What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-04-02 compared with 2024-04-01 · 113 added, 109 removed, 118 unchanged (65% of the section changed)

11 unchanged sentences

Significant fluctuations in domestic oil and natural gas exploration and development activities related to commodity prices, as we have recently experienced, have affected, and will continue to affect, demand for our services and our results of operations, and such fluctuations continue to be the single most important factor affecting our business and results of operations.

In the fourth quarter, our Board of Directors terminated our President and Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer.

Our current management team is focused on improving margins on our seismic acquisition services, reducing general and administrative expenses, and improving our operating cash flows.

We have implemented a mark-up to our customers on reimbursable expenses and permitting costs, adjusting our bidding process to better account for our cost structure, and other cost reduction initiatives to improve our profitability.

We had two crews operating throughout the fourth quarter in the United States and resumed our seasonal operations in Canada.

High crew utilization in the fourth quarter resulted in improved margins and profitability.

In the first quarter, we continued to keep our crews highly utilized in the US and Canada.

We are working to keep our crews highly utilized throughout the remainder of the year.

In the first quarter, we started the year with two crews in the US and continued to keep our crews highly utilized in Canada.

We have a strong backlog of projects through the end of the second quarter of 2025.

In the fourth quarter of 2024, we began testing new single node channels from multiple vendors, which have improved our team’s efficiency and margins.

We are still evaluating our options to upgrade to these single node channels based on the results of our field operations and market conditions.

While our revenues are mainly affected by the level of client demand for our services, our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity and utilization level of our data acquisition crews.

Factors impacting productivity and utilization levels include client demand, commodity prices, whether we enter into turnkey or dayrate contracts with our clients, the number and size of crews, the number of recording channels per crew, crew downtime related to inclement weather, delays in acquiring land access permits, agricultural or hunting activity, holiday schedules, short winter days, crew repositioning and equipment failure.

Factors impacting productivity and utilization levels include client demand, commodity prices, whether we enter into turnkey or day-rate contracts with our clients, the number and size of crews, the number of recording channels per crew, crew downtime related to inclement weather, delays in acquiring land access permits, agricultural or hunting activity, holiday schedules, short winter days, crew repositioning and equipment failure.

To the extent we experience these factors, our operating results may be affected and vary from quarter to quarter.

1 unchanged sentence

The majority of our revenues were derived from turnkey contracts for the years ending December 31, 2024, and 2023.

While turnkey contracts allow us to capitalize on improved crew productivity, we also bear more risk related to weather and crew downtime.

We expect the majority of our contracts to be turnkey as we continue our operations in the mid-continent, western and southwestern regions of the U.S.

While turnkey contracts allow us to capitalize on improved crew productivity, we also bear more risk related to crew downtime or other operational delays.

We expect the majority of our contracts to be turnkey as we continue our operations in the midwest, western and southwestern regions of the U.S.

in which turnkey contracts are more common.

3 unchanged sentences

While the markets for oil and natural gas have been very volatile and are likely to continue to be so in the future, and we can make no assurances as to future levels of domestic exploration or commodity prices, we believe opportunities exist for us to enhance our market position by responding to our clients’ continuing desire for higher resolution subsurface images.

Historically, the chief operating decision maker made operating decisions and evaluated operating results of the Company on a consolidated basis.

In December 2023, we appointed a new Chief Executive Officer who is our current chief operating decision maker.

Currently, our chief operating decision maker reviews the discrete segment financial information on a geographic basis for the US operations and Canada Operations.

The revenue for both of the Company’s

segments is generated by the same services, which utilize the same type of equipment and personnel.

Our business has two reportable segments, U.S.

operations and Canada operations.

Tony Clark, Chief Executive Officer, is our current chief operating decision maker.

Clark reviews the discrete segment financial information on a geographic basis for the U.S.

operations and Canada operations.

The revenue for both segments is generated by the same

services, which utilize the same type of equipment and personnel.

The performance of our segments is evaluated primarily on Adjusted EBITDA.

We define Adjusted EBITDA as our net income (loss), before (i) interest expense, net, (ii) income tax expense or benefit, (iii) depreciation, depletion and amortization and (iv) other unusual or non-recurring charges, such as severance expenses.

As a result, our business has two reportable segments, US operations and Canada Operations.

We have included management’s discussion and analysis about our two reportable segments for all periods presented herein.

Results of Operations

Year Ended December 31, 2024 versus Year Ended December 31, 2023

US Fee Revenues.

Fee Revenues.

Acquisition revenues for the year ended December 31, 2024, were $40.7 million compared to $49.0 million for the same period of 2023.

The increase in revenues for the year ended December 31, 2023, compared to the same period of 2022 was primarily a result of increased demand for our services.

The decrease in revenues for the year ended December 31, 2024, compared to the same period of 2023 was primarily a result of decreased demand for our services.

Canadian Fee Revenues.

Acquisition revenues for the year ended December 31, 2024, were $12.7 million compared to $12.4 million for the same period of 2023.

The decrease in revenues for the year ended December 31, 2023, compared to the same period of 2022 was primarily a result of a slight decrease in demand for our services in Canada.

The increase in revenues for the year ended December 31, 2024, compared to the same period of 2023 was primarily a result of a slight increase in demand for our services in Canada, and utilization of single node channels in our operations.

Total Revenues.

1 unchanged sentence

2024, were $74.2 million compared to $96.8 million for the same period of 2023.

Total revenues included an increase of $29.8 million in reimbursable revenues.

US Fee Operating Expenses.

Acquisition expenses for the year ended December 31, 2023, increased to $41.1 million compared to $29.5 million for the same period of 2022.

The increase in operating expenses was mainly due to an overall increase in crew production and utilization.

Total revenues included a decrease of $14.7 million in reimbursable revenues.

Fee Operating Expenses.

Acquisition expenses for the year ended December 31, 2024, decreased to $32.8 million compared to $39.9 million for the same period of 2023.

Acquisition expenses decreased from 81% of revenues in 2023 to 80% of revenues due to cost reduction initiatives throughout the year.

The decrease in operating expenses was due to an overall decrease in crew production and utilization and to cost reduction initiatives.

Canadian Fee Operating Expenses.

Acquisition expenses for the year ended December 31, 2023, increased slightly to $11.8 million compared to $11.4 million for the same period of 2022.

The increase in operating expenses was mainly due to an overall increase in general operating costs.

Acquisition expenses for the year ended December 31, 2024, decreased to $9.5 million compared to $11.6 million for the same period of 2023.

Acquisition expenses decreased from 94% of revenues to 75% of revenues due to utilization of single node channels in our operations and higher channel count jobs in 2024.

The decrease in operating expenses was mainly due to increased operational efficiencies at the crew level.

Reimbursable Revenues and Costs .

These revenues and expenses passed through to our clients and are job specific and vary significantly from year to year.

These revenues and expenses are passed through to our clients and are job specific and vary significantly from year to year.

The costs are agreed to by our clients prior to contracting with outside vendors for the various tasks.

1 unchanged sentence

General and administrative expenses decreased 25% to $9.5 million for the year ended December 31, 2024, compared to $12.6 million for the same period of 2023.

The primary factors for the decrease in general and administrative expenses are related to continued cost management and streamlining procedures.

We anticipate general and administrative charges for 2024 to be below those in 2023 due to continued focus on reducing costs and the change in our management team.

The primary factors for the decrease in general and administrative expenses are related to continued cost management and streamlining procedures as well as cost savings related to changes to the executive personnel during the fourth quarter of 2023.

We anticipate general and administrative expenses to continue to decrease in 2025 due to continued focus on maintaining an efficient and cost-effective administrative structure.

Severance Expenses.

For the year ended December 31, 2024, we recorded severance expenses of $0.5 million in connection with the termination of a portion of our workforce.

In December 2023, we recorded severance expenses of $2.2 million in connection with the termination of the Company’s (i) President and Chief Executive Officer, (ii) Chief Financial Officer, Executive Vice President, Secretary and Treasurer and (iii) Chief Operating Officer and Executive Vice President.

3 unchanged sentences

Our depreciation expense is expected to remain flat or decline slightly during 2025 primarily due to limited capital expenditures to maintain our existing asset base.

Our total operating costs for the year ended December 31, 2023 were $110.2 million, representing a 49% increase from the corresponding period of 2022.

Our total operating costs for the year ended December 31, 2024 were $78.7 million, representing a 28% decrease from the corresponding period of 2023.

This change was primarily due to the factors described above.

Other Income (Expense).

Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) and its subsequent amendments, we were eligible and, in April 2022, we applied for a refundable employee retention credit subject to program conditions and requirements.

We recognize these credits as a gain when all uncertainties have been met and the amounts are realizable in accordance with similar gain contingencies.

We recognized $3.0 million as a gain in other income and $69,000 as interest income on the Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2022 and recognized $3.0M 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.

Income Taxes.

Income tax benefit was $96,000 for the year ended December 31, 2023 compared to income tax expense of $107,000 for the same period of 2022.

The effective tax benefit/expense rates for the years ended December 31, 2023 and 2022 were approximately 0.8% and -0.6%, respectively.

Our effective tax rate increased compared to the corresponding period from the prior year primarily due to a change in the valuation allowance on a portion of the NOLs due to an Internal Revenue Code section 382 limitation.

Income Tax (expense) benefit.

Income tax expense was $7,000 for the year ended December 31, 2024, compared to income tax benefit of $96,000 for the same period of 2023.

The effective tax rates for the years ended December 31, 2024, and 2023 were approximately -0.2% and 0.8%, respectively.

Our effective tax rates differ from the statutory federal rate of 21% for certain items such as state and local taxes, valuation allowances, and non-deductible expenses.

Use of EBITDA (Non-GAAP measure)

We define EBITDA as net income (loss) plus interest expense, interest income, income taxes, depreciation and amortization expense and severance expenses.

Our management uses EBITDA as a supplemental financial measure to assess:

Use of Adjusted EBITDA (Non-GAAP measure)

We define Adjusted EBITDA as net income (loss) plus interest expense, interest income, income taxes, depreciation and amortization expense and severance expenses.

Our management uses Adjusted EBITDA as a supplemental financial measure to assess:

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

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

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

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

We also understand that such data are used by investors to assess our performance.

However, the term EBITDA is not defined under generally accepted accounting principles (“GAAP”), and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP.

When assessing our operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income (loss), cash flow from operating activities or other cash flow data calculated in accordance with GAAP.

In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as us.

Further, the results presented by EBITDA cannot be achieved without incurring the costs that the measure excludes:

However, the term Adjusted EBITDA is not defined under generally accepted accounting principles (“GAAP”), and Adjusted EBITDA is not a measure of operating income or operating performance presented in accordance with GAAP.

When assessing our operating performance, investors and others should not consider this data in isolation or as a substitute for net income (loss), cash flow from operating activities or other cash flow data calculated in accordance with GAAP.

In addition, our Adjusted EBITDA may not be comparable to Adjusted EBITDA or similarly titled measures utilized by other companies since other companies may not calculate Adjusted EBITDA in the same manner as us.

Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes:

interest, taxes, and depreciation and amortization.

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

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

Year Ended December 31,

Net cash used in operating activities

Net cash (used in) provided by operating activities

Changes in working capital and other items

Non-cash adjustments to net loss

Non-cash adjustments to net (loss) income

Severance expense

Adjusted EBITDA

Year Ended December 31,

Net (loss) income

Depreciation and amortization

Severance expense

Interest (income) expense, net

Interest income, net

Income tax expense (benefit)

Severance expense

Adjusted EBITDA

Liquidity and Capital Resources

6 unchanged sentences

Year Ended December 31,

Net cash provided by (used in)

Net cash (used in) provided by:

Operating activities

4 unchanged sentences

Year Ended December 31, 2024 versus Year Ended December 31, 2023

Net cash provided by operating activities was $814,000 for the year ended December 31, 2023 and net cash used by operating activities was $3.3 million for the same period of 2022.

The decrease in cash used in operating activities was primarily due to a decreased net loss, due to an increase in activity.

Net cash used in investing activities was $4.5 million for the year ended December 31, 2023, and includes cash capital expenditures of $3.7 million and cash acquisition of short–term investments of $1.0 million, offset by $217,000 in proceeds from the disposal of assets.

Net cash used in investing activities was $1.1 million for the year ended December 31, 2022, and includes cash capital expenditures of $1.4 million offset by $340,000 in proceeds from the disposal of assets.

Net cash used in operating activities was $1.9 million for the year ended December 31, 2024, and net cash provided by operating activities was $814,000 for the same period of 2023.

In 2023, cash provided by operating activities included receipt of $3 million from an employee retention credit under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”).

The decrease in cash provided by operating activities to cash used in operating activities was primarily due to changes in operating assets and liabilities.

Net cash used in investing activities was $0.7 million for the year ended December 31, 2024, and includes cash capital expenditures of $1.9 million, offset by $533,000 in proceeds from the disposal of assets, $332,000 proceeds from insurance claims and $265,000 proceeds from maturity of short-term investments.

Net cash used in investing activities was $4.5 million for the year ended December 31, 2023, and includes cash capital expenditures of $3.7 million and cash acquisition of short–term investments of $1.0 million associated with the acquisition of Breckenridge Geophysical, LLC (“Breckenridge”) assets, offset by $217,000 in proceeds from the disposal of assets.

Net cash used in financing activities was $11.6 million for the year ended December 31, 2024, and includes dividend payment of approximately $9.9 million, principal payments of $947,000 on our notes and $680,000 on our finance leases.

Net cash used in financing activities was $4.2 million for the year ended December 31, 2023, and includes principal payments of $896,000 on our notes and $253,000 on our finance leases and outflows of $3.1 million associated with the acquisition of Breckenridge assets.

Net cash used in financing activities was $2.2 million for the year ended December 31, 2022 and includes principal payments of $1.3 million on our notes and $47,000 on our finance leases and outflows of $301,000 for cash settlement of restricted stock units, $79,000 associated with taxes related to stock compensation awards vesting, and $583,000 associated with the acquisition of Breckenridge assets offset by $113,000 received for sale of treasury stock.

We continually strive to supply our clients with technologically advanced 3-D data acquisition recording services and data processing capabilities.

4 unchanged sentences

As of December 31, 2024, we had $1.4 million in cash, and a positive working capital balance of $4.6 million.

We believe that our cash flows from operations, and our current financial position are adequate to fund our continued operations.

We believe that our cash flows from operations, and our current financial position are adequate to fund our continued operations for the next 12 months.

Capital Resources .

2 unchanged sentences

From time to time in the past, we have also funded our capital expenditures and other financing needs through public equity offerings.

We believe that our capital resources, including our cash and short-term investments, cash flow from operations, and funds available under our Revolving Credit Facility are sufficient to meet our operational needs.

We believe that our capital resources, including our cash and cash flow from operations are sufficient to meet our operational needs.

Dominion Credit Facility.

On September 30, 2019, we entered into a Loan and Security Agreement with Dominion Bank.

On September 30, 2023, we entered into the Fifth Loan Modification Agreement (as amended by (i) that certain Loan Modification Agreement dated as of September 30, 2020, (ii) that certain Second Loan Modification Agreement dated as of September 30, 2021, (iii) that certain Third Loan Modification Agreement dated as of September 30, 2022, (iv) that certain Fourth Modification Agreement dated as of March 21, 2023, and (v) the Fifth Modification Agreement, the “Loan Agreement”) The Loan Agreement now provides for a Revolving Credit Facility in an amount up to the lesser of (I) an amount equal to the Borrowing Base or (II) $5 million.

Our obligations under the Loan Agreement are secured by a Certificate of Deposit with Dominion Bank for $5 million (the “Deposit”) in our collateral account.

As of December 31, 2023, we have not borrowed any amounts under the Revolving Credit Facility and have approximately $5.0M 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%.

From and after September 30, 2023 and so long as the Deposit held by Dominion Bank remains greater than or equal to the indebtedness (the “Financial Covenant Suspension Threshold”), the testing of the financial covenants set forth in the Loan Agreement has been suspended.

The financial covenant testing shall resume if and when the Financial Covenant Suspension Threshold is no longer satisfied.

The maturity date of the Loan Agreement is September 30, 2024.

We do not currently have any notes payable under the Revolving Credit Facility.

On September 30, 2019, we entered into a Loan and Security Agreement with Dominion Bank, a Texas state bank (“Dominion Bank”).

On September 30, 2023, we entered into a Fifth Loan Modification Agreement (the “Fifth Modification Agreement”) to the Loan and Security Agreement (as amended by (i) that certain Loan Modification Agreement dated as of September 30, 2020, (ii) that certain Second Loan Modification Agreement dated as of September 30, 2021, (iii) that certain Third Loan Modification Agreement dated as of September 30, 2022, (iv) that certain Fourth Modification Agreement dated as of March 21, 2023, and (v) the Fifth Modification

Agreement, the “Loan Agreement”).

The Loan Agreement provided for a secured revolving credit facility (the “Revolving Credit Facility”) in an amount up to the lesser of (I) an amount equal to the Borrowing Base or (II) $5 million.

Our obligations under the Loan Agreement were secured by a Certificate of Deposit with Dominion Bank for $5 million (the “Deposit”) in our collateral account.

On May 2, 2024, the collateral deposit of $5 million was released and the Loan Agreement was terminated.

Dominion Letters of Credit.

As of December 31, 2023, Dominion Bank has issued one letter of credit in the amount of $265,000 to support our workers compensation insurance.

The letter of credit is secured by a certificate of deposit with Dominion Bank.

As of December 31, 2024, we have no outstanding letters of credit.

Our previously issued letter of credit in the amount of $265,000 was not renewed on August 9, 2024.

Other Indebtedness.

3 unchanged sentences

Contractual Obligations.

We believe that our capital resources, including our short-term investments, cash flow from operations, and funds available under our Revolving Credit Facility, will be adequate to meet our current operational needs.

We believe that we will be able to finance our 2024 capital expenditures through cash flow from operations, borrowings from commercial lenders, and the funds available under our Revolving Credit Facility.

However, our ability to satisfy working capital requirements, meet debt repayment obligations, and fund future capital requirements will depend principally upon our future operating performance, which is subject to the risks inherent in our business, and will also depend on the extent to which the current economic climate adversely affects the ability of our customers, and/or potential customers, to promptly pay amounts owing to us under their service contracts with us.

We believe that our capital resources, including our cash and cash flow from operations, will be adequate to meet our current operational needs.

We believe that we will be able to finance our 2025 capital expenditures through cash flow from operations and borrowings from commercial lenders.

However, our ability to meet debt repayment obligations and fund future capital requirements will depend principally upon our future operating performance, which is subject to the risks inherent in our business, and will also depend on the extent to which the current economic climate adversely affects the ability of our customers, and/or potential customers, to promptly pay amounts owing to us under their service contracts with us.

Off-Balance Sheet Arrangements

As of December 31, 2024, we had no off-balance sheet arrangements.

Critical Accounting Policies

Critical Accounting Estimates

The preparation of our financial statements in conformity with GAAP requires that certain assumptions and estimates be made that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting periods.

1 unchanged sentence

Impairment of Long-Lived Assets.

We review long-lived assets 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.

Our forecast of future cash flows used to perform impairment analysis

includes estimates of future revenues and expenses based on our anticipated future results while considering anticipated future oil and gas prices, which is fundamental in assessing demand for our services.

If the carrying amounts of the assets exceed the estimated expected undiscounted future cash flows, we measure the amount of possible impairment by comparing the carrying amount of the asset to its fair value.

No impairment charges were recognized for the years ended December 31, 2023 and 2022.

We lease certain vehicles, seismic recording equipment, real property and office equipment under lease agreements.

We evaluate each lease to determine its appropriate classification as an operating lease or a finance lease for financial reporting purposes.

We are 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 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, we use the implicit interest rate in determining the present value of future minimum lease payments.

In the absence of an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date.

We give consideration to our outstanding debt, as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

The ROU assets are amortized to operating lease cost over the lease terms on a straight-line basis.

We do not recognize leases with an initial term of 12 months or less and we do not separate lease and non-lease components.

Several of our 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 our discretion.

To measure operating lease recognition, we evaluate our lease agreements to determine if they have economic incentives for renewal or options to purchase.

We deem leasehold improvements as one of the few economic incentives that would entice us to renew a lease and all of our leasehold improvements are currently fully amortized.

Long-lived assets are tested for impairment at the asset group level when events or changes in circumstances indicate the carrying value of the asset group may not be recoverable.

Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the asset group and the fair value of the asset group is below its carrying value.

Depending upon the facts and circumstances, when indicators of asset impairment exist, management will test the asset group for impairment through developing a forecast of future undiscounted cash flows expected to be generated by the asset group or by estimating the fair value of assets within the asset group in lieu of detailed cash flow projections.

If either the future undiscounted cashflows expected to be generated by the asset group or the fair of the assets within the asset group exceeds the carrying value of the asset group no impairment would be recognized.

During the year ended December 31, 2024, management tested two of its asset groups for impairment through estimating the fair value of certain assets within the asset groups using a market approach or cost approach, as applicable.

Because the fair value of these assets collectively exceeded the carrying value of the asset group, no impairment charges were recognized for the year ended December 31, 2024 or 2023.

Income Taxes.

We account 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 our financial statements or tax returns.

We determine 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 realized.

Our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining our annual effective tax rate and the valuation of deferred tax assets, which can create a variance between actual results and

estimates and could have a material impact on our provision or benefit for income taxes.

Due to recent operating losses and valuation allowances, we may recognize reduced or no tax benefits on future losses on the Consolidated Statements of Operations and Comprehensive Loss.

Our effective tax rates differ from the statutory federal rate of 21% for certain items such as state and local taxes, valuation allowances, and non-deductible expenses.

Critical Accounting Policies

Revenue Recognition.

16 unchanged sentences

Additionally, our 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.

Income Taxes.

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 realized.

Due to recent operating losses and valuation allowances, we may recognize reduced or no tax benefits on future losses on the Consolidated Statements of Operations and Comprehensive Loss.

Our effective tax rates differ from the statutory federal rate of 21% for certain items such as state and local taxes, valuation allowances, and non-deductible expenses.

We lease certain vehicles, seismic recording equipment, real property and office equipment under lease agreements.

We evaluate each lease to determine its appropriate classification as an operating lease or a finance lease for financial reporting purposes.

We are 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, Texas, and Plano, Texas, and Calgary, Alberta, and Wheatland County, Alberta.