Overview

We operate in two segments, Equipment Leasing and Seamap. Our equipment leasing operations are conducted from our Huntsville, Texas headquarters and from our locations in Calgary, Canada; Brisbane, Australia; and Ufa, Russia. This includes the operations of our MCL, SAP and MSE subsidiaries. We acquired Seamap in July 2005. Seamap operates from its locations near Bristol, United Kingdom and in Singapore.

Management believes that the performance of our Equipment Leasing segment is indicated by revenues from equipment leasing and by the level of our investment in lease pool equipment. Management further believes that the performance of our Seamap segment is indicated by revenues from equipment sales and by gross profit from those sales. Management monitors EBITDA and Adjusted EBITDA, both as defined in the following table, as key indicators of our overall performance.

The following table presents certain operating information by operating segment:

                                                                   Years Ended January 31,
                                                               2009          2008          2007
                                                                        (In thousands)

Revenues:
Equipment Leasing                                            $ 49,903      $ 51,701      $ 37,683
Seamap                                                         17,346        25,383        12,274
Less inter-segment sales                                         (437 )        (663 )      (1,047 )

Total revenues                                                 66,812        76,421        48,910

Cost of sales:
Equipment Leasing                                              25,128        23,830        17,531
Seamap                                                          9,319        17,381         8,927
Less inter-segment costs                                         (279 )        (596 )        (631 )

Total direct costs                                             34,168        40,615        25,827

Gross profit
Equipment Leasing                                              24,775        27,871        20,152
Seamap                                                          8,027         8,002         3,347
Less Inter-segment amounts                                       (158 )         (67 )        (416 )

Total gross profit                                             32,644        35,806        23,083

Operating expenses:
General and administrative                                     17,497        17,425        14,970
Provision for doubtful accounts                                 2,897           460           251
Gain on insurance settlement                                     (580 )           -             -
Depreciation and amortization                                   1,352         1,476         1,307

Total operating expenses                                       21,166        19,361        16,528

Operating income                                             $ 11,478      $ 16,445      $  6,555

EBITDA(1)                                                    $ 28,336      $ 28,327      $ 15,540
Adjusted EBITDA(1)                                           $ 30,521      $ 30,580      $ 17,185
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Net income                                                   $  9,065      $ 11,439      $  9,285
Interest income, net                                             (350 )        (479 )        (836 )
Depreciation, amortization and impairment                      16,531        11,879         8,919
Provision for (benefit from) income taxes                       3,090         5,488        (1,828 )

EBITDA(1)                                                      28,336        28,327        15,540
Stock-based compensation                                        2,185         2,253         1,645

Adjusted EBITDA(1)                                           $ 30,521      $ 30,580      $ 17,185

(1) EBITDA is defined as net income (loss) before (a) interest income, net of interest expense, (b) provision for (or benefit from) income taxes and
(c) depreciation, amortization and impairment. Adjusted EBITDA excludes stock-based compensation. We consider EBITDA and Adjusted EBITDA to be important indicators for the performance of our business, but not measures of performance calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We have included these non-GAAP financial measures because management utilizes this information for assessing our performance and as indicators of our ability to make capital expenditures, service debt and finance working capital requirements.

The covenants of our revolving credit agreement require us to maintain a minimum level of EBITDA. Management believes that EBITDA and Adjusted EBITDA are measurements that are commonly used by analysts and some investors in evaluating the performance of companies such as us. In particular, we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations. EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP and should not be considered in isolation or as alternatives to cash flow from operating activities or as alternatives to net income as indicators of operating performance or any other measures of performance derived in accordance with GAAP. In evaluating our performance as measured by EBITDA, management recognizes and considers the limitations of this measurement. EBITDA and Adjusted EBITDA do not reflect our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures. Accordingly, EDITDA and Adjusted EBITDA are only two of the measurements that management utilizes. Other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do and EBITDA and Adjusted EBITDA may not be comparable with similarly titled measures reported by other companies.

In our Equipment Leasing segment, we lease seismic data acquisition equipment primarily to seismic data acquisition companies conducting land, transition zone and marine seismic surveys worldwide. We provide short-term leasing of seismic equipment to meet a customer's requirements. The majority of all active leases at January 31, 2009 were for a term of less than one year. Seismic equipment held for lease is carried at cost, net of accumulated depreciation. We acquire some marine lease pool equipment from our Seamap segment. These amounts are carried in our lease pool at the cost to our Seamap segment, less accumulated depreciation. From time to time, we sell lease pool equipment to our customers. These sales are usually transacted when we have equipment for which we do not have near term needs in our leasing business. We also occasionally sell new seismic equipment that we acquire from other manufacturers. In addition to leasing seismic equipment, SAP sells equipment, consumables, systems integration, engineering hardware and software maintenance support services to the seismic, hydrographic, oceanographic, environmental and defense industries throughout Southeast Asia and Australia.

Our Seamap segment designs, manufactures and sells a variety of products used primarily in marine seismic applications. Seamap's primary products include the
(i) GunLink seismic source acquisition and control systems, which provide marine operators more precise control of exploration tools, and (ii) the BuoyLink GPS tracking system used to provide precise positioning of seismic sources and streamers (marine recording channels that are towed behind a vessel).

Seismic equipment leasing is susceptible to weather patterns in certain geographic regions. In Canada and Russia, a significant percentage of the seismic survey activity normally occurs in the winter months, from December through March or April. During the months in which the weather is warmer, certain areas are not accessible to trucks, earth vibrators and other heavy equipment because of the unstable terrain. In other areas of the world, such as Southeast Asia and Pacific Rim, periods of heavy rain, known as monsoons, can impair seismic operations. We are able, in many cases, to transfer our equipment from one region to another in order to deal with seasonal demand and to increase our equipment utilization.

Business Outlook

Prior to the recent turmoil in global financial markets, the oil and gas exploration industry enjoyed generally sustained growth, fueled primarily by historically high commodity prices for oil and natural gas. We, along with much of the seismic industry, benefited from this growth. These higher prices resulted in increased activity within the oil and gas industry and, in turn, resulted in an increased demand for seismic services. In recent months, we have seen significant declines in the prices for oil and natural gas. This decline is generally believed to be the result of a slow-down in the global economy, which, in turn, has been impacted by unrest and uncertainty in global financial markets.

Our revenues are directly related to the level of worldwide oil and gas exploration activities and the profitability and cash flows of oil and gas companies and seismic contractors, which, in turn, are affected by expectations regarding the supply and demand for oil and natural gas, energy prices and finding and development

costs. Land seismic data acquisition activity levels are measured in terms of the number of active recording crews, known as the "crew count," and the number of recording channels deployed by those crews, known as "channel count." Because an accurate and reliable census of active crews does not exist, it is not possible to make definitive statements regarding the absolute levels of seismic data acquisition activity. Furthermore, a significant number of seismic data acquisition contractors are either private or state-owned enterprises and information about their activities is not available in the public domain. Because of these factors it is difficult to assess the impact of recent oil and gas price changes on our business. However, there have been declines in oil and gas exploration activities in certain geographic areas, such as North America and the CIS, and as a result, a recent decline in our rental business in those areas. This decline is contrasted with indications of continued robust exploration activity in other parts of the world such as South America and Asia.

Accordingly, the current outlook for our business is uncertain. However, the geographic breadth of our operations and our expansive lease pool of equipment, as well as our generally stable financial position and our $25.0 million credit line position us, we believe, to address any downturn in the seismic industry for the foreseeable future.

The market for products sold by Seamap and the demand for the leasing of marine seismic equipment is dependent upon activity within the offshore, or marine, seismic industry, including the re-fitting of existing seismic vessels and the equipping of new vessels. The ability of our customers to build or re-fit vessels is dependant in part on their ability to obtain appropriate financing. Recent uncertainty in global financial markets could make such financing more difficult to obtain. However, we have not seen indications of significant financing difficulties relating to any of Seamap's customers to date. In October 2008, Seamap received a series of orders from the Polarcus Group of Companies to supply GunLink 4000 and BuoyLink products for six seismic vessels that are under construction. The orders are expected to be delivered during fiscal 2010 and amount to approximately $11.0 million.

During fiscal 2009 and 2008, we responded to the increased demand for our services and products s by adding new equipment to our lease pool and by introducing new products from our Seamap segment. During fiscal 2009 and 2008 we added approximately $34.9 million and $26.0 million, respectively, of equipment to our lease pool. We also attempted to improve the utilization of our lease pool by establishing test facilities in Russia and in Singapore. We may also establish operating locations in new geographic areas, but we have no plans to do so at the current time. Given the decline in demand that we have seen in the last few months, we do not expect to continue to add equipment to our lease pool at the same rate as we have in the last few fiscal years. Based on demand for specific types of equipment, we do expect to make some investments in new lease pool equipment in fiscal 2010, but expect such amounts to be less than $10.0 million. Overall, we expect the utilization of our lease pool equipment to be less in fiscal 2010 than in recent years. However, depreciation expense related to the lease pool is expected to be higher in fiscal 2010 due to the effect of equipment purchases made during the course of fiscal 2009.

We also may seek to expand our lease pool by acquiring different types of equipment or equipment that can be used in different types of seismic applications, as we have done in the past. For example, we added marine seismic equipment to our lease pool in each of the past three fiscal years and during fiscal 2009, we purchased equipment used in vertical seismic profiling ("VSP") applications. VSP is a technology in which seismic recording devices are introduced into a well bore, such as an oil or gas well. VSP technology has a wide array of applications, some of which are not related to oil and gas exploration. These applications include 3D surface seismic surveys, well and reservoir monitoring, analysis of fluid treatments of oil and gas wells and underground storage monitoring.

A significant portion of our revenues are generated from foreign sources. For the years ended January 31, 2009, 2008 and 2007, revenues from international customers totaled approximately $52.0 million, $62.6 million and $37.3 million, respectively. These amounts represent 78%, 82% and 76% of consolidated revenues in those fiscal years, respectively. The majority of our transactions with foreign customers are denominated in United States, Australian, Canadian and Singapore dollars, Russian rubles and British pounds sterling. We have not entered, nor do we intend to enter, into derivative financial instruments for hedging or speculative purposes.

Our revenues and results of operations have not been materially impacted by inflation or changing prices in the past three fiscal years, except as described above.

Results of Operations

For the fiscal year ended January 31, 2009, we recorded operating income of approximately $11.5 million, compared to approximately $16.4 million for the fiscal year ended January 31, 2008 and approximately $6.6 million for the fiscal year ended January 31, 2007. The decline in operating income is due primarily to significantly higher depreciation charges and, to a lesser extent, lower sales of new and used seismic equipment. The improvements in operating income in fiscal 2008 were primarily attributable to increased equipment leasing activity and the contribution of the Seamap segment. However, our results for the year ended January 31, 2007 were negatively impacted by issues in our Seamap segment related to a new product that was introduced during that period as more fully discussed below.

Our Equipment Leasing segment recorded decreased gross profit in the year ended January 31, 2009 of approximately $24.8 million, as compared to approximately $27.9 million and $20.2 million for the years ended January 31, 2008 and 2007, respectively. Despite an increase in rental revenues, gross profit in fiscal 2009 declined due to the higher depreciation charges that resulted from the significant amounts of lease pool equipment we added in fiscal 2008 and 2009. The increase in gross profit from fiscal 2007 to fiscal 2008 was due primarily to the increased rental activity and the expansion of our lease pool of equipment during these periods.

Our Seamap segment recorded gross profits of $8.0 million, $8.0 million and $3.3 million in the years ended January 31, 2009, 2008 and 2007, respectively. Although sales of Seamap products declined from fiscal 2008 to fiscal 2009, gross profit remained essentially the same. The improvement in gross profit margins in each of these periods resulted from production efficiencies and the elimination of certain royalty payments as more fully described below. The increase in gross profit margin from fiscal 2008 over fiscal 2007 was primarily the result of increased sales of our GunLink and BuoyLink products and the absence of the new product issues identified above.

Revenues and Cost of Sales

Equipment Leasing

Revenues and cost of sales from our Equipment Leasing segment is comprised of
the following:


                                                     Year Ended January 31,
                                                 2009         2008         2007
                                                         (In thousands)

         Revenues:
         Equipment leasing                     $ 37,747     $ 34,364     $ 24,942
         Lease pool equipment sales               2,985        3,488        4,297
         New seismic equipment sales              3,832        9,350        5,071
         SAP equipment sales                      5,339        4,499        3,373

                                                 49,903       51,701       37,683
         Cost of sales:
         Lease pool depreciation                 15,031       10,403        7,612
         Direct costs - equipment leasing         2,041        1,846        2,167
         Cost of lease pool equipment sales       1,487        1,019        1,961
         Cost of new seismic equipment sales      2,637        7,376        3,884
         Cost of SAP equipment sales              3,932        3,186        1,907

                                                 25,128       23,830       17,531

         Gross profit                          $ 24,775     $ 27,871     $ 20,152

         Gross profit margin                         50 %         54 %         53 %

In fiscal 2009, our equipment leasing revenues increased approximately $3.4 million, or 10% over fiscal 2008, and fiscal 2008 equipment leasing revenues increased approximately $9.4 million, or 38% over fiscal 2007. Equipment leasing revenues have increased in each of the past three fiscal years due to increased demand for

seismic equipment, expansion into new geographic markets, including Russia and the CIS, and expansion of our lease pool, including equipment for marine applications. The demand for seismic equipment is primarily driven by the global oil and gas exploration issues discussed above. In fiscal 2009, we acquired approximately $34.9 million of new lease pool equipment due to expected demand from customers. Approximately $13.0 million of this equipment was acquired in the fourth quarter and did not contribute significantly to our leasing revenues in fiscal 2009. Likewise, in fiscal 2008, we added approximately $26.0 million of new lease pool equipment, of which approximately $13.0 million was added in the fourth quarter of that year. Beginning in the fourth quarter of fiscal 2009, we began to experience a decline in demand for our leasing services. The demand for equipment in Canada and Russia that normally occurs with the onset of winter was lower than in prior years and was significantly less than had been anticipated earlier in the year. This decline was due to significant reductions in oil and gas exploration activity as discussed above.

From time to time, we sell equipment from our lease pool based on specific customer demand or in order to redeploy our capital in other lease pool assets. These transactions tend to occur as opportunities arise and accordingly are difficult to predict. The gross profit and related gross profit margin from the sales of lease pool equipment amounted to approximately $1.5 million (50%) in fiscal 2009, $2.5 million (71%) in fiscal 2008, and $2.3 million (54%) in fiscal 2007. Often, the equipment that is sold from our lease pool has been held by us, and therefore depreciated, for some period of time. Accordingly, the equipment sold may have a relatively low net book value at the time of the sale, resulting in a relatively high gross profit from the transaction. The amount of the gross profit on a particular transaction varies greatly based primarily upon the age of the equipment.

Occasionally, we sell new seismic equipment that we acquire from other manufacturers. Often, these arrangements are structured with a significant down payment, with the balance financed over a period of time at a market rate of interest. The gross profit and related gross profit margin from the sales of new seismic equipment amounted to approximately $1.2 million (31%) in fiscal 2009, $2.0 million (21%) in fiscal 2008, and $1.2 million (23%) in fiscal 2007. With the recent down-turn in oil and gas exploration activity, we have seen a decline in demand for the purchase of new and used land seismic equipment. We expect this trend to continue.

SAP regularly sells new hydrographic and oceanographic equipment to customers in Australia and throughout the Pacific Rim. The gross profit and related gross profit margin from the sale of new seismic, hydrographic and oceanographic equipment by SAP amounted to approximately $1.4 million (26%), $1.3 million (29%), and $1.5 million (43%) in the years ended January 31, 2009, 2008 and 2007, respectively. Included in SAP equipment sales for the year ended January 31, 2009 is approximately $2.2 million related to an approximate $3.4 million contract with the Australian government. This contract is accounted for using the percentage of completion method and resulted in gross profit of approximately $221,000 in during fiscal 2009.

Depreciation expense related to lease pool equipment for fiscal 2009 amounted to approximately $15.0 million, as compared to approximately $10.4 million in fiscal 2008 and approximately $7.6 million in fiscal 2007. The increase in depreciation expense from fiscal 2008 to fiscal 2009 was attributable to the additions we made to our lease pool in fiscal 2008 and fiscal 2009. The increase in depreciation expense from fiscal 2007 to fiscal 2008 was attributable to the additions we made to our lease pool in fiscal 2007 and fiscal 2008. At January 31, 2009, lease pool assets with an acquisition cost of approximately $38.6 million were fully depreciated, yet remained in service. This compares to $46.7 million at January 31, 2008 and approximately $41.0 million at January 31, 2007. These assets, though fully depreciated, are expected to continue to generate revenues through leasing activity.

Our business generally parallels trends in the oil and gas industry. Increased demand for our equipment results in higher revenues and generally has no impact on depreciation in the short term as our equipment is depreciated from the first month it is placed in service until it is fully depreciated. Depreciation expense is recorded monthly whether or not the equipment is actually generating revenues on a lease contract. During periods of high demand, such as we experienced prior to the fourth quarter of fiscal 2009, our ability to lease older equipment, (including fully depreciated equipment) is enhanced; whereas in periods of low demand, the opposite is true. As a result, revenues and depreciation expense will not necessarily directly correlate. Over the long-term, depreciation expense is impacted by increases in equipment purchases to meet growing demand for our leased equipment. We have been able to purchase equipment at discounts through volume purchase arrangements. A lower purchase price results in lower depreciation expense than in previous periods. Although some of the equipment in our lease pool has reached

the end of its depreciable life the equipment continues to be in service and continues to generate revenues. Because the depreciable life of our equipment in our industry is determined more by technical obsolescence than by usage or wear and tear, some of our equipment, although fully depreciated, is still capable of functioning appropriately.

We recorded direct costs related to seismic leasing for fiscal 2009 in the amount of approximately $2.0 million as compared to approximately $1.8 million in fiscal 2008 and approximately $2.2 million in fiscal 2007. Direct costs typically fluctuate with leasing revenues, as the three main components of direct costs are freight, repairs and sublease expense. Costs in fiscal 2008 decreased in spite of higher leasing revenues, primarily due to greater reimbursement of costs from our customers and lower costs to lease certain equipment from others.

Seamap

Revenues and cost of sales for our Seamap segment are as follows:


                                               Year Ended January 31,
                                           2009         2008         2007
                                                   (In thousands)

               Equipment sales           $ 17,346     $ 25,383     $ 12,274
               Cost of equipment sales      9,319       17,381        8,927

               Gross profit              $  8,027     $  8,002     $  3,347

               Gross profit margin             46 %         32 %         27 %

Demand for Seamap's products is generally dependent upon offshore oil and gas exploration activity. The majority of Seamap's sales consist of large discrete orders the timing of which are dictated by our customers. This timing generally relates to the availability of a vessel in port so that our equipment can be installed. Accordingly, there can be significant variation in sales from one period to another that does not necessarily indicate a fundamental change in demand for these products. Despite the overall decline in oil and gas exploration activity discussed above, we have not detected a decline in the demand for Seamap's products. As of January 31, 2009, Seamap had a backlog of approximately $11.2 million, as compared to approximately $4.1 million as of January 31, 2008. Revenues in fiscal 2008 were unusually large due to the sale of approximately $4.0 of ancillary in connection with GunLink sales that we normally do not provide to customers. In addition, fiscal 2007 and 2008 results were impacted by certain timing issues as discussed more fully below.

Our gross profit margins from the sale of Seamap equipment have increased in each of the last three fiscal years due to a number of factors. Beginning in fiscal 2008 and concluding in fiscal 2009, we moved essentially all production activities from the United Kingdom to Singapore. Labor and material costs are generally lower in Singapore, thereby improving our gross profit margins. As the GunLink and BuoyLink product lines have matured, we have been able to introduce design and production efficiencies, that allow us to reduce cost through the use of less expensive components and materials and in volume purchases which normally reduce costs. Effective December 2007, we eliminated certain royalty . . .