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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

There were 13,135,416 shares of the Registrant’s Common Stock outstanding as of the close of business on April 30, 2014.

	March 31, 2014			September 30, 2013
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	44,340		$	2,726
Trade accounts receivable, net		50,939			49,756
Current portion of notes receivable, net		2,808			5,290
Inventories, net		144,419			149,548
Costs and estimated earnings in excess of billings		—			12,400
Deferred income tax assets		6,885			7,056
Prepaid expenses and other current assets		6,503			6,327
Total current assets		255,894			233,103
Rental equipment, net		53,122			36,908
Property, plant and equipment, net		49,865			48,480
Goodwill		1,843			1,843
Non-current deferred income tax assets		214			594
Prepaid income taxes		7,151			6,201
Other assets		105			96
Total assets	$	368,194		$	327,225
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable trade	$	14,231		$	16,737
Accrued expenses and other current liabilities		15,190			16,638
Deferred revenue		6,742			1,093
Deferred income tax liabilities		49			12
Income taxes payable		4,271			159
Total current liabilities		40,483			34,639
Long-term debt		—			931
Non-current deferred income tax liabilities		1,891			2,597
Total liabilities		42,374			38,167
Commitments and contingencies
Stockholders’ equity:
Preferred stock		—			—
Common stock		131			129
Additional paid-in capital		68,792			65,985
Retained earnings		259,000			224,008
Accumulated other comprehensive loss		(2,103	)		(1,064	)
Total stockholders’ equity		325,820			289,058
Total liabilities and stockholders’ equity	$	368,194		$	327,225

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

	Three Months Ended						Six Months Ended
	March 31, 2014			March 31, 2013			March 31, 2014			March 31, 2013
Sales	$	68,551		$	76,420		$	169,899		$	154,171
Cost of sales		40,648			40,859			94,904			78,065
Gross profit		27,903			35,561			74,995			76,106
Operating expenses:
Selling, general and administrative		6,554			5,899			13,256			11,262
Research and development		5,097			3,768			9,472			7,133
Bad debt expense		296			338			644			607
Total operating expenses		11,947			10,005			23,372			19,002
Income from operations		15,956			25,556			51,623			57,104
Other income (expense):
Interest expense		(103	)		(48	)		(235	)		(130	)
Interest income		25			230			56			459
Foreign exchange gains (losses)		101			(714	)		80			(668	)
Other, net		(12	)		—			(38	)		(19	)
Total other income (expense), net		11			(532	)		(137	)		(358	)
Income before income taxes		15,967			25,024			51,486			56,746
Income tax expense		5,151			8,155			16,494			17,864
Net income	$	10,816		$	16,869		$	34,992		$	38,882
Basic earnings per share	$	.83		$	1.31		$	2.68		$	3.02
Diluted earnings per share	$	.82		$	1.30		$	2.66		$	3.01
Weighted average shares outstanding – Basic		12,950,416			12,882,396			12,948,788			12,854,858
Weighted average shares outstanding – Diluted		13,002,383			12,955,566			13,001,075			12,924,014

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

	Three Months Ended						Six Months Ended
	March 31, 2014			March 31, 2013			March 31, 2014			March 31, 2013
Net income	$	10,816		$	16,869		$	34,992		$	38,882
Other comprehensive income (loss):
Change in unrealized gain on available-for-sale securities (net of tax)		—			(11	)		—			(17	)
Foreign currency translations adjustments		(942	)		(147	)		(1,039	)		156
Other comprehensive income (loss)		(942	)		(158	)		(1,039	)		139
Total comprehensive income	$	9,874		$	16,711		$	33,953		$	39,021

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

	Six Months Ended March 31, 2014			Six Months Ended March 31, 2013
Cash flows from operating activities:
Net income	$	34,992		$	38,882
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax (benefit) expense		(676	)		1,084
Depreciation		8,662			5,857
Amortization		—			80
Accretion of discounts on short-term-investments		—			160
Stock-based compensation		1,935			347
Bad debt expense		644			607
Inventory obsolescence expense (recovery)		1,717			(186	)
Gross profit from the sale of used rental equipment		(5,466	)		(9,062	)
(Gain) loss on disposal of property, plant and equipment		(58	)		14
Realized gain on short-term investments		—			(6	)
Effects of changes in operating assets and liabilities:
Trade accounts and notes receivable		337			(21,188	)
Inventories		(3,987	)		(31,428	)
Costs and estimated earnings in excess of billings		12,400			(11,309	)
Other current assets		306			(4,710	)
Prepaid income taxes		(950	)		(2,034	)
Accounts payable		(2,496	)		1,735
Accrued expenses and other		(1,346	)		(2,350	)
Deferred revenue		5,672			(8,461	)
Income taxes payable		4,117			(587	)
Net cash provided by (used in) operating activities		55,803			(42,555	)
Cash flows from investing activities:
Purchase of property, plant and equipment		(4,379	)		(8,244	)
Investment in rental equipment		(18,309	)		(17,673	)
Proceeds from sale of used rental equipment		8,551			17,074
Purchases of short-term investments		—			(1,587	)
Proceeds from the sale of short-term investments		—			10,672
Net cash (used in) provided by investing activities		(14,137	)		242
Cash flows from financing activities:
Principal payments on debt arrangements		(931	)		—
Excess tax benefit from stock-based compensation		661			2,948
Proceeds from exercise of stock options		212			917
Net cash (used in) provided by financing activities		(58	)		3,865
Effect of exchange rate changes on cash		6			4
Increase (decrease) in cash and cash equivalents		41,614			(38,444	)
Cash and cash equivalents, beginning of period		2,726			50,752
Cash and cash equivalents, end of period	$	44,340		$	12,308

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, 2013 was derived from the Company’s audited consolidated financial statements at that date. The consolidated balance sheet at March 31, 2014 and the consolidated statements of operations and statements of comprehensive income for the three and six months ended March 31, 2014 and 2013, and the consolidated statements of cash flows for the six months ended March 31, 2014 and 2013 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 and six months ended March 31, 2014 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. 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 year ended September 30, 2013.

Certain amounts previously presented in the consolidated financial statements may have been reclassified to conform to the current year presentation. Such reclassifications, if any, had no effect on net income, 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 financial statements. The Company continually evaluates its estimates, including those related to bad debt reserves, inventory obsolescence reserves, percentage-of-completion revenue recognition, self-insurance reserves, product warranty reserves, long-lived assets, intangible 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 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 comprehensive income in stockholders’ equity. At September 30, 2013 and March 31, 2014, the Company did not hold any short-term investments.

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 the Company’s subsidiary in the Russian Federation uses an average cost method to value its inventories.

The Company primarily derives revenue from the sale of its manufactured products, including revenues 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. Except for revenues recognized using the percentage-of-completion method discussed below, the Company recognizes revenue from product sales, including the sale of used rental equipment, when (i) title passes to the customer, (ii) the customer assumes 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. 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 revenues 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. Revenues from engineering services are recognized as services are rendered over the duration of a project, or as billed on a per hour basis. Field service revenues are recognized when services are rendered and are generally priced on a per day rate.

The Company utilizes the percentage-of-completion method (the “POC Method”) to recognize revenues and costs on contracts having the following characteristics:

The POC Method requires the Company’s senior management to make estimates, at least quarterly, of the (i) total expected costs of the contract, (ii) manufacturing progress against the contract and (iii) the estimated cost to complete the contract. These estimates impact the amount of revenue and gross profit the Company recognizes for each reporting period. Significant estimates that may affect the future cost to complete a contract include the cost and availability of raw materials and component parts, engineering services, manufacturing equipment, labor, manufacturing capacity, factory productivity, contract penalties and disputes, product warranties and other contingent factors. Change orders are included in the total estimated contract revenue when it is probable that the change order will result in additional value that can be reliably estimated and realized. The Company defers recognition of the entire amount of revenue or portion thereof associated with unapproved change orders if there is substantial uncertainty as to amounts involved or ultimate realization. The cumulative impact of periodic revisions to the future cost to complete a contract will be reflected in the period in which these changes become known, including, to the extent required, the recognition of losses at the time such losses are known and estimable. Due to the various estimates inherent in the POC Method, actual final results at the conclusion of a contract could differ from management’s previous estimates.

The Company analyzes a variety of indicators to determine manufacturing progress, including actual costs incurred to date compared to total estimated costs and actual quantities produced to date compared to total contract quantities.

Cost of sales includes direct contract costs, such as materials and labor, and indirect costs that are attributable to a contract’s production activity. The timing of when the Company invoices its customer is dependent upon the completion of certain production milestones as defined in the contract. Cumulative contract costs and estimated earnings to date in excess of cumulative billings are reported as a current asset on the consolidated balance sheet as “costs and estimated earnings in excess of billings.” Cumulative billings in excess of cumulative costs and estimated earnings are included in accrued and other liabilities on the consolidated balance sheet. Any uncollected billed revenue, including contract retentions, is included in trade accounts receivable, net.

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):

At March 31, 2014, the Company’s Canadian subsidiary had $40.1 million of Canadian dollar denominated intercompany accounts payable owed to the Company’s U.S. subsidiaries. In order to mitigate its exposure to movements in foreign currency rates between the U.S. dollar and Canadian dollar, the Company routinely enters into foreign currency forward contracts to hedge a portion of its exposure to changes in the value of the Canadian dollar. At March 31, 2014, the Company was a party to a $32.0 million foreign currency forward contract. This contract reduces the impact on cash flows from movements in the Canadian dollar/U.S. dollar currency exchange rate. At March 31, 2014, the Company had accrued unrealized foreign exchange losses of $0.3 million under this contract.

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

The following table summarizes the impact of the Company’s derivatives on the consolidated statements of operations for the three and six month periods ended March 31, 2014 and 2013 (in thousands):

At March 31, 2014, the Company’s financial instruments included cash and cash equivalents, trade and other receivables, other current assets, accounts payable, other current liabilities and long-term debt. Due to the short-term maturities of cash and cash equivalents, trade and other receivables, other current assets, accounts payable, other current liabilities and long-term debt, the carrying amounts approximate fair value on the respective balance sheet dates.

The fair value measurement of the Company’s foreign currency forward contract was determined using the following inputs:

On November 21, 2013, the Company issued 184,000 shares of restricted stock under the 1997 Key Employee Stock Option Plan (as amended, the “1997 Plan”). The fair value of the Company’s common stock on the date of grant was $98.68 per share, and the unrecognized compensation cost on the date of grant related to these awards, net of estimated forfeitures, was $17.3 million and will be charged to expense over four years as the restrictions lapse. Under the terms of the 1997 Plan, recipients of restricted stock awards are entitled to vote such shares and are entitled to dividends if paid.

On February 6, 2014, the Company issued 3,000 shares of restricted stock under the 2014 Long Term Incentive Plan (as amended, the “2014 Plan”). The fair value of the Company’s common stock on the date of grant was $69.96 per share, and the unrecognized compensation cost on the date of grant related to these awards, net of estimated forfeitures, was $0.2 million and will be charged to expense over four years as the restrictions lapse. Under the terms of the 2014 Plan, recipients of restricted stock awards are entitled to vote such shares and are entitled to dividends if paid.

During the six months ended March 31, 2014, 4,000 shares of restricted stock were forfeited.

Compensation expense for restricted stock awards are 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. As of March 31, 2014, we had unrecognized compensation expense of approximately $15.4 million related to restricted stock awards.

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

During the six months ended March 31, 2014 and 2013 the Company made non-cash transfers of $6.9 million and $4.1 million, respectively, of inventories to its rental equipment fleet.

The Company utilizes the POC Method to recognize revenues under a contract with a customer. In the consolidated balance sheets “costs and estimated earnings in excess of billings” are reported as a current asset and “billings in excess of costs and estimated earnings” are included in accrued and other liabilities as follows (in thousands):

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 review of its balances. Accounts receivable balances are charged off against the allowance whenever it is probable that the receivable will not be recoverable. The Company does not have any off-balance-sheet credit exposure related to its customers.

On March 2, 2011, the Company entered into a credit agreement with a bank. On September 27, 2013, the Company amended the credit agreement and increased its borrowing availability to $50.0 million (as amended, the “Credit Agreement”). The Company’s borrowings are principally secured by its accounts receivable, inventories and equipment. In addition, certain domestic subsidiaries of the Company have guaranteed the obligations of the Company under the Credit Agreement and such subsidiaries have secured the obligations by the pledge of certain of the assets of such subsidiaries. The Credit Agreement expires on April 27, 2016 and all borrowed funds are due and payable at that time. The Company is required to make quarterly interest payments on borrowed funds. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios, 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 a LIBOR based rate with a margin spread of 250 to 325 basis points depending upon the maintenance of certain ratios. At March 31, 2014, the Company was in compliance with all covenants. At March 31, 2014, there were no borrowings outstanding under the Credit Agreement. At September 30, 2013 and March 31, 2014, there were standby letters of credit outstanding in the amount of $42,000 and zero, respectively. Additional borrowings available under the Credit Agreement at March 31, 2014 were $50.0 million.

In connection with the issuances of restricted stock during fiscal year 2014, the Company applied the two-class method in calculating per share data for the three and six months ended March 31, 2014. The following table summarizes the calculation of net earnings and weighted average common shares and common equivalent shares outstanding for purposes of the computation of earnings per share (in thousands, except share and per share data):

	Three Months Ended					Six Months Ended
	March 31, 2014			March 31, 2013		March 31, 2014			March 31, 2013
Net income	$	10,816		$	16,869	$	34,992		$	38,882
Less: Income allocable to unvested restricted stock		(109	)		—		(353	)		—
Income available to common shareholders		10,707		$	16,869		34,639		$	38,882
Reallocation of participating earnings		—			—		1			—
Diluted income attributable to common shareholders	$	10,707		$	16,869	$	34,640		$	38,882
Weighted average number of common share equivalents:
Common shares used in basic earnings per share		12,950,416			12,882,396		12,948,788			12,854,858
Common share equivalents outstanding related to stock options		51,967			73,170		52,287			69,156
Total weighted average common shares and common share equivalents used in diluted earnings per share		13,002,383			12,955,566		13,001,075			12,924,014
Basic earnings per common share	$	.83		$	1.31	$	2.68		$	3.02
Diluted earnings per common share	$	.82		$	1.30	$	2.66		$	3.01

There were no stock options excluded from the computation of weighted average shares outstanding due to anti-dilution.

The Company’s Seismic product lines include land and marine wireless data acquisition systems, seabed reservoir characterization products and services, geophones and geophone strings, hydrophones, leader wire, connectors, telemetry cables, marine streamer retrieval and steering devices and various other products. The Non-Seismic product lines include thermal imaging products and industrial products. The Company typically has a minor amount of Seismic product sales to its Non-Seismic customers.

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

	Three Months Ended						Six Months Ended
	March 31, 2014			March 31, 2013			March 31, 2014			March 31, 2013
Net sales:
Seismic	$	63,703		$	69,758		$	158,930		$	141,842
Non-Seismic		4,795			6,444			10,707			11,911
Corporate		53			218			262			418
Total	$	68,551		$	76,420		$	169,899		$	154,171
Income (loss) from operations:
Seismic	$	19,473		$	27,842		$	58,016		$	61,803
Non-Seismic		263			892			1,037			1,357
Corporate		(3,780	)		(3,178	)		(7,430	)		(6,056	)
Total	$	15,956		$	25,556		$	51,623		$	57,104

The United States statutory tax rate for the three and six months ended March 31, 2014 and 2013 was 35%. The Company’s effective tax rates for the three months ended March 31, 2014 and 2013 were 32.3% and 32.6%, respectively. The Company’s effective tax rates for the six months ended March 31, 2014 and 2013 were 32.0% and 31.5%, respectively. Compared to the United States statutory rate of 35%, the Company’s lower effective tax rates for each of the periods ended March 31, 2014 and 2013 primarily resulted from a manufacturers’/producers’ deduction available to U.S. manufacturers.

From time to time the Company is the subject of audits by various tax authorities that can result in claims and assessments and additional tax payments, penalties and interest. The United States Internal Revenue Service (“IRS”) is in the process of conducting an audit of the Company’s United States Federal income tax returns for fiscal year 2012. Management believes that the outcome of such audit will not have a material effect on the Company’s financial position, results of operations or cash flows.

Item 2. 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.

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. These forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “evaluating” or similar words. Statements that contain these words should be read carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other forward-looking information. Examples of forward-looking statements include, among others, statements that we make regarding our expected operating results, the adoption 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 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, 2013, as well as other cautionary language in such Annual Report and Quarterly 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. 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 is a Delaware corporation incorporated 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 acquisition and processing of seismic data as well as in the characterization and monitoring of producing oil and gas reservoirs. Demand for our products 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, 2013.

We have engaged in the seismic instrument and equipment business since 1980 and market our products primarily to the oil and gas industry. We also design, manufacture and distribute non-seismic equipment including thermal imaging equipment and industrial products. We report and categorize our customers and products into two different segments: Seismic and Non-Seismic.

We file annual, quarterly and special 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 business segment accounts for the majority of our sales. 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 seismic product lines currently consist of land and marine wireless data acquisition systems, seabed reservoir characterization products and services, geophones and geophone strings, 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. We believe that our seismic 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, 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 cables known as “streamers” containing hydrophones which 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 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. Sales result primarily from seismic contractors purchasing our products as components of new seismic data acquisition systems, including our wireless 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 marine 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 streamer steering devices, or “birds,” which are finlike 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.

Our wholly-owned subsidiary in the Russian Federation manufactures international standard geophones, leader wire, telemetry cables and related seismic products for customers in the Russian Federation and other international seismic marketplaces. We have a branch office in Colombia that primarily rents seismic equipment to our customers in the South American market. Operating in foreign locations involves certain risks as discussed under the heading “Risk Factors – Our Foreign Subsidiaries and Foreign Marketing Efforts Face Additional Risks and Difficulties” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013.

We have developed a land-based wireless (or nodal) seismic data acquisition system called the GSX. Each GSX station operates independently and therefore can be deployed in virtually unlimited channel configurations. Rather than utilizing interconnecting cables as required by most traditional land data acquisition systems, each GSX station operates as an independent data collection system. 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 March 31, 2014, we have sold 316,000 GSX channels and we have 133,000 GSX channels in our rental fleet. If demand for GSX rental channels increases, we are prepared to further increase the size of our GSX rental fleet during the remainder of fiscal year 2014.

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 3,000 meters.

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 production. In this regard, we have developed permanently installed high-definition reservoir characterization products for ocean-bottom applications in producing oil and gas fields. We also produce a retrievable version of this 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 characterization products also include the HDSeis™ product line and a suite of borehole and reservoir characterization 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 imaging and monitoring. Modular architecture allows virtually unlimited channel expansion. In addition, multi-system synchronization features make the HDSeis™ system well suited for multi-well or multi-site acquisition, simultaneous surface and downhole acquisition and continuous reservoir monitoring projects.

Reservoir characterization 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 characterization 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 characterization and 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.

In regards to recent customer orders for our permanent reservoir monitoring systems, in February 2012 we received an $18.0 million order from Shell Brasil Petróleo Ltda to instrument a reservoir off the coast of Brazil, and in November 2012 we received order from Statoil for $169.8 million, including amendments, to instrument two reservoirs in the North Sea. During the fiscal year ended September 30, 2013, we recognized revenue of $18.0 million from delivery of the Shell order, and we recognized revenues of $109.6 million from the Statoil order using the percentage of completion revenue recognition method. We recognized $55.0 million of revenues from the Statoil order during the six months ended March 31, 2014, and we expect to recognize the remaining $5.2 million during the remainder of fiscal year 2014. During the six months ended March 31, 2014, we also recognized revenues of $12.4 million from other reservoir product customer orders.

Our non-seismic businesses leverage upon our existing manufacturing facilities and engineering capabilities. We have found that many of our 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 and for mine safety applications.

Our non-seismic products include thermal imaging products targeted at the commercial graphics industry as well as various industrial products. Our industrial products include (i) sensors 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, and (iii) water meter cables and other specialty cable and connector products.

We report and evaluate financial information for two segments: Seismic and Non-Seismic. Summary financial data by business segment follows (in thousands):

	Three Months Ended						Six Months Ended
	March 31, 2014			March 31, 2013			March 31, 2014			March 31, 2013
Seismic
Traditional exploration product revenues	$	13,060		$	13,906		$	33,522		$	27,910
Wireless exploration product revenues		12,463			15,660			57,971			62,578
Reservoir product revenues		38,180			40,192			67,437			51,354
Total seismic sales		63,703			69,758			158,930			141,842
Operating income		19,473			27,842			58,016			61,803
Non-Seismic
Net sales		4,795			6,444			10,707			11,911
Operating income		263			892			1,037			1,357
Corporate
Net sales		53			218			262			418
Operating loss		(3,780	)		(3,178	)		(7,430	)		(6,056	)
Consolidated Totals
Net sales		68,551			76,420			169,899			154,171
Operating income		15,956			25,556			51,623			57,104

Three and six months ended March 31, 2014 compared to three and six months ended March 31, 2013

Consolidated sales for the three months ended March 31, 2014 decreased by $7.9 million, or 10.3%, from the corresponding period of the prior fiscal year. The decrease primarily reflects lower product demand in each of our product segments. Consolidated sales for the six months ended March 31, 2014 increased by $15.7 million, or 10.2%, from the corresponding period of the prior fiscal year. The increase was primarily attributable to an increase in revenue from the Statoil contract.

Consolidated gross profit for the three months ended March 31, 2014 decreased by $7.7 million, or 21.5%, from the corresponding period of the prior fiscal year. The decrease in gross profit for the three months ended March 31, 2014 resulted from production cost overruns, manufacturing inefficiencies, unfavorable wireless product mix, increased inventory obsolescence expense and lower product sales. Consolidated gross profit for the six months ended March 31, 2014 decreased by $1.1 million, or 1.5%, from the corresponding period of the prior fiscal year. In addition to the matters previously discussed, the decrease in gross profit for the six months ended March 31, 2014 resulted from price discounting of large wireless orders sold in the first quarter.

Consolidated operating expenses for the three months ended March 31, 2014 increased by $1.9 million, or 19.4%, from the corresponding period of the prior fiscal year. Consolidated operating expenses for the six months ended March 31, 2014 increased by $4.4 million, or 23.0%, from the corresponding period of the prior fiscal year. The increase in operating expenses for the three and six months ended March 31, 2014 reflects higher costs for personnel, legal services, research and development investments, stock based and incentive compensation and other general increases associated with business expansion.

Other income for the three months ended March 31, 2014 increased $0.5 million from the corresponding period of the prior fiscal year. Other expense for the six months ended March 31, 2014 decreased $0.2 million from the corresponding period of the prior fiscal year. The improvement in both periods is primarily attributable to foreign exchange gains and was partially offset by lower levels of interest income.

The United States statutory tax rate for the three and six months ended March 31, 2014 and 2013 was 35%. Our effective tax rates for the three months ended March 31, 2014 and 2013 were 32.3% and 32.6%, respectively. Our effective tax rates for the six months ended March 31, 2014 and 2013 were 32.0% and 31.5%, respectively. Compared to the United States statutory rate of 35%, our lower effective tax rates for each of the periods ended March 31, 2014 and 2013 primarily resulted from a manufacturers’/producers’ deduction available to U.S. manufacturers.

Sales of our seismic products for the three months ended March 31, 2014 decreased by $6.1 million, or 8.7%, from the corresponding period of the prior fiscal year. Sales of our seismic products for the six months ended March 31, 2014 increased by $17.1 million, or 12.0%, from the corresponding period of the prior fiscal year. The components of this increase include the following:

The rate of customer orders for our seismic products, especially large orders for our GSX and OBX wireless systems and subsea permanent reservoir monitoring systems, generally occur irregularly making it difficult for us to predict our sales and production levels each quarter. Furthermore, product shipping dates are generally determined by our customers and are not at our discretion. As a result, these factors have caused past sales of our seismic products to be unpredictable, or “lumpy,” and we expect this trend to continue into the future.

Our operating income associated with sales of our seismic products for the three months ended March 31, 2014 decreased by $8.4 million, or 30.1%, from the corresponding period of the prior fiscal year. Our operating income associated with sales of our seismic products for the six months ended March 31, 2014 decreased by $3.8 million, or 6.1%, from the corresponding period of the prior fiscal year. For each of the periods ended March 31, 2014, our operating income declined due to lower gross profits and increased operating expenses, the reasons for which are cited above.

Sales of our non-seismic products for the three months ended March 31, 2014 decreased by $1.6 million, or 25.6%, from the corresponding period of the prior fiscal year. Sales of our non-seismic products for the six months ended March 31, 2014 decreased

by $1.2 million, or 10.1%, from the corresponding period of the prior fiscal year. For both periods, the decrease is primarily due to lower sales of our offshore cable products due to constrained manufacturing capacity caused by the Statoil order.

Our operating income associated with sales of our non-seismic products for the three months ended March 31, 2014 decreased $0.6 million, or 70.5%, from the corresponding period of the prior fiscal year. Our operating income associated with sales of our non-seismic products for the six months ended March 31, 2014 decreased $0.3 million, or 23.6%, from the corresponding period of the prior fiscal year. For both periods, the decrease in operating income resulted from lower sales and cost overruns for our offshore cable products.

At March 31, 2014, we had approximately $44.3 million in cash and cash equivalents. For the six months ended March 31, 2014, we generated approximately $55.8 million of cash from operating activities. The primary source of cash generated from our operating activities resulted from our net income of $35.0 million. Additional sources of cash included net non-cash charges of $12.3 million from deferred income taxes, depreciation, amortization, stock-based compensation, inventory obsolescence and bad debts. Other sources of cash and changes in working capital included (i) a $12.4 million decrease in costs and estimated earnings in excess of billings as billings to Statoil are now in excess of costs and estimated earnings under the contract, (ii) a $4.1 million increase in income tax payable resulting from the timing of our tax payments, (iii) a $5.7 million increase in deferred revenue primarily due to the collection of advance payments from customers, (iv) a $0.3 million decrease in prepaid expenses and other current assets, and (v) a $0.3 million decrease in trade accounts and notes receivable primarily due to the timing of cash collections. These sources of cash were offset by (i) a $4.0 million increase in inventories (net of non-cash transfers to the rental equipment fleet) due to production of marine and land wireless products in anticipation of future orders, (ii) a $5.5 million adjustment to transfer gross profits from rental equipment sales to investing activities since such transactions involve the sale of long-lived assets, (iii) a $2.5 million decrease in accounts payable due to the timing of payments to our vendors, (iv) a $1.0 million increase in prepaid income taxes related to intercompany shipments of inventory, and (v) a $1.3 million decrease in accrued expenses and other primarily from the payment of fiscal year 2013 bonuses.

For the six months ended March 31, 2014, we used approximately $14.1 million of cash in investing activities. The primary use of cash was for capital expenditures of $22.7 million, including $18.3 million to expand our rental equipment fleet and $4.4 million for property and equipment. These uses of cash were partially offset by $8.6 million of proceeds from the sale of used rental equipment. If customer demand exists, we estimate that our capital expenditures for rental equipment in fiscal year 2014 could be approximately $30 million or more, excluding non-cash transfers from our inventory account. In addition, we estimate that other capital expenditures for property and equipment could be approximately $30 million, including approximately $13 million for the in-process construction expenditures relating to the expansion of our Houston manufacturing and engineering facilities. We expect these capital expenditures will be financed from our cash on hand, internal cash flow, rental equipment sales proceeds and/or from borrowings under our Credit Agreement.

For the six months ended March 31, 2014, we used approximately $0.1 million of cash in financing activities resulting primarily from the payment of $0.9 million outstanding under the credit agreement. This payment was partially offset by cash proceeds of $0.8 million received from the exercise of stock options and the associated tax benefit related to such exercised stock options.

On March 2, 2011, we entered into a credit agreement with a bank. On September 27, 2013, we amended the credit agreement and increased the borrowing availability to $50.0 million (as amended, the “Credit Agreement”). Our borrowings are principally secured by our accounts receivable, inventories and equipment. In addition, certain of our domestic subsidiaries have guaranteed our obligations under the Credit Agreement and such subsidiaries have secured the obligations by the pledge of certain of the assets of such subsidiaries. The Credit Agreement expires on April 27, 2016 and all borrowed funds are due and payable at that time. We are required to make quarterly interest payments on borrowed funds. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios, restricts us and our 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 a LIBOR based rate with a margin spread of 250 to 325 basis points depending upon the maintenance of certain ratios. At March 31, 2014, we were in compliance with all covenants. At March 31, 2014, there were no borrowings outstanding under the Credit Agreement. There were standby letters of credit outstanding in the amount of $42,000 and additional borrowings available were $50.0 million. Please see “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 for more information about the restrictive covenants imposed on us by the Credit Agreement.

Critical Accounting Policies are included in Financial Note 1, “Significant Accounting Policies,” in the Financial Notes in Item 1 of Part I of this Quarterly Report on Form 10-Q.

We have market risk relative to sensitive instruments entered into for trading purposes and have only very limited risk as to arrangements entered into other than for trading purposes. 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, another of our wholly-owned subsidiaries, Geospace Technologies Sucursal Sudamericana, is located 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 March 31, 2014 reflected approximately $11.2 million and $1.1 million of net working capital related to our Russian and Colombian operations, respectively. Both of these entities receive a portion of their revenues 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 March 31, 2014, the foreign exchange rate for $1.00 (one U.S. dollar) was equal to 36.0 Russian Rubles and 1,967 Colombian Pesos, respectively. If the value of the U.S. dollar were to decline by ten percent against these foreign currencies, our working capital in the Russian Federation and Colombia could decline by $1.1 million and $0.1 million, respectively.

From time to time, we 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, we sell products to our foreign subsidiaries on trade credit terms in both U.S. dollars and in the subsidiary’s local currency. Because we have intercompany debts denominated in foreign currencies, any appreciation or devaluation of such foreign currencies against the U.S. dollar will result in a gain or loss, respectively, to our consolidated statement of operations. At March 31, 2014, we had outstanding intercompany accounts receivable of $40.1 million from our Canadian subsidiary which are denominated in Canadian dollars. We entered into an agreement with a United States bank to hedge $32.0 million of this foreign exchange exposure, resulting in a net Canadian dollar denominated intercompany accounts receivable exposure to the U.S. dollar of $8.1 million at March 31, 2014. At March 31, 2014, the foreign exchange rate for $1.00 (one U.S. dollar) was equal to 0.90 Canadian dollars. 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 $0.8 million in our consolidated financial statements.

The 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 the Credit Agreement our borrowing interest rate is a LIBOR based rate plus 250-325 basis points. The interest rate applicable to the Credit Agreement at March 31, 2014 was 2.7%. As of March 31, 2014, we had no funds borrowed under the 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 Securities and Exchange Commission’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 the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in the Company’s reports.

In connection with the preparation of this Quarterly Report on Form 10-Q, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the CEO and CFO, as of March 31, 2014 of the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2014.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Our foreign subsidiaries and foreign marketing efforts face additional risks and difficulties.

Based on customer billing data, sales to foreign customers outside the United States accounted for approximately 71% of our sales during fiscal year 2013; however, we believe the percentage of sales outside the United States is much higher as many of our products are first delivered to a domestic location and ultimately shipped to a foreign location. We again expect sales outside of the United States to represent a substantial portion of our sales for fiscal year 2014 and subsequent years.

Foreign sales are subject to special risks inherent in doing business outside of the United States, including the risk of war, terrorist activities, civil disturbances, embargo and government activities and foreign attitudes about conducting business activities with the United States, restrictions of the movement and exchange of funds, inhibitions of our ability to collect accounts receivable, international sanctions, expropriation and nationalization of our assets or those of our customers, currency fluctuations, devaluations and conversion restrictions, confiscatory taxation or other adverse tax policies and governmental actions that may result in the deprivation of our contractual rights, all of which may disrupt markets or our operations.

A portion of our manufacturing is conducted through our subsidiary Geospace Technologies Eurasia, which is based in the Russian Federation. Our business could be directly affected by political and economic conditions in the Russian Federation, including the current political instability involving the Russian Federation and Ukraine. We import a sizeable portion of our products from Geospace Technologies Eurasia for resale elsewhere in the world. For the six months ended March 31, 2014, such imports from our Russian subsidiary total $7.3 million. If imports of these products from the Russian Federation are restricted by government regulation, we may be forced to find other sources for these products at additional cost. Boycotts, protests, unfavorable regulations, governmental sanctions and other actions in the region could also adversely affect our ability to operate profitably. Delays in obtaining governmental approvals can affect our ability to timely deliver our products pursuant to contractual obligations, which could result in us being liable to our customers for damages. The risk of doing business in the Russian Federation and other economically or politically volatile areas could adversely affect our operations and earnings.

Foreign sales are also generally subject to the risk of compliance with additional laws, including tariff regulations and import and export restrictions. International sales of our products containing hydrophones require prior U.S. government approval in the form of an export license, which may be withheld by the U.S. government based upon factors which we cannot predict. The U.S. government is currently delaying the issuance of an export license on a $1.1 million order to a Russian customer. Further delays may result in the loss of such order.

We cannot assure you that we will not experience difficulties in connection with future foreign sales. Also due to foreign laws and restrictions, should we experience substantial growth in certain foreign markets, for example in the Russian Federation, we may not be able to transfer cash balances to the United States to assist with debt servicing or other obligations.

Our global operations expose us to risks associated with conducting business internationally, including failure to comply with U.S. laws which apply to international operations, such as the Foreign Corrupt Practices Act and US export control laws, as well as the laws of other countries.

We have offices in Colombia, Canada, China, the Russian Federation and the United Kingdom, in addition to our offices in the Unites States. We face several risks inherent in conducting business internationally, including compliance with international and U.S. laws and regulations that apply to our international operations. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export control laws, U.S. laws such as export control laws and the Foreign Corrupt Practices Act, and similar laws in other countries which also prohibit corrupt payments to governmental officials or certain payments or remunerations to customers. Many of our products are subject to U.S. export law restrictions that limit the destinations and types of customers to which our products may be sold, or require an export license in connection with sales outside the United States. Given the high level of complexity of these laws, there is a risk that some provisions may be inadvertently or intentionally breached, for example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements or otherwise. Also, we may be held liable for actions taken by our local dealers and partners. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results.

Our strategy of leasing seismic products exposes us to additional risks relating to equipment recovery, lease renewals, technological obsolescence and impairment of assets.

Our rental fleet of seismic equipment represents a significant portion of our assets and accounts for a growing portion of our revenue. Equipment leased by our customers is frequently located in foreign countries where retrieval of the equipment after the termination of the lease is difficult or impossible if the customer does not return the equipment. The costs associated with retrieving this equipment or the loss of equipment that is not retrieved could be significant and could adversely affect our operations and earnings.

The advancement of seismic technology having a significant competitive advantage over the equipment in our rental fleet could have an adverse effect on our ability to profitably lease and/or sell this equipment. Significant improvements in technology may also require us to recognize an asset impairment charge to our rental fleet investment and to invest significant sums to upgrade or replace our rental fleet with newer equipment demanded by our customers. In addition, rental contracts may not be renewed for equipment in our rental fleet, whether or not is has become obsolete.

Our equipment leasing business has high fixed costs, which primarily consist of depreciation expenses associated with our rental fleet. In periods of declining rental revenues, these fixed costs do not decline as rapidly as our revenues may. As a result, any significant decline in rental revenues caused by reduced demand could adversely affect our results of operations.

These factors could have a material adverse effect on our results of operations and earnings.

Cybersecurity breaches and other disruptions of our information technology network and systems could adversely affect our business.

We rely on information technology networks and systems, some of which are owned and operated by third parties, to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for a variety of functions, including worldwide financial reporting, inventory management, procurement, invoicing and email communications. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins, malware and similar disruptions. Malware, if surreptitiously installed on our systems and not timely detected and removed, could collect and disclose sensitive information relating to our customers, employees or others, exposing us to legal liability and causing us to suffer reputational damage. It could also lead to disruptions in critical systems or the corruption or destruction of critical data. If we or our vendors are unable to prevent such outages and breaches, these events could damage our reputation and lead to financial losses from remedial actions, loss of business or potential liability.

Because we have no plans to pay any dividends for the foreseeable future, investors must look solely to stock appreciation for a return on their investment in us.

We have not paid cash dividends on our common stock since our incorporation and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to support our operations and growth. Any payment of cash dividends in the future will be dependent on the amount of funds legally available, our financial condition, capital requirements and other factors that our Board of Directors may deem relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

We may experience fluctuations in quarterly results of operations, including fluctuations from delayed or cancelled orders.

Historically, the rate of new orders for our products has varied substantially from quarter to quarter. Moreover, we typically operate, and expect to continue to operate, on the basis of orders in-hand for our products before we commence substantial manufacturing “runs.” The short-term nature of our order backlog for most products generally does not allow us to predict with any accuracy demand for our products more than approximately three months in advance. Thus, our ability to replenish orders and the completion of orders, particularly large orders for deep water reservoir characterization projects, can significantly impact our operating results and cash flow for any quarter, and results of operations for any one quarter may not be indicative of results of operations for future quarters.

Additionally, customers can delay or even cancel orders before delivery. For larger orders, we attempt in many cases to negotiate for a non-refundable deposit depending on the size of the order and our relationship with the customer. However, such deposits may not fully compensate us for our inventory investment and forgone profits if the order is ultimately cancelled.

These periodic fluctuations in our operating results and the impact of any order delays/cancellations could adversely affect our stock price.

10.1 Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 12, 2014).

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.

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

Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting 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		14

Item 3. Quantitative and Qualitative Disclosures about Market Risk		20

Item 4. Controls and Procedures		20

PART II. OTHER INFORMATION

Item 1A. Risk Factors		22

Item 6. Exhibits		24

Balance at October 1, 2013	$	1,952
Accruals for warranties issued during the period		69
Settlements made (in cash or in kind) during the period		(593	)
Balance at March 31, 2014	$	1,428

Derivative Instrument		Location			March 31, 2014				September 30, 2013
Foreign Currency Exchange Contracts		Accrued Expenses			$	254			$	351

	Location of (Loss) Gain on Derivative Instrument	Three Months Ended March 31				Six Months Ended March 31
Derivative Instrument	Location of (Loss) Gain on Derivative Instrument	2014		2013		2014		2013
Foreign Currency Exchange Contracts	Other Income (Expense)	$	1,255	$ (58	)		$ 2,117		$ 155

	As of March 31, 2014 (in thousands)
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable (Level 2)			Significant Unobservable (Level 3)
Foreign currency forward contract	$	(254	)	$	—	$	(254	)	$	—
Total	$	(254	)	$	—	$	(254	)	$	—

	As of September 30, 2013 (in thousands)
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable (Level 2)			Significant Unobservable (Level 3)
Foreign currency forward contract	$	(351	)	$	—	$	(351	)	$	—
Total	$	(351	)	$	—	$	(351	)	$	—

	Foreign Currency Translation Adjustments
Balance at September 30, 2013	$	(1,064	)
Foreign currency translation adjustments during the period		(1,039	)
Balance at March 31, 2014	$	(2,103	)

	March 31, 2014			September 30, 2013
Finished goods	$	31,740		$	44,391
Work-in-process		24,085			25,156
Raw materials		96,363			86,933
Obsolescence reserve		(7,769	)		(6,932	)
	$	144,419		$	149,548

	March 31, 2014			September 30, 2013
Contract revenues earned to date	$	164,522		$	109,565
Less contract billings to date		(164,978	)		(97,165	)
Billings in excess of costs and estimated earnings	$	(456	)	$	—
Costs and estimated earnings in excess of billings	$	—		$	12,400

	March 31, 2014			September 30, 2013
Trade accounts receivable	$	51,981		$	50,132
Allowance for doubtful accounts		(1,042	)		(376	)
	$	50,939		$	49,756

	March 31, 2014		September 30, 2013
Notes receivable	$	2,808	$	5,290
Allowance for doubtful notes		—		—
		2,808		5,290
Less current portion		2,808		5,290
	$	—	$	—

	March 31, 2014		September 30, 2013
Working capital line of credit	$	—	$	931
Less current portion		—		—
	$	—	$	931

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

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

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

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

101		Interactive data file.

	GEOSPACE TECHNOLOGIES CORPORATION

Date: May 8, 2014	By:	/s/ Walter R. Wheeler
		Walter R. Wheeler, President
		and Chief Executive Officer
		(duly authorized officer)

Date: May 8, 2014	By:	/s/ Thomas T. McEntire
		Thomas T. McEntire, Vice President,
		Chief Financial Officer and Secretary
		(principal financial officer)