saex-10qa_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10–Q/A

(Amendment No. 1)

 

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

For the quarterly period ended

March 31, 2019

 

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

For the transition period from ______________ to _______________

 

Commission File Number 001-35471

 

SAExploration Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

27-4867100

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

1160 Dairy Ashford Road, Suite 160, Houston, Texas, 77079

(Address of principal executive offices)

(Zip Code)

 

(281) 258-4400

(Registrant's telephone number, including area code)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001

 

SAEX

 

NASDAQ Capital Market

 

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.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

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 

 

As of May 8, 2019, the registrant has 4,290,697 shares of common stock outstanding.

 

 

 


 

EXPLANATORY NOTE

 

SAExploration Holdings, Inc. (together with its subsidiaries, “we”, “our” or “us”) is filing this Amendment No. 1 (this “Form 10–Q/A”) to amend our Quarterly Report on Form 10–Q for the quarterly period ended March 31, 2019, originally filed with the Securities and Exchange Commission (the “SEC”) on May 14, 2019 (the “Original Filing”), to amend and restate our unaudited condensed consolidated financial statements and related disclosures as of March 31, 2019 and December 31, 2018 and for the three–month periods ended March 31, 2019 and 2018.  These unaudited condensed consolidated financial statements include our accounts and those of our subsidiaries that are wholly–owned, controlled by us or a variable interest entity (“VIE”).  This Form 10–Q/A also amends certain other items in the Original Filing, as listed in “Items Amended in This Filing” below.

 

Background and Effects of the Restatement

 

As described in additional detail in the Explanatory Note to the Amendment No. 1 to our Annual Report on Form 10–K/A for the year ended December 31, 2018 (the “Form 10–K/A”) filed with the SEC on the date hereof and in “Note 3. Restatement of Previously Reported Consolidated Financial Statements” and “Note 24. Quarterly Data” to our consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” of the Form 10–K/A, on August 14, 2019, our Audit Committee and our Board of Directors (the “Board”) concluded that our previously issued consolidated financial statements and financial information relating to each of the fiscal years ended December 31, 2015, 2016, 2017 and 2018 and our condensed consolidated financial statements for the quarters and year–to–date periods ended June 30, 2015 through March 31, 2019 (collectively, the “Non–Reliance Periods”), contained errors, should no longer be relied upon, and should be restated, and that other financial information, any earnings releases, investor presentations or other communications related thereto covering the Non–Reliance Periods should also no longer be relied upon. The Audit Committee’s and the Board’s decision to restate our consolidated financial statements for the Non–Reliance Periods arose from our re–evaluation of our relationship with Alaskan Seismic Ventures, LLC (“ASV”), which had not been consolidated into our consolidated financial statements. In August 2019, we determined that ASV is a VIE, that we had a controlling financial interest in ASV, and that we are the primary beneficiary of ASV, which, among other factors, required us to consolidate ASV during the Non–Reliance Periods in accordance with accounting principles generally accepted in the United States.

 

Accordingly, this Form 10–Q/A restates our unaudited condensed consolidated financial statements and related disclosures as of March 31, 2019 and December 31, 2018 and for the three–month periods ended March 31, 2019 and 2018.

 

For a description of the effect of the restatement as of March 31, 2019 and December 31, 2018 and for the three–month periods ended March 31, 2019 and 2018, see “Note 2. Restatement of Previously Reported Unaudited Condensed Consolidated Financial Statements” to our unaudited condensed consolidated financial statements in “Item 1. Financial Statements” contained herein.  In connection with the restatement of our consolidated financial statements in the Form 10–K/A and this Form 10–Q/A, management determined that material weaknesses exist in our internal control over financial reporting and that our disclosure controls and procedures were ineffective during the Non–Reliance Periods.  For a description of the material weaknesses identified by management and management’s implemented and planned remediations for those material weaknesses, please see “Item 4. Controls and Procedures” contained herein.

 

Items Amended in This Filing

 

This Form 10–Q/A sets forth the Original Filing, in its entirety, as amended to reflect the restatement.  No attempt has been made in this Form 10–Q/A to modify or update other disclosures presented in the Original Filing to reflect events occurring after the original filing date, except as required to reflect the effects of the restatement.

 

This Form 10–Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Filing.

 

(i)


 

 

The following items have been amended as a result of this restatement:

 

 

Part I

 

 

Item 1. Financial Statements;

 

 

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

 

 

Item 4. Controls and Procedures;

 

 

Part II

 

 

Item 1. Legal Proceedings;

 

 

Item 1A. Risk Factors;

 

 

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds;

 

 

Item 3. Defaults Upon Senior Securities; and

 

 

Item 6. Exhibits.  

 

Our Principal Executive Officer and Principal Financial Officer are providing currently dated certifications in connection with this Form 10–Q/A.  These certifications are filed as Exhibits 31.1, 31.2, 32.1 and 32.2.  

 

 

 

(ii)


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

Page

Part I. FINANCIAL INFORMATION

 

1

Item 1. Financial Statements

 

1

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

1

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018

 

2

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018

 

3

Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Three Months Ended March 31, 2019 and 2018

 

4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

 

5

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

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

 

26

Item 4. Controls and Procedures

 

31

Part II. OTHER INFORMATION

 

34

Item 1. Legal Proceedings

 

34

Item 1A. Risk Factors

 

34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

34

Item 3. Defaults upon Senior Securities

 

34

Item 6. Exhibits

 

35

Signatures

 

36

 

 

 

 


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS 

 

SAExploration Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except number of shares)

(Unaudited)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(Restated)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,482

 

 

$

7,579

 

Restricted cash

 

 

257

 

 

 

271

 

Accounts receivable, net

 

 

72,562

 

 

 

26,463

 

Deferred costs on contracts

 

 

5,382

 

 

 

3,746

 

Prepaid expenses and other current assets

 

 

2,203

 

 

 

2,843

 

Total current assets

 

 

89,886

 

 

 

40,902

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization of $84,617 and

   $81,904, respectively

 

 

32,913

 

 

 

35,334

 

Multiclient seismic data library, net

 

 

4,733

 

 

 

4,733

 

Operating lease right-of-use assets

 

 

8,904

 

 

 

 

Goodwill

 

 

1,722

 

 

 

1,687

 

Intangible assets, net of accumulated amortization of $1,017 and $932, respectively

 

 

3,993

 

 

 

4,066

 

Tax credits receivable, net

 

 

13,198

 

 

 

13,198

 

Deferred income taxes

 

 

163

 

 

 

2,160

 

Other assets

 

 

269

 

 

 

267

 

Total assets

 

$

155,781

 

 

$

102,347

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

30,510

 

 

$

10,103

 

Accrued liabilities

 

 

20,347

 

 

 

10,498

 

Income and other taxes payable

 

 

5,398

 

 

 

3,331

 

Operating lease liabilities

 

 

3,488

 

 

 

 

Current portion of long-term debt and finance leases

 

 

7,866

 

 

 

7,837

 

Deferred revenue

 

 

1,868

 

 

 

4,357

 

Total current liabilities

 

 

69,477

 

 

 

36,126

 

 

 

 

 

 

 

 

 

 

Long-term debt and finance leases

 

 

93,553

 

 

 

83,205

 

Other long-term liabilities

 

 

5,808

 

 

 

380

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Common stock, 4,082,187 and 3,100,496 shares outstanding, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

234,039

 

 

 

232,661

 

Accumulated deficit

 

 

(247,036

)

 

 

(249,349

)

Accumulated other comprehensive loss

 

 

(3,078

)

 

 

(3,035

)

Treasury stock, at cost, 111,670 and 111,245 shares, respectively

 

 

(1,866

)

 

 

(1,866

)

SAExploration stockholders’ deficit

 

 

(17,941

)

 

 

(21,589

)

Noncontrolling interest

 

 

4,884

 

 

 

4,225

 

Total stockholders’ deficit

 

 

(13,057

)

 

 

(17,364

)

Total liabilities and stockholders’ deficit

 

$

155,781

 

 

$

102,347

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


 

SAExploration Holdings, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months

Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(Restated)

 

Revenue from services

 

$

93,055

 

 

$

37,123

 

Cost of services

 

 

70,125

 

 

 

26,005

 

Depreciation and amortization

 

 

2,862

 

 

 

2,421

 

Gross profit

 

 

20,068

 

 

 

8,697

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

9,287

 

 

 

5,686

 

Misappropriation of funds

 

 

152

 

 

 

233

 

Total operating expenses

 

 

9,439

 

 

 

5,919

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

10,629

 

 

 

2,778

 

 

 

 

 

 

 

 

 

 

Other (expense) income, net:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(3,497

)

 

 

(3,141

)

Foreign exchange gain (loss), net

 

 

127

 

 

 

(174

)

Other income, net

 

 

129

 

 

 

145

 

Total other expense, net

 

 

(3,241

)

 

 

(3,170

)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

7,388

 

 

 

(392

)

 

 

 

 

 

 

 

 

 

Income taxes

 

 

3,666

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

3,722

 

 

 

(391

)

 

 

 

 

 

 

 

 

 

Less: net income attributable to noncontrolling interest

 

 

1,409

 

 

 

835

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to SAExploration

 

$

2,313

 

 

$

(1,226

)

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

(48.36

)

Diluted

 

$

0.21

 

 

$

(48.36

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

7,616

 

 

 

996

 

Diluted

 

 

18,056

 

 

 

996

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

SAExploration Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three Months

Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(Restated)

 

Net income (loss)

 

$

3,722

 

 

$

(391

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(43

)

 

 

588

 

Comprehensive income

 

 

3,679

 

 

 

197

 

Less: comprehensive income attributable to noncontrolling interest

 

 

1,409

 

 

 

835

 

Comprehensive income (loss) attributable to SAExploration

 

$

2,270

 

 

$

(638

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

SAExploration Holdings, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(In thousands)

(Unaudited)

 

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

(Restated)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Stock

 

 

Total

SAExploration

Stockholders’

Deficit

(Restated)

 

 

Noncontrolling

Interest

 

 

Total

Stockholders’

Deficit

(Restated)

 

Balances at December 31, 2018

 

$

 

 

$

232,661

 

 

$

(249,349

)

 

$

(3,035

)

 

$

(1,866

)

 

$

(21,589

)

 

$

4,225

 

 

$

(17,364

)

Net income

 

 

 

 

 

 

 

 

2,313

 

 

 

 

 

 

 

 

 

2,313

 

 

 

1,409

 

 

 

3,722

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

Issuance of common stock

 

 

 

 

 

578

 

 

 

 

 

 

 

 

 

 

 

 

578

 

 

 

 

 

 

578

 

Equity-based compensation cost

 

 

 

 

 

800

 

 

 

 

 

 

 

 

 

 

 

 

800

 

 

 

 

 

 

800

 

Distribution to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(750

)

 

 

(750

)

Balances at March 31, 2019

 

$

 

 

$

234,039

 

 

$

(247,036

)

 

$

(3,078

)

 

$

(1,866

)

 

$

(17,941

)

 

$

4,884

 

 

$

(13,057

)

 

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

(Restated)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Stock

 

 

Total

SAExploration

Stockholders’

Deficit

(Restated)

 

 

Noncontrolling

Interest

 

 

Total

Stockholders’

Deficit

(Restated)

 

Balances at December 31, 2017

 

$

 

 

$

133,742

 

 

$

(189,178

)

 

$

(5,082

)

 

$

(113

)

 

$

(60,631

)

 

$

4,570

 

 

$

(56,061

)

Adoption of ASU 2016-16

 

 

 

 

 

 

 

 

294

 

 

 

 

 

 

 

 

 

294

 

 

 

 

 

 

294

 

Net (loss) income

 

 

 

 

 

 

 

 

(1,226

)

 

 

 

 

 

 

 

 

(1,226

)

 

 

835

 

 

 

(391

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

588

 

 

 

 

 

 

588

 

 

 

 

 

 

588

 

Equity-based compensation cost

 

 

 

 

 

1,053

 

 

 

 

 

 

 

 

 

 

 

 

1,053

 

 

 

 

 

 

1,053

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(175

)

 

 

(175

)

 

 

 

 

 

(175

)

Common stock issued in debt exchange

 

 

 

 

 

472

 

 

 

 

 

 

 

 

 

 

 

 

472

 

 

 

 

 

 

472

 

Discount on Series A

   preferred stock issued in debt

   exchange

 

 

 

 

 

61,971

 

 

 

 

 

 

 

 

 

 

 

 

61,971

 

 

 

 

 

 

61,971

 

Accretion of discount on Series A

   preferred stock

 

 

 

 

 

(34,404

)

 

 

 

 

 

 

 

 

 

 

 

(34,404

)

 

 

 

 

 

(34,404

)

Accretion of Series A preferred stock to

   redemption value

 

 

 

 

 

(1,291

)

 

 

 

 

 

 

 

 

 

 

 

(1,291

)

 

 

 

 

 

(1,291

)

Dividend on Series A preferred stock

 

 

 

 

 

(456

)

 

 

 

 

 

 

 

 

 

 

 

(456

)

 

 

 

 

 

(456

)

Series B preferred stock issued in debt

   exchange

 

 

 

 

 

10,791

 

 

 

 

 

 

 

 

 

 

 

 

10,791

 

 

 

 

 

 

10,791

 

Discount on Series B

   preferred stock issued in

   debt exchange

 

 

 

 

 

(10,791

)

 

 

 

 

 

 

 

 

 

 

 

(10,791

)

 

 

 

 

 

(10,791

)

Accretion of discount on

   Series B preferred stock

 

 

 

 

 

10,791

 

 

 

 

 

 

 

 

 

 

 

 

10,791

 

 

 

 

 

 

10,791

 

Conversion of Series B preferred stock

 

 

 

 

 

(22,981

)

 

 

 

 

 

 

 

 

 

 

 

(22,981

)

 

 

 

 

 

(22,981

)

Common stock and Series D warrants

   issued in conversion of Series B

   preferred stock

 

 

 

 

 

22,981

 

 

 

 

 

 

 

 

 

 

 

 

22,981

 

 

 

 

 

 

22,981

 

Series C warrants issued in debt

   exchange

 

 

 

 

 

4,810

 

 

 

 

 

 

 

 

 

 

 

 

4,810

 

 

 

 

 

 

4,810

 

Stock issuance costs

 

 

 

 

 

(1,026

)

 

 

 

 

 

 

 

 

 

 

 

(1,026

)

 

 

 

 

 

(1,026

)

Balances at March 31, 2018

 

$

 

 

$

175,662

 

 

$

(190,110

)

 

$

(4,494

)

 

$

(288

)

 

$

(19,230

)

 

$

5,405

 

 

$

(13,825

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

SAExploration Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(Restated)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,722

 

 

$

(391

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,032

 

 

 

2,499

 

Equity-based compensation cost

 

 

800

 

 

 

1,053

 

Gain on disposal of property and equipment

 

 

(473

)

 

 

(181

)

Provision for doubtful accounts

 

 

941

 

 

 

 

Amortization of loan issuance costs and debt discounts

 

 

921

 

 

 

1,229

 

Unrealized (gain) loss on foreign currency transactions

 

 

(255

)

 

 

213

 

Gain on debt extinguishment

 

 

 

 

 

(53

)

Deferred taxes

 

 

2,024

 

 

 

1

 

Changes in operating assets and liabilities

 

 

(17,476

)

 

 

(7,705

)

Net cash used in operating activities

 

 

(6,764

)

 

 

(3,335

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(327

)

 

 

(134

)

Proceeds from sale of property and equipment

 

 

143

 

 

 

182

 

Net cash (used in) provided by investing activities

 

 

(184

)

 

 

48

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Long-term debt and finance lease repayments

 

 

(210

)

 

 

(995

)

Long-term debt borrowings

 

 

9,666

 

 

 

15,000

 

Proceeds from issuance of common stock

 

 

100

 

 

 

 

Stock issuance costs

 

 

 

 

 

(717

)

Purchase of treasury stock

 

 

 

 

 

(175

)

Distribution to noncontrolling interest

 

 

(750

)

 

 

 

Net cash provided by financing activities

 

 

8,806

 

 

 

13,113

 

 

 

 

 

 

 

 

 

 

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

 

 

31

 

 

 

(77

)

Net change in cash, cash equivalents and restricted cash

 

 

1,889

 

 

 

9,749

 

Cash, cash equivalents and restricted cash at the beginning of year

 

 

7,850

 

 

 

3,734

 

Cash, cash equivalents and restricted cash at the end of period

 

$

9,739

 

 

$

13,483

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

5


 

SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of the Business

 

We are a full–service provider of seismic data acquisition, logistical support and processing services in North America, South America, Asia Pacific, West Africa and the Middle East to customers in the oil and natural gas industry.

 

Our chief operating decision maker regularly reviews financial data by country to assess performance and allocate resources, resulting in the conclusion that each country in which we operate represents a reporting unit.  As these reporting units are similar in terms of economic characteristics, nature of products, processes and type of customers, we have concluded that our seismic data contract services operations comprise one single reportable segment.

 

Basis of Presentation

 

Our unaudited condensed consolidated financial statements included herein include our accounts and those of our subsidiaries that are wholly–owned, controlled by us or a VIE where we are the primary beneficiary, and have been prepared pursuant to the rules and regulations of 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/A for the year ended December 31, 2018.

 

All intercompany accounts and transactions 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, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016–02, Leases, as amended by ASU 2018–10, Codification Improvements to Topic 842, ASU 2018–11, Targeted Improvements, and 2019–01, Codification Improvements.  These ASUs required the recognition of lease assets and lease liabilities for virtually all leases and required disclosure of key information about leasing arrangements.  We elected to adopt these new standards using the modified retrospective method of transition for all leases existing at or commencing after the date of initial application.

 

The new standards provide for certain practical expedients when adopting the new guidance.  We have elected the practical expedient package outlined in ASU No. 2016–02 under which we can carryforward our previous classification of a lease as either an operating or capital lease, and we do not have to reassess previously recorded initial direct costs.  Additionally, we made policy elections allowing us to exclude leases with original terms of 12 months or less from lease assets and liabilities and to not separate nonlease components from the associated lease component and instead account for both as a single lease component for all asset classes.  We did not elect the practical expedient allowing us to use hindsight to determine the lease term and to assess any impairment of lease assets during the lookback period.  

 

The adoption of the new standards had a material impact on our unaudited condensed consolidated balance sheet, with the most significant being the recognition of operating lease right–of-use (“ROU”) assets and operating lease liabilities of $9.9 million and $9.9 million, respectively.  ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. The standard did not materially impact our unaudited condensed consolidated statement of operations and unaudited condensed consolidated statement of cash flows.

 

6


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

New Accounting Standards to be Adopted

 

No new accounting pronouncements issued or effective during the three months ended March 31, 2019 have had or are expected to have a material impact on our unaudited condensed consolidated financial statements.

 

NOTE 2.  RESTATEMENT OF PREVIOUSLY UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Background of the Restatement

 

As previously disclosed, the SEC has been conducting an investigation of certain matters, including with respect to revenue recognition, accounts receivable and tax credits. The Department of Justice (the “DOJ”) is conducting a parallel investigation with the SEC. We have been cooperating and will continue to cooperate with the SEC and the DOJ in their investigations.  

 

On August 5, 2019, our Board of Directors (the “Board”) established a special committee of independent directors (the “Special Committee”) to oversee an internal investigation with respect to the SEC investigation and any related matters. In turn, the Special Committee engaged its own legal and forensic accounting advisors, in addition to certain consulting services providers.  Also in August 2019, the Audit Committee undertook an assessment of the accuracy of our historical financial statements and related disclosures that were contained in previously filed periodic reports.

 

On August 14, 2019, the Audit Committee and the Board concluded that our previously issued consolidated financial statements and financial information relating to each of the fiscal years ended December 31, 2015, 2016, 2017 and 2018 and our condensed consolidated financial statements for the quarters and year–to–date periods ended June 30, 2015 through March 31, 2019 (collectively, the “Non–Reliance Periods”) contained errors, should no longer be relied upon and should be restated, and that other financial information, any earnings releases, investor presentations or other communications related thereto covering the Non–Reliance Periods should also no longer be relied upon. The Audit Committee’s and the Board’s decision to restate our consolidated financial statements for the Non–Reliance Periods arose from our re–evaluation of our relationship with Alaskan Seismic Ventures, LLC (“ASV”), which had not been consolidated into our financial statements. In August 2019, we determined that ASV is a variable interest entity (“VIE”), that we had a controlling financial interest in ASV, and that we are the primary beneficiary of ASV, which, among other factors, required us to consolidate ASV during the Non-Reliance Periods in accordance with GAAP.

 

The Special Committee’s investigation identified that Global Equipment Solutions LLC (“Global Equipment”), one of our vendors in 2015 and 2016, was formed by Brent Whiteley, our former Chief Financial Officer and General Counsel, and controlled by Mr. Whiteley and/or Jeff Hastings, our former Chief Executive Officer. In 2015 and 2016, we paid an aggregate of approximately $12.0 million to Global Equipment pursuant to the following agreements. In August 2011, we entered into an agreement (the “Transfer Agreement”) with NES, LLC (“NES”), pursuant to which NES retained a transfer fee (the “Transfer Fee”) in connection with the transfer of a customer contract from NES to us. NES is a legal entity that was previously owned and/or controlled by Mr. Hastings that we subsequently acquired in October 2011. The Transfer Fee was assigned to a separate legal entity controlled by Mr. Hastings prior to our acquisition of NES in October 2011 and was subsequently assigned to Global Equipment.  The authenticity of the Transfer Agreement and the subsequent assignments of the Transfer Fee have not been confirmed. Furthermore, the foregoing arrangements and the obligation to pay the Transfer Fee to NES, Global Equipment and/or Mr. Hastings was not disclosed. The payments made to Global Equipment in satisfaction of the purported Transfer Fee were previously recorded as rental expense in 2015 and 2016. These amounts have now been reclassified in our consolidated statement of operations as loss from misappropriation of funds in 2015 and 2016.

 

Of the approximately $12.0 million paid to Global Equipment, approximately $5.9 million was transferred through entities formed and/or controlled by Mr. Hastings and Mr. Whiteley to ASV as capital contributions in December 2015. This investment in ASV was not disclosed. ASV was formed as a seismic data library company in 2015, and the Company previously reported revenue from ASV of approximately $57.3 million in 2016 and approximately $83.8 million in 2015.  The remaining approximately $6.1 million paid to Global Equipment was transferred to Mr. Hastings and Mr. Whiteley and/or to entities formed and/or controlled by them.  These payments were not disclosed.  

 

7


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

The Special Committee’s investigation also identified the misappropriation of approximately $4.1 million by Mr. Whiteley from 2012 to 2019, which amount has been reclassified in our consolidated statement of operations as a loss from a misappropriation of funds for such periods. A portion of these funds were paid to RVI Consulting, Inc. (“RVI”), a legal entity owned and/or controlled by Mr. Whiteley. The payments made to RVI were not disclosed. The majority of the payments to RVI were previously recorded as legal and professional expenses in the prior periods.

 

Effects of the Restatement

 

As a result of the determination that ASV is a VIE, in which we have a controlling financial interest and are the primary beneficiary, we are consolidating ASV for all periods beginning in 2015. The consolidation of ASV as of December 31, 2018 resulted in a reduction of stockholders’ equity of approximately $34.0 million due to the consolidation and elimination of inter-company transactions.  The assets of ASV consist of a seismic data library in Alaska for which we provided the seismic data acquisition services, tax credits received from the State of Alaska under the rebatable oil and gas production tax credit regime and cash on hand.  The tax credits were recorded as a reduction in the value of the seismic data library as a reimbursement of the costs incurred to acquire the data library.  ASV has no significant liabilities other than its payable to us for the seismic data acquisition services and has approximately $5.9 million in capital contributions as described above.  As of March 31, 2019, considering the approximately $34.0 million reduction in stockholders equity discussed above, the consolidation of ASV resulted in a decrease in stockholders’ equity of approximately $4 thousand.    

 

We have reclassified certain items in our consolidated statement of operations as loss from a misappropriation of funds disclosed above, of which approximately $152 thousand and $233 thousand are related to the misappropriation of funds by Mr. Whiteley in the first quarters of 2019 and 2018, respectively.

 

In addition, we are restating our consolidated financial statements to correct for unrelated material accounting errors in prior periods, including the following:

 

Three Months Ended March 31, 2019

 

 

We improperly recorded a gain on sale of assets in the first quarter of 2019.  The sale of assets required, among other things, regulatory approval prior to the finalization of the sale and transfer of the assets to the purchaser.  Based upon these factors, we have reversed the sale of assets resulting in a reduction in the gain on asset sale of $801 thousand.

 

 

We also identified an error in our accounting for deferred taxes related to the valuation allowance for our Bolivia operations resulting in an additional $548 thousand in income tax expense.

 

Three Months Ended March 31, 2018

 

 

We identified an error related to the recording of deferred taxes in our Colombia and Bolivia subsidiaries.  Based upon our internal review of the decision to record a 100% valuation allowance in 2018 related to these subsidiaries, we determined that the factors leading to the full valuation allowance of the deferred tax assets were present in previous periods and were not appropriately considered.  As a result of this error, we have decreased income tax expense by approximately $625 thousand for the quarter ended March 31, 2018.

 

 

We also corrected a prior error related to Delaware Franchise Taxes as part of the restatement.  In the first quarter of 2018, we settled a multiyear audit with the State of Delaware.  As part of the restatement, we have properly recorded the franchise expense in the proper periods resulting in a decrease to selling, general and administrative expense by $547 thousand.

 

Along with restating our unaudited condensed consolidated financial statements to correct the errors discussed above, we corrected our weighted average shares outstanding (basic and diluted) to include penny warrants in the computation of loss per common share and we recorded adjustments for certain immaterial accounting errors and reclassifications related to the periods covered in this Form 10–Q/A.

 

8


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

As part of the restatement, we have also restated our disclosures with respect to related party transactions in Note 13 to the unaudited condensed consolidated financial statements included in this Form 10Q/A for related party transactions.

 

In connection with the restatement of our condensed consolidated financial statements in this Form 10–Q/A, management determined that material weaknesses exist in our internal control over financial reporting and that our disclosure controls and procedures were ineffective during the Non–Reliance Periods. For a description of the material weaknesses identified by management and management’s implemented and planned remediations for those material weaknesses, please see “Item 4. Controls and Procedures” of this Form 10-Q/A.

 

The tables below summarize the effects of the restatement on our (i) unaudited condensed consolidated balance sheets at March 31, 2019 and December 31, 2018; (ii) unaudited condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018; and (iii) unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018.  A summary of the effect of the restatement on the unaudited condensed consolidated statements of changes to stockholders’ deficit for the three months ended March 31, 2019 and 2018 and the unaudited condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2019 and 2018 are not presented because the impact to accumulated deficit and comprehensive income (loss) are reflected below in the unaudited condensed consolidated balance sheet summaries and unaudited condensed consolidated statements of operations summaries.

9


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

Summary of Restatement – Unaudited Condensed Consolidated Balance Sheets

 

The effects of the restatement on our unaudited condensed consolidated balance sheets are as follows:

 

 

 

March 31, 2019

 

 

 

Previously

Reported

 

 

Adjustments

 

 

Restated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,100

 

 

$

382

 

 

$

9,482

 

Restricted cash

 

 

257

 

 

 

 

 

 

257

 

Accounts receivable, net

 

 

71,490

 

 

 

1,072

 

 

 

72,562

 

Deferred costs on contracts

 

 

5,273

 

 

 

109

 

 

 

5,382

 

Prepaid expenses and other current assets

 

 

2,173

 

 

 

30

 

 

 

2,203

 

Total current assets

 

 

88,293

 

 

 

1,593

 

 

 

89,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

32,913

 

 

 

 

 

 

32,913

 

Multiclient seismic data library, net

 

 

 

 

 

4,733

 

 

 

4,733

 

Operating lease right-of-use assets

 

 

9,000

 

 

 

(96

)

 

 

8,904

 

Goodwill

 

 

1,722

 

 

 

 

 

 

1,722

 

Intangible assets

 

 

3,993

 

 

 

 

 

 

3,993

 

Long-term accounts receivable, net

 

 

52,804

 

 

 

(52,804

)

 

 

 

Tax credits receivable, net

 

 

 

 

 

13,198

 

 

 

13,198

 

Deferred income taxes

 

 

566

 

 

 

(403

)

 

 

163

 

Other assets

 

 

2,417

 

 

 

(2,148

)

 

 

269

 

Total assets

 

$

191,708

 

 

$

(35,927

)

 

$

155,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities: