saex-10q_20200331.htm

 

 

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

March 31, 2020

 

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, 2020, the registrant has 4,436,292 shares of common stock outstanding.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

Page

Part I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

1

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

 

2

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019

 

3

Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Three Months Ended March 31, 2020 and 2019

 

4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

 

5

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

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

 

18

Item 4. Controls and Procedures

 

23

Part II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

27

Item 1A. Risk Factors

 

27

Item 3. Defaults upon Senior Securities

 

29

Item 5. Other Information

 

29

Item 6. Exhibits

 

30

Signatures

 

33

 

 

 

 


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS 

 

SAExploration Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,543

 

 

$

5,441

 

Restricted cash

 

 

76

 

 

 

74

 

Accounts receivable, net

 

 

65,482

 

 

 

51,582

 

Deferred costs on contracts

 

 

4,387

 

 

 

14,966

 

Prepaid expenses and other current assets

 

 

6,423

 

 

 

5,324

 

Total current assets

 

 

84,911

 

 

 

77,387

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization of $91,899 and

   $92,204, respectively

 

 

34,826

 

 

 

37,289

 

Multiclient seismic data library, net

 

 

570

 

 

 

2,719

 

Operating lease right-of-use assets

 

 

6,992

 

 

 

6,421

 

Goodwill

 

 

1,622

 

 

 

1,766

 

Intangible assets, net of accumulated amortization of $1,354 and $1,270, respectively

 

 

3,631

 

 

 

3,751

 

Tax credits receivable, net

 

 

2,708

 

 

 

12,104

 

Other assets

 

 

775

 

 

 

778

 

Total assets

 

$

136,035

 

 

$

142,215

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

30,090

 

 

$

30,966

 

Accrued liabilities

 

 

8,762

 

 

 

6,034

 

Income and other taxes payable

 

 

2,395

 

 

 

5,902

 

Operating lease liabilities

 

 

2,029

 

 

 

2,576

 

Current portion of long-term debt and finance leases

 

 

98,998

 

 

 

112,401

 

Deferred revenue

 

 

7,477

 

 

 

8,724

 

Total current liabilities

 

 

149,751

 

 

 

166,603

 

 

 

 

 

 

 

 

 

 

Long-term debt and finance leases

 

 

6,341

 

 

 

7,145

 

Other long-term liabilities

 

 

5,092

 

 

 

4,280

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

Additional paid-in capital

 

 

240,201

 

 

 

240,068

 

Accumulated deficit

 

 

(265,886

)

 

 

(274,535

)

Accumulated other comprehensive loss

 

 

(129

)

 

 

(2,912

)

Treasury stock

 

 

(2,232

)

 

 

(2,232

)

SAExploration stockholders’ deficit

 

 

(28,046

)

 

 

(39,611

)

Noncontrolling interest

 

 

2,897

 

 

 

3,798

 

Total stockholders’ deficit

 

 

(25,149

)

 

 

(35,813

)

Total liabilities and stockholders’ deficit

 

$

136,035

 

 

$

142,215

 

 

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,

 

 

 

2020

 

 

2019

 

Revenue from services

 

$

125,385

 

 

$

93,055

 

Cost of services

 

 

89,259

 

 

 

70,125

 

Depreciation and amortization

 

 

5,133

 

 

 

2,862

 

Gross profit

 

 

30,993

 

 

 

20,068

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

12,149

 

 

 

9,287

 

Misappropriation of funds

 

 

 

 

 

152

 

Total operating expenses

 

 

12,149

 

 

 

9,439

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

18,844

 

 

 

10,629

 

 

 

 

 

 

 

 

 

 

Other (expense) income, net:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(3,708

)

 

 

(3,497

)

Foreign exchange (loss) gain, net

 

 

(5,454

)

 

 

127

 

Other income, net

 

 

928

 

 

 

129

 

Total other expense, net

 

 

(8,234

)

 

 

(3,241

)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

10,610

 

 

 

7,388

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

541

 

 

 

3,666

 

 

 

 

 

 

 

 

 

 

Net income

 

 

10,069

 

 

 

3,722

 

 

 

 

 

 

 

 

 

 

Less: net income attributable to noncontrolling interest

 

 

1,420

 

 

 

1,409

 

 

 

 

 

 

 

 

 

 

Net income attributable to SAExploration

 

$

8,649

 

 

$

2,313

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.87

 

 

$

0.30

 

Diluted

 

$

0.50

 

 

$

0.21

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

9,967

 

 

 

7,616

 

Diluted

 

 

20,421

 

 

 

18,056

 

 

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

2


 

SAExploration Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

 

Three Months

Ended March 31,

 

 

 

2020

 

 

2019

 

Net income

 

$

10,069

 

 

$

3,722

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

2,783

 

 

 

(43

)

Comprehensive income

 

 

12,852

 

 

 

3,679

 

Less: comprehensive income attributable to noncontrolling interest

 

 

1,420

 

 

 

1,409

 

Comprehensive income attributable to SAExploration

 

$

11,432

 

 

$

2,270

 

 

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

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Stock

 

 

Total

SAExploration

Stockholders’

Deficit

 

 

Noncontrolling

Interest

 

 

Total

Stockholders’

Deficit

 

Balances at December 31, 2019

 

$

 

 

$

240,068

 

 

$

(274,535

)

 

$

(2,912

)

 

$

(2,232

)

 

$

(39,611

)

 

$

3,798

 

 

$

(35,813

)

Net income

 

 

 

 

 

 

 

 

8,649

 

 

 

 

 

 

 

 

 

8,649

 

 

 

1,420

 

 

 

10,069

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2,783

 

 

 

 

 

 

2,783

 

 

 

 

 

 

2,783

 

Equity-based compensation cost

 

 

 

 

 

133

 

 

 

 

 

 

 

 

 

 

 

 

133

 

 

 

 

 

 

133

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,321

)

 

 

(2,321

)

Balances at March 31, 2020

 

$

 

 

$

240,201

 

 

$

(265,886

)

 

$

(129

)

 

$

(2,232

)

 

$

(28,046

)

 

$

2,897

 

 

$

(25,149

)

 

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Stock

 

 

Total

SAExploration

Stockholders’

Deficit

 

 

Noncontrolling

Interest

 

 

Total

Stockholders’

Deficit

 

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

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(750

)

 

 

(750

)

Balances at March 31, 2019

 

$

 

 

$

234,039

 

 

$

(247,036

)

 

$

(3,078

)

 

$

(1,866

)

 

$

(17,941

)

 

$

4,884

 

 

$

(13,057

)

 

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,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,069

 

 

$

3,722

 

Adjustments to reconcile net income to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Tax credits returned to State of Alaska

 

 

9,396

 

 

 

 

Depreciation and amortization

 

 

5,305

 

 

 

3,032

 

Equity-based compensation cost

 

 

133

 

 

 

800

 

Provision for doubtful accounts

 

 

1,432

 

 

 

941

 

Gain on sale of property and equipment

 

 

(206

)

 

 

(473

)

Amortization of loan issuance costs and debt discounts

 

 

1,033

 

 

 

921

 

Unrealized loss (gain) on foreign currency transactions

 

 

5,254

 

 

 

(255

)

Deferred taxes

 

 

 

 

 

2,024

 

Changes in operating assets and liabilities

 

 

(11,267

)

 

 

(17,476

)

Net cash provided by (used in) operating activities

 

 

21,149

 

 

 

(6,764

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(283

)

 

 

(327

)

Proceeds from sale of property and equipment

 

 

206

 

 

 

143

 

Net cash used in investing activities

 

 

(77

)

 

 

(184

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Long-term debt and finance lease repayments

 

 

(15,240

)

 

 

(210

)

Long-term debt borrowings

 

 

 

 

 

9,666

 

Proceeds from issuance of common stock

 

 

 

 

 

100

 

Distribution to noncontrolling interest

 

 

(2,321

)

 

 

(750

)

Net cash (used in) provided by financing activities

 

 

(17,561

)

 

 

8,806

 

 

 

 

 

 

 

 

 

 

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

 

 

(407

)

 

 

31

 

Net change in cash, cash equivalents and restricted cash

 

 

3,104

 

 

 

1,889

 

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

 

 

5,515

 

 

 

7,850

 

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

 

$

8,619

 

 

$

9,739

 

 

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.  GENERAL

Description of the Business

SAExploration Holdings, Inc. (“we,” “our” or “us”) is 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.

Going Concern Uncertainty

Our unaudited condensed consolidated financial statements included herein have been prepared on a going concern basis in accordance with generally accepted accounting principles in the United States. The going concern basis assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business. Our unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Although we generated net income and cash flow from operations in the first quarter of 2020, we have reported recurring losses from operations and have not generated cash from operating activities for the six years ended December 31, 2019 and, as of March 31, 2020, we had a stockholders’ deficit of $25.1 million.  Our recurring losses and negative cash flows from operating activities on an annual basis, stockholders’ deficit, need for additional financing and the uncertainties surrounding our ability to obtain such financing, raise substantial doubt about our ability to continue as a going concern. We anticipate negative cash flows from operating activities to continue for the foreseeable future due to, among other things, the significant uncertainty in the outlook for oil and natural gas development as a result of the significant decline in oil prices since the beginning of 2020 due to the COVID–19 coronavirus pandemic and its impact on the worldwide economy and global demand for oil and the inability of members of OPEC and other producing countries to adequately address the reduced demand.  In April 2020, we had a contract cancelled by the operator presumably due to uncertainty on government restrictions on operations due to the COVID–19 coronavirus pandemic and other scheduled and anticipated projects have been delayed and there is no assurance as to when they may resume, if at all. We are also unable to predict when industry market conditions may improve. Our senior loan facility matures in January 2021 and to date, we have been unable to negotiate an extension of the maturity date with our debt holders. If we are unable to extend or otherwise address the maturity date of the senior loan facility, we expect that we will be unable to repay the senior loan facility when due in January 2021.

Our management continues to: (i) discuss with our debt holders an extension of the maturity date of the senior loan facility and waivers of the events of default due to the inclusion of an explanatory paragraph raising substantial doubt about our ability to continue as a going concern in the report of our independent registered public accounting firm on our financial statements included in our Annual Report on Form 10–K for the year ended December 31, 2019; (ii) seek to obtain additional financing through the issuance of debt or equity securities; and (iii) manage operating costs by actively pursuing cost cutting measures to maximize liquidity consistent with current industry market expectations. There is no assurance that we will be successful in extending the maturity date of the senior loan facility or obtaining additional financing on satisfactory terms or at all. In addition, there is no assurance that any such financing, if obtained, will be adequate to meet our needs and support our working capital needs.

Based on the uncertainty of achieving these goals and the significance of the factors described, there is substantial doubt as to our ability to continue as a going concern for a period of 12 months after the date our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10–Q are issued. If we become unable to continue as a going concern, we may have to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and the holders of our securities could lose all or part of their investment.

6

 


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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 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, 2019.

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.  

New Accounting Standards to be Adopted

No new accounting pronouncements issued or effective during the three months ended March 31, 2020 have had or are expected to have a material impact on our unaudited condensed consolidated financial statements.

NOTE 2. TAX CREDITS RECEIVABLE, NET

In January 2020, we and Alaskan Seismic Ventures, LLC (“ASV”) sold certain seismic data and related assets for a purchase price payable as follows: (i) $15.0 million paid in cash on the closing date and (ii) earnout payments in an amount of up to $5.0 million to be paid based on the licensing fees related to the licensing of certain seismic data following the closing date in an amount in excess of $15.0 million of licensing fees.  As required by the terms of the sale, we notified the Alaska Department of Revenue (the “DOR”) that we were withdrawing our application for $9.4 million of tax credits, net relating to the seismic data sold.  We and ASV also entered into an agreement that provides that we will receive all the proceeds paid or payable pursuant to the sale, which proceeds will be credited by us towards outstanding amounts owed to us by ASV.  

Changes in the carrying value of our tax credits receivable, net are as follows for the three months ended March 31:

 

 

 

2020

 

 

2019

 

Balance at beginning of year

 

$

12,104

 

 

$

13,198

 

Returned to State of Alaska

 

 

(9,396

)

 

 

 

Balance at end of period

 

$

2,708

 

 

$

13,198

 

We have established an allowance for these tax credits receivable due to the uncertainty of the future monetization of the tax credits and the potential for the DOR to disallow the tax credits as management has determined that the costs submitted to the DOR by ASV did not reflect the affiliate status of ASV.  As of March 31, 2020 and December 31, 2019, the tax credits receivable are net of an allowance of $27.7 million and $53.0 million, respectively.

 

7


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

NOTE 3.  LONG–TERM DEBT AND FINANCE LEASES

 

Long–term debt and finance leases consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Credit facility:

 

 

 

 

 

 

 

 

Principal outstanding

 

$

20,500

 

 

$

35,000

 

Unamortized debt issuance costs

 

 

(172

)

 

 

(205

)

Carrying amount

 

 

20,328

 

 

 

34,795

 

 

 

 

 

 

 

 

 

 

Senior loan facility:

 

 

 

 

 

 

 

 

Principal outstanding

 

 

29,000

 

 

 

29,000

 

Unamortized debt issuance costs

 

 

(929

)

 

 

(1,232

)

Carrying amount

 

 

28,071

 

 

 

27,768

 

 

 

 

 

 

 

 

 

 

6% senior secured convertible notes due 2023:

 

 

 

 

 

 

 

 

Principal outstanding

 

 

60,000

 

 

 

60,000

 

Unamortized debt discount and debt issuance costs

 

 

(12,643

)

 

 

(13,341

)

Carrying amount

 

 

47,357

 

 

 

46,659

 

 

 

 

 

 

 

 

 

 

Note payable

 

 

9,472

 

 

 

9,974

 

 

 

 

 

 

 

 

 

 

Finance leases

 

 

111

 

 

 

350

 

 

 

 

 

 

 

 

 

 

Total debt

 

 

105,339

 

 

 

119,546

 

Current portion of long-term debt and finance leases

 

 

(98,998

)

 

 

(112,401

)

Total long-term debt and finance leases

 

$

6,341

 

 

$

7,145

 

 

We repaid $14.5 million of the amounts outstanding under our credit facility with the net proceeds received from the sale of certain seismic data and related assets in January 2020 (see Note 2).  

The credit agreements and indentures for our credit facility, senior loan facility and 6% Senior Secured Convertible Notes due 2023 (the “2023 Notes”) contain certain representations, warranties, covenants and other terms and conditions which are customary for agreements of these types. As discussed in Note 1, the report of our independent registered public accounting firm on our consolidated financial statements included in our Annual Report on Form 10–K for the year ended December 31, 2019 contains an explanatory paragraph raising substantial doubt about our ability to continue as a going concern, which results in events of default under the credit facility and the senior loan facility, and a cross default under the indenture governing the 2023 Notes. We have entered into forbearance agreements with respect to our credit facility, senior loan facility and 2023 Notes, whereby the holders of the indebtedness thereunder have agreed to refrain from exercising their rights and remedies with respect to these existing defaults and other events of default that have occurred and are continuing as further specified in the forbearance agreements until 5:00 p.m. (New York City time) on the earlier of (i) May 31, 2020 and (ii) the date the forbearance agreements otherwise terminate in accordance with their terms. However, the long–term debt outstanding under the credit facility, senior loan facility and 2023 Notes has been reclassified as current portion of long–term debt in these unaudited condensed consolidated financial statements.

 

 

8


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

NOTE 4.  COMMITMENTS AND CONTINGENCIES

 

On August 18, 2019, a purported stockholder, John Bodin (the “Class Action Plaintiff”), filed a putative class action lawsuit against us and certain former executive officers named therein (the “Class Action Defendants”) in the U.S. District Court for the Southern District of Texas captioned John Bodin v. SAExploration Holdings, Inc., et al. Case No. 4:19–cv–03089. The Class Action Plaintiff seeks to represent a class of stockholders who purchased or otherwise acquired our publicly traded securities from March 15, 2016 through August 15, 2019 (the “Covered Period”). The complaint generally alleges that the Class Action Defendants violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b–5 by making false and misleading statements in our periodic reports filed with the SEC during the Covered Period. The complaint requests damages, including interest, and an award of reasonable costs and expenses, including counsel and expert fees. The Class Action Plaintiff must file an amended complaint by May 18, 2020, and the Class Action Defendants must answer, move to dismiss, or otherwise respond to the amended complaint by July 17, 2020, with responsive briefing to be completed by November 9, 2020.

 

On September 6, 2019, a purported stockholder, M. Shane Hamilton (the “Derivative Plaintiff”), filed a stockholder derivative lawsuit against certain of our former and current executive officers and directors named therein (the “Derivative Defendants”) in the U.S. District Court for the District of Delaware captioned M. Shane Hamilton, derivatively on behalf of SAExploration Holdings, Inc., v. Jeff Hastings, et al. The derivative complaint generally alleges (i) breaches by the Derivative Defendants of their fiduciary duties as our directors and/or officers, (ii) unjust enrichment, (iii) waste of corporate assets, and (iv) violations of Section 14(a) of the Exchange Act. The derivative complaint seeks, among other things, relief (i) directing us and the Derivative Defendants to take actions to reform and improve our corporate governance and internal procedures, (ii) awarding us restitution from the Derivative Defendants, and (iii) awarding the Derivative Plaintiff’s costs and attorneys’ and experts’ fees.  This matter is stayed pending the resolution of any motions to dismiss filed in John Bodin v. SAExploration Holdings, Inc., et al. Case No. 4:19–cv–03089 pending in the U.S. District Court for the Southern District of Texas.

 

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. The SEC and DOJ investigations are continuing, and we are currently unable to predict the eventual scope, duration or outcome of any potential SEC or DOJ legal action or other action or whether it could have a material impact on our financial condition, results of operations, or cash flow.

 

The DOR is conducting an investigation with respect to our determination that ASV is a variable interest entity and related Alaska tax credit certificates.  We have been cooperating, and will continue to cooperate, with the DOR in its investigation. The DOR investigation is continuing, and we are unable to predict the eventual scope, duration or outcome of any potential DOR legal action or other action or whether it could have a material impact on our financial condition, results of operations, or cash flow.

 

In the ordinary course of business, we may be subject to legal proceedings involving contractual and employment relationships, liability claims and a variety of other matters.  Although the results of these other legal proceedings cannot be predicted with certainty, we do not believe that the final outcome of these proceedings should have a material adverse effect on our business, results of operations, cash flows or financial condition.  However, we cannot predict the occurrence or outcome of these proceedings with certainty, and if we are unsuccessful in these proceedings and any loss exceeds our available insurance, if any, this could have a material adverse effect on our results of operations.

 


9


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

NOTE 5.  STOCKHOLDERS' EQUITY

 

As of March 31, 2020, we are authorized to issue 40.0 million shares of common stock with a par value of $0.0001 per share.

 

The following table presents the changes in the number of shares outstanding:

 

 

 

2020

 

 

2019

 

Shares issued:

 

 

 

 

 

 

 

 

Balance as of January 1

 

 

4,508

 

 

 

3,211

 

Issue of shares on exercises of warrants

 

 

136

 

 

 

710

 

Issue of shares as consideration for services

 

 

 

 

 

243

 

Issue of shares in private placement

 

 

 

 

 

30

 

Balance as of March 31

 

 

4,644

 

 

 

4,194

 

 

 

 

 

 

 

 

 

 

Shares held as treasury stock:

 

 

 

 

 

 

 

 

Balance as of January 1

 

 

208

 

 

 

111

 

Purchase of treasury stock

 

 

 

 

 

1

 

Balance as of March 31

 

 

208

 

 

 

112

 

 

 

 

 

 

 

 

 

 

Shares outstanding as of March 31

 

 

4,436

 

 

 

4,082

 

 

In January 2020, we issued 0.4 million of our Series F warrants upon receipt of NASDAQ approval of the issuance.  

In the three months ended March 31, 2020, 2.8 million Series C warrants and Series D warrants were exercised.  As of March 31, 2020, we have 71.0 million warrants outstanding, which are potentially exercisable into 4.4 million shares of our common stock.

 

NOTE 6.  REVENUE FROM SERVICES

Deferred Costs on Contracts

In some instances, we incur third party costs that directly relate to the contract to fulfill the contract obligations.  These fulfillment costs are capitalized and amortized consistent with how the related revenue is recognized.  Changes in our deferred costs on contracts are as follows for the three months ended March 31:

 

 

 

2020

 

 

2019

 

Balance at beginning of year

 

$

14,966

 

 

$

3,746

 

Fulfillment costs incurred

 

 

6,883

 

 

 

4,386

 

Amortization of fulfillment costs

 

 

(17,462

)

 

 

(2,750

)

Balance at end of period

 

$

4,387

 

 

$

5,382

 

 


10


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Deferred Revenue

Typically, our mobilization services are paid by the customer at the beginning of the contract while the revenue is recognized as control transfers to the customer, which can result in deferred revenue. Normally all other revenue is billed as work progresses, which generally will not result in significant deferred revenue except in those cases where a large mobilization is required for the contract. Changes in our deferred revenue are as follows for the three months ended March 31:

 

 

 

2020

 

 

2019

 

Balance at beginning of year

 

$

8,724

 

 

$

4,357

 

Cash received, excluding amounts recognized as revenue from services

 

 

12,740

 

 

 

5,006

 

Amounts recognized as revenue from services

 

 

(13,987

)

 

 

(7,495

)

Balance at end of period

 

$

7,477

 

 

$

1,868

 

Disaggregated Revenue

The following table disaggregates our revenue by major source for the three months ended March 31:

 

 

 

2020

 

 

2019

 

 

 

Land

 

 

Marine

 

 

Total

 

 

Land

 

 

Marine

 

 

 

 

 

North America

 

$

91,148

 

 

$

 

 

$

91,148

 

 

$

60,554

 

 

$

 

 

$

60,554

 

South America

 

 

1,403

 

 

 

7,843

 

 

 

9,246

 

 

 

50

 

 

 

 

 

 

50

 

Asia Pacific

 

 

109

 

 

 

24,882

 

 

 

24,991

 

 

 

536

 

 

 

31,915

 

 

 

32,451

 

Total

 

$

92,660

 

 

$

32,725

 

 

$

125,385

 

 

$

61,140

 

 

$

31,915

 

 

$

93,055

 

Remaining Performance Obligations

As of March 31, 2020, we had $109.7 million of remaining performance obligations.  We expect to recognize revenue of approximately 30% of these performance obligations in 2020, approximately 35% in 2021 and the remaining approximately 35% in 2022.

 

NOTE 7.  EQUITY–BASED COMPENSATION

 

We grant various forms of equity–based compensation to our senior management and directors.  These equity–based awards currently consist of restricted stock units (“RSUs”).

 

In March 2020, we issued 0.1 million RSUs to our senior management, which will vest in September 2021.  The fair value of the RSUs on the date of grant was $0.2 million.

 

We recognized equity–based compensation costs of $0.1 million and $0.8 million in the three months ended March 31, 2020 and 2019, respectively.  These costs are included in “Selling, general and administrative expenses” on our unaudited condensed consolidated statements of operations.  

As of March 31, 2020, we had $0.6 million of unrecognized equity–based compensation cost, which is expected to be recognized over a weighted average period of 1.01 years.

 

NOTE 8.  LEASES

 

We have entered into various non–cancellable operating and finance lease agreements for certain of our offices, shop and warehouse facilities, equipment and vehicles.  We determine if an arrangement is a lease, or contains a lease, at inception and record the lease in our unaudited condensed consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.

 

Our leases have remaining lease terms ranging from one year to seven years and often include options to extend the lease term for up to three years.  Some of our leases also include options to terminate the lease prior to the end of the agreed upon lease term.  For the majority of leases entered into during the current period, we have concluded it is not reasonably certain that

11


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

we would exercise the options to extend the lease.  Therefore, as of the lease commencement date, our lease terms generally do not include these options.  We include options to extend the lease when it is reasonably certain that we will exercise that option.

 

Lease expense for operating lease payments is recognized on a straight–line basis over the lease term. Certain operating leases provide for annual increases to lease payments based on an index or rate. We estimate the annual increase in lease payments based on the index or rate at the lease commencement date. Differences between the estimated lease payment and actual payment are expensed as incurred. Lease expense for finance lease payments is recognized as amortization expense of the finance lease ROU asset and interest expense on the finance lease liability over the lease term.

 

The balances for the operating and finance leases where we are the lessee are presented on our unaudited condensed consolidated balance sheet as follows:

 

 

 

Classification on Unaudited Condensed Consolidated Balance Sheet

 

March 31,

2020

 

 

December 31,

2019

 

Assets:

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use

   assets

 

 

Operating lease right-of-use assets

 

$

6,992

 

 

$

6,421

 

Finance lease assets

 

Property and equipment, net

 

 

101

 

 

 

324

 

Total lease assets

 

 

 

$

7,093

 

 

$

6,745

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities

 

Operating lease liabilities

 

$

2,029

 

 

$

2,576

 

Finance lease liabilities

 

Current portion of long-term debt and finance leases

 

 

111

 

 

 

350

 

Long-term - operating lease

  liabilities

 

 

Other long-term liabilities

 

 

5,092

 

 

 

3,980

 

Total lease liabilities

 

 

 

$

7,232

 

 

$

6,906

 

 

The components of lease expense on our unaudited condensed consolidated statement of operations are as follows for the three months ended March 31:

 

 

 

2020

 

 

2019

 

Operating lease expense:

 

 

 

 

 

 

 

 

Operating lease expense (1)

 

$

1,237

 

 

$

1,340

 

 

 

 

 

 

 

 

 

 

Finance lease expense:

 

 

 

 

 

 

 

 

Amortization of leased assets

 

$

223

 

 

$

221

 

Interest on lease liabilities

 

 

9

 

 

 

38

 

Total finance lease expense

 

$

232

 

 

$

259