Item 9A. Controls and Procedures
Item 9A. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive, financial and accounting officers, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer, and our Executive Vice President, Chief Financial Officer, Secretary, and Treasurer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective, in all material respects, with regard to the recording, processing, summarizing and reporting, within the time periods specified in the SEC’s rules and forms, for information required to be disclosed by us in the reports that we file or submit under the Exchange Act. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer, and our Executive Vice President, Chief Financial Officer, Secretary, and Treasurer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including our President and Chief Executive Officer, and Executive Vice President, Chief Financial Officer, Secretary, and Treasurer, we evaluated the effectiveness of our internal controls over financial reporting as of December 31, 2022 using the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, we have concluded that, as of December 31, 2022, our internal control over financial reporting was effective. Our internal control over financial reporting as of December 31, 2022 has not been audited by RSM US LLP, the independent registered public accounting firm who audited our financial statements as this audit is not required because the company qualifies for smaller reporting company filing status.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
25
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Item 9B. OTHER INFORMATION
None.
Part III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 of Form 10-K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required with respect to our equity compensation plans is set forth in Item 5 of this Form 10-K. Other information required by Item 12 of Form 10-K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Form 10-K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 of Form 10-K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
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Table of Contents
Part IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report:
(1)
Financial Statements.
The following consolidated financial statements of the Company appear on pages F-1 through F-21 and are incorporated by reference into Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
(2)
Financial Statement Schedules.
All schedules are omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto.
(3)
Exhibits.
The information required by this item 15(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K and is hereby incorporated by reference.
27
Table of Contents
INDEX TO EXHIBITS
EXHIBIT NO.
DESCRIPTION
2.1
Agreement and Plan of Merger, dated October 25, 2021, by and between the Registrant, Wilks Brothers, LLC and WB Acquisitions Inc., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on October 25, 2021, and incorporated herein by reference.
2.2
Amendment No. 1 to Agreement and Plan of Merger, dated December 14, 2021, by and between the Registrant, Wilks Brothers, LLC and WB Acquisitions Inc., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on December 17, 2021, and incorporated herein by reference.
2.3
Amendment No. 2 to Agreement and Plan of Merger, dated January 4, 2022, by and between the Registrant, Wilks Brothers, LLC and WB Acquisitions Inc., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on January 5, 2022, and incorporated herein by reference.
2.4
Amendment No. 3 to Agreement and Plan of Merger, dated January 10, 2022, by and between the Registrant, Wilks Brothers, LLC and WB Acquisitions Inc., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on January 10, 2022, and incorporated herein by reference.
3.1
Amended and Restated Certificate of Formation, as amended February 11, 2015, filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K, filed on March 16, 2015, and incorporated herein by reference.
3.2
Bylaws, as amended February 11, 2015, filed as Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, filed on March 16, 2015, and incorporated herein by reference.
3.3
Statement of Resolutions Establishing Series of Shares designated Series A Junior Participating Preferred Stock of the Registrant, filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed April 8, 2021, and incorporated herein by reference.
4.1
Form of Specimen Stock Certificate, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on February 11, 2015, and incorporated herein by reference.
*4.2
Description of Securities.
4.3
Rights Agreement, dated as of April 8, 2021 between the Registrant and American Stock Transfer & Trust Company, LLC, as Rights Agent, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed April 8, 2021, and incorporated herein by reference.
4.4
Amendment to Rights Agreement, dated October 25, 2021, between the Registrant and American Stock Transfer & Trust Company, LLC, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 25, 2021, and incorporated herein by reference.
+10.1
The Executive Nonqualified “Excess” Plan Adoption Agreement, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on January 8, 2013, and incorporated herein by reference.
+10.2
The Executive Nonqualified Excess Plan Document, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on January 8, 2013, and incorporated herein by reference.
+10.3
Form of Indemnification Agreement entered with directors and executive officers, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 9, 2014, and incorporated herein by reference.
28
Table of Contents
EXHIBIT NO.
DESCRIPTION
+10.4
Employment Agreement, dated October 8, 2014, by and between the Registrant and Stephen C. Jumper, filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed on October 9, 2014, and incorporated herein by reference.
+10.5
Employment Agreement, dated October 8, 2014, by and between the Registrant and C. Ray Tobias, filed as Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, filed on October 9, 2014, and incorporated herein by reference.
+10.6
Employment Agreement, dated October 8, 2014, by and between the Registrant and James K. Brata, filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on October 9, 2014, and incorporated herein by reference.
+10.7
Employment Agreement, dated October 8, 2014, by and between the Registrant and James W. Thomas, filed as Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, filed on October 9, 2014, and incorporated herein by reference.
+10.8
Letter Agreement, dated February 15, 2016, by and between James K. Brata and the Company, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 19, 2016, and incorporated herein by reference.
+10.9
Letter Agreement, dated February 15, 2016, by and between Stephen C. Jumper and the Company, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on February 19, 2016, and incorporated herein by reference.
+10.10
Letter Agreement, dated February 15, 2016, by and between James W. Thomas and the Company, filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on February 19, 2016, and incorporated herein by reference.
+10.11
Letter Agreement, dated February 15, 2016, by and between C. Ray Tobias and the Company, filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed on February 19, 2016, and incorporated herein by reference.
+10.12
Letter Agreement, dated May 4, 2018, by and between James K. Brata and the Company, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 4, 2018, and incorporated herein by reference.
+10.13
Letter Agreement, dated May 4, 2018, by and between Stephen C. Jumper and the Company, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on May 4, 2018, and incorporated herein by reference.
+10.14
Letter Agreement, dated May 4, 2018, by and between James W. Thomas and the Company, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on May 4, 2018, and incorporated herein by reference.
+10.15
Letter Agreement, dated May 4, 2018, by and between C. Ray Tobias and the Company, filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on May 4, 2018, and incorporated herein by reference.
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EXHIBIT NO.
DESCRIPTION
+10.16
Amended and Restated Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (the “Legacy Dawson Plan”), filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on February 11, 2015, and incorporated herein by reference.
+10.17
Form of Restricted Stock Agreement for the Legacy Dawson Plan, filed as Exhibit 10.5 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10-K, filed on December 11, 2013 (File No. 001-34404), and incorporated herein by reference.
+10.18
Form of Restricted Stock Unit Agreement for the Legacy Dawson Plan, filed as Exhibit 10.5 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10-K, filed on December 11, 2013 (File No. 001-34404), and incorporated herein by reference.
+10.19
Form of Stock Option Agreement for the Legacy Dawson Plan, filed as Exhibit 10.4 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Quarterly Report on Form 10-Q, filed on February 11, 2008 (File No. 001-34404), and incorporated herein by reference.
+10.20
Form of Stock Option Agreement for the Legacy Dawson Plan, filed as Exhibit 10.9 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10-K, filed on December 11, 2013 (File No. 001-34404), and incorporated herein by reference.
+10.21
Dawson Geophysical 2014 Annual Incentive Plan, filed as Exhibit 10.1 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Current Report on Form 8-K, filed on November 25, 2013 (File No. 001-34404), and incorporated herein by reference.
10.22
Form of Master Geophysical Data Acquisition Agreement, filed as Exhibit 10.10 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10-K, filed on December 5, 2012 (File No. 001-34404), and incorporated herein by reference.
10.23
Form of Supplemental Agreement to Master Geophysical Data Acquisition Agreement, filed as Exhibit 10.11 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10-K, filed on December 5, 2012 (File No. 001-34404), and incorporated herein by reference.
+10.24
Amended and Restated 2006 Stock Awards Plan of the Company (formerly known as the TGC Industries, Inc. 2006 Stock Awards Plan, i.e., the Legacy TGC Plan), filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-32472), filed on June 5, 2015, and incorporated herein by reference.
+10.25
Dawson Geophysical Company 2016 Stock and Performance Incentive Plan, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on May 5, 2016, and incorporated herein by reference.
10.26
Loan and Security Agreement, by and between Dawson Geophysical Company and Dominion Bank, dated September 30, 2019, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 1, 2019, and incorporated herein by reference.
10.27
Loan Modification Agreement to Loan and Security Agreement, by and between Dawson Geophysical Company and Dominion Bank, dated September 30, 2020, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on September 30, 2020, and incorporated herein by reference.
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Table of Contents
EXHIBIT NO.
DESCRIPTION
+10.28
Letter Agreement, dated April 15, 2020, by and between James K. Brata and the Company, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on April 21, 2020, and incorporated herein by reference.
+10.29
Letter Agreement, dated April 15, 2020, by and between Stephen C. Jumper and the Company, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on April 21, 2020, and incorporated herein by reference.
+10.30
Letter Agreement, dated April 15, 2020, by and between James W. Thomas and the Company, filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on April 21, 2020, and incorporated herein by reference.
+10.31
Letter Agreement, dated April 15, 2020, by and between C. Ray Tobias and the Company, filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed on April 21, 2020, and incorporated herein by reference.
+10.32
Letter Agreement, dated September 30, 2020, by and between Stephen C. Jumper and the Company, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on September 30, 2020, and incorporated herein by reference.
+10.33
Amended and Restated Dawson Geophysical Company 2016 Stock and Performance Incentive Plan, effective as of April 24, 2020, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed on May 14, 2021, and incorporated herein by reference.
10.34
Second Loan Modification Agreement to Loan and Security Agreement, by and between the Registrant and Dominion Bank, dated September 30, 2021, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 1, 2021, and incorporated herein by reference.
+10.35
Waiver Acknowledgement, dated January 10, 2022, by and between the Registrant and Stephen C. Jumper, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 10, 2022, and incorporated herein by reference.
10.36
Third Loan Modification Agreement to Loan and Security Agreement, by and between the Registrant and Dominion Bank, dated September 30, 2022, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 4, 2022, and incorporated herein by reference.
+10.37
Letter Agreement, dated November 11, 2022, by and between C. Ray Tobias and the Company, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 16, 2022, and incorporated herein by reference.
+10.38
Letter Agreement, dated November 11, 2022, by and between James K. Brata and the Company, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on November 16, 2022, and incorporated herein by reference.
+10.39
Letter Agreement, dated February 14, 2023, by and between Stephen C. Jumper and the Company, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 21, 2023, and incorporated herein by reference.
*21.1
Subsidiaries of the Registrant.
31
Table of Contents
EXHIBIT NO.
DESCRIPTION
*23.1
Consent of RSM US LLP, independent registered public accounting firm to incorporation of report by reference.
*31.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
Inline XBRL Instance Document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document).
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
32
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Midland, and the State of Texas, on the 13 th day of March, 2023.
DAWSON GEOPHYSICAL COMPANY
By:
/s/ Stephen jumper
Stephen Jumper
President and Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Matthew Wilks
Matthew Wilks
Chairman of the Board of Directors
03-13-23
/s/ Bruce Bradley
Bruce Bradley
Director
03-13-23
/s/ Albert Conly
Albert Conly
Director
03-13-23
/s/ Jose Carlos Fernandes
Jose Carlos Fernandes
Director
03-13-23
/s/ Sergei Krylov
Sergei Krylov
Director
03-13-23
/s/ Stephen Jumper
Stephen Jumper
President and Chief Executive Officer
(principal executive officer)
03-13-23
/s/ James Brata
James Brata
Executive Vice President, Chief Financial Officer, Secretary, and Treasurer
(principal financial and accounting officer)
03-13-23
33
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of Dawson Geophysical Company
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 49 )
F-2
Consolidated Balance Sheets as of December 31, 2022 and 2021
F-3
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021
F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022 and 2021
F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
F-6
Notes to Consolidated Financial Statements
F-7
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Dawson Geophysical Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Dawson Geophysical Company and its subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ( PCAOB ) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. We determined that there were no critical audit matters.
/s/ RSM US LLP
We have served as the Company's auditor since 2016.
Houston, Texas
March 13, 2023
F-2
Table of Contents
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
December 31,
December 31,
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
13,914
$
25,376
Restricted cash
5,000
5,000
Short-term investments
265
265
Accounts receivable, net of allowance for doubtful accounts of $ 250
at December 31, 2022 and 2021
6,945
8,905
Employee retention credit receivable
3,035
—
Prepaid expenses and other current assets
8,876
3,313
Total current assets
38,035
42,859
Property and equipment
244,830
253,066
Less accumulated depreciation
( 226,703 )
( 226,717 )
Property and equipment, net
18,127
26,349
Right-of-use assets
4,010
4,435
Intangibles, net
369
395
Total assets
$
60,541
$
74,038
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
4,015
$
2,580
Accrued liabilities:
Payroll costs and other taxes
1,973
1,066
Other
1,178
1,338
Deferred revenue
7,199
1,344
Current maturities of notes payable and finance leases
275
302
Current maturities of operating lease liabilities
1,118
961
Total current liabilities
15,758
7,591
Long-term liabilities:
Notes payable and finance leases, net of current maturities
207
8
Operating lease liabilities, net of current maturities
3,331
3,942
Deferred tax liabilities, net
136
20
Total long-term liabilities
3,674
3,970
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,
23,812,329 and 23,692,379 shares issued, and 23,812,329 and 23,643,934 shares
outstanding at December 31, 2022 and December 31, 2021, respectively
238
237
Additional paid-in capital
155,413
155,268
Accumulated deficit
( 112,469 )
( 92,018 )
Treasury stock, at cost; 0 and 48,445 shares at December 31, 2022 and 2021, respectively
—
—
Accumulated other comprehensive loss, net
( 2,073 )
( 1,010 )
Total stockholders’ equity
41,109
62,477
Total liabilities and stockholders’ equity
$
60,541
$
74,038
See accompanying notes to the consolidated financial statements.
F-3
Table of Contents
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(amounts in thousands, except share and per share data)
Year Ended December 31,
2022
2021
Operating revenues
$
37,480
$
24,695
Operating costs:
Operating expenses
37,910
29,016
General and administrative
13,785
12,046
Depreciation and amortization
9,795
12,863
61,490
53,925
Loss from operations
( 24,010 )
( 29,230 )
Other income (expense):
Interest income
316
220
Interest expense
( 31 )
( 21 )
Other income (expense), net
415
( 86 )
Gain from employee retention credit
2,966
—
Loss before income tax
( 20,344 )
( 29,117 )
Income tax benefit (expense):
Current
9
27
Deferred
( 116 )
( 1 )
( 107 )
26
Net loss
( 20,451 )
( 29,091 )
Other comprehensive (loss) income:
Net unrealized (loss) income on foreign exchange rate translation
( 1,063 )
190
Comprehensive loss
$
( 21,514 )
$
( 28,901 )
Basic loss per share of common stock
$
( 0.86 )
$
( 1.23 )
Diluted loss per share of common stock
$
( 0.86 )
$
( 1.23 )
Weighted average equivalent common shares outstanding
23,782,796
23,570,455
Weighted average equivalent common shares outstanding - assuming dilution
23,782,796
23,570,455
See accompanying notes to the consolidated financial statements.
F-4
Table of Contents
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands, except share data)
Accumulated
Common Stock
Additional
Other
Number
Paid-in
Accumulated
Comprehensive
Of Shares
Amount
Capital
Deficit
(Loss) Income
Total
Balance January 1, 2021
23,526,517
$
235
$
154,866
$
( 62,927 )
$
( 1,200 )
$
90,974
Net loss
( 29,091 )
( 29,091 )
Unrealized income on foreign exchange rate translation
190
190
Issuance of common stock under stock compensation plans
174,000
2
( 2 )
—
Stock-based compensation expense
419
419
Issuance of common stock as compensation
23,272
60
60
Shares exchanged for taxes on stock-based compensation
( 31,410 )
—
( 75 )
( 75 )
Balance December 31, 2021
23,692,379
237
155,268
( 92,018 )
( 1,010 )
62,477
Net loss
( 20,451 )
( 20,451 )
Unrealized loss on foreign exchange rate translation
( 1,063 )
( 1,063 )
Issuance of common stock under stock compensation plans
155,000
1
( 1 )
—
Stock-based compensation expense
413
413
Shares exchanged for taxes on stock-based compensation
( 35,050 )
—
( 79 )
( 79 )
Cash settlement of RSUs
( 301 )
( 301 )
Treasury stock sale
113
113
Balance December 31, 2022
23,812,329
$
238
$
155,413
$
( 112,469 )
$
( 2,073 )
$
41,109
See accompanying notes to the consolidated financial statements.
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DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year Ended December 31,
2022
2021
Cash flows from operating activities:
Net loss
$
( 20,451 )
$
( 29,091 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
9,795
12,863
Operating lease cost
998
1,066
Non-cash compensation
413
479
Deferred income tax expense
116
1
Gain on disposal of assets
( 219 )
( 198 )
Remeasurement and other
( 18 )
( 278 )
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable
1,311
( 1,272 )
Increase in employee retention credit receivable
( 3,035 )
—
(Increase) decrease in prepaid expenses and other assets
( 4,382 )
1,397
Increase in accounts payable
873
983
Increase (decrease) in accrued liabilities
802
( 453 )
Decrease in operating lease liabilities
( 1,026 )
( 1,112 )
Increase (decrease) in deferred revenue
5,862
( 435 )
Net cash used in operating activities
( 8,961 )
( 16,050 )
Cash flows from investing activities:
Capital expenditures, net of non-cash capital expenditures summarized below (if applicable)
( 894 )
( 505 )
Proceeds from maturity of short-term investments
—
318
Proceeds from disposal of assets
225
451
Net cash (used in) provided by investing activities
( 669 )
264
Cash flows from financing activities:
Proceeds from notes payable
—
787
Principal payments on notes payable
( 1,253 )
( 562 )
Principal payments on finance leases
( 47 )
( 55 )
Tax withholdings related to stock-based compensation awards
( 79 )
( 75 )
Cash settlement of RSUs
( 301 )
—
Sale of treasury stock
113
—
Net cash (used in) provided by financing activities
( 1,567 )
95
Effect of exchange rate changes on cash and cash equivalents and restricted cash
( 265 )
112
Net decrease in cash and cash equivalents and restricted cash
( 11,462 )
( 15,579 )
Cash and cash equivalents and restricted cash at beginning of period
30,376
45,955
Cash and cash equivalents and restricted cash at end of period
$
18,914
$
30,376
Supplemental cash flow information:
Cash paid for interest
$
31
$
20
Cash paid for income taxes
$
—
$
81
Cash received for income taxes
$
7
$
21
Non-cash operating, investing and financing activities:
Increase in accrued purchases of property and equipment
$
605
$
—
Finance leases incurred
$
279
$
—
Increase in right-of-use assets and operating lease liabilities
$
598
$
1
Financed insurance premiums
$
1,193
$
—
See accompanying notes to the consolidated financial statements.
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DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Nature of Operations
The Company is a leading provider of onshore seismic data acquisition and processing services. Founded in 1952, the Company acquires and processes 2-D, 3-D and multi-component seismic data 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. The Company operates in the lower 48 states of the U.S. and in Canada.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Dawson Operating LLC, Dawson 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.
Cash Equivalents
For purposes of the consolidated financial statements, the Company considers demand deposits, certificates of deposit, overnight investments, money market funds and all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.
Allowance for Doubtful Accounts
The Company’s allowance for doubtful accounts reflects its current estimate of credit losses 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 doubtful 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 doubtful accounts was $ 250,000 at December 31, 2022 and 2021.
Employee Retention Credit Receivable
Under the provisions of the CARES Act, the Company was eligible and, in April 2022, applied for a refundable employee retention credit subject to program conditions and requirements. The Company recognizes these credits as a gain when all uncertainties have been met and the amounts are realizable in accordance with similar gain contingencies. The Company recognized $ 2,966,000 as a gain in other income and $ 69,000 as interest income in the Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2022 and recognized $ 3,035,000 as an employee retention credit receivable in the Consolidated Balance Sheet as of December 31, 2022. Payments were received in January 2023. No additional credits are expected to be received.
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.
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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 consolidated 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. No impairment charges were recognized for the years ended December 31, 2022 and 2021.
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 a finance lease for financial reporting purposes. The Company is the lessee in a lease contract when we obtain the right to control the asset. The majority of our operating leases are non-cancelable operating leases for office, shop and warehouse space in Midland, Plano, Houston, Oklahoma City and Calgary, Alberta.
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 based on the information available at the lease commencement date. The Company gives consideration to its outstanding debt, as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. The ROU assets are amortized to operating lease cost over the lease terms on a straight-line basis and is included in operating expense. The Company does not recognize leases with an initial term of 12 months or less and does not separate lease and non-lease components.
Several of the Company’s leases include options to renew, with renewal terms that can extend from one to 10 years or more. The exercise of lease renewal options is primarily at the Company’s discretion. To measure operating lease recognition, the Company evaluates its lease agreements to determine if they have economic incentives for renewal or options to purchase. The Company deems leasehold improvements as one of the few economic incentives that would entice the Company to renew a lease and all of its leasehold improvements are currently fully amortized.
Intangibles
The Company has intangible assets consisting primarily of trademarks/tradenames (which are not amortized) resulting from a business combination. The Company tests for impairment on an annual basis during the fourth quarter, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. No impairment charges were recognized for the years ended December 31, 2022 and 2021.
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
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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 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 certain qualitative and quantitative judgments supported by underlying facts. 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.
Additionally, the Company’s policy includes (i) ignoring the financing component when estimating the transaction price for service contracts completed within one year , (ii) excluding sales tax collected from the customer when determining the transaction price, and (iii) expensing incremental costs to obtain a customer contract if the amortization period for those costs would otherwise be one year or less.
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, net of actual forfeitures, as operating or general and administrative expense, as appropriate, in the Consolidated Statements of Operations and Comprehensive Loss on a straight-line basis over the vesting period of the related awards.
Foreign Currency Translation
The U.S. Dollar is the reporting currency for all periods presented. The functional currency of the Company’s foreign subsidiaries is generally the local currency. Any transactions denominated in a currency other than the functional currency are remeasured with the resulting unrealized gain or loss recognized in the Consolidated Statements of Operations and Comprehensive Loss as other income (expense). All assets and liabilities in the functional currency are then translated into U.S. Dollars at the exchange rate on the consolidated balance sheet date. Income and expenses are translated using the exchange rate applicable to each transaction. Equity transactions are translated using historical exchange rates. Adjustments resulting from translation are recorded as a separate component of accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. Realized foreign currency transaction gains (losses) are included in the Consolidated Statements of Operations and Comprehensive Loss as other income (expense).
Income Taxes
The Company accounts for income taxes by recognizing amounts of taxes payable or refundable for the current year, and by using an asset and liability approach in recognizing the amount of deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. Management determines deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of an enacted rate change. The deferred tax asset is reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be
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realized. Management’s methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining the annual effective tax rate and the valuation of deferred tax assets, which can create variances between actual results and estimates and could have a material impact on the Company’s provision or benefit for income taxes. Due to recent operating losses and valuation allowances, the Company may recognize reduced or no tax benefits on future losses on the Consolidated Statements of Operations and Comprehensive Loss. The Company’s effective tax rates differ from the statutory federal rate of 21 % for certain items such as state and local taxes, valuation allowances, non-deductible expenses and discrete items.
Use of Estimates in the Preparation of Financial Statements
Preparation of the accompanying consolidated 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 consolidated 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.
2.
Short-Term Investments
The Company had short-term investments at December 31, 2022 and 2021 consisting of certificates of deposit with original maturities greater than three months but less than a year. Certificates of deposit with any given banking institution did not exceed the FDIC insurance limit at December 31, 2022 or 2021.
3. Fair Value of Financial Instruments
At December 31, 2022 and 2021, the Company’s financial instruments included cash and cash equivalents, restricted cash, short-term investments in certificates of deposit, accounts receivable, employee retention credit 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, employee retention credit 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 rates. 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, finance leases, operating lease liabilities and investments in certificates of deposit are level 2 measurements in the fair value hierarchy.
4. Property and Equipment
Net book value of property and equipment (in thousands) decreased $ 8,222 or 31.1 % from December 31, 2021 to December 31, 2022. This is primarily due to capital expenditure purchases of $ 1,778 during the year ended December 31, 2022 offset by depreciation expense of $ 9,795 for the same period. Property and equipment (in thousands), together with the related estimated useful lives at December 31, 2022 and 2021, were as follows:
December 31,
2022
2021
Useful Lives
Land, building and other
$
12,553
$
15,156
3 to 40 years
Recording equipment
147,675
148,330
5 to 10 years
Vibrator energy sources
64,110
69,239
5 to 15 years
Vehicles
20,492
20,341
1.5 to 10 years
244,830
253,066
Less accumulated depreciation
( 226,703 )
( 226,717 )
Property and equipment, net
$
18,127
$
26,349
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5. Supplemental Consolidated Financial Statement Information
Other Current Assets and Other Current Liabilities (in thousands)
Prepaid expenses and other current assets consist of the following at December 31, 2022 and 2021:
December 31,
2022
2021
Contract assets
$
5,433
$
972
Prepaid expenses
2,252
1,101
Other assets
1,191
1,240
Other current assets
$
8,876
$
3,313
The Company did not have any specific account within other current liabilities that accounted for more than 5% of total current liabilities at December 31, 2022. The Company had accrued self-insurance reserves of approximately $ 599 and other accrued expenses and current liabilities of $ 739 at December 31, 2021.
Related Party Transactions (in thousands)
As of December 31, 2022, the Company had accounts receivable due from related parties of $ 121 . This receivable is due from Breckenridge Geophysical, LLC, which is a wholly owned subsidiary of Wilks Brothers, LLC, the holder of approximately 74.46 % of the Company’s outstanding common stock. This receivable is primarily related to rental of seismic equipment to Breckenridge. For the year ended December 31, 2022, the Company received approximately $ 2,200 of related party revenue from Breckenridge. All outstanding receivables from Breckenridge have been received as of the filing of this 10-K. During 2021, the Company did not have any related party revenue.
Disaggregated Revenues (in thousands)
The Company has one line of business, acquiring and processing seismic data in North America. Our chief operating decision maker (President and CEO) 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 disaggregated by geographic region:
Year Ended December 31,
2022
2021
Operating Revenues
United States
$
22,202
$
17,772
Canada
15,278
6,923
Total
$
37,480
$
24,695
Deferred Costs (in thousands)
Deferred costs were $ 972 and $ 1,847 at January 1, 2022 and 2021, respectively. The Company’s prepaid expenses and other current assets at December 31, 2022 and 2021 included deferred costs incurred to fulfill contracts with customers of $ 5,433 and $ 972 , respectively.
Deferred costs at December 31, 2022 compared to January 1, 2022 increased primarily as a result of new projects for clients with significant deferred fulfillment costs at December 31, 2022. Deferred costs at December 31, 2021 compared to January 1, 2021 decreased primarily as a result of the completion of several projects for clients with significant deferred fulfillment costs at the beginning of 2021.
The amount of total deferred costs amortized for the years ended December 31, 2022 and 2021 was $ 6,824 and $ 6,563 , respectively. There were no material impairment losses incurred during these periods.
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Deferred Revenue (in thousands)
Deferred revenue was $ 1,344 and $ 1,779 at January 1, 2022 and 2021, respectively. The Company’s deferred revenue at December 31, 2022 and 2021 was $ 7,199 and $ 1,344 , respectively.
Deferred revenue at December 31, 2022 compared to January 1, 2022 increased primarily as a result of new projects for clients with large third party reimbursables where data has not yet been recorded. Deferred revenue at December 31, 2021 compared to January 1, 2021 decreased primarily as a result of completing multiple large projects for clients throughout 2021.
Revenue recognized for the year ended December 31, 2022 that was included in the contract liability balance at the beginning of 2022 was $ 1,092 . Revenue recognized for the year ended December 31, 2021 that was included in the contract liability balance at the beginning of 2021 was $ 1,779 . Deferred revenue not recognized during 2022 relates to projects that have not yet started or were cancelled.
6 . Debt
Dominion Loan Agreement
On September 30, 2019, the Company entered into a Loan and Security Agreement with Dominion Bank. On September 30, 2022, the Company entered into a Third Loan Modification Agreement to the Loan and Security Agreement for the purpose of (a) amending and extending the maturity of its line of credit with Dominion Bank by one year , (b) amending the principal amount under the Loan Agreement, (c) amending the interest rate under the Loan Agreement, (d) amending the Company’s obligation to maintain a certain tangible net worth and (e) adding the Company’s obligation to maintain a minimum liquidity amount. The Loan Agreement provides for a secured revolving credit facility in an amount up to the lesser of (i) $ 10,000,000 or (ii) a sum equal to (a) 80 % of the Company’s eligible accounts receivable plus (b) 100 % of the amount on deposit with Dominion Bank in the Company’s collateral account, including a restricted IntraFi Network Deposit account of $ 5,000,000 . As of December 31, 2022, the Company has not borrowed any amounts under the Revolving Credit Facility and has approximately $ 9,017,000 available for withdrawal.
Under the Revolving Credit Facility, interest will accrue at an annual rate equal to the lesser of (i) 7.75 % and (ii) the greater of (a) the prime rate as published from time to time in The Wall Street Journal or (b) 4.75 %. The Company will pay a commitment fee of 0.10 % per annum on the difference of (a) $ 10,000,000 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 also obligated to meet certain financial covenants under the Loan Agreement, including maintaining a tangible net worth of not less than $ 38,000,000 and, to be tested as of the end of each calendar quarter, unencumbered liquid assets of not less than $ 5,000,000 , and specified ratios with respect to current assets and liabilities and debt to tangible net worth. The Company received a limited waiver from Dominion Bank with respect to any non-compliance with the tangible net worth covenant for the period ended December 31, 2022. 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, 2023.
The Company does not currently have any notes payable under the Revolving Credit Facility.
Dominion Letters of Credit
As of December 31, 2022, 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 December 31, 2022, the Company has one note payable to a finance company for various insurance premiums totaling $ 205,000 .
In addition, the Company leases certain seismic recording equipment and vehicles under leases classified as
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finance leases. The Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021 include finance leases of $ 277,000 and $ 45,000 , respectively.
Maturities of Debt
The Company’s aggregate principal amount (in thousands) of outstanding notes payable and the interest rates and monthly payments as of December 31, 2022 and 2021 are as follows:
December 31, 2022
December 31, 2021
Notes payable to finance company for insurance
Aggregate principal amount outstanding
$
205
$
265
Interest rate
8.24 %
4.99 %
The Company’s aggregate maturities of finance leases (in thousands) at December 31, 2022 are as follows:
January 2023 - December 2023
$
70
January 2024 - December 2024
68
January 2025 - December 2025
139
Obligations under finance leases
$
277
Interest rates on these leases ranged from 5.37 % to 7.66 %.
7. 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 Company is the lessee in a lease contract when we obtain the right to control the asset. The majority of our operating leases are non-cancelable operating leases for office, shop and warehouse space in Midland, Plano, Houston, Oklahoma City and Calgary, Alberta.
The components of lease cost (in thousands) for the years ended December 31, 2022 and 2021 were as follows:
Year Ended December 31,
2022
2021
Finance lease cost
Amortization of right-of-use assets
$
1,273
$
1,350
Interest on lease liabilities
3
4
Total finance lease cost
1,276
1,354
Operating lease cost
1,242
1,338
Short-term lease cost
—
—
Total lease cost
$
2,518
$
2,692
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Supplemental cash flow information related to leases (in thousands) for the years ended December 31, 2022 and 2021 was as follows:
Year Ended December 31,
2022
2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
( 1,271 )
$
( 1,375 )
Operating cash flows from finance leases
$
( 3 )
$
( 5 )
Financing cash flows from finance leases
$
( 47 )
$
( 55 )
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
598
$
1
Finance leases
$
—
$
—
Supplemental balance sheet information related to leases (in thousands) as of December 31, 2022 and 2021 was as follows:
December 31,
2022
2021
Operating leases
Operating lease right-of-use assets
$
4,010
$
4,435
Operating lease liabilities - current
$
1,118
$
961
Operating lease liabilities - long-term
3,331
3,942
Total operating lease liabilities
$
4,449
$
4,903
Finance leases
Property and equipment, at cost
$
8,942
$
8,663
Accumulated depreciation
( 7,336 )
( 6,293 )
Property and equipment, net
$
1,606
$
2,370
Finance lease liabilities - current
$
70
$
37
Finance lease liabilities - long-term
207
8
Total finance lease liabilities
$
277
$
45
Weighted average remaining lease term
Operating leases
3.9 years
4.8 years
Finance leases
2.8 years
0.8 years
Weighted average discount rate
Operating leases
5.03 %
5.04 %
Finance leases
7.21 %
5.04 %
Maturities of lease liabilities (in thousands) at December 31, 2022 are as follows:
Operating Leases
Finance Leases
January 2023 - December 2023
$
1,316
$
88
January 2024 - December 2024
1,311
81
January 2025 - December 2025
1,002
145
January 2026 - December 2026
1,021
—
January 2027 - December 2027
267
—
Thereafter
—
—
Total payments under lease agreements
4,917
314
Less imputed interest
( 468 )
( 37 )
Total lease liabilities
$
4,449
$
277
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8. Stock-Based Compensation
Since the date of its effectiveness on May 5, 2016, the Company issues new grants of stock-based awards pursuant to the Dawson Geophysical Company 2016 Stock and Performance Incentive Plan (the “2016 Plan”). All of the Company’s prior plans have expired pursuant to their terms and no awards previously granted under prior plans remain outstanding. The awards outstanding and available under the 2016 Plan, as restated in 2020, and their associated accounting treatment are discussed below.
In 2016, the Company adopted the 2016 Plan, which provides for the issuance of up to 1,000,000 shares of authorized Company common stock, which authorized amount was increased to 1,050,000 as a result of the 5 % stock dividend approved by the Board on May 1, 2018. At the annual shareholders’ meeting on June 9, 2020, the Company’s shareholders approved a restated version of the 2016 Plan (the “Restated 2016 Plan”), which authorized an additional 1,000,000 shares. The total aggregate numbers of shares of Common Stock reserved under the Restated 2016 Plan is 2,050,000 shares. As of December 31, 2022, there were approximately 1,264,487 shares available for future issuance. The Restated 2016 Plan provides for the issuance of stock-based compensation awards, including stock options, common stock, restricted stock, restricted stock units and other forms. Stock option grant prices awarded under the Restated 2016 Plan may not be less than the fair market value of the common stock subject to such option on the grant date, and the term of stock options shall extend no more than ten years after the grant date. The Restated 2016 Plan terminates June 9, 2030.
The Company’s employees and officers that hold unvested restricted stock awarded during 2016 or thereafter are not entitled to dividends when the Company pays dividends.
Impact of Stock-Based Compensation
The following table summarizes stock-based compensation expense (in thousands), which is included in operating or general and administrative expense, as appropriate, in the Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021:
Year Ended December 31,
2022
2021
Restricted stock unit awards
$
413
$
419
Common stock awards
—
60
Total compensation expense
$
413
$
479
Stock Options
There was no stock option activity during the years ended December 31, 2022 and 2021. There were no outstanding stock options as of December 31, 2022 or 2021.
Restricted Stock Awards
There was no restricted stock award activity during the years ended December 31, 2022 and 2021.
Restricted Stock Unit Awards
The Company did no t grant any restricted stock unit awards during the year ended December 31, 2022. The Company granted 335,000 restricted stock unit awards during the year ended December 31, 2021 with a weighted average grant date fair value of $ 1.98 . The fair value of restricted stock unit awards equals the market price of the Company’s stock on the grant date and generally vest in one to three years or in annual increments over three years .
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A summary of the Company’s nonvested restricted stock unit awards as of December 31, 2022 and activity during the year then ended is as follows:
Number of Restricted Stock Unit Awards
Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2021
335,000
$
1.98
Granted
—
$
—
Vested
( 155,000 )
$
1.98
Cash Settlement
( 180,000 )
$
1.98
Forfeited
—
$
—
Nonvested as of December 31, 2022
—
$
—
As of December 31, 2022, there was no unrecognized compensation cost related to nonvested restricted stock unit awards.
The aggregate vesting date fair value of restricted stock units for the years ended December 31, 2022 and 2021 was $ 351,000 and $ 416,000 , respectively.
The aggregate cash settlement date fair value of restricted stock units for the years ended December 31, 2022 and 2021 was $ 301,000 and $ 0 , respectively. An additional 5 % over fair value of restricted stock units was issued for those who chose the cash settlement option with an aggregate value for the years ended December 31, 2022 and 2021 of $ 15,000 and $ 0 , respectively.
Common Stock Awards
The Company granted common stock awards with immediate vesting to outside directors during the years ended December 31, 2022 and 2021 as follows:
Number of Common Stock Awards
Weighted Average Grant Date Fair Value
Year ended December 31, 2022
—
$
—
Year ended December 31, 2021
23,272
$
2.58
9. Dividends
The Company did not issue any stock dividends during calendar years 2022 or 2021.
The Company has not paid cash dividends during calendar years 2022 and 2021. While there are currently no restrictions prohibiting the Company from paying cash dividends, the Board of Directors, after consideration of economic and market conditions affecting the energy industry in general, and the oilfield services business in particular, determined that the Company would not pay a cash dividend in respect of the Company’s common stock for the foreseeable future. Payment of any type of dividend in the future will be at the discretion of the Company’s board and will depend on the Company’s financial condition, results of operations, capital and legal requirements, and other factors deemed relevant by the board.
10. Employee Benefit Plans
The Company provides a 401(k) plan as part of its employee benefits package in order to retain quality personnel. The Company elected to match 100 % of the employee contributions up to a maximum of 6 % of the participant’s applicable compensation under its 401(k) plan for the years ended December 31, 2022 and 2021. The Company’s matching contributions under its 401(k) plan for the years ended December 31, 2022 and 2021 were approximately $ 537,000 and $ 483,000 , respectively.
11. Advertising Costs
Advertising costs are charged to expense as incurred. Advertising costs for the years ended December 31, 2022 and 2021 totaled $ 29,000 and $ 28,000 , respectively.
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12. Income Taxes
The Company’s components of loss before income tax (in thousands) were as follows:
Year Ended December 31,
2022
2021
Domestic
$
( 20,566 )
$
( 25,931 )
Foreign
222
( 3,186 )
Loss before income tax
$
( 20,344 )
$
( 29,117 )
The Company’s components of income tax benefit (expense) (in thousands) were as follows:
Year Ended December 31,
2022
2021
Current federal benefit
$
9
$
21
Current state benefit
—
6
Deferred federal expense
( 109 )
( 159 )
Deferred state (expense) benefit
( 7 )
158
Income tax (expense) benefit
$
( 107 )
$
26
The income tax provision (in thousands) differs from the amount computed by applying the statutory federal income tax rate to loss before income tax as follows:
Year Ended December 31,
2022
2021
Tax benefit computed at statutory rate of 21 %
$
4,272
$
6,047
Change in valuation allowance
15,352
( 6,632 )
State income tax (expense) benefit, net of federal tax
( 5 )
130
Foreign losses
70
706
Section 382 limited NOL
( 19,904 )
—
Other
108
( 225 )
Income tax (expense) benefit
$
( 107 )
$
26
The CARES Act was enacted on March 27, 2020 resulting in tax law changes that impacted the Company by accelerating the AMT credit owed to the Company and allowed for a temporary change in NOL taxable income limitations. For tax years beginning January 1, 2018 and those prior to 2021, an NOL deduction equal to 100% of taxable income is allowed. Tax years 2021 and forward will revert back to the 80% limitation established by the 2017 Tax Cuts and Jobs
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Act. The Consolidated Appropriations Act, 2021 (“The ACT”) was enacted by Congress on December 27, 2020. The ACT did not have a material impact to the Company’s consolidated financial statements.
The principal components of the Company’s net deferred tax assets (liabilities) (in thousands) were as follows:
December 31,
2022
2021
Deferred tax assets:
Federal tax net operating loss ("NOL") carryforward
$
13,373
$
30,649
Foreign tax NOL carryforward
6,423
6,947
State tax NOL carryforward
1,398
2,194
Other comprehensive income
458
235
Deferred revenue
379
—
Foreign deferred taxes
252
197
Right-of-use assets
80
125
Canadian start-up costs
74
90
Restricted stock and restricted stock unit awards
—
55
Other
52
48
Self-insurance
37
45
Workers’ compensation
8
11
Gross deferred tax assets
22,534
40,596
Less valuation allowances
( 21,184 )
( 37,571 )
Net deferred tax assets
1,350
3,025
Deferred tax liabilities:
Property and equipment
( 1,486 )
( 3,045 )
Net deferred tax liabilities
$
( 136 )
$
( 20 )
Domestic deferred tax liabilities
$
( 136 )
$
( 20 )
Foreign deferred tax liabilities
—
—
Net deferred tax liabilities
$
( 136 )
$
( 20 )
At December 31, 2022, the Company had a gross NOL for U.S. federal income tax purposes of approximately $ 158,460,000 but expects approximately $ 94,779,000 to expire unused due to the 382 event discussed below. The remaining NOL will begin to expire in 2027. Losses incurred after the year ended December 31, 2017 have no expiration. The Company will carry forward the tax benefits related to federal net NOL of approximately $ 13,373,000 . The Company also had state net NOLs that will affect state taxes of approximately $ 1,398,000 at December 31, 2022. State NOLs began to expire in 2015 and continue to expire each year. The Company also had a Canadian gross NOL of $ 24,702,000 that will begin to expire in 2037.
On January 14, 2022, the Company was subject to an Internal Revenue Code section 382 event that limited some of our NOL utilization in future periods. The 382 limitation rendered a substantial portion of the NOLs unusable and caused the Company to write off approximately $ 19,904,000 of the federal net NOLs against the valuation allowance. It also caused the Company to adjust the valuation allowance so we are still in a naked credit position domestically, but it did not have a material impact on tax expense.
In evaluating the possible sources of taxable income during 2022, the Company determined it is more likely than not that the remaining deferred tax assets will not be realizable. As a result, the Company recorded full valuation allowance against foreign deferred tax assets and its federal and state deferred tax assets with the exception of its trademark intangible.
At December 31, 2022 and 2021, the Company did no t have any uncertain tax positions. The Company’s policy is to recognize interest and penalties related to an uncertain tax position in income tax expense.
13. Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted average shares outstanding. Diluted loss per share is computed by dividing the net loss by the weighted average diluted shares outstanding.
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The computation of basic and diluted loss per share (in thousands, except share and per share data) was as follows:
Year Ended December 31,
2022
2021
Net loss
$
( 20,451 )
$
( 29,091 )
Weighted average common shares outstanding
Basic
23,782,796
23,570,455
Dilutive common stock options, restricted stock unit awards and restricted stock awards
—
—
Diluted
23,782,796
23,570,455
Basic loss per share of common stock
$
( 0.86 )
$
( 1.23 )
Diluted loss per share of common stock
$
( 0.86 )
$
( 1.23 )
The Company had a net loss in the years ended December 31, 2022 and 2021. As a result, all stock options, restricted stock unit awards, and restricted stock awards were anti-dilutive and excluded from weighted average shares used in determining the diluted loss per share of common stock for the respective periods.
The following weighted average numbers of stock options, restricted stock unit awards, and restricted stock awards have been excluded from the calculation of diluted loss per share of common stock, as their effect would be anti-dilutive for the years ended December 31, 2022 and 2021:
Year Ended December 31,
2022
2021
Stock options
—
—
Restricted stock units
147,191
197,687
Restricted stock awards
—
—
Total
147,191
197,687
14. Major Clients
The Company operates in only one business segment, contract seismic data acquisition and processing services. Sales to these clients, as a percentage of operating revenues that exceeded 10%, were as follows:
Year Ended December 31,
2022
2021
A
13 %
—
B
12 %
—
C
10 %
12 %
D
—
30 %
E
—
23 %
15. Areas of Operation
The U.S. and Canada are the only countries of operation for the Company.
The following tables present the Company’s operating revenues, net property and equipment, and right-of-use assets (in thousands) by area of operation:
Year Ended December 31,
2022
2021
Operating Revenues
United States
$
22,202
$
17,772
Canada
15,278
6,923
Total
$
37,480
$
24,695
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Year Ended December 31,
2022
2021
Net Property and Equipment
United States
$
15,370
$
22,446
Canada
2,757
3,903
Total
$
18,127
$
26,349
Year Ended December 31,
2022
2021
Right-of-use Assets
United States
$
3,722
$
3,977
Canada
288
458
Total
$
4,010
$
4,435
16. Commitments and Contingencies
From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. Although the Company cannot predict the outcomes of any such legal proceedings, management believes that the resolution of pending legal actions will not have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity, as the Company believes it is adequately indemnified and insured.
The Company is also party to the following legal proceeding: On April 1, 2019, Weatherford International, LLC and Weatherford U.S., L.P. (collectively, “Weatherford”) filed a petition in state district court for Midland County, Texas, in which the Company and eighteen other parties were named as defendants, alleging the Company and/or the other named defendants contributed to or caused contamination of groundwater at and around property owned by Weatherford. Weatherford is seeking declaratory judgment, recovery and contribution for past and future costs incurred in responding to or correcting the contamination at and around the property from each defendant. The Company disputes Weatherford’s allegations with respect to the Company and intends to vigorously defend itself in this case. Subsequent to the filing of the petition, Weatherford filed for bankruptcy protection on July 1, 2019. While the outcome and impact of this legal proceeding on the Company cannot be predicted with certainty, based on currently available information, management believes that the resolution of this proceeding will not have a material adverse effect on our consolidated financial condition, results of operations or liquidity.
Additionally, the Company experiences contractual disputes with its clients from time to time regarding the payment of invoices or other matters. While the Company seeks to minimize these disputes and maintain good relations with its clients, the Company has experienced in the past, and may experience in the future, disputes that could affect its revenues and results of operations in any period.
17. Recently Issued Accounting Pronouncements
None.
18. Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk at any given time may consist of cash and cash equivalents, restricted cash, money market funds and overnight investment accounts, short-term investments in certificates of deposit, trade and other receivables and other current assets. At December 31, 2022 and 2021, the Company had deposits with domestic and international banks in excess of federally insured limits. Management believes the credit risk associated with these deposits is minimal. Money market funds seek to preserve the value of the investment, but it is possible to lose money investing in these funds.
The Company’s sales are to clients whose activities relate to oil and natural gas exploration and production. The Company generally extends unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and natural gas industry or other economic conditions. The Company closely monitors extensions of credit and may negotiate payment terms that mitigate risk.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.