10-Q 1 dwsn-20240331x10q.htm 10-Q
0000799165--12-31Q1falsehttp://fasb.org/us-gaap/2023#LongTermDebtAndCapitalLeaseObligations http://fasb.org/us-gaap/2023#LongTermDebtAndCapitalLeaseObligationsCurrent0000799165dwsn:AssetPurchaseAgreementMember2023-09-132023-09-130000799165us-gaap:CommonStockMember2023-01-012023-03-310000799165us-gaap:RetainedEarningsMember2024-03-310000799165us-gaap:AdditionalPaidInCapitalMember2024-03-310000799165us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310000799165us-gaap:RetainedEarningsMember2023-12-310000799165us-gaap:AdditionalPaidInCapitalMember2023-12-310000799165us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310000799165us-gaap:RetainedEarningsMember2023-03-310000799165us-gaap:AdditionalPaidInCapitalMember2023-03-310000799165us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310000799165us-gaap:RetainedEarningsMember2022-12-310000799165us-gaap:AdditionalPaidInCapitalMember2022-12-310000799165us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310000799165dwsn:EquityAttributableToControllingShareholderMember2022-12-310000799165us-gaap:RelatedPartyMember2024-01-012024-03-310000799165dwsn:WilksBrothersLlcMemberdwsn:TruckingChargesMember2024-01-012024-03-310000799165dwsn:WilksBrothersLlcMemberdwsn:ClientHostingExpensesMember2024-01-012024-03-310000799165dwsn:WilksBrothersLlcMember2024-01-012024-03-310000799165dwsn:BreckenridgeGeophysicalLLCMemberdwsn:TruckingChargesMember2023-01-012023-03-310000799165dwsn:BreckenridgeGeophysicalLLCMemberdwsn:PayrollAdministrationChargesMember2023-01-012023-03-310000799165dwsn:BreckenridgeGeophysicalLLCMemberdwsn:ManagementChargesMember2023-01-012023-03-310000799165dwsn:BreckenridgeGeophysicalLLCMember2023-01-012023-03-310000799165us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310000799165us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310000799165us-gaap:RetainedEarningsMember2023-01-012023-03-310000799165dwsn:WilksBrothersLlcMemberdwsn:DawsonGeophysicalCompanyMember2024-03-310000799165dwsn:WeatherfordLitigationMember2019-04-012019-04-010000799165us-gaap:RevolvingCreditFacilityMember2024-03-310000799165us-gaap:RevolvingCreditFacilityMember2023-09-300000799165srt:MinimumMember2024-03-310000799165srt:MaximumMember2024-03-310000799165us-gaap:RetainedEarningsMember2024-01-012024-03-310000799165us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2024-03-310000799165us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2023-03-310000799165dwsn:NotesPayableToFinanceCompaniesForInsuranceNotesMember2023-12-310000799165us-gaap:OperatingSegmentsMemberdwsn:ReimbursableRevenueMemberdwsn:UnitedStatesOperationsSegmentMember2024-01-012024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:ReimbursableRevenueMemberdwsn:CanadaOperationsSegmentMember2024-01-012024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:FeeRevenueMemberdwsn:UnitedStatesOperationsSegmentMember2024-01-012024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:FeeRevenueMemberdwsn:CanadaOperationsSegmentMember2024-01-012024-03-310000799165dwsn:ReimbursableRevenueMember2024-01-012024-03-310000799165dwsn:FeeRevenueMember2024-01-012024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:ReimbursableRevenueMemberdwsn:UnitedStatesOperationsSegmentMember2023-01-012023-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:ReimbursableRevenueMemberdwsn:CanadaOperationsSegmentMember2023-01-012023-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:FeeRevenueMemberdwsn:UnitedStatesOperationsSegmentMember2023-01-012023-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:FeeRevenueMemberdwsn:CanadaOperationsSegmentMember2023-01-012023-03-310000799165dwsn:ReimbursableRevenueMember2023-01-012023-03-310000799165dwsn:FeeRevenueMember2023-01-012023-03-3100007991652024-01-0100007991652023-01-010000799165us-gaap:CommonStockMember2024-03-310000799165us-gaap:CommonStockMember2023-12-310000799165us-gaap:CommonStockMember2023-03-310000799165us-gaap:CommonStockMember2022-12-310000799165us-gaap:SubsequentEventMember2024-05-062024-05-0600007991652022-12-3100007991652023-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:UnitedStatesOperationsSegmentMember2024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:CanadaOperationsSegmentMember2024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:UnitedStatesOperationsSegmentMember2023-12-310000799165us-gaap:OperatingSegmentsMemberdwsn:CanadaOperationsSegmentMember2023-12-310000799165us-gaap:RelatedPartyMember2024-03-3100007991652023-12-310000799165dwsn:NotesPayableToFinanceCompaniesForInsuranceNotesMember2024-03-310000799165us-gaap:LetterOfCreditMember2024-03-3100007991652024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:UnitedStatesOperationsSegmentMember2024-01-012024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:CanadaOperationsSegmentMember2024-01-012024-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:UnitedStatesOperationsSegmentMember2023-01-012023-03-310000799165us-gaap:OperatingSegmentsMemberdwsn:CanadaOperationsSegmentMember2023-01-012023-03-310000799165dwsn:AssetPurchaseAgreementMember2023-09-130000799165dwsn:AssetPurchaseAgreementMember2023-03-242023-03-240000799165us-gaap:RevolvingCreditFacilityMemberus-gaap:SubsequentEventMember2024-05-020000799165dwsn:EquityAttributableToControllingShareholderMember2023-01-012023-03-310000799165us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-3100007991652023-01-012023-03-3100007991652024-05-1000007991652024-01-012024-03-31xbrli:sharesiso4217:USDdwsn:itemiso4217:USDxbrli:sharesxbrli:puredwsn:defendantdwsn:segment

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                  to                 

Commission File No. 001-32472

DAWSON GEOPHYSICAL COMPANY

(Exact name of registrant as specified in its charter)

Texas

    

74-2095844

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

508 West Wall, Suite 800, Midland, Texas 79701

(Address of Principal Executive Office) (Zip Code)

Registrant’s Telephone Number, Including Area Code: 432-684-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Exchange on Which Registered

Trading Symbol

Common Stock, $0.01 par value

The NASDAQ Stock Market

DWSN

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. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

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

Accelerated filer

Large accelerated filer

Smaller reporting company

Non-accelerated filer

Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Title of Each Class

    

Outstanding at May 10, 2024

Common Stock, $0.01 par value

30,812,329 shares

DAWSON GEOPHYSICAL COMPANY

INDEX

    

Page
Number

Part I. FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023 (unaudited)

3

Condensed Consolidated Statements of Operations and Comprehensive Income/Loss for the Three Months Ended March 31, 2024 and 2023 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

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

14

Item 3. Quantitative and Qualitative Disclosures about Market Risk

19

Item 4. Controls and Procedures

19

Part II. OTHER INFORMATION

19

Item 1. Legal Proceedings

19

Item 1A. Risk Factors

19

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 3. Defaults Upon Senior Securities

19

Item 4. Mine Safety Disclosures

19

Item 5. Other Information

20

Item 6. Exhibits

21

Signatures

22

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and amounts in thousands, except share data)

    

March 31, 

December 31,

 

2024

2023

Assets

Current assets:

Cash and cash equivalents

$

11,462

$

10,772

Restricted cash

5,000

5,000

Short-term investments

 

265

 

265

Accounts receivable, net

14,888

 

12,735

Prepaid expenses and other current assets

6,578

8,654

Total current assets

 

38,193

 

37,426

Property and equipment, net

16,290

16,508

Right-of-use assets

2,928

3,208

Intangibles, net

369

377

Total assets

$

57,780

$

57,519

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

5,415

$

3,883

Accrued liabilities:

 

 

Dividend payable

 

9,860

Other

 

4,019

4,124

Deferred revenue

 

5,318

11,829

Current maturities of notes payable and finance leases

 

1,111

1,380

Current maturities of operating lease liabilities

1,137

1,202

Total current liabilities

 

26,860

 

22,418

Long-term liabilities:

 

 

Notes payable and finance leases, net of current maturities

 

1,520

1,289

Operating lease liabilities, net of current maturities

2,125

2,363

Deferred tax liabilities, net

15

15

Total long-term liabilities

 

3,660

 

3,667

Commitments and contingencies

Stockholders’ equity:

Preferred stock-par value $1.00 per share; 4,000,000 shares authorized, none outstanding

 

 

Common stock-par value $0.01 per share; 35,000,000 shares authorized,

30,812,329 shares issued, and 30,812,329 shares outstanding

at March 31, 2024 and December 31, 2023

 

308

308

Additional paid-in capital

 

156,678

156,678

Accumulated deficit

 

(127,654)

(123,640)

Accumulated other comprehensive loss, net

 

(2,072)

(1,912)

Total stockholders’ equity

 

27,260

 

31,434

Total liabilities and stockholders’ equity

$

57,780

$

57,519

See accompanying notes to the condensed consolidated financial statements (unaudited).

3

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited and amounts in thousands, except share and per share data)

Three Months Ended March 31, 

2024

    

2023

 

Operating revenues:

$

Fee Revenue

$

26,738

22,273

Reimbursable Revenue

4,846

7,135

31,584

29,408

Operating costs:

Operating expenses

Fee operating expenses

17,496

16,647

Reimbursable operating expenses

4,846

7,135

 

22,342

 

23,782

General and administrative

 

1,911

 

3,499

Depreciation and amortization

 

1,589

 

2,700

 

25,842

 

29,981

Income (loss) from operations

 

5,742

 

(573)

Other income (expense):

Interest income

113

108

Interest expense

 

(46)

 

(17)

Other income, net

239

52

Income (loss) before income tax

 

6,048

 

(430)

Income tax (expense) benefit

 

(202)

17

Net income (loss)

5,846

(413)

Other comprehensive loss:

Net unrealized loss on foreign exchange rate translation

(160)

(6)

Comprehensive income (loss)

$

5,686

$

(419)

Basic income (loss) per share of common stock

$

0.19

$

(0.02)

Diluted income (loss) per share of common stock

$

0.19

$

(0.02)

Weighted average equivalent common shares outstanding

 

30,812,329

 

25,000,564

Weighted average equivalent common shares outstanding - assuming dilution

 

30,812,329

 

25,000,564

See accompanying notes to the condensed consolidated financial statements (unaudited).

4

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and amounts in thousands)

Three Months Ended March 31, 

    

2024

    

2023

 

Cash flows from operating activities:

Net income (loss)

$

5,846

$

(413)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

 

1,589

 

2,700

Operating lease cost

271

254

Deferred income tax (benefit) expense

 

 

(25)

Gain on disposal of assets

 

(42)

 

(11)

Remeasurement and other

 

5

 

Change in operating assets and liabilities:

Increase in accounts receivable

 

(2,208)

 

(7,467)

Decrease in employee retention credit receivable

 

 

3,035

Decrease (increase) in prepaid expenses and other assets

 

2,072

 

(2,833)

Increase in accounts payable

 

1,239

3,337

Decrease in accrued liabilities

(97)

(1,033)

Decrease in operating lease liabilities

(294)

(273)

(Decrease) increase in deferred revenue

(6,511)

909

Net cash provided by (used in) operating activities

 

1,870

 

(1,820)

Cash flows from investing activities:

Capital expenditures, net of non-cash capital expenditures summarized below

 

(684)

(1,606)

Proceeds from disposal of assets

162

11

Acquisition of short-term investments

(1,000)

Net cash used in investing activities

(522)

(2,595)

Cash flows from financing activities:

Principal payments on notes payable

(385)

(144)

Principal payments on finance leases

 

(197)

(25)

Breckenridge cash distributions prior to acquisition

(3,055)

Net cash used in financing activities

 

(582)

 

(3,224)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

(76)

(20)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

690

 

(7,659)

Cash and cash equivalents and restricted cash at beginning of period

 

15,772

 

23,603

Cash and cash equivalents and restricted cash at end of period

$

16,462

$

15,944

Supplemental cash flow information:

Cash paid for interest

$

42

$

14

Non-cash operating, investing and financing activities:

Increase (decrease) in accrued purchases of property and equipment

$

300

$

(605)

Finance leases incurred

$

556

$

116

Dividend accrual

$

9,860

$

Increase in right-of-use assets and operating lease liabilities

$

$

283

Financed insurance premiums

$

$

440

Convertible note for asset purchase

$

$

9,880

Deemed distribution of Breckenridge net assets not acquired

$

$

2,329

Acquisition of Breckenridge net assets

$

$

(1,335)

See accompanying notes to the condensed consolidated financial statements (unaudited).

5

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and amounts in thousands, except share data)

Equity

Accumulated

Attributable

Common Stock

Additional

Other

to Breckenridge

Number

Paid-in

Accumulated

Comprehensive

Prior to Acquisition

Of Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Total

 

Balance January 1, 2024

$

30,812,329

$

308

$

156,678

$

(123,640)

$

(1,912)

$

31,434

Net income

5,846

5,846

Unrealized loss on foreign exchange rate translation

(160)

(160)

Dividends declared

(9,860)

(9,860)

Balance March 31, 2024

$

30,812,329

$

308

$

156,678

$

(127,654)

$

(2,072)

$

27,260

Equity

Accumulated

Attributable

Common Stock

Additional

Other

to Breckenridge

Number

Paid-in

Accumulated

Comprehensive

Prior to Acquisition

Of Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Total

 

Balance January 1, 2023

$

7,695

23,812,329

$

238

$

155,413

$

(112,469)

$

(2,073)

$

48,804

Net (loss) income

(976)

563

(413)

Unrealized loss on foreign exchange rate translation

(6)

(6)

Issuance of stock for Breckenridge acquisition

(1,335)

1,188,235

12

2,008

685

Excess of purchase price over net assets acquired

(10,565)

(10,565)

Breckenridge cash distributions prior to acquisition

(3,055)

(3,055)

Deemed distribution of Breckenridge net assets not acquired

(2,329)

(2,329)

Balance March 31, 2023

$

25,000,564

$

250

$

146,856

$

(111,906)

$

(2,079)

$

33,121

See accompanying notes to the condensed consolidated financial statements (unaudited).

6

DAWSON GEOPHYSICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND NATURE OF OPERATIONS

Dawson Geophysical Company (the “Company”) is a leading provider of North American onshore seismic data acquisition services with operations throughout the continental United States (“U.S.”) and Canada. The Company acquires and processes 2-D, 3-D and multicomponent seismic data solely for its clients, ranging from major oil and gas companies to independent oil and gas operators as well as providers of multi-client data libraries.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Certain prior period amounts in the condensed consolidated financial statements may have been reclassified to conform to the current period’s presentation.

These condensed consolidated financial statements have been prepared using accounting principles generally accepted in the U.S. for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements presented in accordance with accounting principles generally accepted in the U.S. have been omitted.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The December 31, 2023 balance sheet information was derived from our audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Asset Purchase Agreement. On March 24, 2023, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Wilks Brothers, LLC (“Wilks”) and Breckenridge Geophysical, LLC (“Breckenridge”), a wholly owned subsidiary of Wilks. Pursuant to the Purchase Agreement, the Company completed the purchase of substantially all of the Breckenridge assets related to seismic data acquisition services other than its multi-client data library, in exchange for a combination of equity consideration and a convertible note (the “Transaction”). While the Transaction was structured as an asset purchase, the Company’s financial presentation reflects combined results of the two companies as if the combination occurred on January 14, 2022, the date Wilks became the majority shareholder of the Company. This is due to the fact that both the Company and Breckenridge were under Wilks’ control from January 14, 2022 forward. The presentation is required as a combination of entities under common control. As part of the Purchase Agreement, in addition to the 1,188,235 shares of our common stock issued to Wilks at closing, we entered into a convertible note to deliver approximately 5.8 million shares of common stock to Wilks after the Company receives shareholder approval of the proposal to issue the shares upon conversion of the convertible note in accordance with NASDAQ Listing Rule 5635 (the “Convertible Note”). The shareholders approved conversion of the Convertible Note during a special meeting held on September 13, 2023. Pursuant to the Purchase Agreement, the Convertible Note in the amount of $9.9 million was automatically converted into 5,811,765 newly-issued shares of the Company’s common stock following the requisite shareholder approval, and the Convertible Note was thereby extinguished.

The Purchase Agreement has been accounted for as a transfer of net assets between entities under common control in a manner similar to a pooling of interests. The Company’s historical consolidated financial statements include the effects on financial position, cash flows, and results of operations attributable to the activities of Breckenridge for all periods presented. The effects of transactions in Breckenridge’s equity prior to the Transaction have been presented as a separate component of stockholders’ equity on the Condensed Consolidated Balance Sheets and on the Condensed Consolidated Statements of Stockholders’ Equity to demonstrate the effects of those transactions on the Company’s historical consolidated financial statements.

Significant Accounting Policies

Principles of Consolidation. The condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024, and 2023, include the accounts of the Company and its wholly-owned subsidiaries, Dawson Operating LLC, Dawson

7

Seismic Services Holdings, Inc., Eagle Canada, Inc., Eagle Canada Seismic Services ULC, and Exploration Surveys, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Allowance for Current Expected Credit Losses. The Company’s allowance for credit losses reflects its current estimate expected to be incurred over the life of the financial instrument and is determined based on a number of factors. Management determines the need for any allowance for credit losses on accounts receivable based on its review of past-due accounts, its past experience of historical write-offs, its current client base, when customer accounts exceed 90 days past due and specific customer account reviews. While the collectability of outstanding client invoices is continually assessed, the inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of the Company’s clients. With the adoption of ASU No. 2016-13 in 2020, the Company made an accounting policy election to write off accrued interest amounts by reversing interest income. The Company's allowance for credit losses was $250,000 at March 31, 2024 and December 31, 2023.

Leases. The Company leases certain vehicles, seismic recording equipment, real property and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as a finance lease or an operating lease for financial reporting purposes. The assets and liabilities under finance leases are recorded at the lower of the present value of the minimum lease payments or the fair market value of the related assets. Assets under finance leases are amortized using the straight-line method over the initial lease term. Amortization of assets under finance leases is included in depreciation expense. For operating leases, where readily determinable, the Company uses the implicit interest rate in determining the present value of future minimum lease payments. In the absence of an implicit rate, the Company uses its incremental borrowing rate. The right-of-use assets are amortized to operating lease cost over the lease terms on a straight-line basis and is included in operating expense. Several of the Company’s leases include options to renew and the exercise of lease renewal options is primarily at the Company’s discretion.

Property and Equipment. Property and equipment is capitalized at historical cost, the fair value of assets acquired in a business combination, or historical carrying value of assets acquired from Breckenridge and is depreciated over the useful life of the asset. Management’s estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available, these estimates could change. Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.

Impairment of Long-lived Assets. Long-lived assets are reviewed for impairment when triggering events occur suggesting deterioration in the assets’ recoverability or fair value. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the assets and the fair value of the assets is below the carrying value of the assets. Management’s forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on the Company’s anticipated future results while considering anticipated future oil and natural gas prices, which is fundamental in assessing demand for the Company’s services. If the carrying amounts of the assets exceed the estimated expected undiscounted future cash flows, the Company measures the amount of possible impairment by comparing the carrying amount of the assets to the fair value.

Use of Estimates in the Preparation of Financial Statements. Preparation of the accompanying financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.

Revenue Recognition. Services are provided under cancelable service contracts which usually have an original expected duration of one year or less. These contracts are either “turnkey” or “term” agreements. Under both types of agreements, the Company recognizes revenues as the services are performed. Revenue is generally recognized based on square miles of data recorded compared to total square miles anticipated to be recorded on the survey using the total estimated revenue for the service contract. In the case of a cancelled service contract, the client is billed and revenue is recognized for any third party charges and square miles of data recorded up to the date of cancellation.

The Company receives reimbursements for certain out-of-pocket expenses under the terms of the service contracts. The amounts billed to clients are included at their gross amount in the total estimated revenue for the service contract.

Clients are billed as permitted by the service contract. Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. If billing occurs prior to the revenue recognition or billing exceeds the revenue recognized, the amount is considered deferred revenue and a contract liability. Conversely, if the revenue recognition exceeds the billing, the excess is considered an unbilled receivable and a contract asset. As services are performed, those deferred revenue amounts are recognized as revenue.

8

In some instances, third-party permitting, surveying, drilling, helicopter, equipment rental and mobilization costs that directly relate to the contract are utilized to fulfill the contract obligations. These fulfillment costs are capitalized in other current assets and generally amortized based on the total square miles of data recorded compared to total square miles anticipated to be recorded on the survey using the total estimated fulfillment costs for the service contract.

Estimates for total revenue and total fulfillment cost on any service contract are based on significant qualitative and quantitative judgments. Management considers a variety of factors such as whether various components of the performance obligation will be performed internally or externally, cost of third party services, and facts and circumstances unique to the performance obligation in making these estimates.

Risks and Uncertainties. The Company’s ability to be profitable in the future will depend on many factors beyond its control, but primarily on the level of demand for land-based seismic data acquisition services by oil and natural gas exploration and development companies. The Company earned net income of $5.8 million for the three months ended March 31, 2024, and incurred a net loss of $0.4 million for the same period of 2023. As of March 31, 2024, the Company had $16.5 million in cash, and a positive working capital balance of $11.3 million. We believe that our cash flows from operations, and our current financial position are adequate to fund our continued operations.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 seeks to improve disclosures about a public entity’s reportable segments and add disclosures around a reportable segment’s expenses. The updated guidance is effective for our annual periods beginning January 1, 2024, and interim periods within fiscal years beginning January 1, 2025. The Company is evaluating the impacts of adoption, which will be limited to additional disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 seeks to improve transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. The updated guidance is effective for the Company on January 1, 2025. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its financial statements and disclosures.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

At March 31, 2024 and December 31, 2023, the Company’s financial instruments included cash and cash equivalents, restricted cash, short-term investments in certificates of deposit, accounts receivable, other current assets, accounts payable, other current liabilities, notes payable, finance leases and operating lease liabilities. Due to the short-term maturities of cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and other current liabilities, the carrying amounts approximate fair value at the respective balance sheet dates. The carrying value of the notes payable, finance leases and operating lease liabilities approximate their fair value based on a comparison with the prevailing market interest rate. Due to the short-term maturities of the Company’s investments in certificates of deposit, the carrying amounts approximate fair value at the respective balance sheet dates. The fair values of the Company’s notes payable and investments in certificates of deposit are level 2 measurements in the fair value hierarchy.

4. OPERATING SEGMENTS

The Company’s chief operating decision maker (President and Chief Executive Officer) reviews the discrete segment financial information on a geographic basis for the U.S. operations and Canada Operations. The revenue for both of the Company’s segments is generated by the same services, which utilize the same type of equipment and personnel. The performance of our segments is evaluated primarily on Adjusted EBITDA. We define Adjusted EBITDA as our net income (loss), before (i) interest expense, net, (ii) income tax expense or benefit, (iii) depreciation, depletion and amortization and (iv) other unusual or non-recurring charges, such as severance expenses. As a result, the Company has two reportable segments, U.S. Operations and Canada Operations.

9

The following tables present the Company’s income statements by operating segment (in thousands):

Three Months Ended March 31, 2024

USA Operations

Canada Operations

Consolidated

Operating revenues

Fee revenue

$

18,287

$

8,451

$

26,738

Reimbursable revenue

4,809

37

4,846

23,096

8,488

31,584

Operating costs:

Fee operating expenses

13,179

4,317

17,496

Reimbursable operating expenses

4,809

37

4,846

Operating expenses

17,988

4,354

22,342

General and administrative

1,742

169

1,911

Depreciation and amortization

1,305

284

1,589

21,035

4,807

25,842

Income from operations

2,061

3,681

5,742

Other income (expense):

Interest income

99

14

113

Interest expense

(36)

(10)

(46)

Other income (expense)

245

(6)

239

Income before income tax

2,369

3,679

6,048

Income tax expense

(202)

(202)

Net income

2,167

3,679

5,846

Other comprehensive loss:

Net unrealized loss on foreign exchange rate translation

(160)

(160)

Comprehensive income

$

2,167

$

3,519

$

5,686

Three Months Ended March 31, 2023

USA Operations

Canada Operations

Consolidated

Operating revenues

Fee revenue

$

12,263

$

10,010

$

22,273

Reimbursable revenue

6,533

602

7,135

18,796

10,612

29,408

Operating costs:

Fee operating expenses

9,644

7,003

16,647

Reimbursable operating expenses

6,533

602

7,135

Operating expenses

16,177

7,605

23,782

General and administrative

3,102

397

3,499

Depreciation and amortization

2,118

582

2,700

21,397

8,584

29,981

(Loss) income from operations

(2,601)

2,028

(573)

Other income (expense):

Interest income

87

21

108

Interest expense

(12)

(5)

(17)

Other income, net

49

3

52

(Loss) income before income tax

(2,477)

2,047

(430)

Income tax benefit

17

17

Net (loss) income

(2,460)

2,047

(413)

Other comprehensive loss:

Net unrealized loss on foreign exchange rate translation

(6)

(6)

Comprehensive (loss) income

$

(2,460)

$

2,041

$

(419)

10

The following table presents the Company’s total assets (unaudited and in thousands) disaggregated by operating segment:

March 31,

December 31,

    

2024

2023

Total Assets

United States

$

42,518

$

48,495

Canada

15,262

9,024

Total Assets

$

57,780

$

57,519

The reconciliation of the Company’s EBITDA to net income (loss) and to net cash provided by (used in) operating activities, which are the most directly comparable GAAP financial measures, are provided in the following tables (in thousands):

Three Months Ended March 31,

2024 US

2024 CA

2024 Consol.

2023 US

2023 CA

2023 Consol.

Net income (loss)

$

2,167

$

3,679

$

5,846

$

(2,460)

$

2,047

$

(413)

Depreciation and amortization

1,305

284

1,589

2,118

582

2,700

Severance expense

Interest (income) expense, net

(63)

(4)

(67)

(75)

(16)

(91)

Income tax expense (benefit)

202

202

(17)

(17)

EBITDA

$

3,611

$

3,959

$

7,570

$

(434)

$

2,613

$

2,179

Three Months Ended March 31,

2024 US

2024 CA

2024 Consol.

2023 US

2023 CA

2023 Consol.

Net cash provided by (used in) operating activities

$

1,996

$

(126)

$

1,870

$

2,578

$

(4,398)

$

(1,820)

Changes in working capital and other items

1,835

4,136

5,971

(2,794)

7,047

4,253

Non-cash adjustments to net income (loss)

(220)

(51)

(271)

(218)

(36)

(254)

EBITDA

$

3,611

$

3,959

$

7,570

$

(434)

$

2,613

$

2,179

5. DEBT

Dominion Loan Agreement

On September 30, 2019, the Company entered into a Loan and Security Agreement with Dominion Bank, a Texas state bank (“Dominion Bank”). On September 30, 2023, the Company entered into a Fifth Loan Modification Agreement (the “Fifth Modification Agreement”) to the Loan and Security Agreement (as amended by (i) that certain Loan Modification Agreement dated as of September 30, 2020, (ii) that certain Second Loan Modification Agreement dated as of September 30, 2021, (iii) that certain Third Loan Modification Agreement dated as of September 30, 2022, (iv) that certain Fourth Modification Agreement dated as of March 21, 2023, and (v) the Fifth Modification Agreement, the “Loan Agreement”). The Loan Agreement now provides for a secured revolving credit facility (the “Revolving Credit Facility”) in an amount up to the lesser of (I) an amount equal to the Borrowing Base or (II) $5 million. The Company’s obligations under the Loan Agreement are secured by a Certificate of Deposit with Dominion Bank for $5 million (the “Deposit”) in the Company’s collateral account. As of March 31, 2024, the Company had not borrowed any amounts under the Revolving Credit Facility and had approximately $5 million available for withdrawal. On May 2, 2024, the collateral deposit of $5 million was released and the Loan Agreement was terminated.

Dominion Letters of Credit

As of March 31, 2024, Dominion Bank has issued one letter of credit in the amount of $265,000 to support the Company’s workers compensation insurance. The letter of credit is secured by a certificate of deposit with Dominion Bank.

Other Indebtedness

As of March 31, 2024, the Company has one short-term note payable to a finance company for various insurance premiums totaling $526,000.

In addition, the Company leases certain seismic recording equipment and vehicles under leases classified as finance leases. The Company’s Condensed Consolidated Balance Sheet as of March 31, 2024 includes finance leases of $2.1 million.

11

Maturities and Interest Rates of Debt

The following tables set forth the aggregate principal amount (in thousands) under the Company’s outstanding notes payable and the interest rates as of March 31, 2024 and December 31, 2023:

    

March 31, 2024

December 31, 2023

Notes payable to finance company for insurance

Aggregate principal amount outstanding

$

526

$

910

Interest rate 8.75%

The aggregate maturities of finance leases as of March 31, 2024 are as follows (in thousands):

April 2024 - March 2025

$

586

April 2025 - March 2026

671

April 2026 - March 2027

619

April 2027 - March 2028

229

Obligations under finance leases

$

2,105

Interest rates on these leases range from 4.86% to 8.74%.

6. LEASES

The Company leases certain vehicles, seismic recording equipment, real property and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating lease or finance lease for financial reporting purposes. The majority of our operating leases are non-cancelable operating leases for office and shop space in Midland, Plano, Houston and Calgary, Alberta. There have been no material changes to our leases since the Company’s most recent Annual Report on Form 10-K that was filed with the SEC on April 1, 2024.

Maturities of lease liabilities as of March 31, 2024 are as follows (in thousands):

Operating Leases

Finance Leases

April 2024 - March 2025

$

1,278

$

706

April 2025 - March 2026

1,075

750

April 2026 - March 2027

1,093

653

April 2027 - March 2028

78

235

April 2028 - March 2029

6

Thereafter

Total payments under lease agreements

3,530