loss attributable to common shareholders for diluted earnings per share	$	(9,480	)	$	(11,705	)	$	(5,853	)	$	(9,480	)
Weighted average number of common share equivalents:
Common shares used in basic loss per share		13,202,384			13,094,809			13,339,408			13,202,384
Common share equivalents outstanding related to stock options		—			—
Common share equivalents outstanding related to stock options and RSUs								—			—
Total weighted average common shares and common share equivalents used in diluted loss per share		13,202,384			13,094,809			13,339,408			13,202,384
Loss per share:
Basic	$	(0.72	)	$	(0.89	)	$	(0.44	)	$	(0.72	)
Diluted	$	(0.72	)	$	(0.89	)	$	(0.44	)	$	(0.72	)

For the calculation of diluted loss per share for the three months ended December 31, 2018 and 2017, 165,600 and ~~2016,~~ 201,800 ~~and 206,300~~ stock options and 147,800 and zero non-vested RSUs, respectively, were excluded in the calculation of weighted average shares outstanding ~~as a result of~~since their impact ~~being~~on diluted loss per share was antidilutive.

The Company established an initial earn-out liability of $7.7 million in connection with its July 2018 acquisition of Quantum. The contingent earn-out payments, if any, which at the Company’s option may be paid in the form of cash or Company stock, will be derived from eligible revenue that may be generated by Quantum during a four-year earn-out period. The maximum amount of contingent payments is $23.5 million over the earn-out period. The fair value of the contingent earn-out liability has not significantly changed since September 30, 2018.

For the recent acquisition of the intellectual property and related assets of the OptoSeis fiber optic sensing technology in November 2018, the Company established an initial earn-out liability of $4.3 million. The contingent earn-out payments, if any, will be derived from eligible revenue generated during a five-and-a-half year earn-out period. The maximum amount of contingent payments is $23.2 million over the earn-out period.

The Company reviews and accesses the fair value of its contingent earn-out liabilities on a quarterly basis. The fair value of its contingent earn-out liabilities has not changed

The Company is involved in various pending ~~or potential~~ legal actions in the ordinary course of its business. Management is unable to predict the ultimate outcome of these actions, because of the inherent uncertainty such actions. However, management believes that the most probable, ultimate resolution of ~~litigation. Management is~~these pending matters will not ~~aware~~have a material adverse effect on the Company’s consolidated financial position, results of ~~any material pending~~operations or ~~known to be contemplated legal or government proceedings against the Company.~~cash flows.

The Company reports and evaluates financial information for ~~two~~three operating segments: ~~Seismic~~Oil and ~~Non-Seismic. Seismic product lines include: land~~Gas Markets, Adjacent Markets and ~~marine~~Emerging Markets. The Oil and Gas Markets segment products include wireless seismic data acquisition systems, ~~permanent land and seabed~~ reservoir ~~monitoring~~characterization products and services, ~~geophones~~ and ~~geophone strings,~~traditional seismic exploration products such as geophones, hydrophones, leader

wire, connectors, ~~telemetry~~ cables, marine streamer retrieval and steering devices and various other seismic products. The ~~Non-Seismic product lines~~Adjacent Markets segment products include graphic imaging equipment, water meter products, offshore cables, and ~~industrial products.~~seismic sensors used for vibration monitoring and geotechnical applications such as mine safety applications and earthquake detection. The Emerging Markets segment was added in conjunction with the Company’s acquisition of Quantum, which designs and markets seismic products targeted at the border and perimeter security markets.

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

	Three Months Ended						Three Months Ended
	December 31, 2017			December 31, 2016			December 31, 2018			December 31, 2017
Revenue:
Seismic	$	8,039		$	9,406
Non-Seismic		6,454			5,736
Oil and Gas Markets							$	11,004		$	8,039
Adjacent Markets								6,635			6,454
Emerging Markets								88			—
Corporate		151			143			148			151
Total	$	14,644		$	15,285		$	17,875		$	14,644

Income (loss) from operations:
Seismic	$	(7,673	)	$	(9,453	)
Non-Seismic		1,029			1,052
Oil and Gas Markets							$	(2,601	)	$	(7,673	)
Adjacent Markets								982			1,029
Emerging Markets								(1,192	)		—
Corporate		(2,961	)		(2,910	)		(3,252	)		(2,961	)
Total	$	(9,605	)	$	(11,311	)	$	(6,063	)	$	(9,605	)

The ~~Company’s effective tax rate for the three months ended December 31,~~ 2017 ~~was impacted by the~~ Tax ~~Cuts and Jobs~~ Act ~~(“the Act”), which~~ was enacted ~~into law on~~in December ~~22,~~ 2017. Income tax effects resulting from changes in tax laws are accounted for by the Company in accordance with the authoritative guidance, which requires that these tax effects be recognized in the period in which the law is enacted and the effects are recorded as a component of provision for income taxes from continuing operations. As a result, the Company made changes to its provision for income tax resulting from the enactment of theThe 2017 Tax Act, ~~for the three months ended December 31, 2017.~~

~~The Act includes significant changes to the U.S. corporate income tax system which~~among other things, reduces the U.S. federal corporate tax rate from ~~35.0%~~35% to ~~21.0% as of~~21%, effective January 1, ~~2018; shifts~~2018, creates new taxes on certain foreign earnings and may require companies to pay a ~~modified territorial~~one-time transition tax ~~regime which requires companies~~on undistributed earnings of certain foreign subsidiaries that were previously tax deferred. The Company is not required to pay a one-time transition tax on earnings of ~~certain~~our foreign subsidiaries ~~that were previously~~since the Company had no accumulated foreign losses on a consolidated basis. As a result of the 2017 Tax Act, during the three months ended December 31, 2017, the Company revalued its U.S. deferred tax ~~deferred; and creates~~assets based on the new ~~taxes on certain foreign-sourced earnings. The decrease in the~~ U.S. federal ~~corporate tax rate from 35.0% to 21.0% results in a blended statutory~~ tax rate of 24.5% for the Company’s fiscal year ending September 30, 2018. The new taxes for certain foreign-sourced earnings under the Act are effective for the Company after the fiscal year ending September 30, 2018.

~~The Company is currently~~21%, which resulted in ~~the early stages of evaluating the impact of the Act on~~a reduction to its consolidated financial statements. Based on the Company’s initial assessments to date, it expects the one-time transition tax on certain foreign earnings and profits to have a minimal cash impact since it anticipates that it will be able to utilize existing net operating loss carryforwards to substantially offset any taxes payable on foreign earnings and profits. Additionally, the Company has adjusted its U.S. gross deferred tax assets ~~and~~

~~liabilities to the new 21% statutory tax rate; however, it also recorded a corresponding adjustment to a valuation allowance which resulted~~of approximately $8.1 million. The reduction in ~~no net impact to~~ deferred tax assets ~~or provision for income taxes. Except for~~was completely offset by a like reduction to the adjustments referred to above, the Company has not recorded any income tax effects of the Act in its consolidated financial statements (including any provisional amounts) because it does not yet have the necessary information available, prepared or analyzed in reasonable detail to complete the applicable accounting.valuation allowance.

The Company’s effective tax rates for the three months ended December 31, ~~2017~~2018 and ~~2016~~2017 were (0.1)% and ~~(9.6)~~(0.1)%, respectively. The United States statutory rate for the three months ended December 31, 2018 and 2017 was 21% and ~~2016 was~~ 24.5% (blended) ~~and 35%~~, respectively. Compared to the United States statutory tax rate, the lower effective tax rates resulted primarily from the provision of a valuation allowance against the Company’s U.S. and Canadian deferred tax assets, due to the uncertainty surrounding the Company’s ability to utilize such deferred tax assets in the future to offset taxable income.

In December 2017, the Company initiated a program to reduce operating costs in light of expected and continuing low levels of seismic product demand. The program is expected to produce approximately $6 million of annualized cash savings. The majority of the cost reductions were realized through a reduction of over 60 employees from the Company’s Houston area workforce. In connection with the workforce reductions, the Company incurred $0.7 million of termination costs in its first quarter of fiscal year 2018. The termination costs were recorded to both cost of revenue and operating expenses in the consolidated statement of operations. No further termination costs are expected and there are no outstanding liabilities related to this program as of December 31, 2017.

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

The following is management’s discussion and analysis of the major elements of our consolidated financial statements. You should read this discussion and analysis together with our consolidated financial statements, including the accompanying notes, and other detailed information appearing elsewhere in this Quarterly Report on Form 10-Q and our annual report on Form 10-K for the year ended September 30, ~~2017.~~2018.

This Quarterly Report on Form 10-Q 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 (the “Exchange Act”). 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 results and success of our transactions with Quantum and the OptoSeis technology, the adoption and sale of our products in various geographic regions, anticipated levels of capital expenditures and the sources of funding therefore, and our strategy for growth, product development, market position, financial results and the provision of accounting reserves. These forward-looking statements reflect our best judgment about future events and trends based on the information currently available to us. However, there will likely be events in the future that we are not able to predict or control. The factors listed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017,~~2018, as well as other cautionary language in such Annual Report and this Quarterly Report, 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 technology transactions to yield positive operating results, decreases in commodity price levels, 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, ~~and any negative impact from~~lack of further orders for our ~~restatement~~OBX systems, failure of our ~~financial statements regarding current assets.~~Quantum products to be adopted by the border and security perimeter market and infringement or failure to protect intellectual property. The occurrence of the events described in these risk factors and elsewhere in this Quarterly Report on Form 10-Q could have a material adverse effect on our business, results of operations and financial position, and actual events and results of operations may vary materially from our current expectations. We assume no obligation to revise or update any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future developments or otherwise.

Geospace Technologies Corporation reincorporated as a Texas corporation on April 16, 2015. We originally incorporated as a Delaware corporation on September 27, 1994. Unless otherwise specified, the discussion in this Quarterly Report on Form 10-Q refers to Geospace Technologies Corporation and its subsidiaries. We design and manufacture instruments and equipment used in the oil and gas industry to acquire seismic data in order to locate, characterize and monitor hydrocarbon producing reservoirs. We also design and manufacture ~~non-seismic products, including~~ industrial products, offshore cables, imaging equipment and ~~imaging equipment.~~perimeter security products. We report and categorize our customers and products into ~~two~~three different segments: ~~Seismic~~Oil and ~~Non-Seismic.~~Gas Markets, Adjacent Markets and Emerging Markets.

We have been engaged in the design and manufacture of seismic ~~instrument~~instruments and equipment ~~business~~ since ~~1980 and~~1980. We primarily market our seismic products ~~primarily~~ to the oil and gas ~~industry.~~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 offshore cables. Demand for our seismic products targeted at the oil and gas industry has been, and will likely continue to be, vulnerable to downturns in the economy and the oil and gas industry in general. For more information, please refer to the risks discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2018.

On November 13, 2018, we acquired all of the intellectual property and related assets of the OptoSeis fiber optic sensing technology business. The assets of the OptoSeis business are included in our Oil and Gas Markets business segment.

The acquisition purchase price consisted of cash at closing of approximately $1.8 million and contingent earn-out payments of up to $23.2 million over a five-and-a-half year period. The contingent cash payments will be derived from eligible revenue generated during the earn-out period from products and services utilizing the OptoSeis fiber optic technology.

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on their public reference room. Our SEC filings are also available to the public on our website at http://www.geospace.com. From time to time, we may post investor presentations on our website under the “Investor Relations” tab. Please note that information contained on our website, whether currently posted or posted in the future, is not a part of this Quarterly Report on Form 10-Q or the documents incorporated by reference in this Quarterly Report on Form 10-Q.

Our ~~seismic~~Oil and Gas Markets business segment has historically accounted for the majority of our revenue. Geoscientists use seismic data primarily in connection with the exploration, development and production of oil and gas reserves to map potential and known hydrocarbon bearing formations and the geologic structures that surround them. ~~Our~~This segment’s products include wireless seismic ~~product lines currently consist of land and marine nodal~~ data acquisition systems, ~~permanent land and seabed~~ reservoir ~~monitoring~~characterization products and services, ~~geophones~~ and ~~geophone strings,~~traditional seismic exploration products such as geophones, hydrophones, leader wire, connectors, ~~telemetry~~ cables, marine streamer retrieval and steering devices and various other ~~products. Our~~ seismic ~~products are compatible with most major competitive seismic data acquisition systems currently in use.~~products. We believe that our ~~seismic~~oil and gas products are among the most technologically advanced instruments and equipment available for seismic data acquisition.

An energy source and a data recording system are combined to acquire seismic data. We provide many of the components of seismic data recording systems, including geophones, hydrophones, multi-component sensors, leader wire, geophone strings, connectors, seismic telemetry cables and other seismic related products. On land, our customers use geophones, leader wire, cables and connectors to receive and measure seismic reflections resulting from an energy source into data recording units, which store the seismic information for subsequent processing and analysis. In the marine environment, large ocean-going vessels tow long seismic cables known as “streamers” containing hydrophones ~~which~~that are used to detect pressure changes. Hydrophones transmit electrical impulses back to the vessel’s data recording unit where the seismic data is stored for subsequent processing and analysis. Our marine seismic products also help steer streamers while being towed and help recover streamers if they become disconnected from the vessel.

Our seismic sensor, cable and connector products are compatible with most major competitive seismic data acquisition systems currently in use. Revenue from these products results primarily from seismic contractors purchasing our products as components of new seismic data acquisition systems or to repair and replace components of seismic data acquisition systems already in use.

Our products used in marine seismic data acquisition include our seismic streamer retrieval devices (“SRDs”). Occasionally, streamer cables are severed and become disconnected from the vessel as a result of obstacles, inclement weather, vessel traffic or human error. Our SRDs, which are attached to the streamer cables, contain air bags which are designed to inflate automatically at a given water depth, bringing the severed streamer cables to the surface. These SRDs save the seismic contractors significant time and money compared to the alternative of losing the streamer cable. We also produce seismic streamer steering devices, or “birds,” which are fin-like devices that attach to the streamer cable. These birds help maintain the streamer cable at a certain desired depth as it is being towed through the water.

We have developed a land-based wireless (or nodal) seismic data acquisition system called the GSX. Rather than utilizing interconnecting cables as required by most traditional land data acquisition systems, each GSX station operates as an independent data collection system, allowing our GSX stations to be deployed in virtually unlimited channel configurations. As a result, our GSX system requires less maintenance, which we believe allows our customers to operate more effectively and efficiently because of its reduced environmental impact, lower weight and ease of operation. Our GSX system is designed into configurations ranging from one to four channels per station. Since its introduction in 2008 and through December 31, ~~2017,~~2018, we have sold ~~417,000~~433,000 GSX channels and we have ~~64,000~~79,000 GSX channels in our rental fleet. ~~We expect to make additional investments in our GSX rental fleet in fiscal year 2018 to replenish a sale of used GSX rental equipment in the fourth quarter of fiscal year 2017.~~

We have also developed a marine-based wireless seismic data acquisition system called the OBX. Similar to our GSX land-based wireless system, the marine OBX system can be deployed in virtually unlimited channel configurations and does not require interconnecting cables between each station. Our deep water versions of the OBX system can be deployed in depths of up to 3,450 meters. ~~Through~~At December 31, ~~2017,~~2018, we ~~have sold approximately 600 OBX stations and we have 6,700~~had 17,000 OBX stations in our rental ~~fleet.~~ fleet, and additional OBX stations under construction in order to meet contracted demand. We expect to make significant financial investments into our OBX rental fleet during fiscal year 2019.

Seismic surveys repeated over selected time intervals show dynamic changes within the reservoir and can be used to monitor the effects of oil and gas development and production. In this regard, we have developed permanently installed high-definition reservoir monitoring systems for land and ocean-bottom applications in producing oil and gas fields. We also produce a retrievable version of our ocean-bottom system for use on fields where permanently installed systems are not appropriate or economical. Utilizing these tools, producers can enhance the recovery of oil and gas deposits over the life of a reservoir.

Our high-definition reservoir monitoring products include the HDSeis™ product line and a suite of borehole and reservoir monitoring products and services. Our HDSeis™ system is a high-definition seismic data acquisition system with flexible architecture that allows it to be configured as a borehole seismic system or as a subsurface system for both land and marine reservoir-monitoring projects. The scalable architecture of the HDSeis™ system enables custom designed system configuration for applications ranging from low-channel engineering and environmental-scale surveys requiring a minimum number of recording channels to high-channel surveys required to efficiently conduct permanent reservoir monitoring (“PRM”). Modular architecture allows virtually unlimited channel expansion. In addition, multi-system synchronization features make the HDSeis™ system ~~well suited~~well-suited for multi-well or multi-site acquisition, simultaneous surface and downhole acquisition and continuous reservoir monitoring projects.

Reservoir monitoring requires special purpose or custom designed systems in which portability becomes less critical and functional reliability assumes greater importance. This reliability factor helps assure successful operations in inaccessible locations over a considerable period of time. Additionally, reservoirs located in deep water or harsh environments require special instrumentation and new techniques to maximize recovery. Reservoir monitoring also requires high-bandwidth, high-resolution seismic data for engineering project planning and reservoir management. We believe our HDSeis™ System and tools, designed for cost-effective deployment and lifetime performance, will make borehole and seabed seismic acquisition a cost-effective and reliable process for the challenges of reservoir monitoring. Our multi-component seismic product developments include an omni-directional geophone for use in reservoir monitoring, a compact marine three-component or four-component gimbaled sensor and special-purpose connectors, connector arrays and cases.

We have not ~~delivered nor did we receive~~received any orders for large-scale seabed PRM systems since November 2012 and we currently do not have any ~~permanent reservoir monitoring systems during~~indication that such an order will be received in fiscal year ~~2017 or during the first three months of fiscal year 2018.~~2019, although we do believe opportunities for PRM orders do exist in today’s market.

In addition, we produce seismic borehole acquisition systems ~~which~~that employ a fiber optic augmented wireline capable of very high data transmission rates. These systems are used for several reservoir monitoring applications, including an application pioneered by us allowing operators and service companies to monitor and measure the results of fracturing operations.

Our ~~non-seismic~~Adjacent Markets businesses leverage upon our existing manufacturing facilities and engineering capabilities. We have found that many of our oil and gas seismic products, with little or no modification, have direct application to industries beyond those involved in oil and gas exploration and development. ~~For example, our customers utilize our borehole tools to monitor subsurface carbon dioxide injections~~

Our industrial products include water meter products, imaging equipment, offshore cables, as well as seismic sensors used for vibration monitoring and ~~for~~geotechnical applications such as mine safety ~~applications.~~applications and earthquake detection.

Our ~~non-seismic~~imaging products include electronic pre-press products that employ direct thermal imaging and digital inkjet printing technologies targeted at the commercial graphics, industrial graphics, textile and flexographic printing industries.

Our Emerging Markets business segment consists of our recent acquisition of Quantum. Quantum’s product developments include a proprietary detection system called SADAR^®, which detects, locates and follows activities of interest in real-time. Using the SADAR technology, Quantum designs and sells products used for border and perimeter security surveillance, cross-border tunneling detection and other ~~non-seismic~~ products ~~consist~~targeted at movement monitoring, intrusion detection and situational awareness. Quantum’s customers include various agencies of ~~(i) sensors~~the U.S. government including the Department of Defense, Department of Energy, Department of Homeland Security and tools for vibration monitoring, mine safety application and earthquake detection, (ii) cables for power and communication for the offshore oil and gas and offshore construction industries, (iii) water meter cables and connectors, and (iv) other ~~specialty industrial cable and connector products.~~agencies.

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

	Three Months Ended						Three Months Ended
	December 31, 2017			December 31, 2016			December 31, 2018			December 31, 2017
Seismic
Oil and Gas Markets
Traditional exploration product revenue	$	3,790		$	2,570		$	2,785		$	3,790
Wireless exploration product revenue		3,631			6,323			7,282			3,631
Reservoir product revenue		618			513			937			618
Total revenue		8,039			9,406			11,004			8,039
Operating loss		(7,673	)		(9,453	)		(2,601	)		(7,673	)
Non-Seismic
Adjacent Markets
Industrial product revenue		3,676			3,079			3,561			3,676
Imaging product revenue		2,778			2,657			3,074			2,778
Total revenue		6,454			5,736			6,635			6,454
Operating income		1,029			1,052		982				1,029
Emerging Markets
Revenue								88			—
Operating loss								(1,192	)		—
Corporate
Revenue		151			143			148			151
Operating loss		(2,961	)		(2,910	)		(3,252	)		(2,961	)
Consolidated Totals
Revenue		14,644			15,285			17,875			14,644
Operating loss		(9,605	)		(11,311	)		(6,063	)		(9,605	)

Early in calendar year 2014, ~~we began to experience~~our Oil and Gas Markets segment experienced a softening in the demand for ~~our seismic~~its traditional exploration products, particularly in North America, as capital budgets for oil and gas producers were trending away from exploration-focused activities toward production and exploitation activities. During this period oil production in North America’s unconventional shale reservoirs increased, as did oil production from other non-OPEC countries, resulting in an oversupply of crude oil in the world market. Market prices for a barrel of West Texas Intermediate crude oil declined from over $100 in July 2014 to approximately ~~$27~~$26 in ~~January~~February 2016, and have recovered ~~somewhat~~ to approximately ~~$64~~$54 today. With this decline in oil ~~and natural gas~~ prices, oil and gas exploration and production companies experienced a significant reduction in cash flows, which resulted in sharp reductions in their capital spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities. WeWhile our Oil and Gas Markets segment is now seeing some signs of increased geophysical activity around the world, the need for new seismic equipment remains restrained due to capital limitations affecting many of our customers along with excess levels of unutilized equipment. Although our Oil and Gas Markets segment is seeing significant demand for the rental of its marine nodal products, we expect revenue from the sale of our ~~seismic~~land-based products, and in particular our traditional and wireless products, to remain low until ~~crude~~exploration-focused seismic activities increase due to the ongoing depletion of existing reservoirs prompting the need to find new sources of oil ~~prices stabilize at higher levels~~ and ~~exploration-focused industry conditions improve.~~gas. We expect these challenging industry conditions towill continue ~~to negatively impact the demand for~~in our ~~seismic products~~Oil and Gas Markets segment throughout fiscal year ~~2018.~~

In September 2017, we were notified by a previous PRM system customer that it was in the process of requesting quotes for two new PRM systems which must utilize fiber optic sensor technology. Since our PRM designs utilize electrical sensor technology, we did not participate with a quotation for the design and manufacture of these PRM systems. We believe that our PRM system designs, which utilize electrical sensor technology, provide the best long-term functionality and performance of any PRM system, and we continue to aggressively market our PRM systems to major oil and gas companies. However, the occurrence of this notice, combined with the absence of any new PRM orders of any technology type since November 2012, have caused us to provide additional obsolescence reserves for a substantial portion of our PRM inventories, and we concluded a triggering event occurred and performed an impairment assessment on certain heavy equipment used for the manufacturing of PRM systems, which resulted in an impairment. Specific to our PRM inventories and manufacturing equipment, we recorded obsolescence reserves of $5.1 million and impairment expense of $5.3 million, respectively, in the fourth quarter of our fiscal year ended September 30, 2017.2019.

In December 2017, we initiated a program to reduce operating costs in light of expected and continuing low levels of ~~seismic~~oil and gas product demand. The program is expected to produce approximately $6 million of annualized cash savings. The majority of the future cost reductions were realized through athe reduction of over 60 employees from our Houston area workforce. In connection with the workforce reductions, we incurred $0.7 million of termination costs in our first quarter of fiscal year 2018. The termination costs were recorded to both cost of revenue and operating expenses in the consolidated statement of operations. No further termination costs are expected and there are no outstanding liabilities related to this program as of ~~December 31, 2017.~~September 30, 2018.

Three months ended December 31, ~~2017~~2018 compared to the three months ended December 31, ~~2016~~2017

Consolidated revenue for the three months ended December 31, ~~2017, decreased $0.6~~2018 increased $3.3 million, or ~~4.2%~~18.7%, from the corresponding period of the prior fiscal year. The ~~decrease~~increase in revenue for the three months ended December 31, ~~2017~~2018 was primarily due to ~~a decrease~~an increase in ~~wireless exploration~~ rental revenue from our OBX marine nodal products in our ~~seismic~~Oil and Gas Markets business segment.

Consolidated gross profit ~~(loss)~~ for the three months ended December 31, ~~2017~~2018 was ~~a loss of ($1.0)~~$3.1 million, compared to a loss of ($~~3.3)~~1.0) million for the corresponding period of the prior fiscal year. The improvement in gross profit (loss) resulted from (i) an increase in wireless rental revenue and (ii) a decline in unutilized factory costs due to higher productivity. While factory utilization has recently increased due to demand for the ~~three months ended December 31, 2017 was primarily the result~~rental of a decrease in inventory obsolescence and rental equipment depreciation expenses. These improvements were partially offset by a decrease in wireless exploration rental revenue. Until seismic product demand increases to historical norms,our OBX marine nodal products, we expect our consolidated gross margins for our products to remain ~~low.~~below historic norms until demand increases for our land-based seismic products.

In light of current market conditions, our ~~seismic~~oil and gas product inventories at December 31, ~~2017 far~~2018 continue to exceed levels considered appropriate for the current level of product demand. While we are aggressively working to reduce these legacy inventory balances, we ~~have~~are also ~~added~~adding new inventories for recent oil and gas product developments and other product ~~demand.~~demand in our Adjacent Markets. During periods of excessive inventory levels, our policy has been, and will continue to be, to record obsolescence expense ~~in our consolidated income statement~~ as we experience reduced levels of inventory turnover and as our inventories continue to age. If ~~current~~difficult market conditions continue for our oil and gas products, we expect to record additional inventory obsolescence expense in fiscal year ~~2018~~2019 and beyond until ~~seismic~~ product demand ~~and~~and/or resulting ~~seismic~~ inventory turnover ~~returns~~return to acceptable levels.

Consolidated operating expenses for the three months ended December 31, ~~2017~~2018 were ~~$8.6~~$9.2 million, an increase of ~~$0.7~~$0.5 million, or ~~8.2%~~6.0%, from the corresponding period of the prior fiscal year. This increase was primarily due to a $0.8 million increase in bad debt expense. Excluding the change in bad debt, consolidated operating expense declined by $0.1 million due to a reduction is stock-based compensation expenses and partially offset by termination costs.

~~Consolidated other income for the three months ended December 31, 2017 was $131,000, an increase of $91,000~~ from the corresponding period of the prior fiscal year. The increase was primarily due to incremental operating expenses associated with our recent acquisitions of the Quantum and OptoSeis businesses, including intangible asset amortization of $0.4 million, legal fees of $0.2 million and $1.0 million representing personnel costs for the acquired businesses. These increases were offset by a $0.5 million decrease in bad debt expense, $0.3 million decrease in severance expense and a $0.2 million decrease in stock-based compensation expense.

Consolidated other income for the three ~~months~~month ended December 31, ~~2017~~2018 was $0.2 million, compared to $0.1 million from the corresponding period of the prior fiscal year. The increase in other income was primarily due to an increase in ~~interest income resulting from increased financing receivables.~~net foreign exchange gains.

Consolidated income tax expense for the three months ended December 31, ~~2017~~2018 was ~~$6,000~~$7,000 compared to ~~$0.4 million~~$6,000 for ~~the~~ corresponding period of the prior fiscal year. Our effective tax rates for ~~the~~ three months ended December 31, ~~2017~~2018 and ~~2016~~2017 were (0.1)% and ~~(9.6)~~(0.1)%, respectively. The United States statutory tax rate for ~~the~~ three months ended December 31, 2018 and 2017 were 21% and ~~2016 were~~ 24.5% (blended) ~~and 35%~~, respectively. Compared to the United States statutory tax rate, the lower effective tax rates for ~~the~~ three months ended December 31, 2018 and 2017 ~~and 2016~~resulted primarily ~~resulted~~ from ~~our inability to recognize any tax benefits for~~ the ~~tax losses we incurred in the~~provision of a valuation allowance against our U.S. and ~~Canada~~Canadian deferred tax assets due to the uncertainty surrounding our ability to utilize ~~these losses~~such deferred tax assets in the future to offset taxable income.

Revenue from our ~~seismic~~oil and gas products for the three months ended December 31, ~~2017 decreased $1.4~~2018 increased $3.0 million, or ~~14.5%~~36.9%, from the corresponding period of the prior fiscal year. The components of this ~~decrease~~increase include the following:

~~Despite decreased revenues, our~~Our operating loss associated with our ~~seismic~~oil and gas products for the three months ended December 31, ~~2017~~2018 decreased ~~$1.8~~$5.1 million, or ~~18.9%~~66.1%, from the corresponding period of the prior year. The ~~decrease~~reduction in our operating loss ~~was~~primarily resulted from (i) an increase in wireless rental revenue and (ii) a decline in unutilized factory costs due to higher productivity. While factory utilization has recently increased due to rental demand for our OBX marine wireless products, we expect our consolidated gross margins for our oil and gas products to remain below historic norms until demand increases significantly for these products.

~~primarily due to a decrease in inventory obsolescence and rental equipment depreciation expenses. These decreases were partially offset by lower wireless exploration rental revenue.~~

Revenue from our ~~non-seismic~~Adjacent Markets products for the three months ended December 31, ~~2017~~2018 increased ~~$0.7~~$0.2 million, or ~~12.5%~~2.8%, from the corresponding period of the prior fiscal year. The components of ~~this increase~~these increases included the following:

Our operating income ~~associated with sales of~~from our ~~non-seismic~~Adjacent Markets products for the three months ended December 31, ~~2017 declined $23,000~~2018 decreased $47,000 or 4.6%, from the corresponding period of the prior fiscal year. The ~~decline resulted from~~decrease in operating income was primarily due to reduced gross profit margins ~~due to higher manufacturing costs,~~from our water meter and ~~increased~~imaging products.

On July 27, 2018, we entered the border and perimeter security market through our acquisition of Quantum. In connection with the Quantum acquisition, we established the Emerging Markets business segment, which currently includes only Quantum. Revenue from our Emerging Markets products for three months ended December 31, 2018 was $0.1 million. Our operating ~~expenses resulting from increased sales and marketing expenses.~~ loss for this same period was $1.2 million, including $0.3 million of intangible asset amortization expense.

At December 31, ~~2017,~~2018, we had approximately ~~$13.9~~$17.1 million in cash and cash equivalents and ~~$32.1~~$9.5 million in short-term investments. For the three months ended December 31, ~~2017,~~2018, we ~~used $5.8~~generated $1.3 million of cash infrom operating activities. ~~Our net loss~~Sources of ~~$9.1~~cash included (i) a $4.2 million ~~was offset by (i) net non-cash charges~~increase in accounts payable primarily associated with the purchase of ~~$5.9 million from deferred income taxes, depreciation, accretion, inventory obsolescence, stock-based compensation and bad debts,~~materials required to expand our OBX rental fleet, (ii) a ~~$2.6~~$1.8 million decrease in trade accounts receivable resulting from the timing of ~~collections~~collection from customers, ~~and~~ (iii) ~~a $0.7 million increase in accounts payable primarily due to~~ an increase of $2.0 million in ~~inventories~~accrued and other expenses primarily attributable additional property tax accruals and the timing of payments for other accrued expenses and (iv) a $0.9 million increase in deferred revenue due to ~~suppliers. Other uses~~the receipt from customers of deposits for rental contracts. These sources of cash inwere partially offset by (i) our ~~operations included (i)~~net loss of $5.9 million, which was completely offset by non-cash charges of $5.9 million from deferred income taxes, depreciation, amortization, accretion, inventory obsolescence, stock-based compensation and bad debt expense, (ii) a ~~$2.9~~$6.3 million increase in inventories for the ~~replenishment~~production of ~~rental equipment sold~~recently introduced land-based wireless seismic products and (iii) a $1.5 million increase in prepaid expenses and other current assets attributable to ~~customers~~prepayment of annual insurance premiums and ~~the purchase of raw materials~~advance payments made to suppliers for new product production and (ii) the removal of a $2.6 million gross profit from the sale of used rental equipment since such gross profit is reflected in the proceeds from the sale of used rental equipment under investing activities.future inventory purchases.

For the three months ended December 31, ~~2017,~~2018, we generated cash of ~~$4.8~~$4.1 million from investing activities. Sources of cash included (i) ~~$4.0~~$16.1 million of ~~net~~ proceeds from the sale of short-term investments and (ii) ~~$1.0~~$0.7 million of proceeds from the sale of rental equipment. These sources of cash were partially offset by ~~an investment~~(i) $1.8 million for the acquired intellectual property and related assets of ~~$0.2~~the OptoSeis fiber optic sensing technology business, (ii) $10.2 million into expand our rental fleet, (iii) $0.7 million for additions to our property, plant and equipment. As a result of significant demand for our marine OBX rental equipment, we expect fiscal year 2019 cash investments into our rental fleet could be $30 million or more. We estimate total fiscal year ~~2018~~2019 cash investments in property, plant and equipment will be approximately $3 million. ~~We expect fiscal year 2018 cash investments into our rental fleet to be approximately $2 million in order to replenish land-based wireless rental fleet equipment recently sold to customers.~~ Our capital expenditures are expected to be funded from our cash on hand, internal cash ~~flow~~flows, cash flows from our rental contracts or, if necessary, from borrowings under our credit agreement.

For the three months ended December 31, ~~2017,~~2018, we ~~had no~~generated cash ~~flows~~proceeds of $0.2 million from financing ~~activities.~~activities from the exercise of stock options by our employees. We had no long-term debt outstanding throughout the fiscal year ended September 30, ~~2017~~2018 or for the three months ended December 31, ~~2017.~~2018.

~~While~~Throughout 2018, West Texas Intermediate crude oil prices ~~have recently increased to their highest level in three years, the current level of~~strengthened into early October 2018, peaking at $76 per barrel. Since that time and continuing into late December 2018, crude oil prices ~~remain~~dropped significantly ~~below~~bottoming-out at $43 per barrel. In the ~~peak price levels~~last few weeks we have seen ~~in 2014. These lower~~ crude oil ~~prices combined with an ample supply of crude oil~~price strengthen again to around $55 per barrel. The significant price volatility that began in 2014 continues today, stifling budgets targeted at the ~~world market do not support the investment required by many exploration and production companies to explore and develop new frontier areas for~~ oil and gas ~~development~~exploration industry, including the seismic industry. OPEC and ~~production. In addition,~~other crude oil producing/exporting nations appear united in their efforts to maintain equilibrium between current worldwide crude oil supply and demand, with reported reductions in excess crude oil supplies around the world. If worldwide crude oil supplies and associated prices stabilize, these factors and developing trends bode well for the oil and gas industry and we expect to participate in

any resurgence in demand for new seismic equipment that may be forthcoming. While we are seeing some signs of increased seismic activity around the world, the need for new seismic equipment remains restrained due to capital limitations affecting many ~~smaller exploration~~of our customers along with excessive quantities of under-utilized equipment. We expect product sales of our oil and ~~production companies are under-capitalized~~gas products, and ~~their capital spending budgets for~~in particular our legacy land-based traditional and wireless products, to remain low until exploration-focused ~~activities, including~~ seismic activities ~~are financial restrained. As a~~increase, which we believe will result ~~our seismic business segment continues to experience lower levels of product orders and associated revenue, resulting in substantial operating losses and~~from the ~~continued~~ongoing depletion of ~~our cash balances. Due~~existing reservoirs prompting the need to ~~the uncertainty concerning a recovery~~find new sources of ~~crude~~ oil ~~prices to levels capable of sustaining increased seismic exploration activities, we~~and gas. We expect these ~~depressed seismic market~~challenging industry conditions tofacing our land-based traditional and legacy wireless products will continue ~~through~~throughout fiscal year ~~2018.~~2019.

Our available cash, cash equivalents and short-term investments totaled ~~$46.0~~$26.6 million at December 31, ~~2017,~~2018, including ~~$8.4~~$7.6 million of cash and cash equivalents held by our foreign subsidiaries and branch offices. ~~In light of the~~The Tax Cuts and Jobs Act signed into law on December 22, 2017, ~~which~~creates new taxes on certain foreign earnings and also requires companies to pay a one-time transition tax on undistributed earnings of their foreign

subsidiaries which were previously tax deferred. We have determined that we are ~~currently re-evaluating our prior intent~~not required to ~~permanently reinvest these~~pay any transition tax on the undistributed ~~earnings. If we were to repatriate the cash held by~~earnings of our foreign subsidiaries since we ~~would be required to accrue and pay taxes~~had no accumulated earnings on ~~any amounts repatriated.~~a consolidated basis.

Our credit agreement allows for borrowings of up to $30.0 million with such amounts available for borrowing determined by a borrowing base. In ~~October 2017,~~November 2018, we extended the maturity of the credit agreement from ~~May 2018~~April 2019 to April ~~2019.~~2020. At December 31, ~~2017,~~2018, we had no outstanding borrowings under the credit agreement and, after consideration of $0.3 million of outstanding letters of credit, our borrowing availability under the credit facility was ~~$26.3~~$20.9 million. At December 31, ~~2017,~~2018, we were in compliance with all covenants under the credit agreement. We currently do not anticipate the need to borrow under the credit agreement; however, we can make no assurance that we will not do so.

In fiscal years 2016, 2017 and ~~2017,~~2018, we received income tax refunds of $18.3 million, $12.8 million and ~~$12.8~~$0.7 million, respectively, from the U.S. Department of Treasury. These refunds were a result of the significant tax losses we experienced in fiscal ~~year~~years 2016 and 2015, which we elected to carryback and recoup taxes previously paid. For U.S. income tax purposes, we are now in a loss carryforward position in regards to our tax losses ~~for~~occurring in fiscal year 2017 and beyond. As a result, weour current tax losses will not ~~receive~~result in any additional U.S. federal income tax ~~refunds as a result of our current tax losses.~~refunds. The tax refunds we received in fiscal years 2016 and 2017 ~~have been~~were significant contributors to our overall liquidity. In the absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future operating results, including liquidating short-term investments, executed rental contracts, available borrowings under our credit agreement through its expiration in April ~~2019,~~2020 leveraging or sale of real estate assets, sales of rental assets and other liquidity sources which may be available to us. However, currently we believe that our cash and short-term investment balances will be sufficient to finance ~~our~~any future operating losses and planned capital expenditures through ~~December 2018.~~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.

The Company established an initial earn-out liability of $4.3 million in connection with its November 2018 acquisition of all the intellectual property and related assets of the OptoSeis fiber optic sensing technology. Contingent cash payments, if any, will be derived from eligible revenue generated during a five-and-a-half year earn-out period subsequent to the closing of the acquisition from products and services utilizing the OptoSeis fiber optic technology. The maximum amount of contingent payments is $23.2 million over the earn-out period.

The Company established an estimated initial contingent earn-out liability of $7.7 million in connection with its July 2018 acquisition of Quantum. Contingent payments, if any, may be paid in the form of cash or the Company’s company stock and will be derived from eligible revenue generated during a four-year earn-out period subsequent to the closing of the acquisition. The maximum amount of contingent payments is $23.5 million over the earn-out period.

During the three months ended December 31, ~~2017,~~2018, there has been no material change to our critical accounting policies discussed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017~~2018 other than the adoption of Accounting Standards Update ~~2016-09, “Improvements to Employee Share-Based Payment Accounting” and 2016-16, “Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory”.~~2014-09, Revenue from Contracts with Customers, Topic 606.

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

We have market risk relative to our short-term investments, foreign currency rates and interest rates. We do not engage in commodity or commodity derivative instrument purchase or sales transactions. Because of the inherent unpredictability of foreign currency rates and interest rates, as well as other factors, actual results could differ materially from those projected in this Item.

One of our wholly-owned subsidiaries, Geospace Technologies Eurasia, is located in the Russian Federation. In addition, we operate a branch office, Geospace Technologies Sucursal Sudamericana, in Colombia. Our financial results for these entities may be affected by factors such as changes in foreign currency exchange rates, weak economic conditions or changes in the political climate. Our consolidated balance sheet at December 31, ~~2017~~2018 reflected approximately USD ~~$6.0~~$4.9 million and USD $0.2 million of foreign currency denominated net working capital related to our Russian and Colombian operations, respectively. Both of these entities receive a portion of their revenue and pay a majority of their expenses primarily in their local currency. To the extent that transactions of these entities are settled in their local currency, a devaluation of these currencies versus the U.S. dollar could reduce any contribution from these entities to our consolidated results of operations and total comprehensive income as reported in U.S. dollars. We do not hedge the market risk with respect to our operations in these countries; therefore, such risk is a general and unpredictable risk of future disruptions in the valuation of such currencies versus U.S. dollars to the extent such disruptions result in any reduced valuation of these foreign entities’ net working capital or future contributions to our consolidated results of operations. At December 31, ~~2017,~~2018, the foreign exchange rate for $1.00 (one U.S. dollar) was equal to approximately ~~57.61~~69.46 Russian Rubles and ~~2,973~~3,245 Colombian ~~Pesos, respectively.~~Pesos. If the value of the U.S. dollar were to strengthen by ten percent against these foreign currencies, our working capital in the Russian Federation and in Colombia would decline by USD ~~$0.6~~$0.5 million and USD ~~$20,000,~~$16,000, respectively.

From time to time, we may provide access to capital to our foreign subsidiaries through U.S. dollar denominated interest bearing promissory notes. Such funds are generally used by our foreign subsidiaries to purchase capital assets and for general working capital needs. In addition, weWe sell products to our foreign subsidiaries on trade credit terms in both U.S. dollars and in the subsidiary’s local currency. At December 31, ~~2017,~~2018, we had outstanding Canadian-dollar denominated intercompany accounts receivable of ~~CAN $33.6~~CAD $19.6 million, which we consider to be of a short-term nature. The appreciation or devaluation of the Canadian dollar against the U.S. dollar will result in a gain or loss, respectively, to our consolidated statement of operations. At December 31, ~~2017,~~2018, the foreign exchange rate for USD $1.00 was equal to approximately ~~CAN $1.26.~~CAD $1.36. On December ~~29, 2017~~28, 2018 we entered into a ~~CAN $32.0~~CAD $15.0 million 90-day hedge ~~agreement effective January 2, 2018~~contract with a United States bank to hedge a portion of our Canadian dollar foreign exchange rate exposure, resulting in an under-hedged position of approximately ~~CAN $1.6~~CAD $4.6 million. At December 31, ~~2017,~~2018, if the U.S. dollar exchange rate were to strengthen by ten percent against the Canadian dollar, we would recognize a foreign exchange loss of USD ~~$0.1~~$0.3 million in our consolidated financial statements.

Our credit agreement contains a floating interest rate which subjects us to the risk of increased interest costs associated with any upward movements in bank market interest rates. Under our credit agreement our borrowing interest rate is the Wall Street Journal prime rate, which was ~~4.50%~~5.5% at December 31, ~~2017.~~2018. As of December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, there were no borrowings outstanding under our credit agreement.

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

In connection with the preparation of this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including the CEO and CFO, as of December 31, ~~2017,~~2018, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, ~~2017.~~2018.

~~We previously reported a material weakness~~There were no changes in our internal control over financial ~~reporting.~~ Asreporting (as defined in Rule 13a-15(f) and 15d-15(f) of September 30, 2017, we did not maintain effective controls concerning our classification of current assets with respect to inventories. We determined that a portion of our inventories should have been classified as noncurrent assets, as all inventories were not reasonably expected to be realized in cash, sold or consumedthe Exchange Act) during ~~our next operating cycle.~~

~~This error was subsequently identified and corrected, and resulted in a restatement to~~ the ~~consolidated balance sheets as of September 30, 2016 and 2015 and as of~~fiscal quarter ended December 31, 2016, March 31, 2017 and June 30, 2017, which was included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. The error had no impact upon previously reported total assets, total liabilities, revenues, net loss, net loss per share,2018 that have materially affected, or ~~cash flows.~~

~~To remediate the material weakness described above we have designed and implemented a quarterly control~~are reasonably likely to determine the value of inventories expected to be realized in cash, sold or consumed during the next operating cycle. This control, which encompasses a review by senior management, utilizes a combination of forecasts and historical trends to determine our future expected inventory utilization.

~~We believe that this measure remediates the material weakness identified and strengthens~~materially affect, our internal ~~controls~~control over financial ~~reporting.~~

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

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

Texas		76-0447780
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

Large accelerated filer	☐		Accelerated filer	☒

Non-accelerated filer	☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐☒

			Emerging growth company	☐

		Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures about Market Risk		2324

Item 4. Controls and Procedures		24

PART II. OTHER INFORMATION

Item 6. Exhibits		2526

Balance at October 1, 2017	$	508
Accruals for warranties issued during the period		197
Settlements made (in cash or in kind) during the period		(150	)
Balance at December 31, 2017	$	555

For fiscal years ending September 30,
2019	$	1,376
2020		1,835
2021		1,835
2022		1,727
2023		751
Thereafter		4,639
	$	12,163

	As of December 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable (Level 2)		Significant Unobservable (Level 3)		Totals
Short-term investments
Corporate bonds	$	23,711	$	—	$	—	$	23,711
Government bonds		12,750		—		—		12,750
Total	$	36,461	$	—	$	—	$	36,461

	As of September 30, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable (Level 2)		Significant Unobservable (Level 3)		Totals
Short-term investments
Corporate bonds	$	22,798	$	—	$	—	$	22,798
Government bonds		13,339		—		—	$	13,339
Total	$	36,137	$	—	$	—	$	36,137

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

3.2		Amended and Restated Bylaws of Geospace Technologies Corporation (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed ~~April 17, 2015)~~September 22, 2017).

10.1		~~Fourth~~Fifth Amendment to Loan Agreement dated ~~October 25, 2017~~November 8, 2018 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed ~~October 27, 2017)~~November 13, 2018).

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

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive data file.


		GEOSPACE TECHNOLOGIES CORPORATION


Date:	February ~~7, 2018~~6, 2019		By:	/s/ Walter R. Wheeler
				Walter R. Wheeler, President
				and Chief Executive Officer
				(duly authorized officer)


Date:	February ~~7, 2018~~6, 2019	By:	/s/ Thomas T. McEntire
			Thomas T. McEntire, Vice President,
			~~and~~ Chief Financial Officer and Secretary
			(principal financial officer)