Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is management's discussion and analysis of the major elements of our consolidated financial statements. You should read this discussion and analysis together with our consolidated financial statements, including the accompanying notes, and other detailed information appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended September 30, 2025.

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements can be identified by terminology such as "may", "will", "should", "could", "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 timing, adoption, results and success of our rollout of our Aquana smart water valves and cloud-based control platform, future demand for our Quantum security solutions, the adoption and sale of our products in various geographic regions, potential tenders for permanent reservoir monitoring systems, sales or rentals for our ocean bottom nodes, the adoption of Quantum's SADAR® product monitoring of subsurface reservoirs, the completion of new orders for channels of our Pioneer™ system, the fulfillment of customer payment obligations, the impact of the current armed conflicts between Russia and Ukraine and between the U.S. and Iran, our ability to manage changes and the continued health or availability of management personnel, volatility and direction of oil prices, anticipated levels of capital expenditures and the sources of funding therefor, and our strategy for growth, product development, market position, financial results and the provision of accounting reserves. These forward-looking statements reflect our current judgment about future events and trends based on the information currently available to us. However, there will likely be events in the future that we are not able to predict or control. The factors listed under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, as well as other cautionary language in such Annual Report and this Quarterly Report on Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Such examples include, but are not limited to, the failure of the Quantum and OptoSeis® or Aquana technology transactions to yield positive operating results, decreases in commodity price levels, the failure of our products to achieve market acceptance (despite substantial investment by us), our sensitivity to short term backlog, delayed or cancelled customer orders, product obsolescence resulting from poor industry conditions or new technologies, credit losses associated with customer accounts, inability to collect on financing receivables, lack of further orders for our ocean bottom rental equipment, failure of our Quantum products to be adopted by the border and security perimeter market or a decrease in such market due to governmental changes, and infringement or failure to protect intellectual property. The occurrence of the events described in these risk factors and elsewhere in this 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.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Our SEC filings are available to the public over the internet at the SEC's website at www.sec.gov. Our SEC filings are also available to the public on our website at 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.

Overview

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 sophisticated technology solutions for applications in smart water management and energy exploration. Our seismic equipment and services are marketed to the energy exploration industry and used to locate, characterize and monitor hydrocarbon producing reservoirs. We also market our seismic products to other industries for vibration monitoring, border and perimeter security and various geotechnical applications. We design and manufacture other products of a non-seismic nature, including Hydroconn® connector cables, imaging equipment, remote shutoff water valves and Internet of Things ("IoT") platform. Additionally, the company provides specialized contract manufacturing services. In recent years, the revenue contribution from our non-energy related products has grown to represent nearly half of our total revenue. Our business diversification strategy has centered largely on translating expertise in ruggedized engineering and technology manufacturing into expanded customer markets.

Products and Product Development

Smart Water

Our Smart Water segment emphasizes our targeted approach to growing its footprint in the water management industry. This business segment contains the highly successful Hydroconn® smart water connectivity offerings along with the Aquana products.

The adoption of advanced technology in water management has been bolstered by U.S. Federal funding programs such as Water Infrastructure Finance Act funding, which provides $7.5 billion for water-related infrastructure projects.

Over the last decade, we have seen a significant increase in sales volume of our Hydroconn® connector cables used in Automated Meter Reading (AMR) applications. These cables play a role in Advanced Metering Infrastructure (AMI) by enabling remote collection of usage data from utility meters, thereby eliminating the need for manual meter reading.

Our remote disconnect valves and water IoT platform allows customers that manage multi-family and commercial properties to monitor their properties for leak and burst events, with real-time notifications, complimented with our remote-shut off to stop water damage. These products also allow water utilities to re-claim non-revenue water at a lower energy and field service cost through remote control of water service without placing their employees in potential harm or danger.

Energy Solutions

Our Energy Solutions business segment has historically accounted for the majority of our revenue. Geoscientists use seismic data primarily in connection with the exploration, development and production of oil and gas reserves to map potential and known hydrocarbon bearing formations and the geologic structures that surround them. This segment's products include wireless seismic data acquisition systems, reservoir characterization products and services, and traditional seismic exploration products such as geophones, hydrophones, leader wire, connectors, cables and various other seismic products. We believe our Energy Solutions products are among the most technologically advanced instruments and equipment available for seismic data acquisition.

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

We have developed multiple versions of a land-based wireless (or nodal) seismic data acquisition system including our most recent launch of the Pioneer™, an ultralight wireless sensor product. We believe our wireless sensor systems allow our customers to operate more effectively and efficiently because of their reduced environmental impact, lower weight, ease of operation and fewer maintenance requirements.

We have also developed an ocean bottom seismic data acquisition system called the OBX, and recently released Mariner® and Mariner Deep®. Similar to our land-based wireless systems, these ocean bottom systems may be deployed in virtually unlimited channel configurations and do not require interconnecting cables between each station. The Mariner® is a continuous, cable-free, four channel autonomous, shallow water ocean bottom recorder. Mariner™ is the next generation node designed for extended duration seabed ocean bottom seismic data acquisition. The slim profile nodes, which are part of our shallow water stations, are ideally deployed as deep as 750 meters. The device continuously records for up to 70 days and offers more rapid recharging times. Its slim profile creates space savings on seismic survey vessels, allowing contractors to fit up to 25% more nodes into a download/charge container. Mariner Deep® is a deepwater, wireless seismic acquisition node capable of operating for 200 days in water as deep as 3,450 meters.

Additionally, we have developed high-definition permanent reservoir monitoring systems ("PRM") for land and ocean-bottom applications in producing oil and gas fields. Our primary offering, OptoSeis® fiber optic sensing technology, provides high-definition seismic data acquisition systems with a flexible architecture, allowing them to be configured as a subsurface system for both land and marine reservoir-monitoring projects.

We also have a derivative of the OptoSeis® technology for high temperature downhole applications. The product, known as Insight by OptoSeis, offers a passive, all-optical downhole sensor network - no electronics downhole - resulting a year's long operational lifetime at 150°C.

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

Our SADAR® technology provides energy companies real-time monitoring of seismic data.

Intelligent Industrial

Our Intelligent Industrial segment consists of industrial sensors, electronic pre-press solutions and specialized contract manufacturing. The growing defense and security applications offered by Quantum and Heartbeat Detector® will also be reflected in this segment.

Our robust manufacturing capabilities have allowed us to provide specialized contract manufacturing services for printed circuit board manufacturing, cabling and harnesses, machining, injection molding and electronic system assembly.

Our seismic sensors provide unique high definition, low frequency sensing that allows for vibration monitoring in industrial machinery, mine safety and earthquake detection.

Imaging Products

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

Defense and Security

Our Quantum product line includes SADAR®, a proprietary detection system which detects, locates and tracks items of interest in real-time. Using the SADAR® technology, Quantum designs and sells products used for border and perimeter security surveillance, cross-border tunneling detection and other products targeted at movement monitoring, intrusion detection and situational awareness. Quantum's customers include various agencies of the U.S. government including the Department of Defense, Department of Energy, Department of Homeland Security and other agencies.

In August 2025, we acquired Heartbeat Detector® by purchasing all of the outstanding common stock of Geovox. Heartbeat Detector® is a heartbeat detection security technology developed by the United States Department of Energy's Oak Ridge National Laboratory which bolsters our perimeter security and surveillance offerings. Used in more than a dozen countries to address human trafficking and prison security, the Heartbeat Detector® uses proprietary sensors to rapidly identify people hidden in vehicles, providing a modern, user-friendly interface in as little as 10 seconds. The product, which relies on geophones we manufacture, has been proven 99% effective by Oak Ridge, Sandia and Thunder Mountain national laboratories.

Consolidated Results of Operations

We report and evaluate financial information for three segments: Smart Water, Energy Solutions, and Intelligent Industrial Markets. Summary financial data by business segment follows (in thousands):

		Three Months Ended								Six Months Ended
		March 31, 2026				March 31, 2025				March 31, 2026				March 31, 2025
Smart Water
Product revenue		$	3,728			$	9,472			$	9,484			$	16,760
Income (loss) from operations			(1,622	)			1,420				(2,423	)			1,790
Energy Solutions
Product revenue			8,977				3,399				22,550				23,225
Rental revenue			652				(811	)			1,715				3,645
Total revenue			9,629				2,588				24,265				26,870
Loss from operations			(4,782	)			(6,668	)			(8,216	)			6,614
Intelligent Industrial
Product revenue			6,259				5,837				11,319				11,368
Rental revenue			40				46				91				92
Total revenue			6,299				5,883				11,410				11,460
Loss from operations			(587	)			(1,287	)			(1,400	)			(2,227	)
Corporate
Rental revenue			86				80				169				156
Loss from operations			(4,428	)			(3,746	)			(9,627	)			(8,623	)
Consolidated Totals
Product revenue			18,964				18,708				43,353				51,353
Rental revenue			778				(685	)			1,975				3,893
Total revenue			19,742				18,023				45,328				55,246
Loss from operations		$	(11,419	)		$	(10,281	)		$	(21,666	)		$	(2,446	)

Business Overview

Our Smart Water segment has experienced a decline in sales in fiscal year 2026, however we believe this decline is temporary, largely due to overstocking by our customers in the prior fiscal year. Growing industry acceptance of our water meter cables and connectors provides a strong enabler for additional revenue from our Smart Water segment. Automatic meter reading efficiencies in operations and improved customer service has begun to be understood by the municipalities of the United States. We expect this portion of our business to continue to grow for the foreseeable future. Additionally, we anticipate this segment to see revenue contributions from our Aquana smart water valve and IoT technology products as market traction and increased sales backlog continues to gather. Given the well-known and often extreme volatility experienced in our Energy Solutions segment, careful expansion of products and market diversity in our Smart Water and Intelligent Industrial segments has been a longstanding part of our strategic vision and reflects our on-going diversification efforts.

Our Energy Solution segment has seen a shift from rentals of our ocean bottom nodes to purchases of the equipment since fiscal year 2024. This shift signifies our customer's recognition of future backlog to justify ownership versus renting the nodes. We do not expect significant expansion of the ocean bottom nodal market, because we expect the market is saturable and future rental fleet use will come from our customers' need to temporarily expand their nodal fleet. We expect our Energy Solutions segment to provide a significant portion of our revenue for years to come, but in diminishing portion to our other segments. During the third quarter of fiscal year 2025, we entered into a PRM contract. The Company began production of the PRM in the second quarter of 2026. The majority of the revenue from this contract is expected to be completed by the third quarter of fiscal year 2027. Revenue from this contract is being recognized in our Energy Solutions segment over the duration of the contract.

We continue to maintain a strong balance sheet with no debt. Our current liquidity enables our ability to seek out business acquisitions and allows us to continue investments in capital assets and product research and development, which have historically driven revenue growth.

Three and six months ended March 31, 2026 compared to the three and six months ended March 31, 2025

Consolidated revenue for the three months ended March 31, 2026, was $19.7 million, an increase of $1.7 million, or 9.5%, from the corresponding period of the prior fiscal year. The increase for the three months ended March 31, 2026 was primarily due to higher revenue from our Energy Solutions segment, which included initial revenue of $3.6 million recognized on our PRM contract. The increase was largely offset by lower demand for our Hydroconn® cable and connector products from our Smart Water segment. Furthermore, during the second quarter of the prior fiscal year, we determined the collectability of a receivable from an ocean bottom rental customer was less than probable. As a result of this determination, the rent receivable balance due from this customer of $2.2 million was reversed against rental revenue. As a result of reversal, our consolidated rental revenue for the three months ended March 31, 2025 was in a negative position ($0.7 million). Consolidated revenue for the six months ended March 31, 2026, was $45.3 million, a decrease of $9.9 million, or 18.0%, from the corresponding period of the prior fiscal year. The decrease for the six months ended March 31, 2026 was primarily due to lower demand for our Hydroconn® cable and connector products from our Smart Water segment. The decrease in consolidated revenue was also due to lower revenue from our Energy Solutions segment attributable to a $17 million sale of ocean bottom nodes in the first quarter of fiscal year 2025, which was largely offset by an increase in demand for our wireless land-based Pioneer™.

Consolidated gross profit for the three months ended March 31, 2026, was $0.7 million, compared to $1.7 million from the corresponding period of the prior fiscal year. The decrease for the three months ended March 31, 2026 was primarily due to the decrease in revenue and related gross profits from our Smart Water segment. Consolidated gross profit for the six months ended March 31, 2026, was $3.4 million, compared to $21.9 million from the corresponding period of the prior fiscal year. The decrease in gross profit for the six months ended March 31, 2026 was primarily due to (i) a high gross margin on our $17 million sale of ocean bottom nodes in the first quarter of fiscal year 2025 and (ii) the decrease in revenue and gross profits from our Smart Water segment. The decrease in gross profit for both three and six months ended March 31, 2026 was also attributable to an increase in tariffs on the raw materials we purchase.

Consolidated operating expenses for the three months ended March 31, 2026, were $12.1 million, an increase of $0.1 million, or 0.7%, from the corresponding period of the prior fiscal year. Consolidated operating expenses for the six months ended March 31, 2026, were $25.1 million, an increase of $0.7 million, or 2.9% from the corresponding period of the prior fiscal year. The increase for both periods was primarily due to (i) an increase in sales and marketing costs, (ii) higher professional fees and (iii) severance costs. The increase in operating expenses six months ended March 31, 2026 was partially offset by a decrease in research and development expenses, primarily personnel costs and project expenditures.

Consolidated other income was unchanged for the three months ended March 31, 2026 and 2025. Consolidated other income for the six months ended March 31, 2026, decreased $0.1 million, or 8.8% from the corresponding period of the prior fiscal year. The decrease was principally due to (i) a decrease in interest income on short-term investments and (ii) a decrease in foreign exchange transaction losses.

Segment Results of Operations

Smart Water

Revenue

Revenue from our Smart Water segment for the three months ended March 31, 2026, decreased $5.7 million, or 60.6%, from the corresponding period of the prior fiscal year. Revenue from our Smart Water segment for the six months ended March 31, 2026, decreased $7.3 million, or 43.4%, from the corresponding period of the prior fiscal year. The decrease for both periods was primarily due to a decrease in demand for our Hydroconn® cable and connector products. We believe this decline is temporary due to overstocking by our customers in the prior fiscal year.

Operating Income (Loss)

Operating loss from our Smart Water segment for the three months ended March 31, 2026, was $(1.6) million, in comparison to operating income of $1.4 million from the corresponding period of the prior fiscal year. Operating loss from our Smart Water segment for the six months ended March 31, 2026, was $(2.4) million, in comparison to operating income of $1.8 million from the corresponding period of the prior fiscal year. The decrease for both periods was primarily due the decrease in revenue and related gross profits. The decrease for the six months ended March 31, 2026 was also attributable to higher research and development expense, largely personnel costs.

Energy Solutions

Revenue

Revenue from our Energy Solutions segment for the three months ended March 31, 2026, increased $7.0 million, or 272.1%, from the corresponding period of the prior fiscal year. Revenue from our Energy Solutions segment for the six months ended March 31, 2026, decreased $2.6 million, or 9.7%, from the corresponding period of the prior fiscal year. The components of this changes were as follows:

●

Product Revenue - For the three months ended March 31, 2026, product revenue increased $5.6 million, or 164.1%, from the corresponding period of the prior fiscal year. The increase for the three months ended March 31, 2026 was primarily due (i) an increase in demand for our wireless land-based Pioneer™ and (ii) initial revenue of $3.6 million recognized on our PRM contract. For the six months ended March 31, 2026, product revenue decreased $0.7 million, or 2.9%, from the corresponding period of the prior fiscal year. Revenue for the six months ended March 31, 2025 included a $17 million sale of ocean bottom nodes. The decrease for the six months ended March 31, 2026 was partially offset by an increase in demand for our wireless land-based Pioneer™.

●

Rental Revenue - For the three months ended March 31, 2026, rental revenue from our ocean bottom nodes was $0.7 million, compared to a negative position ($0.8 million) for the corresponding period of the prior fiscal year. For the six months ended March 31, 2026, rental revenue from our ocean bottom nodes was $1.7 million, a decrease of $1.9 million, or 52.9%, in comparison to the corresponding period of the prior fiscal year. During the second quarter of the prior fiscal year, we determined the collectability of a receivable from an ocean bottom rental customer was less than probable. As a result of this determination, the rent receivable balance due from this customer of $2.2 million was reversed against rental revenue during the three months ended March 31, 2025. The decrease in rental revenue for both periods was also due to lower utilization of our ocean bottom nodes rental fleet.

Operating Income (Loss)

Operating loss associated with our Energy Solutions segment for the three months ended March 31, 2026, was $(4.8) million, compared $(6.7) million for the corresponding period of the prior fiscal year. The decrease in operating loss was primarily due to the increase in revenue and related gross profits. Operating loss for the six months ended March 31, 2026, was $(8.2) million, compared to operating income of $6.6 million for the corresponding period of the prior fiscal year. This decrease was primarily attributable to the decrease in revenue, largely rental revenue, coupled by a high gross margin on our $17 million sale of ocean bottom nodes in the first quarter of fiscal year 2025.

Intelligent Industrial

Revenue

Revenue from our Intelligent Industrial segment for the three months ended March 31, 2026, increased $0.4 million, or 7.1%, from the corresponding period of the prior fiscal year. The increase was primarily due to an increase in demand for our contract manufacturing services. Revenue from our Intelligent Industrial segment for the six months ended March 31, 2026, decreased $0.1 million, or 0.4%, from the corresponding period of the prior fiscal year. The decrease in revenue for the six months ended March 31, 2026, was primarily due to a decrease in demand for our industrial sensor products, largely offset by increased demand for our contract manufacturing services.

Operating Loss

Operating loss from our Intelligent Industrial segment for the three months ended March 31, 2026 decreased $0.7 million, or 54.4%, from the corresponding period of the prior fiscal year. The decrease in operating loss for the three months ended March 31, 2026 was primarily due to the increase in revenue and related gross profits. Operating loss for the six months ended March 31, 2026 decreased $0.8 million, or 37.1%, from the corresponding period of the prior fiscal year. The decrease in operating loss for the six months ended March 31, 2026 was primarily due to lower research and development expense, principally personnel costs.

Liquidity and Capital Resources

At March 31, 2026, we had $13.4 million in cash and cash equivalents. For the six months ended March 31, 2026, we used $16.7 million of cash from operating activities. Uses of cash included (i) our net loss of $20.8 million, offset by non-cash charges of $7.7 million resulting from deferred income taxes, depreciation, amortization, accretion, inventory obsolescence, stock-based compensation and provision for credit losses, a (ii) $2.8 million increase in inventories largely due to material purchases for use in our PRM contract, (iii) $2.4 million increase in notes receivable on product sales, (iv) $5.2 million decrease in trade accounts payable primarily due the timing of payments and (v) $2.6 million increase in other assets, primarily due to prepaid product purchases related to our PRM contract. These uses of cash were partially offset by a $9.1 million increase in other liabilities, primarily deferred contract liabilities related to our PRM contract.

For the six months ended March 31, 2026, we generated cash of $4.0 million in investing activities. Sources of cash included $6.9 million of proceeds from the sale of rental equipment, partially offset by $3.0 million used for additions to our property, plant and equipment. We do not expect significant cash investments in property, plant and equipment or our rental fleet for the remainder of fiscal year 2026.

For the six months ended March 31, 2026, we used $0.3 million from financing activities for tax payments on stock-based compensation for the exchange of common stock.

On August 29, 2025, we amended and restated our credit agreement ("the Agreement") with Woodforest National Bank. The Agreement extended our revolving loan agreement, dated as of July 26, 2023, with Woodforest. The Agreement is for a three-year term and provides a revolving credit facility with a maximum availability of $25 million. Interest shall accrue on outstanding borrowings at 30 Day Term SOFR plus a margin equal to 2.75% per annum. We are required to make monthly interest payments on borrowed funds. The Agreement is secured by substantially all of our assets, except for certain excluded property. The Agreement requires us to maintain (i) a minimum consolidated tangible net worth of $85 million, (ii) minimum liquidity of $10 million, which includes cash and amounts available to borrow and (iii) a minimum asset coverage ratio of 2.00 to 1.00. The Agreement also requires us to maintain a springing minimum interest coverage ratio of at least 1.50 to 1.00, tested quarterly whenever (a) there is an outstanding balance on the revolving credit facility or (b) have letter of credit exposure greater than $1 million. Effective December 31, 2025, we entered into a limited waiver agreement with Woodforest which waived our springing minimum interest coverage ratio through February 16, 2027. At March 31, 2026 we were in compliance with all financial and non-financial covenants under the Agreement. We had no debt outstanding at March 31, 2026 and had a borrowing availability of $25 million.

On May 5, 2026, we entered into an amendment to our Agreement which removed the springing minimum interest coverage requirement. This amendment requires us to maintain a $2 million cash reserve pledged to Woodforest and is primarily secured by our Pinemont facility.

Our available cash and cash equivalents decreased $13 million during the first six months of fiscal year 2026, largely due to the decrease in revenue across all of our segments. At the end of the second quarter of fiscal year 2026 we implemented an organizational change plan, which included a voluntary early retirement plan available to eligible qualifying employees as well as a reduction in force. This plan will result in an approximate 20% reduction our global workforce, and together with cost-containment measures are expected to produce approximately $10 million of annualized cash savings. We anticipate receiving our next installment payment from our PRM customer of approximately $35 million by the end of the calendar year.

In the absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future operations, including our backlog, executed rental contracts, available borrowings under the Agreement through its expiration in July 2028, sales or leveraging real estate assets, sales of rental assets and other liquidity sources which may be available to us. We currently believe that our cash, and amounts available under the Agreement if needed, will be sufficient to finance any future operating losses and planned capital expenditures through the next twelve months.

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

Contractual Obligations

Contingent Consideration

In August 2025, we acquired Geovox. In connection with the acquisition, we recorded an initial contingent earn-out liability of $2.5 million. Contingent payments, if any, will be based on eligible revenue generated during a four-year earn-out period. The maximum amount of contingent payments is $3.3 million.

In July 2021, the Company acquired Aquana, LLC ("Aquana"). Pursuant to the merger agreement with Aquana, as amended ("the Merger Agreement"), the Company is subject to additional contingent cash payments to the former members of Aquana over a seven-year earn-out period. The contingent payments, if any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by Aquana. There is no maximum limit to the contingent cash payments that could be made. The Merger Agreement requires the continued employment of a certain key employee and former member of Aquana for the first five years of the seven-year earn-out period in order for any of Aquana's former members to be eligible for any earn-out payments. Due to the continued employment requirement, no liability has been recorded for the estimated fair value of earn-out payments for this transaction. Earn-outs achieved are recorded as compensation expense when incurred.

See Note 11 to our consolidated financial statements in this Quarterly Report on Form 10-Q for more information on our contractual contingencies.

Critical Accounting Estimates

During the six months ended March 31, 2026, there has been no material change to our critical accounting estimates discussed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.

Recent Accounting Pronouncements

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