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Table of Contents

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 September 30, 2020

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 October 30, 2020

Common Stock, $0.01 par value

23,478,072 shares

Table of Contents

DAWSON GEOPHYSICAL COMPANY

INDEX

    

Page
Number

Part I. FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Condensed Consolidated Balance Sheets at September 30, 2020 (unaudited) and December 31, 2019

3

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited)

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

8

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

15

Item 3. Quantitative and Qualitative Disclosures about Market Risk

21

Item 4. Controls and Procedures

21

Part II. OTHER INFORMATION

21

Item 1. Legal Proceedings

21

Item 1A. Risk Factors

22

Item 6. Exhibits

23

Signatures

24

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

    

September 30, 

December 31,

 

2020

2019

Assets

Current assets:

Cash and cash equivalents

$

45,422

$

26,271

Restricted cash

5,000

5,000

Short-term investments

 

583

 

2,350

Accounts receivable, net

4,987

 

24,356

Current maturities of notes receivable

1,434

66

Prepaid expenses and other current assets

3,499

7,575

Total current assets

 

60,925

 

65,618

Property and equipment, net

42,449

53,549

Right-of-use assets

5,736

6,605

Notes receivable, net of current maturities

1,394

Intangibles, net

375

385

Long-term deferred tax assets, net

57

Total assets

$

109,485

$

127,608

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

908

$

3,952

Accrued liabilities:

 

 

Payroll costs and other taxes

 

1,230

 

1,963

Other

 

2,304

 

3,599

Deferred revenue

 

374

 

3,481

Current maturities of notes payable and finance leases

 

215

 

4,062

Current maturities of operating lease liabilities

1,097

1,200

Total current liabilities

 

6,128

 

18,257

Long-term liabilities:

 

 

Notes payable and finance leases, net of current maturities

 

51

 

96

Operating lease liabilities, net of current maturities

5,157

5,940

Deferred tax liabilities, net

22

Other accrued liabilities

150

Total long-term liabilities

 

5,230

 

6,186

Operating 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,

23,526,517 and 23,335,855 shares issued, and 23,478,072 and 23,287,410

shares outstanding at September 30, 2020 and December 31, 2019, respectively

 

235

 

233

Additional paid-in capital

 

154,763

 

154,235

Retained deficit

 

(55,078)

 

(49,731)

Treasury stock, at cost; 48,445 shares

Accumulated other comprehensive loss, net

 

(1,793)

 

(1,572)

Total stockholders’ equity

 

98,127

 

103,165

Total liabilities and stockholders’ equity

$

109,485

$

127,608

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

3

Table of Contents

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

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

Three Months Ended September 30, 

Nine Months Ended September 30, 

2020

    

2019

    

2020

    

2019

 

Operating revenues

$

8,738

$

36,976

$

77,216

$

112,216

Operating costs:

Operating expenses

 

9,441

 

26,030

 

58,189

 

92,210

General and administrative

 

3,270

 

3,797

 

11,205

 

13,390

Depreciation and amortization

 

4,125

 

5,238

 

13,412

 

16,644

 

16,836

 

35,065

 

82,806

 

122,244

(Loss) income from operations

 

(8,098)

 

1,911

 

(5,590)

 

(10,028)

Other income (expense):

Interest income

106

152

326

445

Interest expense

 

(10)

 

(101)

 

(80)

 

(381)

Other income (expense), net

177

11

12

433

(Loss) income before income tax

 

(7,825)

 

1,973

 

(5,332)

 

(9,531)

Income tax (expense) benefit

 

(15)

25

 

(15)

146

Net (loss) income

(7,840)

1,998

(5,347)

(9,385)

Other comprehensive income (loss):

Net unrealized income (loss) on foreign exchange rate translation, net

374

(103)

(221)

280

Comprehensive (loss) income

$

(7,466)

$

1,895

$

(5,568)

$

(9,105)

Basic (loss) income per share of common stock

$

(0.33)

$

0.09

$

(0.23)

$

(0.41)

Diluted (loss) income per share of common stock

$

(0.33)

$

0.09

$

(0.23)

$

(0.41)

Weighted average equivalent common shares outstanding

 

23,423,437

 

23,222,045

 

23,350,204

 

23,152,776

Weighted average equivalent common shares outstanding - assuming dilution

 

23,423,437

 

23,337,903

 

23,350,204

 

23,152,776

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

4

Table of Contents

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and amounts in thousands)

Nine Months Ended September 30, 

    

2020

    

2019

 

Cash flows from operating activities:

Net loss

$

(5,347)

$

(9,385)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

 

13,412

 

16,644

Operating lease cost

916

903

Non-cash compensation

 

600

 

951

Deferred income tax expense (benefit)

 

79

 

(209)

Change in other accrued long-term liabilities

(150)

Gain on disposal of assets

(3)

(85)

Remeasurement and other

 

68

 

(118)

Change in operating assets and liabilities:

 

 

Decrease (increase) in accounts receivable

 

19,373

 

(10,549)

Decrease in prepaid expenses and other assets

 

4,505

 

2,303

(Decrease) increase in accounts payable

 

(2,957)

 

1,793

(Decrease) increase in accrued liabilities

 

(2,011)

2,332

Decrease in operating lease liabilities

(930)

(852)

Decrease in deferred revenue

 

(3,107)

(2,531)

Net cash provided by operating activities

 

24,448

 

1,197

Cash flows from investing activities:

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

 

(2,822)

(3,649)

Proceeds from maturity of short-term investments

1,767

28,000

Acquisition of short-term investments

(24,842)

Proceeds from disposal of assets

225

272

Proceeds from notes receivable

 

26

38

Net cash used in investing activities

(804)

(181)

Cash flows from financing activities:

Proceeds from notes payable

6,374

Principal payments on notes payable

(8,393)

(7,867)

Principal payments on finance leases

 

(2,291)

 

(2,126)

Tax withholdings related to stock-based compensation awards

(70)

(236)

Net cash used in financing activities

 

(4,380)

 

(10,229)

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

(113)

154

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

 

19,151

 

(9,059)

Cash and cash equivalents and restricted cash at beginning of period

 

31,271

 

28,729

Cash and cash equivalents and restricted cash at end of period

$

50,422

$

19,670

Supplemental cash flow information:

Cash paid for interest

$

89

$

390

Cash paid for income taxes

$

83

$

14

Cash received for income taxes

$

206

$

55

Non-cash operating, investing and financing activities:

Decrease in accrued purchases of property and equipment

$

(61)

$

(928)

Finance leases incurred

$

$

121

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

$

63

$

8,226

Decrease in right-of-use assets for accrued rent

$

$

(497)

Increase in right-of-use assets for prepaid rent

$

3

$

14

Financed insurance premiums

$

433

$

337

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

5

Table of Contents

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and amounts in thousands, except share data)

Accumulated

Common Stock

Additional

Other

Number

Paid-in

Retained

Comprehensive

Of Shares

    

Amount

    

Capital

    

Deficit

    

(Loss) Income

    

Total

 

Balance December 31, 2019

23,335,855

$

233

$

154,235

$

(49,731)

$

(1,572)

$

103,165

Net income

993

993

Unrealized loss on foreign exchange rate translation

(1,199)

Income tax benefit

Other comprehensive loss

(1,199)

(1,199)

Stock-based compensation expense

203

203

Balance March 31, 2020

23,335,855

233

154,438

(48,738)

(2,771)

103,162

Net income

1,500

1,500

Unrealized income on foreign exchange rate translation

604

Income tax expense

Other comprehensive income

604

604

Issuance of common stock under stock compensation plans

78,600

1

(1)

Stock-based compensation expense

271

271

Shares exchanged for taxes on stock-based compensation

(15,420)

(17)

(17)

Balance June 30, 2020

23,399,035

234

154,691

(47,238)

(2,167)

105,520

Net loss

(7,840)

(7,840)

Unrealized income on foreign exchange rate translation

374

Income tax expense

Other comprehensive income

374

374

Issuance of common stock under stock compensation plans

157,500

2

(2)

Stock-based compensation expense

126

126

Shares exchanged for taxes on stock-based compensation

(30,018)

(1)

(52)

(53)

Balance September 30, 2020

23,526,517

$

235

$

154,763

$

(55,078)

$

(1,793)

$

98,127

6

Table of Contents

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(unaudited and amounts in thousands, except share data)

Accumulated

Common Stock

Additional

Other

Number

Paid-in

Retained

Comprehensive

Of Shares

    

Amount

    

Capital

    

Deficit

    

(Loss) Income

    

Total

Balance December 31, 2018

23,018,441

$

230

$

153,268

$

(34,518)

$

(1,964)

$

117,016

Net loss

(137)

(137)

Unrealized income on foreign exchange rate translation

269

Income tax expense

(60)

Other comprehensive income

209

209

Issuance of common stock under stock compensation plans

229,459

2

(2)

Stock-based compensation expense

297

297

Issuance of common stock as compensation

24,785

73

73

Shares exchanged for taxes on stock-based compensation

(53,201)

(206)

(206)

Balance March 31, 2019

23,219,484

232

153,430

(34,655)

(1,755)

117,252

Net loss

(11,246)

(11,246)

Unrealized income on foreign exchange rate translation

224

Income tax expense

(50)

Other comprehensive income

174

174

Issuance of common stock under stock compensation plans

34,000

Stock-based compensation expense

221

221

Issuance of common stock as compensation

29,016

1

73

74

Shares exchanged for taxes on stock-based compensation

(12,400)

(30)

(30)

Balance June 30, 2019

23,270,100

233

153,694

(45,901)

(1,581)

106,445

Net income

1,998

1,998

Unrealized loss on foreign exchange rate translation

(133)

Income tax benefit

30

Other comprehensive loss

(103)

(103)

Stock-based compensation expense

209

209

Issuance of common stock as compensation

35,850

77

77

Balance September 30, 2019

23,305,950

$

233

$

153,980

$

(43,903)

$

(1,684)

$

108,626

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

7

Table of Contents

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, 2019.

Significant Accounting Policies

Principles of Consolidation. The condensed consolidated financial statements for the three and nine months ended September 30, 2020 include the accounts of the Company and its wholly-owned subsidiaries, Dawson Operating LLC, Eagle Canada, Inc., Dawson Seismic Services Holdings, Inc., Eagle Canada Seismic Services ULC and Exploration Surveys, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Allowance for Doubtful Accounts. Management prepares its allowance for doubtful accounts receivable based on our current estimate of expected credit losses by review of its past-due accounts, its past experience of historical write-offs, its current client base and general market conditions. 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.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments, which requires entities to measure expected credit losses for certain financial assets using a new, forward-looking current expected credit loss model (“CECL”) that will result in the earlier recognition of allowances for losses. Subsequent ASUs were issued to provide additional guidance.

On January 1, 2020, the Company adopted Topic 326 using the modified retrospective method. The provisions of Topic 326 did not significantly impact the method or timing that the Company recognizes expected credit losses and the cumulative effect of adoption was immaterial on its consolidated financial statements. The Company’s financial instruments within the scope of this guidance primarily includes trade receivables. The Company’s allowance for doubtful accounts was $250,000 at September 30, 2020 and December 31, 2019.

Notes Receivable. The Company’s notes receivable consist of one note receivable from the purchaser of certain dynamite energy source drilling equipment. This note receivable is stated at the unpaid principal balance. An allowance for note losses was not deemed necessary at September 30, 2020. Interest is recognized over the term of the note and is calculated using the simple-interest method. Amounts

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payable to the Company under the note receivable are fully collateralized by the specific dynamite energy source drilling equipment sold to the note payor. This financial instrument also falls within the scope of Topic 326.

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. Operating lease right-of-use assets and liabilities, primarily for office and shop space, are recognized based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicit rate, an incremental borrowing rate was used in determining the present value. The Company will use the implicit rate when readily determinable. The Company’s operating lease terms may include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Operating lease cost for lease payments will be recognized on a straight-line basis over the lease term and is included in operating expense.

Property and Equipment. Property and equipment is capitalized at historical cost or the fair value of assets acquired in a business combination 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.

Stock-Based Compensation. The Company measures all stock-based compensation awards, which include stock options, restricted stock, restricted stock units and common stock awards, using the fair value method and recognizes compensation expense as operating or general and administrative expense, as appropriate, in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income on a straight-line basis over the vesting period of the related awards.

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.

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

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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.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance to improve consistent application. This ASU is effective for the annual period beginning after December 15, 2020, including interim periods within that annual period. Certain amendments within this ASU are required to be applied on a retrospective basis for all periods presented; others are to be applied using a modified retrospective approach with a cumulative-effect adjustment to retained earnings, if any, as of the beginning of the first reporting period in which the guidance is adopted; and yet others are to be applied using either basis. All other amendments not specified in the ASU should be applied on a prospective basis. Early adoption is permitted. An entity that elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement by removing, modifying, and adding certain disclosures. This ASU is effective for the annual period beginning after December 15, 2019, including interim periods within that annual period. The Company adopted this guidance in the first quarter of 2020 and it did not have a material impact on its consolidated financial statements.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

At September 30, 2020 and December 31, 2019, the Company’s financial instruments included cash and cash equivalents, restricted cash, short-term investments in certificates of deposit, accounts receivable, notes 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 receivable, 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 receivable, notes payable and investments in certificates of deposit are level 2 measurements in the fair value hierarchy.

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4. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION

Disaggregated Revenues

The Company has one line of business, acquiring and processing seismic data in North America. Our chief operating decision maker (President, Chief Executive Officer and Chairman of the Board) makes operating decisions and assesses performance based on the Company as a whole. Accordingly, the Company is considered to be in a single reportable segment. The following table presents the Company’s operating revenues (unaudited and in thousands) disaggregated by geographic region:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

2020

2019

Operating Revenues

United States

$

8,738

$

36,814

 

$

65,408

 

$

96,496

Canada

 

 

162

 

11,808

 

15,720

Total

$

8,738

$

36,976

$

77,216

$

112,216

Deferred Costs (in thousands)

Deferred costs are included within prepaid expenses and other current assets. The opening balance of deferred costs was $2,525 and $6,994 at January 1, 2020 and 2019, respectively. The amount of deferred costs incurred to fulfill contracts with customers at September 30, 2020 and 2019 was $417 and $7,001, respectively.

Deferred costs at September 30, 2020 compared to January 1, 2020 decreased primarily as a result of the completion of several projects during that nine month period that had significant deferred fulfillment costs at January 1, 2020. Deferred costs at September 30, 2019 compared to January 1, 2019 remained fairly consistent.

The amount of total deferred costs amortized for the three and nine months ended September 30, 2020 was $1,128 and $12,023, respectively. The amount of total deferred costs amortized for the three and nine months ended September 30, 2019 was $6,806 and $27,253, respectively. There were no material impairment losses incurred during these periods.

Deferred Revenue (in thousands)

The opening balance of deferred revenue was $3,481 and $10,501 at January 1, 2020 and 2019, respectively. The Company’s deferred revenue at September 30, 2020 and 2019 was $374 and $7,970, respectively.

Deferred revenue at September 30, 2020 compared to January 1, 2020 and at September 30, 2019 compared to January 1, 2019 decreased primarily as a result of completing projects for clients with large prepayments for third party reimbursables.

Revenue recognized for the three and nine months ended September 30, 2020 that was included in the contract liability balance at the beginning of 2020 was $129 and $3,476, respectively. Revenue recognized for the three and nine months ended September 30, 2019 that was included in the contract liability balance at the beginning of 2019 was $427 and $8,604, respectively.

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, 2020, the Company entered into a Loan Modification Agreement to the Loan and Security Agreement (as amended by the Loan Modification Agreement, the “Loan Agreement”) for the purpose of amending and extending the maturity of the Company’s line of credit with Dominion Bank by one year. The Loan Agreement provides for a revolving credit facility (the “Revolving Credit Facility”) in an amount up to the lesser of (i) $15,000,000 or (ii) a sum equal to (a) 80% of the Company’s eligible accounts receivable plus 100% of the amount on deposit with Dominion Bank in the Company’s collateral account, consisting of a restricted CDARS account of $5,000,000 (the “Deposit”). As of September 30, 2020, the Company has not borrowed any amounts under the Revolving Credit Facility.

Under the Revolving Credit Facility, interest will accrue at an annual rate equal to the lesser of (i) 6.00% and (ii) the greater of (a) the prime rate as published from time to time in The Wall Street Journal or (b) 3.50%. The Company will pay a commitment fee of 0.10% per annum on the difference of (a) $15,000,000 minus the Deposit minus (b) the daily average usage of the Revolving Credit Facility. The Loan Agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets. The Company is

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also obligated to meet certain financial covenants under the Loan Agreement, including maintaining a tangible net worth of $75,000,000 and specified ratios with respect to current assets and liabilities and debt to tangible net worth. The Company’s obligations under the Loan Agreement are secured by a security interest in the collateral account (including the Deposit) with Dominion Bank and future accounts receivable and related collateral. The maturity date of the Loan Agreement is September 30, 2021.

The Company does not currently have any notes payable under the Revolving Credit Facility.

Veritex Letters of Credit

As of September 30, 2020, Veritex Community Bank (“Veritex”) had issued two letters of credit to the Company, each of which were secured by a certificate of deposit with Veritex. The first letter of credit was in the amount of $1,767,000 to support payment of certain insurance obligations of the Company. The second letter of credit was in the amount of $583,000 to support the Company’s workers compensation insurance. During October of 2020, the letter of credit in the amount of $1,767,000 to support payment of certain insurance obligations of the Company was terminated at the request of the Company because the beneficiary no longer required it to secure such obligations. Also during October of 2020, Veritex, at the Company’s request, terminated the second letter of credit in the amount of $583,000 to support the Company’s workers compensation insurance and the Company simultaneously had a replacement letter of credit issued in the same amount by its principal lender, Dominion Bank. The letter of credit is secured by a certificate of deposit with Dominion Bank.

Other Indebtedness (in thousands)

As of September 30, 2020, the Company has one note payable to a finance company for various insurance premiums totaling $160,000.

In addition, the Company leases certain seismic recording equipment and vehicles under leases classified as finance leases. The Company’s Condensed Consolidated Balance Sheets as of September 30, 2020 include finance leases of $106,000.

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 September 30, 2020 and December 31, 2019:

    

September 30, 2020

December 31, 2019

Notes payable to finance company for insurance

Aggregate principal amount outstanding

$

160

$

1,746

Interest rate

4.99%

4.05% - 4.99%

The aggregate maturities of notes payable as of September 30, 2020 are as follows (in thousands):

October 2020 - September 2021

$

160

Total notes payable

$

160

The aggregate maturities of finance leases as of September 30, 2020 are as follows (in thousands):

October 2020 - September 2021

$

55

October 2021 - September 2022

41

October 2022 - September 2023

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Obligations under finance leases

$

106

Interest rates on these leases range from 4.83% to 5.37%.

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, Denison, Houston, Denver, Oklahoma City and Calgary, Alberta.

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