BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2018

Our unaudited condensed consolidated financial statements included herein include our accounts and those of our subsidiaries, which are wholly–owned or controlled by us, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. We believe that the presentations and disclosures herein are adequate to make the information not misleading. The unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) for a fair presentation of the interim periods. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in Item 8 of our Annual Report on Form 10–K for the year ended December 31, 2017.

All intercompany accounts and transaction have been eliminated in consolidation. In the Notes to Unaudited Condensed Consolidated Financial Statements, all dollar and share amounts in tabulations are in thousands of dollars and shares, respectively, unless otherwise indicated.

Recently Adopted Accounting Pronouncements

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014–09, Revenue from Contracts with Customers, and the related amendments. This ASU amended the existing accounting standards for revenue recognition and requires companies to recognize revenue when control of the promised goods or services is transferred to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services.

We elected to adopt ASU 2014–09 using the modified retrospective approach applied to those contracts that were not completed as of January 1, 2018. Prior period amounts have not been adjusted and continue to be reflected in accordance with our historical accounting.

The impact of the adoption on our unaudited condensed consolidated statements of operations was as follows:

	Balances Without Adoption of ASU 2014-09			Impact of Adoption of ASU 2014-09			As Reported
Three months ended June 30, 2018:
Statement of operations:
Revenue from services	$	15,889		$	994		$	16,883
Cost of services		19,093			617			19,710
Income taxes		(1,871	)		(10	)		(1,881	)
Net loss		(33,733	)		387			(33,346	)

Six months ended June 30, 2018:
Statement of operations:
Revenue from services	$	52,635		$	1,371		$	54,006
Cost of services		44,465			1,250			45,715
Income taxes		(1,302	)		45			(1,257	)
Net loss		(34,896	)		76			(34,820	)

The impact of the adoption on our unaudited condensed consolidated balance sheet was as follows:

	June 30, 2018
	Balances Without Adoption of ASU 2014-09			Impact of Adoption of ASU 2014-09		As Reported
Balance Sheet:
Current assets:
Accounts receivable, net	$	11,193		$	1,371	$	12,564
Deferred costs on contracts		489			—		489
Current liabilities:
Accrued liabilities		6,194			1,250		7,444
Income and other taxes payable		5,223			45		5,268
Stockholders' equity:
Accumulated deficit		(168,802	)		76		(168,726	)

On January 1, 2018, we adopted ASU 2016–16. Intra–Entity Transfers of Assets Other Than Inventory. ASU 2016–16 eliminated the deferral of tax effects of intra–entity asset transfers, other than inventory. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes are recognized when the sale occurs even though the pre–tax effects of the transaction have not been recognized. We elected to adopt ASU 2016–16 using the modified retrospective approach and recorded a $0.3 million cumulative effect adjustment to beginning accumulated deficit.

Revenue Recognition

Our services are provided under cancelable service contracts that typically have an original expected duration of one year or less. These contracts are either fixed price agreements that provide for a fixed fee per unit of measure (“Turnkey”) or variable price agreements that provide for a fixed hourly, daily or monthly fee during the term of the project (“Term”). Under both types of agreements, we recognize revenue as the services are performed. We recognize revenue based upon quantifiable measures of progress, such as square or linear kilometers surveyed, each unit of data recorded or other methods using the total estimated revenue for the service contract.

We receive 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, billing and cash collections. If billing occurs prior to the revenue recognition or if billing exceeds the revenue recognized, the amount is considered deferred revenue and a contract liability. Conversely, if the revenue recognition exceeds the billing, the exceeded amount is considered 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 and amortized consistent with how the related revenue is recognized unless we determine the costs are no longer recoverable, at which time they are expensed.

Estimates for our total revenue and total fulfillment cost on any service contract are based on significant qualitative and quantitative judgments. Our 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. As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update the estimates during each reporting period. We recognize these adjustments in revenues under the cumulative catch–up method which recognizes the impact of the adjustment on revenue to date in the period the adjustment is identified. Revenue in future periods of performance is recognized using the adjusted estimate.

New Accounting Standards to be Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016–02, Leases. The new standard establishes a right–of–use (“ROU”) model that required a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales–type, finance or operating, with such classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. ASU 2016–02 is effective for annual and interim periods beginning after December 15, 2018, and is to be applied using the modified retrospective approach. We plan to adopt ASU 2016–02 effective January 1, 2019 and are currently performing our preliminary scoping and assessment of the impact on our unaudited condensed consolidated financial statements. We are also currently assessing the need for new systems and processes related to the adoption of ASU 2016–02.

In February 2018, the FASB issued ASU 2018–02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018–02 provides that the stranded tax effects from the Tax Cuts and Jobs Act on the balance of other comprehensive earnings may be reclassified to accumulated deficit and is effective for annual and interim periods beginning after December 15, 2018. We plan to adopt ASU 2018–02 effective January 1, 2019 and are currently evaluating the impact on our unaudited condensed consolidated financial statements.

No other new accounting pronouncements issued or effective during the six months ended June 30, 2018 have had or are expected to have a material impact on our unaudited condensed consolidated financial statements.