The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Please see "Disclosure Regarding Forward-Looking Statements" and "Risk Factors" elsewhere in this Form 10-K.

Overview

We are a leading provider of onshore seismic data acquisition services in the lower 48 states of the United States. Substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients, mainly domestic oil and natural gas companies. Demand for our services depends upon the level of spending by these companies for exploration, production, development and field management activities, which depends, in part, on oil and natural gas prices. Significant fluctuations in domestic oil and natural gas exploration activities and commodity prices have affected the demand for our services and our results of operations in years past, and such fluctuations continue to be the single most important factor affecting our business and results of operations.

After a severe contraction in demand for our services beginning at the end of 2008 and continuing into 2010 due to the global economic slowdown, we began to experience an increase in demand for our services, particularly in the oil and liquids-rich basins. Demand for our services continued to strengthen through fiscal 2011 and 2012. In response to this demand increase, we redeployed three seismic data acquisition crews in fiscal 2010 and two seismic data acquisition crews in fiscal 2011, bringing our current crew count to fourteen crews. Our order book is currently at its highest level since late fiscal 2008 in terms of the client mix, size of projects and geographical diversity, and the majority of the projects are in oil and liquids-rich basins. Although our clients

may cancel, delay or alter their service contracts on short notice and we continue to remain subject to land access permit and weather delays, our current order book reflects commitment levels sufficient to maintain operation of fourteen crews well into fiscal 2013. The majority of our crews are currently working in oil producing basins. However, in recent years, we have experienced periods in which the services we provided were primarily to clients seeking natural gas.

While our revenues are mainly affected by the level of client demand for our services, our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity and utilization level of our data acquisition crews. Factors impacting productivity and utilization levels include crew downtime related to inclement weather, delays in acquiring land access permits, agricultural or hunting activity, holiday schedules, short winter days, crew repositioning or equipment failure, whether we enter into turnkey or term contracts with our clients, the number and size of crews and the number of recording channels per crew. To the extent we experience these factors our operating results may be affected from quarter to quarter. Consequently, our efforts to negotiate favorable contract terms in our supplemental service agreements, to mitigate permit access delays and to improve overall crew productivity may contribute to growth in our revenues. As demand for our services continues to be robust, we were able to negotiate more favorable contract terms during fiscal 2012.

We experienced lower utilization rates during the third and fourth quarters of fiscal 2012 as our crews were affected by project preparation, weather delays, agricultural activity, land access permit issues and client delays. Our utilization rates were also affected by increasing crew efficiencies driven by improved crew processes and recent equipment purchases. In several instances during the second and third fiscal quarters of 2012, our data acquisition crews completed projects ahead of schedule and were idled as other projects were in preparatory and/or permitting phases. While these early project completions have a negative impact on utilization during a particular quarter, we believe the increasing efficiency of our crews may enable us to increase our overall capacity. We believe that the problems that led to lower utilization rates during the third and fourth quarters of fiscal 2012 have been resolved. We returned to full crew utilization during the fourth quarter of fiscal 2012, and such full utilization has continued into the first quarter of fiscal 2013.

Currently, most of our client contracts are turnkey contracts. The percentage of revenues derived from turnkey contracts has grown in the past few years from approximately half of our revenues in fiscal 2008 to in excess of three-quarters of our revenues in fiscal 2012. While turnkey contracts allow us to capitalize on improved crew productivity, we also bear more risks related to weather and crew downtime. We expect the percentage of turnkey contracts to remain high as we continue to expand our operations in the mid-continent, western and southwestern regions of the United States in which turnkey contracts are more common. However, in the first quarter of fiscal 2013 we have observed an increase in inquiries and requests for term contracts.

Over time, we have experienced continued increases in recording channel capacity on a per crew or project basis. This increase in channel count demand is driven by client needs and is necessary in order to produce higher resolution images, increase crew efficiencies and undertake larger scale projects. Due to the increase in demand for higher channel counts, we have continued our investments in additional channels. In response to project-based channel requirements, we routinely deploy a variable number of channels on a variable number of crews in an effort to maximize asset utilization and meet client needs. We believe we will realize the benefit of increased channel counts and flexibility of deployment through increased crew efficiencies, higher revenues and margins.

Reimbursable third-party charges related to our use of helicopter support services, specialized survey technologies and dynamite energy sources in areas with limited access are another important factor affecting our results. During fiscal 2011, the level of these third-party charges as a percentage of revenue was especially high, approaching 50% of revenue, mainly as a result of our continued operations in areas with limited access in the eastern United States. However, revenues associated with third-party charges declined as a percentage of revenue during fiscal 2012 as a result of such third-party charges returning to levels more consistent with our historical average. We expect that as we continue to expand our operations in the more open terrain of the mid-continent, western and southwestern regions of the United States, the level of these third-party charges will continue to be generally within our historical range of 25% to 35% of revenue.

During fiscal 2011, we purchased 25,850 Geospace Technologies GSR single-channel units, 2,000 Geospace Technologies GSR four-channel units with three-component geophones and ten INOVA AHV IV 364 vibrator energy source units. These additions allowed us to deploy the two additional crews added in fiscal 2011 with state-of-the-art cable-less recording equipment. During the first quarter of fiscal 2012, we began operations on a large project in West Texas utilizing the FairfieldNodal ZLand cable-less recording system. We completed the FairfieldNodal ZLand project during the third quarter of fiscal 2012. The ZLand-equipped crew was redeployed in the late third quarter of fiscal 2012 equipped with an ARAM cable-based recording system. As a result of the introduction of the cable-less recording systems, we have realized increased crew efficiencies and increased revenue on projects using this equipment. We believe we will experience continued demand for cable-less recording systems in the future. During fiscal 2012, we purchased an additional 10,500 Geospace Technologies GSR single-channel units, 3,000 stations of Geospace Technologies GSR three-channel units with three component geophones and nineteen INOVA AHV IV 364 vibrator energy source units. As we have replaced cable-based recording equipment with cable-less equipment on certain crews, the cable-based recording equipment continues to be redeployed on existing crews as needed, including on the additional two crews fielded during the second quarter of fiscal 2011. Of the fourteen crews currently in operation, five use Geospace Technologies GSR recording systems, six use ARAM cable-based recording systems, and three use I/O RSR recording systems.

During 2012, we entered into the Canadian market. This market is highly seasonal and operates primarily from late November through March, depending upon weather conditions. We anticipate operating one data acquisition crew in Canada during the 2012-2013 winter season, and do not expect these operations to have a significant impact on our fiscal 2013 financial results.

While the markets for oil and natural gas have been very volatile and are likely to continue to be so in the future, and we can make no assurances as to future levels of domestic exploration or commodity prices, we believe opportunities exist for us to enhance our market position by responding to our clients' continuing desire for higher resolution subsurface images. If economic conditions were to weaken, our customers reduce their capital expenditures or there is a significant sustained drop in oil and natural gas prices, it would result in diminished demand for our seismic services, could cause continued downward pressure on the prices we charge and would affect our results of operations.

Fiscal 2012 Highlights

• EBITDA for the year-ended September 30, 2012 increased to $49,615,000 compared to $27,861,000 for the same period of fiscal 2011, an increase of 78 percent;

• Net income for the year-ended September 30, 2012 increased to $11,113,000, or $1.42 earnings per share, compared to a net loss of $3,246,000, or $0.42 loss per share, in fiscal 2011;

• Reported revenues of $319,274,000 for the year-ended September 30, 2012 compared to $333,279,000 for the year-ended September 30, 2011;

• Revenues net of third-party reimbursable charges increased 13 percent in fiscal 2012 from fiscal 2011;

• Strengthened order book capable of sustaining fourteen data acquisition crews well into calendar 2013;

• Fiscal 2012 capital expenditures of approximately $47,664,000 compared to $59,380,000 in fiscal 2011;

• Purchased 10,500 single-channel Geospace GSR units, 3,000 GSR three-channel units with three component geophones and 19 INOVA vibrator energy source units to increase recording capacity and improve efficiency;

• Balanced portfolio of projects in the Eagle Ford Shale, Niobrara Shale, Bakken Shale, Marcellus Shale, Permian Basin and Mississippi Lime;

• Awarded first contract in Canada for the deployment of the Company's first Canadian data acquisition crew during the 2012-2013 winter season.

Results of Operations

Fiscal Year Ended September 30, 2012 versus Fiscal Year Ended September 30, 2011

Operating Revenues. Our operating revenues decreased 4% to $319,274,000 in fiscal 2012 from $333,279,000 in fiscal 2011. The revenue decrease in fiscal 2012 was primarily the result of a significant decrease in third-party charges and is not indicative of declining operations. Third-party charges decreased 29% in fiscal 2012 from fiscal 2011 due to continued operations in the more wide open terrain of the Western United States while fee revenue net of third-party charges for fiscal 2012 increased 13% from fiscal 2011. The increase in revenues net of third party charges is a result of increased utilization, production and more favorable contract terms in 2012 as compared to 2011.

Operating Costs. Our operating expenses decreased 11% to $258,970,000 in fiscal 2012 from $292,519,000 in fiscal 2011 primarily due to the decrease in reimbursed charges. As discussed above, third-party charges decreased 29% in fiscal 2012 from fiscal 2011. Operating expenses excluding third-party charges in fiscal 2012 increased 4% from fiscal 2011. This increase resulted primarily from increased field personnel and other expenses associated with higher utilization in 2012 as compared to 2011. The increase in revenues net of third-party charges of 13% in fiscal 2012 at the same time operating costs excluding third-party charges increased only 4%, resulted in an overall improvement in the Company's margins during fiscal 2012. Improved turnkey rates, increased productivity, reduced third-party charges and reduced equipment rental and repair costs all contributed to this improvement in margins.

General and administrative expenses were 3.5% of revenues in fiscal 2012 as compared to 4.1% of revenues in fiscal 2011. General and administrative expenses decreased by $2,345,000 in fiscal 2012 as compared to fiscal 2011. The primary factor for the decrease in general and administrative expenses was the absence during fiscal 2012 of fiscal 2011 transaction costs of $3,866,000 associated with the terminated merger agreement with TGC. Without the effect of the 2011 transaction costs, general and administrative expense increased by $1,521,000. The increase in administrative expense was primarily due to increased employee costs to support expanded field operations and start-up costs associated with our Canadian operations.

We recognized $32,498,000 of depreciation expense in fiscal 2012 as compared to $30,536,000 in fiscal 2011. Depreciation expense increased 6.4% from fiscal 2011 to 2012 reflecting increased capital expenditures during fiscal 2011 and 2012. Our depreciation expense is expected to continue to increase in fiscal 2013 as a result of our significant capital expenditures in fiscal 2012.

Our total operating costs for fiscal 2012 were $302,673,000, a decrease of 10% from fiscal 2011 primarily due to the factors described above.

Income Taxes. Income tax expense was $5,403,000 for fiscal 2012 and $439,000 for fiscal 2011. The effective tax rates for the income tax provision for fiscal 2012 and 2011 were 32.7% and (15.6%), respectively. Our effective tax rate was reduced significantly in fiscal 2011 by transaction costs that had been treated as permanent, non-deductible expenses. In fiscal 2012, these costs became fully tax deductible upon the merger's termination in October 2011 and were treated as a discrete event in the first quarter of fiscal 2012, which resulted in an income tax benefit. Our effective tax rates differ from the statutory federal rate of 35% for certain items such as foreign operations, state and local taxes, non-deductible expenses, discrete items, expenses related to share-based compensation that were not expected to result in a tax deduction and changes in reserves for uncertain tax positions.

Fiscal Year Ended September 30, 2011 versus Fiscal Year Ended September 30, 2010

Operating Revenues. Our operating revenues increased 62% to $333,279,000 in fiscal 2011 from $205,272,000 in fiscal 2010. The revenue increase in fiscal 2011 was primarily the result of an increase in active crew count during fiscal 2011 and higher utilization rates of the existing crews. Revenues in fiscal 2011 continued to include high third-party charges related to the use of helicopter support services, specialized survey technologies and dynamite energy sources. Approximately one-half of the increase in revenues during 2011 was due to the increase in these third-party charges. The sustained high level of these charges is driven by our continued operations in areas with limited access in the Appalachian Basin, Oklahoma, East Texas and Arkansas.

Operating Costs. Our operating expenses increased 58% to $292,519,000 in fiscal 2011 from $185,588,000 in fiscal 2010 primarily due to increases in field personnel and other expenses associated with operating the additional data acquisition crews put into service during fiscal 2010 and 2011. As discussed above, reimbursed charges have a similar impact on operating costs.

General and administrative expenses were 4.1% of revenues in fiscal 2011 as compared to 3.5% of revenues in fiscal 2010. General and administrative expenses increased by $6,419,000 in fiscal 2011 as compared to fiscal 2010. The primary factors for the increase in general and administrative expenses during fiscal 2011 were increased administrative costs, primarily related to employee costs as a result of our increased crew count and operational activity, and transaction costs of $3,866,000 associated with the terminated merger agreement with TGC. There was no termination fee associated with the termination of the TGC merger agreement.

We recognized $30,536,000 of depreciation expense in fiscal 2011 as compared to $27,126,000 in fiscal 2010. Depreciation expense increased 13% from fiscal 2010 to 2011 reflecting increased capital expenditures during fiscal 2010 and 2011.

Our total operating costs for fiscal 2011 were $336,605,000, an increase of 53% from fiscal 2010 primarily due to the factors described above.

Income Taxes. Income tax expense was $439,000 for fiscal 2011 as compared to income tax benefit of $4,638,000 for fiscal 2010. The effective tax rates for the income tax provision for fiscal 2011 and 2010 were (15.6%) and 33.2%, respectively. Our effective tax rates differ from the statutory federal rate of 35% for certain items such as state and local taxes, non-deductible expenses, expenses related to share-based compensation that were not expected to result in a tax deduction and changes in reserves for uncertain tax positions. Our fiscal 2011 effective tax rate was significantly impacted by the acquisition transaction costs incurred related to the terminated transaction with TGC. During fiscal 2011, we made the policy decision to treat the transaction costs as permanent non-deductible expenses for tax purposes.

Use of EBITDA (Non-GAAP measure)

We define EBITDA as net income (loss) plus interest expense, interest income, income taxes, depreciation and amortization expense. Our management uses EBITDA as a supplemental financial measure to assess:

• the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis;

• our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate EBITDA in a similar manner; and

• the ability of our assets to generate cash sufficient for us to pay potential interest costs.

We also understand that such data are used by investors to assess our performance. However, the term EBITDA is not defined under generally accepted accounting principles ("GAAP"), and EBITDA is not a measure

of operating income, operating performance or liquidity presented in accordance with GAAP. When assessing our operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income (loss), cash flow from operating activities or other cash flow data calculated in accordance with GAAP. In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as us. Further, the results presented by EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, depreciation and amortization.

The reconciliation of our EBITDA to our net income (loss) and net cash provided by operating activities, which are the most directly comparable GAAP financial measures, are provided in the tables below:

Reconciliation of EBITDA to Net Income (Loss)



                                                Years Ended September 30,
                                             2012         2011          2010
                                                     (in thousands)
          Net income (loss)                $ 11,113     $ (3,246 )    $ (9,352 )
          Depreciation                       32,498       30,536        27,126
          Interest expense (income), net        601          132             -
          Income tax expense (benefit)        5,403          439        (4,638 )

          EBITDA                           $ 49,615     $ 27,861      $ 13,136

Reconciliation of EBITDA to Net Cash Provided by Operating Activities



                                                      Years Ended September 30,
                                                  2012           2011          2010
                                                           (in thousands)
   Net cash provided by operating activities    $  76,380      $ 16,951      $  6,244
   Changes in working capital and other items     (24,949 )      12,812         8,731
   Noncash adjustments to income                   (1,816 )      (1,902 )      (1,839 )

   EBITDA                                       $  49,615      $ 27,861      $ 13,136

Liquidity and Capital Resources

Introduction. Our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients. Our principal uses of cash are the amounts used to provide these services, including expenses related to our operations and acquiring new equipment. Accordingly, our cash position depends (as do our revenues) on the level of demand for our services. Historically, cash generated from our operations along with cash reserves and borrowings from commercial banks have been sufficient to fund our working capital requirements, and to some extent, our capital expenditures.

Cash Flows. Net cash provided by operating activities was $76,380,000 for fiscal 2012 and $16,951,000 for fiscal 2011. These amounts primarily reflect an increase in revenues and operating margins between periods. Our cash provided by operations was further positively impacted by cash collected from prior periods. Our collection experience during the period expressed as an average number of days in accounts receivable has remained at approximately sixty over the last twelve months. Amounts in our trade accounts receivable that are over sixty days as of September 30, 2012 represents approximately 20% of our total trade accounts receivables, which is consistent with historical levels. We believe our allowance for doubtful accounts of $250,000 at September 30, 2012 is adequate to cover exposures related to our trade account balances.

Net cash used in investing activities was $48,580,000 in fiscal 2012 and $36,417,000 in fiscal 2011. In fiscal 2012, we funded our capital expenditures primarily from cash provided by operating activities of $76,380,000 as well as proceeds of $9,346,000 from the Second Term Note used to purchase Geospace Technologies GSR recording equipment. In 2011, we funded our capital expenditures primarily from $22,500,000 in cash generated from matured short-term investments and $16,427,000 in proceeds from the Term Note used to purchase Geospace Technologies GSR recording equipment as well as $16,951,000 of cash provided by operating activities. In fiscal 2012 and 2011, we invested excess funds of $4,500,000 and $2,500,000 respectively in certificates of deposit. In fiscal 2011, we collected proceeds from an insurance claim on our equipment burned in an October 2010 wildfire of $1,392,000.

Net cash provided by financing activities in fiscal 2012 and fiscal 2011 was $3,496,000 and $15,868,000, respectively. In fiscal 2012, our primary source of net cash provided by financing activities was $9,346,000 in proceeds from our Second Term Note that were used to purchase Geospace Technologies GSR recording equipment and subsequent principal payments for both the Term Note and Second Term Note. In fiscal 2011, our primary source of net cash provided by financing activities were the proceeds and subsequent principal payments for the $16,427,000 Term Note we entered into in order to purchase Geospace Technologies GSR recording equipment.

Capital Expenditures. For fiscal year 2012, we made capital expenditures of $47,664,000, primarily to purchase 10,500 Geospace Technologies GSR single-channel units, 3,000 Geospace Technologies GSR three-channel units, additional geophones, nineteen INOVA AHV IV 364 vibrator energy sources units and meet necessary maintenance capital requirements. These purchases reflect our belief that the trend towards increased channel counts and energy sources in our industry will continue. Our Board of Directors has approved an initial fiscal 2013 capital budget of $40,000,000, which will be used, in part, to purchase nine INOVA AHV IV 364 vibrator energy source units, while the remainder will be used to increase channel count, make technical improvements in various phases of our operations and meet maintenance capital requirements. We believe that our fiscal 2012 capital investments as well as our planned fiscal 2013 capital investments will allow us to maintain our competitive position as we respond to client desire for higher resolution subsurface images.

We continually strive to supply our clients with technologically advanced 3-D data acquisition recording services and data processing capabilities. We maintain equipment in and out of service in anticipation of increased future demand for our services.

Capital Resources. Historically, we have primarily relied on cash generated from operations, cash reserves and borrowings from commercial banks to fund our working capital requirements and, to some extent, our capital expenditures. Recently, we have funded some of our capital expenditures through equipment term loans and capital leases. We have also funded our capital expenditures and other financing needs from time to time through public equity offerings.

Our revolving line of credit loan agreement is with Western National Bank. The agreement was renewed June 2, 2011 under the same terms as the previous agreement and permits us to borrow, repay and reborrow, from time to time until June 2, 2013, up to $20.0 million based on the borrowing base calculation as defined in the agreement. Our obligations under this agreement are secured by a security interest in our accounts receivable, equipment and related collateral. Interest on the facility accrues at an annual rate equal to either the 30-day London Interbank Offered Rate ("LIBOR"), plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as we direct monthly, subject to an interest rate floor of 4%. Interest on the outstanding amount under the loan agreement is payable monthly. The loan agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and reorganizations. We are also obligated to meet certain financial covenants under the loan agreement, including maintaining specified ratios with respect to cash flow coverage, current assets and liabilities and debt to tangible net worth. We were in compliance with all covenants including specified ratios as of September 30, 2012 and December 5, 2012 and have the full line of credit available for borrowing. We have not utilized the revolving line . . .