Dawson Geophysical (DWSN) 10-Q 2022 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2022

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

For the Transition Period From                  to                 

Commission File No. 001-32472

DAWSON GEOPHYSICAL COMPANY

(Exact name of registrant as specified in its charter)

Texas	74-2095844
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

508 West Wall, Suite 800, Midland, Texas 79701

(Address of Principal Executive Office) (Zip Code)

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

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

Title of Each Class	Name of Exchange on Which Registered	Trading Symbol
Common Stock, $0.01 par value	The NASDAQ Stock Market	DWSN

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧  No ◻

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

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

Accelerated filer ☐	Large accelerated filer ◻	Smaller reporting company ☒
Non-accelerated filer ⌧	Emerging growth company ☐

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

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

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

Title of Each Class	Outstanding at August 10, 2022
Common Stock, $0.01 par value	23,812,329 shares

DAWSON GEOPHYSICAL COMPANY

INDEX

	Page Number
Part I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets at June 30, 2022 (unaudited) and December 31, 2021	3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)	5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures about Market Risk	17
Item 4. Controls and Procedures	18
Part II. OTHER INFORMATION	18
Item 1. Legal Proceedings	18
Item 1A. Risk Factors	18
Item 6. Exhibits	19
Signatures	20

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

	June 30,		December 31,
	2022		2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,654	$	25,376
Restricted cash		5,000		5,000
Short-term investments		265		265
Accounts receivable, net		1,781		8,905
Prepaid expenses and other current assets		4,186		3,313
Total current assets		35,886		42,859
Property and equipment		21,301		26,349
Right-of-use assets		4,456		4,435
Intangibles, net		388		395
Total assets	$	62,031	$	74,038
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,068	$	2,580
Accrued liabilities:
Payroll costs and other taxes		632		1,066
Other		1,253		1,338
Deferred revenue		1,472		1,344
Current maturities of notes payable and finance leases		522		302
Current maturities of operating lease liabilities		1,057		961
Total current liabilities		6,004		7,591
Long-term liabilities:
Notes payable and finance leases, net of current maturities		—		8
Operating lease liabilities, net of current maturities		3,869		3,942
Deferred tax liabilities, net		20		20
Total long-term liabilities		3,889		3,970
Commitments and contingencies		—		—
Stockholders’ equity:
Preferred stock-par value $1.00 per share; 4,000,000 shares authorized, NaN 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 June 30, 2022 and December 31, 2021, respectively		238		237
Additional paid-in capital		155,669		155,268
Accumulated deficit		(102,087)		(92,018)
Treasury stock, at cost; 0 and 48,445 shares at June 30, 2022 and December 31, 2021, respectively		—		—
Accumulated other comprehensive loss, net		(1,682)		(1,010)
Total stockholders’ equity		52,138		62,477
Total liabilities and stockholders’ equity	$	62,031	$	74,038

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

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DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating revenues	$	921	$	193	$	19,280	$	11,941
Operating costs:
Operating expenses		4,013		3,330		16,651		14,272
General and administrative		2,415		2,746		7,946		5,553
Depreciation and amortization		2,451		3,400		5,085		6,834
		8,879		9,476		29,682		26,659
Loss from operations		(7,958)		(9,283)		(10,402)		(14,718)
Other income (expense):
Interest income		29		56		54		126
Interest expense		(9)		(6)		(20)		(12)
Other income (expense), net		276		216		315		359
Loss before income tax		(7,662)		(9,017)		(10,053)		(14,245)
Income tax expense		(16)		—		(16)		—
Net loss		(7,678)		(9,017)		(10,069)		(14,245)
Other comprehensive (loss) income:
Net unrealized (loss) income on foreign exchange rate translation, net		(439)		211		(672)		412
Comprehensive loss	$	(8,117)	$	(8,806)	$	(10,741)	$	(13,833)
Basic loss per share of common stock	$	(0.32)	$	(0.38)	$	(0.42)	$	(0.61)
Diluted loss per share of common stock	$	(0.32)	$	(0.38)	$	(0.42)	$	(0.61)
Weighted average equivalent common shares outstanding		23,812,329		23,525,728		23,752,775		23,501,900
Weighted average equivalent common shares outstanding - assuming dilution		23,812,329		23,525,728		23,752,775		23,501,900

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

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DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and amounts in thousands)

	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(10,069)	$	(14,245)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		5,085		6,834
Operating lease cost		499		528
Non-cash compensation		368		198
Gain on disposal of assets		(142)		(82)
Remeasurement and other		(18)		121
Change in operating assets and liabilities:
Decrease in accounts receivable		6,696		7,038
Decrease in prepaid expenses and other assets		68		1,927
Decrease in accounts payable		(1,508)		(1,063)
Decrease in accrued liabilities		(491)		(911)
Decrease in operating lease liabilities		(496)		(548)
Increase (decrease) in deferred revenue		128		(1,095)
Net cash provided by (used in) operating activities		120		(1,298)
Cash flows from investing activities:
Capital expenditures, net of non-cash capital expenditures summarized below (if applicable)		(95)		—
Proceeds from disposal of assets		142		335
Net cash provided by investing activities		47		335
Cash flows from financing activities:
Proceeds from notes payable		—		550
Principal payments on notes payable		(713)		(237)
Principal payments on finance leases		(18)		(27)
Tax withholdings related to stock-based compensation awards		(79)		(75)
Sale of treasury stock		113		—
Net cash (used in) provided by financing activities		(697)		211
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(192)		131
Net decrease in cash and cash equivalents and restricted cash		(722)		(621)
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	$	29,654	$	45,334
Supplemental cash flow information:
Cash paid for interest	$	20	$	11
Cash paid for income taxes	$	—	$	81
Cash received for income taxes	$	7	$	—
Non-cash operating, investing and financing activities:
Increase in right-of-use assets and operating lease liabilities	$	527	$	1
Financed insurance premiums	$	944	$	—

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

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DAWSON GEOPHYSICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and amounts in thousands, except share data)

								Accumulated
	Common Stock			Additional				Other
	Number			Paid-in		Accumulated		Comprehensive
	Of Shares	Amount		Capital		Deficit		(Loss) Income		Total
Balance January 1, 2022	23,692,379	$	237	$	155,268	$	(92,018)	$	(1,010)	$	62,477
Net loss							(2,391)				(2,391)
Unrealized loss on foreign exchange rate translation									(233)		(233)
Issuance of common stock under stock compensation plans	155,000		1		(1)						—
Stock-based compensation expense					279						279
Treasury stock sale					113						113
Shares exchanged for taxes on stock-based compensation	(35,050)				(79)						(79)
Balance March 31, 2022	23,812,329	$	238	$	155,580	$	(94,409)	$	(1,243)	$	60,166
Net loss							(7,678)				(7,678)
Unrealized loss on foreign exchange rate translation									(439)		(439)
Stock-based compensation expense					89						89
Balance June 30, 2022	23,812,329	$	238	$	155,669	$	(102,087)	$	(1,682)	$	52,138

								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							(5,228)				(5,228)
Unrealized income on foreign exchange rate translation									201		201
Stock-based compensation expense					101						101
Balance March 31, 2021	23,526,517	$	235	$	154,967	$	(68,155)	$	(999)	$	86,048
Net loss							(9,017)				(9,017)
Unrealized income on foreign exchange rate translation									211		211
Issuance of common stock under stock compensation plans	174,000		2		(2)						—
Stock-based compensation expense					67						67
Issuance of common stock as compensation	11,320		—		30						30
Shares exchanged for taxes on stock-based compensation	(31,410)		—		(75)						(75)
Balance June 30, 2021	23,680,427	$	237	$	154,987	$	(77,172)	$	(788)	$	77,264

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

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DAWSON GEOPHYSICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND NATURE OF OPERATIONS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Significant Accounting Policies

Principles of Consolidation. The condensed consolidated financial statements for the three and six months ended June 30, 2022 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.

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. The Company's allowance for doubtful accounts was $250,000 at June 30, 2022 and December 31, 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 a finance lease or an operating lease for financial reporting purposes. The assets and liabilities under finance leases are recorded at the lower of the present value of the minimum lease payments or the fair market value of the related assets. Assets under finance leases are amortized using the straight-line method over the initial lease term. Amortization of assets under finance leases is included in depreciation expense. For operating leases, where readily determinable, the Company uses the implicit interest rate in determining the present value of future minimum lease payments. In the absence of an implicit rate, the Company uses its incremental borrowing rate. The right-of-use assets are amortized to operating lease cost over the lease terms on a straight-line basis and is included in operating expense. Several of the Company’s leases include options to renew and the exercise of lease renewal options is primarily at the Company’s discretion.

Property and Equipment. Property and equipment is capitalized at historical cost 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

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exist in the seismic industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available, these estimates could change. Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.

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

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

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

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

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

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

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

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

Recently Issued Accounting Pronouncements

None.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

At June 30, 2022 and December 31, 2021, the Company’s financial instruments included cash and cash equivalents, restricted cash, short-term investments in certificates of deposit, accounts receivable, other current assets, accounts payable, other current liabilities, notes payable, finance leases and operating lease liabilities. Due to the short-term maturities of cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and other current liabilities, the carrying amounts approximate fair value at the respective

8

balance sheet dates. The carrying value of the notes payable, finance leases and operating lease liabilities approximate their fair value based on a comparison with the prevailing market interest rate. Due to the short-term maturities of the Company’s investments in certificates of deposit, the carrying amounts approximate fair value at the respective balance sheet dates. The fair values of the Company’s notes payable and investments in certificates of deposit are level 2 measurements in the fair value hierarchy.

4. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION

Disaggregated Revenues

The Company has 1 line of business, acquiring and processing seismic data in North America. Our chief operating decision maker (President and Chief Executive Officer) makes operating decisions and assesses performance based on the Company as a whole. Accordingly, the Company is considered to be in a single reportable segment. The following table presents the Company’s operating revenues (unaudited and in thousands) disaggregated by geographic region:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021			2022	2021
Operating Revenues
United States	$	422	$	193	$	7,605	$	8,977
Canada		499		—		11,675		2,964
Total	$	921	$	193	$	19,280	$	11,941

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 June 30, 2022 and 2021 included deferred costs incurred to fulfill contracts with customers of $382 and $92, respectively.

Deferred costs at June 30, 2022 compared to January 1, 2022 and at June 30, 2021 compared to January 1, 2021 decreased primarily as a result of the completion of several projects during those six month periods that had deferred fulfillment costs at January 1, 2022 and 2021, respectively.

The amount of total deferred costs amortized for the three and six months ended June 30, 2022 was $21 and $1,669, respectively. The amount of total deferred costs amortized for the three and six months ended June 30, 2021 was $85 and $3,907, respectively. There were no material impairment losses incurred during these periods.

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 June 30, 2022 and 2021 was $1,472 and $684, respectively.

Deferred revenue at June 30, 2022 compared to January 1, 2022 remained fairly consistent. Deferred revenue at June 30, 2021 compared to January 1, 2021 decreased primarily as a result of completing projects for clients with prepayments for third party reimbursables.

Revenue recognized for the three and six months ended June 30, 2022 that was included in the contract liability balance at the beginning of 2022 was $0 and $936, respectively. Revenue recognized for the three and six months ended June 30, 2021 that was included in the contract liability balance at the beginning of 2021 was $0 and $1,779, respectively.

5. DEBT

Dominion Loan Agreement

On September 30, 2019, the Company entered into a Loan and Security Agreement with Dominion Bank, a Texas state bank (“Dominion Bank”). On September 30, 2021, the Company entered into a Second Loan Modification Agreement (the “Second Modification”) to the Loan and Security Agreement (as amended by the Loan Modification Agreement, the “Loan Agreement”) for the purpose of (a) amending and extending the maturity of its line of credit with Dominion Bank by one year and (b) amending the Company's obligation to maintain a certain tangible net worth. The Loan Agreement provides for a revolving credit facility (the “Revolving Credit Facility”) in an amount up to the lesser of (i) $15,000,000 or (ii) a sum equal to (a) 80% of the Company’s eligible accounts receivable plus 100% of the amount on deposit with Dominion Bank in the Company’s collateral account, consisting of a restricted IntraFi Network Deposit account of $5,000,000 (the “Deposit”). As of June 30, 2022, the Company has not borrowed any amounts under the Revolving Credit Facility and has the entire amount available for withdrawal.

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Under the Revolving Credit Facility, interest will accrue at an annual rate equal to the lesser of (i) 6.00% and (ii) the greater of (a) the prime rate as published from time to time in The Wall Street Journal or (b) 3.50%. The Company will pay a commitment fee of 0.10% per annum on the difference of (a) $15,000,000 minus the Deposit minus (b) the daily average usage of the Revolving Credit Facility. The Loan Agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets. The Company is also obligated to meet certain financial covenants under the Loan Agreement, including maintaining a tangible net worth of not less than $55,000,000 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 June 30, 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, 2022.

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

Dominion Letters of Credit

As of June 30, 2022, Dominion Bank has issued 1 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 June 30, 2022, the Company has 2 short-term notes payable to a finance company for various insurance premiums totaling $496,000.

In addition, the Company leases certain seismic recording equipment and vehicles under leases classified as finance leases. The Company’s Condensed Consolidated Balance Sheet as of June 30, 2022 includes finance leases of $26,000.

Maturities and Interest Rates of Debt

The following tables set forth the aggregate principal amount (in thousands) under the Company’s outstanding notes payable and the interest rates as of June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
Notes payable to finance company for insurance
Aggregate principal amount outstanding	$	496	$	265
Interest rate		4.99%		4.99%

The aggregate maturities of finance leases as of June 30, 2022 are as follows (in thousands):

July 2022 - June 2023	$	26
Obligations under finance leases	$	26

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

6. LEASES

The Company leases certain vehicles, seismic recording equipment, real property and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating lease or finance lease for financial reporting purposes. The majority of our operating leases are non-cancelable operating leases for office and shop space in Midland, Plano, Houston, Oklahoma City and Calgary, Alberta. Although we renewed our Plano office lease in the first quarter of 2022, there have been no material changes to our leases since the Company’s most recent Annual Report on Form 10-K that was filed with the SEC on March 18, 2022.

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Maturities of lease liabilities as of June 30, 2022 are as follows (in thousands):

	Operating Leases		Finance Leases
July 2022 - June 2023	$	1,280	$	26
July 2023 - June 2024		1,298		—
July 2024 - June 2025		1,139		—
July 2025 - June 2026		1,013		—
July 2026 - June 2027		780		—
Thereafter		—		—
Total payments under lease agreements		5,510		26
Less imputed interest		(584)		—
Total lease liabilities	$	4,926	$	26

7. OPERATING 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 financial condition, results of operations or liquidity, as the Company believes it is adequately indemnified and insured.

We are 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 18 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 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.

8. NET LOSS PER SHARE

Basic 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.

The computation of basic and diluted loss per share (in thousands, except share and per share data) was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(7,678)	$	(9,017)	$	(10,069)	$	(14,245)
Weighted average common shares outstanding
Basic		23,812,329		23,525,728		23,752,775		23,501,900
Dilutive common stock options, restricted stock unit awards and restricted stock awards		—		—		—		—
Diluted		23,812,329		23,525,728		23,752,775		23,501,900
Basic loss per share of common stock	$	(0.32)	$	(0.38)	$	(0.42)	$	(0.61)
Diluted loss per share of common stock	$	(0.32)	$	(0.38)	$	(0.42)	$	(0.61)

The Company had a net loss for the three and six months ended June 30, 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 those periods.

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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 three and six months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Stock options		—		—		—	—
Restricted stock units		180,000		112,813		251,077	143,237
Restricted stock awards		—		—		—	—
Total		180,000		112,813		251,077	143,237

9. INCOME TAXES

For the three and six months ended June 30, 2022 the Company’s effective tax rate was -0.2%. For the three and six months ended June 30, 2021, the Company's effective tax rate was 0.0%. The Company’s nominal or no effective tax rate for the periods above was due to the presence of net operating loss carryovers and adjustments to the valuation allowance on deferred tax assets.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over an extended amount of time. Such objective evidence limits the ability to consider other subjective evidence, such as projections for taxable earnings.

If the Company had any income tax benefit for the three and six months ended June 30, 2022, it would not include income tax benefits for all of the losses incurred because the Company has recorded valuation allowances against significantly all of its federal, state and foreign deferred tax assets. The Company has recorded valuation allowances against the associated deferred tax assets for the amounts it deems are not more likely than not realizable. Based on management’s belief that not all the net operating losses are realizable, a federal valuation allowance and additional state valuation allowances were maintained during the three and six months ended June 30, 2022 and 2021. In addition, due to the Company’s recent operating losses and valuation allowances, the Company may recognize reduced or no tax benefits on future losses on the condensed consolidated financial statements. The amount of the valuation allowances considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth.

On January 14, 2022, the Company had an Internal Revenue Code section 382 event that will limit some of our NOL utilization in future periods. The Company is currently working on a 382 limitation estimate. The limitation should not have a material impact on tax expense.

10. RELATED PARTY TRANSACTIONS

As of June 30, 2022, the Company had accounts receivable due from related parties of $274,000. This receivable is due from Breckenridge Geophysical, LLC, which is a wholly owned subsidiary of Wilks Brothers, LLC, the holder of approximately 75% of the Company’s outstanding common stock. This receivable is primarily related to rental of seismic equipment to Breckenridge.

11. SUBSEQUENT EVENTS

None.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Statements other than statements of historical fact included in this Form 10-Q that relate to forecasts, estimates or other expectations regarding future events, including without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding technological advancements, our financial position, business strategy and plans, objectives of our management for future operations, including statements related to the expected or potential impact of the novel coronavirus (“COVID-19”) pandemic on our business, financial condition and results of operations, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as

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assumptions made by and information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors. These risks include, but are not limited to, the Company’s status as a controlled public company, which exempt the Company from certain corporate governance requirements; the limited market for the Company’s shares, which could result in the delisting of the Company’s shares from Nasdaq and the Company no longer being required to make filings with the SEC; the impact of general economic, industry, market or political conditions; dependence upon energy industry spending; changes in exploration and production spending by our customers and changes in the level of oil and natural gas exploration and development; the results of operations and financial condition of our customers, particularly during extended periods of low prices for crude oil and natural gas; the volatility of oil and natural gas prices; changes in economic conditions; the severity and duration of the COVID-19 pandemic, related economic repercussions and the resulting impact on demand for oil and gas; surpluses in the supply of oil and the ability of the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, to agree on and comply with supply limitations; the duration and magnitude of the unprecedented disruption in the oil and gas industry currently resulting from the impact of the foregoing factors, which is negatively impacting our business; the potential for contract delays; reductions or cancellations of service contracts; limited number of customers; credit risk related to our customers; reduced utilization; high fixed costs of operations and high capital requirements; operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees and remote work arrangements; industry competition; external factors affecting our crews such as weather interruptions and inability to obtain land access rights of way; whether we enter into turnkey or dayrate contracts; crew productivity; the availability of capital resources; and disruptions in the global economy, including export controls and financial and economic sanctions imposed on certain industry sectors and parties as a result of the developments in Ukraine and related activities. A discussion of these and other factors, including risks and uncertainties, is set forth in our Annual Report on Form 10-K that was filed with the SEC on March 18, 2022 and any subsequent Quarterly Reports on Form 10-Q filed with the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. We disclaim any intention or obligation to revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a leading provider of North American onshore seismic data acquisition services with operations throughout the continental U.S. and Canada. Substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients. Our clients consist of major oil and gas companies, independent oil and gas operators, and providers of multi-client data libraries. In recent years, our primary customer base has consisted of providers of multi-client data libraries. Demand for our services depends upon the level of spending by these companies for exploration, production, development and field management activities, which depends, in a large part, on oil and natural gas prices. 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.

During the second quarter of 2022, we did not operate a crew in the U.S. and had limited crew activity in Canada. Traditionally, activity in Canada is seasonal and is limited to projects in the fourth and first quarters. We did generate a small amount of revenue related to rental of equipment. We deployed a small crew in the U.S in early August and expect the crew will be active through the first quarter of 2023 on projects of varying sizes and channel count requirements with the possibility of a second crew being deployed in the late fourth quarter or early first quarter of 2023.

Activity in Canada is expected to increase in the upcoming season compared to last season and we anticipate beginning crew operations in the fourth quarter and potentially build up to three crews operating through the end of the first quarter of 2023. Visibility beyond the first quarter of 2023 is limited.

Exploration and Production (“E&P”) companies continue to maintain their focus on capital discipline, shareholder buybacks and dividend payouts. E&P capital spending levels have increased in 2022 and are anticipated to grow into 2023, primarily related to continued slight increases in rig count, resulting in small increases in overall production and inflationary costs associated with oil service activities. We are actively engaging in conversations with prospective clients for projects beyond the first quarter of 2023 and we are hopeful that the high-priced oil environment will encourage E&P companies to put capital back to work in exploration and development.

In our continuing response to these difficult times, we significantly limited capital budget spending, reduced fixed and variable operating expenses, and implemented a comprehensive equipment maintenance program in preparation for a rapid response to anticipated increased activity levels. In addition, we maintain our commitment to our robust Health, Safety and Environmental program, ongoing client relationships and product quality.

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

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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 from quarter to quarter. Consequently, our efforts to negotiate more favorable contract terms in our supplemental service agreements, mitigate permit access delays and improve overall crew productivity may contribute to growth in our revenues. Further, the ongoing COVID-19 pandemic may further compound one or more of the foregoing factors and could directly affect our productivity.

Results of Operations

Operating Revenues. Operating revenues for the second quarter of 2022 increased 377.2% to $921,000 compared to $193,000 in the same period of 2021. Operating revenues increased 61.5% to $19,280,000 during the first six months of 2022 compared to $11,941,000 in the same period of 2021. The increased revenue during the second quarter and first six months of 2022 compared to the same periods of 2021 was primarily due to slightly increased crew utilization during those periods of 2022.

Operating Expenses. Operating expenses for the second quarter of 2022 increased 20.5% to $4,013,000 compared to $3,330,000 in the same period of 2021. Operating expenses increased 16.7% to $16,651,000 during the first six months of 2022 compared to $14,272,000 in the same period of 2021. The increase in operating expenses during the second quarter and first six months of 2022 compared to the same periods of 2021 was primarily due to the increased crew utilization during those periods of 2022.

General and Administrative Expenses. General and administrative expenses were 262.2% and 41.2% of revenues in the second quarter and first six months of 2022, respectively compared to 1,422.8% and 46.5% of revenues in the same periods of 2021. General and administrative expenses decreased $331,000 or 12.1% to $2,415,000 during the second quarter of 2022 from $2,746,000 during the same period of 2021, and increased $2,393,000 or 43.1% to $7,946,000 during the first six months of 2022 from $5,553,000 during the same period of 2021. The primary factors for the decrease in general and administrative expenses during the second quarter of 2022 compared to the same period of 2021 was due to workforce reductions, salary reductions, and continued cost reduction efforts by management. The primary factor for the increase in general and administrative expenses during the first six months of 2022 compared to the same period of 2021 was due to transaction costs of $2,872,000 incurred related to the previously disclosed proposed merger with a subsidiary of Wilks Brothers, LLC during the first quarter of 2022.

Depreciation and Amortization Expense. Depreciation and amortization expense for the second quarter and first six months of 2022 totaled $2,451,000 and $5,085,000, respectively, compared to $3,400,000 and $6,834,000 for the same periods of 2021. Depreciation expense decreased in 2022 compared to 2021 as a result of multiple years of reduced capital expenditures. Our depreciation expense is expected to remain below that of 2021 for the remainder of 2022 due to the anticipated continuation of maintenance levels of capital expenditures to maintain our existing asset base.

Total operating costs for the second quarter of 2022 were $8,879,000, representing a 6.3% decrease from the same period of 2021. The operating costs for the first six months of 2022 were $29,682,000, representing an 11.3% increase from the same period of 2021. The decrease in operating costs for the second quarter and increase during the first six months of 2022 compared to 2021 was primarily due to the factors described above.

Income Taxes. Income tax expense for the second quarter and first six months of 2022 was $16,000 and $16,000, respectively, compared to income tax expense of $0 and $0 for the same periods of 2021. These amounts represent effective tax rates of -0.2% and -0.2% for the second quarter and first six months of 2022, respectively, compared to 0.0% and 0.0% for the second quarter and first six months of 2021. The Company’s nominal or no effective tax rate for the periods above was due to the presence of net operating loss carryovers and adjustments to the valuation allowance on deferred tax assets.

Our effective tax rates differ from the statutory federal rate of 21.0% for certain items such as state and local taxes, valuation allowances, non-deductible expenses and discrete items. For further information, see Note 9 of the Notes to the Condensed Consolidated Financial Statements.

Use of EBITDA (a Non-GAAP measure)

We define EBITDA as net income (loss) plus interest expense, interest income, income taxes, and depreciation and amortization expense. Our management uses 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; and

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● 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 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: interest, taxes, and depreciation and amortization.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021			2022		2021
Net loss	$	(7,678)	$	(9,017)	$	(10,069)	$	(14,245)
Depreciation and amortization		2,451		3,400		5,085		6,834
Interest (income) expense, net		(20)		(50)		(34)		(114)
Income tax expense		16		—		16		—
EBITDA	$	(5,231)	$	(5,667)	$	(5,002)	$	(7,525)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021			2022	2021
Net cash provided by (used in) operating activities	$	10,780	$	(1,126)	$	120	$	(1,298)
Changes in working capital and other items		(15,678)		(4,178)		(4,255)		(5,501)
Non-cash adjustments to net loss		(333)		(363)		(867)		(726)
EBITDA	$	(5,231)	$	(5,667)	$	(5,002)	$	(7,525)

Liquidity and Capital Resources

Our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients. Our principal uses of cash are the amounts used to provide these services, including expenses related to our operations and acquiring new equipment. Accordingly, our cash position depends (as do our revenues) on the level of demand for our services. Historically, cash generated from our operations along with cash reserves and borrowings from commercial banks have been sufficient to fund our working capital requirements and, to some extent, our capital expenditures.

Cash Flows. Net cash provided by operating activities was $120,000 for the six months ended June 30, 2022 compared to net cash used in operating activities of $1,298,000 for the same period of 2021. This was primarily due to a larger net loss of $14,245,000 for the first six months of 2021 compared to a net loss of $10,069,000 over the same period of 2022, as well as changes in the balances of our operating assets and liabilities.

Net cash provided by investing activities was $47,000 for the six months ended June 30, 2022 compared to cash provided by investing activities of $335,000 for the same period of 2021. The decrease in cash provided by investing activities between periods of $288,000 was primarily due to capital expenditures of $95,000 offset by proceeds from disposal of assets of $142,000 during the first six months of 2022 compared to proceeds from disposal of assets of $335,000 and no capital expenditures for the same period of 2021.

Net cash used in financing activities was $697,000 for the six months ended June 30, 2022 and was primarily comprised of principal payments of $713,000 and $18,000 under our notes payable and finance leases, respectively. Net cash provided by financing activities for the six months ended June 30, 2021 was $211,000 and was primarily comprised of proceeds from notes payable of $550,000 offset by principal payments of $237,000 and $27,000 under our notes payable and finance leases, respectively.

Capital Expenditures. The Board of Directors approved an initial 2022 capital budget in the amount of $5,000,000 for capital expenditures, which was limited to necessary maintenance capital requirements and incremental recording channel replacement or increase. For the six months ended June 30, 2022, we have spent $95,000 on capital expenditures. In recent years, we have funded most of our capital expenditures through cash flow from operations, cash reserves, equipment term loans and finance leases. In the past, we have also funded our capital expenditures and other financing needs through public equity offerings.

We continually strive to supply our clients with technologically advanced 3-D seismic data acquisition recording services and data processing capabilities. We maintain equipment in and out of service in anticipation of increased future demand for our services.

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Capital Resources. Historically, we have primarily relied on cash generated from operations, cash reserves and borrowings from commercial banks to fund our working capital requirements and, to some extent, our capital expenditures. We have funded some of our capital expenditures through commercial bank borrowings, finance leases and equipment term loans. From time to time in the past, we have also funded our capital expenditures and other financing needs through public equity offerings. The amount of borrowings available to us under our existing credit facility are determined in part by the amount of our eligible accounts receivable.

Loan Agreement

Dominion Credit Facility. On September 30, 2019, we entered into a Loan and Security Agreement with Dominion Bank. On September 30, 2021, we entered into the Second Modification to the Loan and Security Agreement for the purpose of (a) amending and extending the maturity of our line of credit with Dominion Bank by one year and (b) amending our obligation to maintain a certain tangible net worth. The Loan Agreement provides for a Revolving Credit Facility in an amount up to the lesser of (i) $15,000,000 or (ii) a sum equal to (a) 80% of our eligible accounts receivable plus 100% of the amount on deposit with Dominion Bank in our collateral account, consisting of a restricted IntraFi Network Deposit account of $5,000,000. As of June 30, 2022, we have not borrowed any amounts under the Revolving Credit Facility and have the entire amount available for withdrawal.

Under the Revolving Credit Facility, interest will accrue at an annual rate equal to the lesser of (i) 6.00% and (ii) the greater of (a) the prime rate as published from time to time in The Wall Street Journal or (b) 3.50%. We will pay a commitment fee of 0.10% per annum on the difference of (a) $15,000,000 minus the Deposit minus (b) the daily average usage of the Revolving Credit Facility. The Loan Agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets. We are also obligated to meet certain financial covenants under the Loan Agreement, including maintaining a tangible net worth of not less than $55,000,000 and specified ratios with respect to current assets and liabilities and debt to tangible net worth. We received a limited waiver from Dominion Bank with respect to any non-compliance with the tangible net worth covenant for the period ended June 30, 2022. Our 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, 2022.

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

Dominion Letters of Credit. As of June 30, 2022, 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.

Other Indebtedness

As of June 30, 2022, we have two short-term notes payable to a finance company for various insurance premiums totaling $496,000.

In addition, we lease certain seismic recording equipment and vehicles under leases classified as finance leases. Our Condensed Consolidated Balance Sheet as of June 30, 2022 includes finance leases of $26,000.

Maturities and Interest Rates of Debt

The following tables set forth the aggregate principal amount (in thousands) under our outstanding notes payable and the interest rates as of June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
Notes payable to finance company for insurance
Aggregate principal amount outstanding	$	496	$	265
Interest rate		4.99%		4.99%

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The aggregate maturities of finance leases as of June 30, 2022 are as follows (in thousands):

July 2022 - June 2023	$	26
Obligations under finance leases	$	26

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

Contractual Obligations

We believe that our capital resources, including our cash on hand, 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 2022 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.

Critical Accounting Policies

Information regarding our critical accounting policies and estimates is included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Recently Issued Accounting Pronouncements

None.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. These risks arise primarily as a result of potential changes to operating concentration of credit risk and changes in interest rates. We have not entered into any hedge arrangements, commodity swap agreements, commodity futures, options or other derivative financial instruments. We also conduct business in Canada, which subjects our results of operations and cash flows to foreign currency exchange rate risk.

Concentration of Credit Risk

Our principal market risks include fluctuations in commodity prices, which affect demand for and pricing of our services, and the risk related to the concentration of our clients in the oil and natural gas industry. Since all of our clients are involved in the oil and natural gas industry, there may be a positive or negative effect on our exposure to credit risk because our clients may be similarly affected by changes in economic and industry conditions. As an example, changes to existing regulations or the adoption of new regulations may unfavorably impact us, our suppliers or our clients. In the normal course of business, we provide credit terms to our clients. Accordingly, we perform ongoing credit evaluations of our clients and maintain allowances for possible losses. Our historical experience supports our allowance for doubtful accounts of $250,000 at June 30, 2022. This does not necessarily indicate that it would be adequate to cover a payment default by one large or several smaller clients.

We generally provide services to certain key clients that account for a significant percentage of our accounts receivable at any given time. Our key clients vary over time. We extend credit to various companies in the oil and natural gas industry, including our key clients, for the acquisition of seismic data, which results in a concentration of credit risk. This concentration of credit risk may be affected by changes in the economic or other conditions of our key clients and may accordingly impact our overall credit risk. If any of these significant clients were to terminate their contracts or fail to contract for our services in the future because they are acquired, alter their exploration or development strategy, or for any other reason, our results of operations could be affected. Because of the nature of our contracts and clients’ projects, our largest clients can change from year to year, and the largest clients in any year may not be indicative of the largest clients in any subsequent year.

Interest Rate Risk

From time to time, we are exposed to the impact of interest rate changes on the outstanding indebtedness under our Revolving Credit Facility which has variable interest rates.

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We generally have cash in the bank which exceeds federally insured limits. Historically, we have not experienced any losses in such accounts; however, volatility in financial markets may impact our credit risk on cash and short-term investments. At June 30, 2022, cash, restricted cash and short term investments totaled $29,919,000.

ITEM 4. 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 and financial officer, 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 June 30, 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.

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 June 30, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 7 – Operating Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a discussion of the Company’s legal proceedings.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our financial condition or results of operations.

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ITEM 6. EXHIBITS

Number	Exhibit
3.1	Amended and Restated Certificate of Formation, as amended February 11, 2015, filed on March 16, 2015 as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K, and incorporated herein by reference.
3.2	Bylaws, as amended February 11, 2015, filed on March 16, 2015 as Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, and incorporated herein by reference.
3.3	Statement of Resolutions Establishing Series of Shares designated Series A Junior Participating Preferred Stock of Dawson Geophysical Company, filed on April 8, 2021 as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, and incorporated herein by reference.
31.1*	Certification of Chief Executive Officer of Dawson Geophysical Company pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer of Dawson Geophysical Company pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1*	Certification of Chief Executive Officer of Dawson Geophysical Company pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
32.2*	Certification of Chief Financial Officer of Dawson Geophysical Company pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2022 and 2021, (ii) Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021, and (v) Notes to Condensed Consolidated Financial Statements.
104*	Cover Page Interactive Data File (formatted in Inline XBRL and included as Exhibit 101).

*         Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DAWSON GEOPHYSICAL COMPANY
DATE: August 12, 2022	By:	/s/ Stephen C. Jumper
		Stephen C. Jumper
		President and Chief Executive Officer
DATE: August 12, 2022	By:	/s/ James K. Brata
		James K. Brata
		Executive Vice President, Chief Financial Officer, Secretary and Treasurer

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