UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-35471
SAExploration Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
27-4867100
(I.R.S. Employer Identification No.)
1160 Dairy Ashford Rd., Suite 160, Houston, Texas
(Address of principal executive offices)
77079
(Zip Code)
Registrant’s telephone number, including area code (281) 258-4400
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.0001 Par Value
(Title of each class)
The NASDAQ Capital Market
(Name of each exchange on which registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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
filings requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted 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 and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation in S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. 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
a emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
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 Act). Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017, the last business
day of the registrant’s most recently completed second fiscal quarter was $13,526,290, calculated by reference to the closing price of $3.23 for the
registrant’s common stock on The Nasdaq Global Market on that date.
Number of shares of Common Stock, $0.0001 par value, outstanding as of March 9, 2018: 14,907,116
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 2018 Annual Meeting of Stockholders -- Referenced in Part III of this Report
TABLE OF CONTENTS
PART I ...............................................................................................................................................................................
ITEM 1. Business. .......................................................................................................................................................
ITEM 1A. Risk Factors. .................................................................................................................................................
ITEM 2. Properties. .....................................................................................................................................................
ITEM 3. Legal Proceedings. .......................................................................................................................................
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities. ...................................................................................................................................
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................
ITEM 8. Financial Statements and Supplementary Data. ............................................................................................
ITEM 9A. Controls and Procedures. ..............................................................................................................................
PART III ............................................................................................................................................................................
ITEM 10. Directors, Executive Officers and Corporate Governance. ...........................................................................
ITEM 11. Executive Compensation. .............................................................................................................................
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ....
ITEM 13. Certain Relationships and Related Transactions, and Director Independence. .............................................
ITEM 14. Principal Accountant Fees and Services. ......................................................................................................
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PART IV .........................................................................................................................................................................
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ITEM 15. Exhibits and Financial Statement Schedules. ...............................................................................................
Exhibit Index ..................................................................................................................................................................
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Index to Financial Statements. ...................................................................................................................................... FS-1
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the federal securities laws, with respect to our
financial condition, results of operations, cash flows and business, and our expectations or beliefs concerning future events.
These forward-looking statements can generally be identified by phrases such as “expects,” “anticipates,” “believes,”
“estimates,” “intends,” “plans to,” “ought,” “could,” “will,” “should,” “likely,” “appears,” “projects,” “forecasts,” “outlook”
or other similar words or phrases. There are inherent risks and uncertainties in any forward-looking statements. Although we
believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct,
and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any
forward-looking statements to reflect events, new information or otherwise. Some of the important factors that could cause
actual results to differ materially from our expectations are discussed below. All written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
Factors that could cause actual results to vary materially from our expectations include the following:
the ability to effectively manage our operations during the significant cash flow and liquidity difficulties we are
experiencing;
the negative consequences of our restructurings, including the significant dilution of our existing stockholders;
negative events or publicity associated with our restructuring and recapitalization transactions could adversely affect
our relationships with our suppliers, service providers, customers, employees, and other third parties, which in turn
could adversely affect our operations and financial condition;
developments with respect to the Alaskan oil and natural gas exploration tax credit system that may continue to
affect the willingness of third parties to participate in financing and monetization transactions and our ability to
timely monetize tax credits that have been assigned to us by our customer;
changes in the Alaska oil and natural gas exploration tax credit system that may significantly affect the level of
Alaskan exploration spending;
fluctuations in the levels of exploration and development activity in the oil and gas industry;
intense industry competition;
limited number of customers;
credit and delayed payment risks related to our customers;
the availability of liquidity and capital resources, including our limited ability to make capital expenditures and the
potential impact this has on our business and competitiveness;
need to manage rapid growth and contraction of our business;
delays, reductions or cancellations of service contracts;
operational disruptions due to seasonality, weather and other external factors;
crew availability and productivity;
whether we enter into turnkey or term contracts;
high fixed costs of operations;
substantial international business exposing us to currency fluctuations and global factors, including economic,
political and military uncertainties;
ability to retain key executives; and
need to comply with diverse and complex laws and regulations.
Refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
sections of this report for specific risks which would cause actual results to be significantly different from those expressed or
implied by any of our forward-looking statements. It is not possible to identify all of the risks, uncertainties and other factors
that may affect future results. In light of these risks and uncertainties, the forward-looking events and circumstances
discussed in this report may not occur and actual results could differ materially from those anticipated or implied in the
forward-looking statements. Accordingly, readers of this report are cautioned not to place undue reliance on the forward-
looking statements.
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ITEM 1. Business.
Overview
PART I
SAExploration Holdings, Inc. and its Subsidiaries (collectively, the “Corporation”, “we”, “us”, or “our”) is an
internationally-focused oilfield services company offering a full range of vertically-integrated seismic data acquisition and
logistical support services in Alaska, Canada, South America, West Africa and Southeast Asia to our customers in the oil and
natural gas industry. In addition to the acquisition of 2D, 3D, time-lapse 4D and multi-component seismic data on land, in
transition zones between land and water, and offshore in depths reaching 3,000 meters, we offer a full-suite of logistical
support and in-field data processing services. We operate crews around the world that are supported by over 27,500 owned
land and marine channels of seismic data acquisition equipment and other leased equipment as needed to complete particular
projects. Seismic data is used by our customers, including major integrated oil companies, national oil companies and
independent oil and gas exploration and production companies, to identify and analyze drilling prospects and maximize
successful drilling. The results of the seismic surveys we conduct belong to our customers and are proprietary in nature; we
do not acquire data for our own account or for future sale or maintain multi-client data libraries.
We specialize in the acquisition of seismic data in logistically complex and challenging environments and delicate
ecosystems, including jungle, mountain, arctic and subaquatic terrains. We have extensive experience in deploying personnel
and equipment in remote locations, while maintaining a strong quality, health, safety and environmental (“QHSE”) track
record and building positive community relations in the locations where we operate. We employ highly specialized crews
made up of personnel with the training and skills required to prepare for and execute each project and, over time, train and
employ large numbers of people from the local communities where we conduct our surveys. Our personnel are equipped with
the technology necessary to meet the specific needs of the particular project and to manage the challenges presented by
sensitive environments.
We were initially incorporated in Delaware on February 2, 2011, under the name Trio Merger Corp. as a blank check
company in order to serve as a vehicle for the acquisition of a target business. On June 24, 2013, we completed a business
combination in which the entity formerly known as SAExploration Holdings, Inc. (“Former SAE”) merged into our wholly-
owned subsidiary (the “Merger”), and we operate the business of Former SAE.
Our principal headquarters are located in Houston, Texas at 1160 Dairy Ashford Rd., Suite 160, Houston, Texas, 77079,
Telephone: (281) 258-4400, and our web address is www.saexploration.com. We do not intend for information contained in
our website to be a part of this report.
Our operations in our various geographic locations are conducted through our subsidiary SAExploration, Inc. and its wholly-
owned subsidiaries and branch offices in the United States (primarily Alaska), Canada, Peru, Colombia, Bolivia, and
Malaysia.
Recent Developments
On December 19, 2017, we entered into a restructuring support agreement (the “2017 Restructuring Support Agreement”)
with holders (the “2017 Supporting Holders”) that beneficially owned in excess of 85% in principal amount of our 10.000%
Senior Secured Second Lien Notes due 2019 (the “Second Lien Notes”), pursuant to which the 2017 Supporting Holders
agreed to enter into and implement a deleveraging restructuring transaction (the “2017 Restructuring”), subject to the terms
and conditions of the 2017 Restructuring Support Agreement with us. The closing of the 2017 Restructuring occurred on
January 29, 2018 and has significantly restructured our debt and changed our capital structure. The 2017 Restructuring, as
well as our 2016 Restructuring (collectively the “Restructurings”) are discussed further in Note 2 to our Consolidated
Financial Statements.
Seismic Data Acquisition Services
We provide a full range of seismic data acquisition services, including in-field data processing, and related logistics services.
We currently provide our services on a proprietary basis to our customers and the seismic data acquired is owned by our
customers once acquired.
Our seismic data acquisition and logistics services include the following:
Program Design
Planning and Permitting
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Camp Services
Survey
Drilling
Recording
Reclamation; and
In-field Data Processing
Program Design, Planning and Permitting. A seismic survey is initiated at the time the customer requests a proposal to
acquire seismic data on its behalf. We employ an experienced design team, including geophysicists with extensive experience
in 2D, 3D, time-lapse 4D, and multi-component survey design, to recommend acquisition parameters and technologies to best
meet the customer’s exploration objectives. Our design team analyzes the request and works with the customer to put an
operational, personnel and capital resource plan in place to execute the project.
Once a seismic program is designed, we assist the customer in obtaining the necessary permits from governmental authorities
and access rights of way from surface and mineral estate owners or lessees where the survey is to be conducted. It is usually
our permitting crew that is first to engage with the local residents and authorities. We believe our knowledge of the local
environment, cultural norms and excellent QHSE track record enable us to engender trust and goodwill with the local
communities, which our customers are able to leverage over the longer exploration cycle in the area.
Camp Services. We have developed efficient processes for assembling, operating and disassembling field camps in
challenging and remote project locations. We operate our camps to ensure the safety, comfort and productivity of the team
working on each project and to minimize our environmental impact through the use of wastewater treatment, trash
management, water purification, generators with full noise isolation and recycling areas.
In areas like South America and Southeast Asia, logistical support needs to be in place to establish supply lines for remote
jungle camps. To insure the quality of services delivered to these remote camps, we own ten supply and personnel river
vessels to gain access to remote jungle areas. We also have five jungle camps and a series of 40 fly camps that act as advance
camps from the main project camp. Each of these jungle base camps contains a full service medical facility complete with
doctors and nurses in the remote chance any potential injuries need to be stabilized for medical transport. The camps are
equipped with full meal kitchens held to high standards of cleanliness, sleeping and recreational quarters, power supply,
communications links, air support, water purification systems, black water purification systems, offices, repair garages, fuel
storage and many more support services.
Survey and Drilling. In a typical seismic recording program, the first two stages of the program are survey and drilling. Once
the permitting is completed, our survey crews enter the project areas and begin establishing the source and receiver
placements in accordance with the survey design agreed to by the customer. The survey crew lays out the line locations to be
recorded and, if explosives are being used, identifies the sites for shot-hole placement. The drilling crew creates the holes for
the explosive charges that produce the necessary acoustical impulse.
The surveying and drilling crews are usually employed by us but may be third party contractors depending on the nature of
the project and its location. Generally, the choice of whether to subcontract out services depends on the expertise available in
a certain region and whether that expertise is more efficiently obtained through subcontractors or by using our own labor
force. For the most part, services are subcontracted within Alaska and Canada and our personnel are used in other regions
where we operate. When subcontractors are used, we manage them and require that they comply with our work policies and
QHSE objectives.
In Alaska and Canada, the surveying and drilling crews are typically provided by third party contractors but are supervised by
our personnel. In Alaska and Canada, our vibroseis source units consist of the latest source technology, including eight AHV
IV 364 Commander Vibrators and twelve environmentally friendly IVI mini vibrators, complete with the latest Pelton DR
electronics. In South America and Southeast Asia, we perform our own surveying and drilling, which is supported by up to
200 drilling units, including people-portable, low impact self-propelled walk behind, track-driven and heli-portable deployed
drilling rigs. Our senior drilling staff has a combined work experience of over 50 years in some of the most challenging
environments in the world. On most programs there are multiple survey and drilling crews that work at a coordinated pace to
remain ahead of the data recording crews.
Recording. We use equipment capable of collecting 2D, 3D, time-lapse 4D and multi-component seismic data. We utilize
vibrator energy sources or explosives depending on the nature of the program and measure the reflected signals with
strategically placed sensors. Onshore, geophones are manually buried, or partially buried, to ensure good coupling with the
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surface and to reduce wind noise. Offshore, the reflected signals are recorded by either hydrophones towed behind a survey
vessel or by geophones placed directly on the seabed. We increasingly employ ocean bottom nodes positioned by remote
operated vehicles on the seafloor in our marine data acquisition operations. We have available over 27,500 owned land and
marine seismic recording channels with the ability to access additional equipment, as needed, through rental or long-term
leasing sources. All of our systems record equivalent seismic information but vary in the manner by which seismic data is
transferred to the central recording unit, as well as their operational flexibility and channel count expandability. We utilize
11,500 channels of Sercel 428/408 equipment, 6,000 channels of Fairfield Land Nodal equipment and 10,000 channels of
Geospace GSX equipment.
Historically, we have made significant capital investments to increase the recording capacity of our crews by increasing
channel count and the number of energy source units we operate. This increase in channel count demand is driven by
customer needs and is necessary in order to produce higher resolution images, increase crew efficiencies and undertake larger
scale projects. In response to project-based channel requirements, we routinely deploy a variable number of channels with a
variable number of crews in an effort to maximize asset utilization and meet customer needs. When recording equipment is at
or near full utilization, we utilize rental equipment from strategic suppliers to augment our existing inventories. We believe
we will realize the benefit of increased channel counts and flexibility of deployment through increased crew efficiencies,
higher revenues and increased margins.
Historically, we have dedicated a significant portion of our capital investment to purchasing and leasing wireless recording
systems rather than the traditional wired systems. We utilize this equipment as primarily stand-alone recording systems, but
on occasion it is used in conjunction with cable-based systems. The wireless recording systems allow us to gain further
efficiencies in data recording and provide greater flexibility in the complex environments in which we operate. In addition,
we have realized increased crew efficiencies and lessened the environmental impact of our seismic programs due to the
wireless recording systems because they require the presence of fewer personnel and less equipment in the field. We believe
we will experience continued demand for wireless recording systems in the future.
We also utilize multi-component recording equipment on certain projects to further enhance the quality of data acquired and
help our customers enhance their development of producing reservoirs. Multi-component recording involves the collection of
different seismic waves, including shear waves, which aids in reservoir analysis such as fracture orientation and intensity in
shales and allows for more descriptive rock properties.
Reclamation. We have experienced teams responsible for reclamation of the areas where work has been performed so as to
minimize the environmental footprint from the seismic program. These programs can include reforestation or other activities
to restore the natural landscape at our worksites.
In-field Data Processing. Our knowledgeable and experienced team provides our customers with superior quality in-field
data processing. We believe that our strict quality control processes meet or surpass industry-established standards, including
identifying and analyzing ambient noise, evaluating field parameters and employing obstacle-recovery strategies. Using the
latest technology, our technical and field teams electronically manage customer data from the field to the processing office,
minimizing time between field production and processing. All of the steps employed in our in-field data processing sequence
are tailored to the particular customer project and objectives.
Industry Overview
Seismic technology is the primary tool used to locate oil and gas reserves, and it facilitates the development of complex
reservoirs. Seismic data is used to pinpoint and determine the locations of subsurface features favorable for the accumulation
of hydrocarbons, as well as define the make-up of the sedimentary rock layers and their corresponding fluids. Seismic data is
acquired by introducing acoustic energy into the earth and water through controlled energy sources. Seismic energy sources
can consist of truck-mounted vibration equipment in accessible terrain, explosives such as dynamite in more difficult terrain,
or vessel-mounted air guns in shallow water and certain marsh environments. The sound waves created by explosives or
vibration equipment are reflected back to the surface and collected by seismic sensors referred to as “geophones” or
“hydrophones,” which measure ground and water displacement. One or more strategically positioned seismic sensors are
connected to a recording channel which transmits the data to a central recording location. A typical project involves the use
of thousands, and sometimes tens of thousands, of channels recording simultaneously over the survey area. In general, the
higher the number of recording channels employed in a given survey, the richer the data set that is produced.
A seismic survey is acquired with a surface geometry grid of seismic energy sources and receivers extending over very large
areas. The size of this grid varies with and depends on the size, depth and geophysical characteristics of the target to be
imaged. The lines must be accurately positioned, so the location of each source and receiver point is obtained using either
GPS, inertial, or conventional optical survey methods depending upon the vegetation and environment in the prospect area.
Seismic receivers are deployed on the surface of the area being surveyed at regular intervals and patterns to measure, digitize
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and transmit reflected seismic energy to a set of specialized recording instruments. The transportation of cables, geophones
and field recording equipment can be by truck, vessel or helicopter depending upon the terrain and environment within the
area to be imaged.
Land seismic data acquisition. For land applications, geophones are buried, or partially buried, to ensure good coupling with
the surface and to reduce wind noise. Burying geophones in the ground is a manual process and may involve anywhere from
a few to more than 100 people depending on the size of the seismic crew and the terrain involved. Cables that connect the
geophones to cabled recording systems may also be deployed manually or, in some cases, automatically from a vehicle
depending on the terrain. The acoustic source for land seismic data acquisition is typically a fleet of large hydraulic vibrator
trucks, but may also be explosives detonated in holes drilled for such purposes.
On a typical land seismic survey, the seismic recording crew is supported by a permitting and surveying crew along with a
vibroseis and/or drilling crew. The permitting crew secures permission from the landowner and mineral owner or lessee to
gain access to the surface and subsurface rights to conduct the seismic program. The surveying crew lays out the receiver
locations to be recorded and, in a survey using an explosive source, identifies the sites where the drilling crew creates the
holes for the explosive charges that produce an acoustical impulse. In other surveys, a mechanical vibrating unit, such as a
vibrator truck, is used as the seismic energy source. The seismic crew lays out the geophones and recording instruments,
directs shooting operations and records the acoustical signal reflected from subsurface strata. The number of individuals on
each crew is dependent upon the size and nature of the seismic survey.
Offshore seismic data acquisition. In marine surveys, air guns, which release high-pressure compressed air into the water
column, are used as the acoustic energy source. For ocean bottom cable operations, an assembly of vertically oriented
geophones and hydrophones connected by electrical wires typically is deployed on the sea floor to record and relay data to a
seismic recording vessel. Increasingly, ocean bottom nodes positioned by remote operated vehicles are used in areas of
obstructions (such as production platforms) or shallow water inaccessible to ships towing seismic streamers (such as
submerged cables).
Transition zone seismic data acquisition. In the transition zone area where land and water come together, elements of both
land data acquisition and offshore data acquisition are employed. Transition zone seismic data acquisition is similar to ocean
bottom cable applications in that both hydrophones and geophones are lowered to the ocean floor. However, due to the
shallow water depths, only small vessels and manual labor can be used to deploy and retrieve the cables. Additionally, the
source vessels and acoustic source arrays must be configured to run in shallow water. In transition zone areas consisting of
swamps and marshes, explosives must be used as an acoustic source in addition to air guns.
Two-dimensional, or 2D, seismic data is recorded using single lines of receivers crossing the earth’s surface, and, once
processed, results in only a profile image of the earth, and the data is generally used only to identify gross structural features.
Prior to 1980, all seismic data acquired was 2D, and 2D surveys are still widely employed in locations previously unexplored
by E&P companies to provide preliminary data for broad-scale exploration evaluation. Three-dimensional, or 3D, seismic
data surveys have proven more effective in providing detailed views of subsurface structures.
The increased use of 3D seismic data by the oil and natural gas industry in the 1980s helped drive significant increases in
drilling success rates as better data quality allowed operators to optimize well locations and results. Today, the vast majority
of seismic data acquired in North America is 3D, of which high density 3D is a growing component.
More recently, the seismic industry has seen the development of four-dimensional, or 4D, imaging technology, also known as
time-lapse seismic. 4D seismic data incorporates numerous 3D seismic surveys over the same reservoir at specified intervals
of time and can help determine changes in flow, pressure and saturation. As hydrocarbons are depleted from a field, the
pressure and composition of the fluids may change. By scanning a reservoir over a given period of time, the flow of the
hydrocarbons within can be traced and better understood. In addition, 4D seismic data can help geologists understand how a
reservoir reacts to gas injection or water flooding and can help locate untapped pockets of oil or natural gas within the
reservoir.
In conventional 3D seismic surveys, only the primary wave, or P-wave, is acquired. P-wave reflection cannot always image
fluid saturated zones properly. Multi-component seismic data acquisition captures the seismic wave field more completely
than conventional P-wave techniques. In multi-component acquisition, multiple sets of data are received at each receiver, P-
wave and two measurements (X, Y) of the shear wave, or S-wave. Information obtained from the S-wave passing through a
fluid-saturated medium provides a better interpretation of the reservoir structure. Evaluating P- and S-wave data together
provides additional information to reduce uncertainty in prospect evaluation.
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Once seismic data is acquired, complex mathematical algorithms are used to transform the data into 2D profiles, 3D volumes
of the earth’s subsurface or 4D time-lapse seismic data. These images are then interpreted by geophysicists and geologists for
use by oil and natural gas companies in evaluating prospective areas, designing drilling programs, selecting drilling sites and
managing producing reservoirs.
Markets and Trends
North America
While the last several years have seen a decline in demand, the North American market has historically been a stable and
sustainable market for 3D seismic data acquisition. Use of 3D technology is the norm in the United States and Canada as
international oil companies seek to maximize the efficiency of their reservoirs and reduce exploration risk.
We expanded into North America in 2011 through our acquisitions of Datum Exploration Ltd. in Canada and Northern
Exploration Services in Alaska. With each of those acquisitions, we brought on board personnel with extensive operations
experience in each location. Our operations in the North American market are consistent with our strategy to help increase
our equipment utilization rates, while concurrently increasing margins, by balancing growth in North and South America,
which have complementary operating seasons. While this model continues to be a viable operating model, the industry
downturn has created significant pressure on competitive cost structures and pricing, particularly during the early 2017 winter
season. However, we are beginning to see characteristics that would suggest this trend may be shifting towards an increase in
overall regional activity assuming there is a longer period of consistency in the commodity price environment.
South America
The economies in South American countries continue to expand and develop, demanding significantly more energy to fuel
their growth. As the political environments stabilize, oil companies are increasing operations in the market and are seeking
experienced seismic service providers with complex environment know-how, strong QHSE records and excellent relations
with local communities to satisfy their exploration needs.
We have maintained operations in South America since 2006 while further growing our presence in Bolivia, Brazil,
Colombia, and Peru. However, the global oil and natural gas industry downturn significantly impacted exploration activity in
South America particularly during 2017 and 2016. While some improvements in the level of customer interest can be seen by
an increase in inquiries and subsequent tenders, no assurance can be given that this will result in increased activity or that
future decreases in activity will not occur again.
Southeast Asia
Exploration activities in Southeast Asia have declined recently with lower commodity prices but there is a steady demand for
energy in the region. In 2010, we entered the Southeast Asian market by commencing operations in Papua New Guinea for
one of our major long-time customers. We have expanded our operations in Southeast Asia into New Zealand and deep-water
marine work in Malaysia. We expect Southeast Asia to continue to be a predominantly marine-based market in the current
commodity price environment. This trend is expected to continue as long as customers remain hesitant to commit capital to
large onshore projects that are more exploration driven.
West Africa
In late 2016, we entered the West Africa market to perform a deep-water ocean bottom marine project for a major customer.
Historically, West Africa has presented numerous offshore marine opportunities. More recently, offshore marine seismic
activity has been increasing in certain West African countries. These projects are more focused on production-enhancement
initiatives than new exploration. Despite the current macro-economic instability related to the oil and natural gas industry
downturn, we expect overall offshore marine seismic activity to continue to improve in the near to medium-term future.
Strengths
Full service logistics provider. A majority of our revenues is earned through high-margin logistics-related activities
performed in-house. Unlike many other seismic data acquisition companies, we focus on providing a complete service and
logistical solutions package, especially in our international operations, which allows efficient movement into remote areas.
This provides us with opportunities to capture a larger portion of the revenues associated with each project and gives us what
we believe to be a strategic advantage over our competitors, who generally outsource logistics services to multiple third
parties. Usually we are the first point of contact with the local communities, and we believe having contact with these
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communities from initiation of the project through the seismic phase and demonstrating our commitment to QHSE forms
relationships that benefit us and our customers over the longer term. Additionally, our logistical expertise can be a value
proposition in price negotiations with our customers, allowing us to maintain higher margins in certain regions of the world,
particularly in the more remote areas and challenging environments.
International platform. We operate in numerous regions around the world and continue to maintain our market share in those
markets. Our experience includes projects in Alaska, Canada, Bolivia, Brazil, Colombia, Peru, Malaysia, Papua New Guinea,
West Africa and New Zealand. We maintain a local presence in many of these areas. As the majority of our operations are
focused in locations previously unexplored by E&P companies, the first projects in those areas tend to be for the acquisition
of 2D data for preliminary, broad-scale exploration evaluation. That initial acquisition often leads to further work, as the 2D
data is used to determine the location and design of additional 3D and 4D surveys, which are then used for more detailed
analysis to maximize actual drilling potential and success. Typically, once we are hired for a project, we tend to get follow-on
surveys due to our familiarity with the customer, the local communities and the project. The international platform also
enables us to expand and contract in various regions around the world to match the changes in demand in certain regions as
driven by commodity prices, economic factors and energy consumption in the local markets.
Extensive experience in challenging environments. We specialize in seismic data acquisition services in logistically
challenging environments on land, in transition zones and in water. We believe that our extensive experience operating in
such complex locations, including our expertise in logistics management and deploying personnel and equipment customized
for the applicable environment, provides us with a significant competitive advantage. Many of the areas of the world where
we work have limited seasons for seismic data acquisition, requiring high utilization of key personnel and redeployment of
equipment from one part of the world to another. Most of our remote area camps, drills and support equipment are easily
containerized for transport to locations anywhere in the world. As a result, if conditions deteriorate in a current location or
demand rises in another location, we are able to quickly redeploy our crews and equipment to other parts of the world. We
have a logistical support department that works with management to keep our equipment strategically located in areas of high
utilization.
Strong local relationships and stringent QHSE processes. E&P companies seek experienced seismic service providers with
complex environment know-how, strong QHSE records and excellent relations with local communities to satisfy their
seismic needs. Our highly trained and qualified QHSE team has extensive experience working in diverse ecosystems and
complex cultural environments. We believe this experience allows us to deliver high quality data and efficient operations
through systems and processes designed to minimize health and safety risk and overall community and environmental
impact. We believe that our strong local relationships, QHSE track record and our history of successful reclamation programs
facilitate negotiating permits and other seismic data acquisition rights on behalf of our customers.
Cash flow generation supported by backlog and competitive bids. As of December 31, 2017, we had approximately $50
million of backlog under contract, in addition to approximately $478 million of bids outstanding. We believe our backlog
results in comparatively better visibility to future cash flows relative to our peers. Such visibility is also evidenced by our
number of bids outstanding. Our key operations outside of North America are generally in countries with strict concession
leasing requirements, resulting in clients planning seismic shoots well in advance of the capital being spent. Additionally, the
short duration of operating seasons, especially in Alaska, leads to more advanced planning which in turn results in a more
accurate cash flow forecast. Non-North American seismic shoots are also less susceptible to cancellation due to the long-term
nature of very expensive development programs compared to more volatile, commodity-price driven shorter-term projects
typical of North America.
Strong relationships with blue chip customer base. Members of our management team have long-standing relationships often
extending over 30 years with many of the largest oil and gas companies in the world. Our global operating footprint allows us
to leverage those relationships throughout the world, and we believe our prior performance for those customers enhances our
ability to obtain new business from existing and past customers.
Experienced management team with significant operational experience and ownership stake. We believe the experience,
knowledge base and relationships that our management team has built over the years enhance our operating and marketing
capabilities and underlie our strong reputation in the industry. In fact, we believe the operating expertise of our management
team frequently leads to winning bids for new business. Virtually every member of our management team has technological
and first-hand experience of the seismic data acquisition industry stemming from years of field work.
Strategy
We believe we have a strategic advantage over a substantial number of our competitors in the areas in which we operate
because of our expertise in logistics and our ability to provide a complete solution in remote and complex areas.
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We plan to build upon our competitive strengths to grow our business through the following strategies:
Maintain strict focus on contract work with key clients. We intend to continue to work on a fully contracted basis
with major national and international oil and gas companies and capitalize on our long-term relationships with our
customers. Unlike many of our competitors, we do not acquire data for our own use or maintain multi-client data
libraries, which are either unfunded or partially funded speculative libraries, and involve significantly more risk and
uncertainty. We seek to add value for our customers through a material reduction of the following risks:
Exploration risk-we deliver consistent high-quality seismic data utilizing the most advanced technology;
Data acquisition risk-we fulfill our promises regarding the timing, quality and scope of our services;
Reputation risk-we attract and retain highly skilled and experienced professionals who embody our strong
focus on customer service, safety and environmental safeguards;
QHSE risk-we place the highest priority on the health and safety of our workforce, the protection of our
assets, the environment and the communities where we conduct our work, and we strive for continual
improvement in all QHSE aspects; and
Financial risk-we are able to employ a higher proportion of turnkey contracts in our operations, which shift
most of the business interruption risks onto us.
Provide full in-house logistics services. We intend to continue to focus on our logistics expertise, which, in addition
to our seismic data acquisition abilities, allows us to provide a complete service package to our customers. We
believe our vertical integration will continue to provide for efficient movement into remote areas as we further
expand internationally, giving us a strategic advantage over our competitors. Many of the areas of the world where
we work have limited seasons for seismic data acquisition, requiring high utilization of key personnel and
redeployment of equipment from one part of the world to another. We believe that few of our competitors have a
global reach that is similar to ours.
Focus on global diversification and capitalize on market positioning in emerging basins. We seek to maintain our
market share in the markets in which we currently operate and continue our positioning into other emerging markets,
such as worldwide ocean bottom seismic services, which we believe hold the highest degree of potential for
opportunities during this downturn in the overall market. Emerging economies will likely continue to expand and
develop, demanding significantly more energy to fuel their growth. As the political environments stabilize in many
of those countries, oil and natural gas companies will likely increase operations in these markets. With our
geographic expansion from providing services exclusively in South America to providing services in Alaska,
Canada, Southeast Asia and West Africa, we are able to achieve better utilization of our personnel and equipment
through redeployment from off-season areas to in-season areas, helping to reduce some of the volatility in our
financial performance.
Maintain local relationships and stringent QHSE processes as the foundation of all our projects. We plan to
maintain our focus on strong community relations and QHSE standards. We believe our continued success in those
areas can be leveraged to help us further maintain our market share in these emerging markets.
Continue higher utilization of turnkey contracts to capitalize on higher operating margins. Our contracts for
proprietary seismic data acquisition services reflect a high proportion of turnkey contracts, which are fixed fee,
compared to term contracts, which use a variable or day-rate fee basis. This provides us with the opportunity to
maximize the advantage we have from being a full-service provider and the operational efficiencies created by our
vertical integration. Our customers prefer turnkey contracts because they shift much of the business interruption risk
onto us. We also increasingly use hybrid contracts where we may share with our customers a certain degree of the
risks for certain business interruptions, such as weather, community relations and permitting delays, that are outside
of our control.
We enable these strategies by continuing to pursue excellence in the following activities:
Building and maintaining mutually beneficial, long-term relationships with customers;
Aggressively marketing our capabilities and customer-value added proposition;
Continually monitoring technological developments in the industry and, as needed, implementing cutting-edge
technologies that can give us a competitive advantage;
Sharing best practices across regions to ensure the consistent delivery of high quality service; and
Continuing to seek innovative ideas to reduce the seasonal gaps in our equipment utilization rates.
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Seasonal Variation in Business
Seismic data acquisition services are performed outdoors and, consequently, are subject to weather and seasonality.
Particularly in Alaska and Canada, the primary season for seismic data acquisition is during the winter, from approximately
December to April, since much of the terrain for seismic data acquisition cannot be accessed until the ground has frozen. The
weather conditions during this time of year can affect the timing and efficiency of operations. In addition, this prime season
can be shortened by warmer weather conditions.
In South America and Southeast Asia, our operations are affected by the periods of heavy rain in the areas where seismic
operations are conducted. Specifically, the jungle areas of Colombia, Bolivia and Peru are affected by heavy rain during
certain parts of the year so we must either avoid taking projects during these time periods or limit the weather risk in a
particular customer contract. Many of the heavy rain periods in South America, though, are during the high season for Alaska
and Canada, and there are opportunities to maximize the utilization of equipment and personnel by moving them between
these regions to take advantage of the different high seasons.
In all areas of operation, the weather is an uncontrollable factor that affects our operations at various times of the year. We try
to minimize these risks during the bidding process by utilizing the expertise of our personnel as to the weather in a particular
area and through the negotiation of downtime clauses in our contracts with our customers. Due to the unpredictability of
weather conditions, there may be times when adverse conditions substantially affect our operations and the financial results
of a particular project may be impacted.
Marketing
Our services are marketed from our various offices around the world. We have a corporate business development and
marketing staff and also have local managers who interact with customers in each country of operations. Through these
customer interactions, we are able to remain updated on a customer’s upcoming projects in the area and to work with the
customer on projects in other countries.
Contracts are obtained either by direct negotiation with a prospective customer or through competitive bidding in response to
invitations to bid. Most of our revenue historically has been generated through repeat customer sales and new sales to
customers referred by existing and past customers. In addition, a significant portion of our engagements results from
competitive bidding. Contracts are awarded primarily on the basis of price, experience, availability, technological expertise
and reputation for dependability and safety. With the involvement and review of senior management, bids are prepared by
knowledgeable regional operations managers who understand their respective markets, customers and operating conditions
and who communicate directly with existing and target customers during the bid preparation process.
We also work closely with customers on a direct award basis to plan particular seismic data acquisition projects. Due to the
complexity of the areas where we do business, these projects can take a number of months in planning and consulting with
the customer on exploration goals and parameters of the projects to fit within a particular budget. By working closely with
the customer, we are able to acquire seismic data for a project efficiently and within the customer’s required timeframe.
Contracts and Backlog
We conduct data acquisition services under master service agreements with our customers that set forth certain obligations of
our customers and us. A supplemental agreement setting forth the terms of a specific project, which may be canceled by
either party on short notice, is entered into for every data acquisition project. The supplemental agreements are either
“turnkey” agreements that provide for a fixed fee to be paid to us for each unit of data acquired, or “term” agreements that
provide for a fixed hourly, daily or monthly fee during the term of the project. Turnkey agreements generally mean more
profit potential, but involve more risks due to potential crew downtimes or operational delays. Under term agreements, we
are ensured a more consistent revenue stream with improved protection from crew downtime or operational delays, but with a
decreased profit potential.
Our contracts for proprietary seismic data acquisition services reflect a high proportion of turnkey contracts, which is
preferred by our customers because it shifts much of the business interruption risk onto us; however, it provides us with the
greatest opportunity to maximize the advantage we have from being a full-service provider and the operational efficiencies
created by our vertical integration. We attempt to negotiate on a project-by-project basis some level of weather downtime
protection within the turnkey agreements and increasingly use hybrid contracts where we may share with our customers a
certain degree of the risks for certain business interruptions, such as weather, community relations and permitting delays, that
are outside of our control.
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Our backlog estimates represent those projects for which a customer has executed a contract or signed a binding letter of
award. Our backlog can vary significantly from time to time, particularly if the backlog is made up of multi-year contracts
with some of our more significant customers. Backlog estimates are based on a number of assumptions and estimates
including assumptions related to foreign exchange rates and proportionate performance of contracts. The realization of our
backlog estimates is further affected by our performance under term rate contracts, as the early or late completion of a project
under term rate contracts will generally result in decreased or increased, as the case may be, revenues derived from those
projects. Contracts for services are also occasionally modified by mutual consent and often can be terminated for
convenience by the customer. Because of potential changes in the scope or schedule of our customers’ projects, and the
possibility of early termination of customer contracts, we cannot predict with certainty when or if our backlog will be
realized. Material delays, payment defaults or cancellations on the underlying contracts could reduce the amount of backlog
currently reported and, consequently, could inhibit the conversion of that backlog into revenues. In addition, worsening
overall market conditions are likely to result in further reductions of backlog, which will impact our financial performance.
Customers
Our customers include national and international oil companies and independent oil and gas exploration and production
companies. Our revenues are derived from a concentrated customer base; however, we are not substantially dependent on any
one customer. Based on the nature of our contracts and customer projects, our significant customers can and typically do
change from year to year and the largest customers in any one year may not be indicative of the largest customers in the
future. During the year ended December 31, 2017, we had three customers, Conoco Phillips Alaska, Inc., Chevron and Hocol
Petroleum Limited, that individually exceeded 10% of our consolidated revenue and represented 75% of consolidated
revenue for the year. During the year ended December 31, 2016, we had three customers, Alaskan Seismic Ventures, BG
Bolivia Corporation and Hocol Petroleum Limited, that individually exceeded 10% of our consolidated revenue and
represented 74% of our consolidated revenue for the year.
Competition
The acquisition of seismic data for the oil and gas industry is a highly competitive business. Factors such as price,
experience, asset availability and capacity, technological expertise and reputation for dependability and safety of a crew
significantly affect a potential customer’s decision to award a contract to us or one of our competitors. In addition, the recent
excess supply and downturn in commodity prices has decreased demand for seismic services, further intensifying the
competitive landscape and causing further pressure on pricing and margins.
Our competitors include much larger companies with greater financial resources, more available equipment and more crews,
as well as companies of comparable and smaller sizes. Our primary competitors are Compagnie Générale de Géophysique
(CGG), Geokinetics, Inc., Global Geophysical Services, Inc., BGP, Inc. and Dawson Geophysical Company. In addition to
those companies, we also compete for projects from time to time with smaller seismic companies that operate in local
markets.
Intellectual Property
We rely on certain proprietary information, proprietary software, trade secrets and confidentiality and licensing agreements to
conduct our operations. We continually strive to improve our operating techniques and technologies, through internal
development activities and working with vendors to develop new processes and technologies to maintain pace with industry
innovation. Through this process, we have developed certain proprietary processes and methods of doing business,
particularly with respect to logistics. Although those processes and methods may not be patentable, we seek to protect our
proprietary information by entering into confidentiality agreements with our key managers and customers.
Equipment Purchases and Capital Expenditures
During 2017, we made minimal capital expenditures of approximately $2.7 million, primarily related to the purchase of a set
of vibrators and additional camp equipment. During 2016, we made capital expenditures of approximately $3.4 million for
the purchase of vibrators for our North American operations. Under our current business model, capital expenditures will be
kept at minimum levels, other than very low maintenance expenditures, until we see improvement in the overall oil and
natural gas market.
Historically, in line with our focus on wireless land data acquisition, we purchased a cable-less seismic data acquisition
system which allows up to three crews to operate under the system at the same time. Following customer needs for higher
density land programs using a single point receiver application and to answer the demand for conventional and
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unconventional oil and gas exploration, we purchased high sensitivity geophones and two types of vibrators, further
strengthening our position as a full solution provider for land data acquisition methods and technologies. Additional
equipment investments were made for ongoing operations in Alaska in order to increase efficiency. We also invested in cable
equipment in order to provide customers in Latin America with cable systems as wireless technology is slower to take hold in
that market.
We will continue to employ and expand as needed our wireless equipment on a worldwide basis while maintaining the ability
to provide services to the still existing cable markets. Our capital purchases have and will allow us to take advantage of all
aspects of the geophysical exploration services market, ranging from land, marine and transition zone data acquisition; 2D,
3D, 4D and multi-component data acquisition; use of different methods to acquire data such as using vibroseis (vibrating)
and impulsive sources; as well as vertical seismic profiling and reservoir monitoring. Investments in expanding further into
our South America and Southeast Asia markets will also focus upon surveying, drilling and base camp operations.
Government and Environmental Regulations
Our operations are subject to various international, federal, provincial, state and local laws and regulations. Those laws and
regulations govern various aspects of operations, including the discharge of explosive materials into the environment,
requiring the removal and clean-up of materials that may harm the environment or otherwise relating to the protection of the
environment and access to private and governmental land to conduct seismic surveys. We believe we have conducted our
operations in material compliance with applicable laws and regulations governing our activities.
The costs of acquiring permits and remaining in compliance with environmental laws and regulations, title research,
environmental studies and surveys are generally borne by our customers. Although our direct costs of complying with
applicable laws and regulations have historically not been material, the changing nature of such laws and regulations makes it
impossible to predict the cost or impact of such laws and regulations on future operations. Additional United States or foreign
government laws or regulations would likely increase the compliance and insurance costs associated with our customers’
operations. Significant increases in compliance expenses for customers could have a material adverse effect on customers’
operating results and cash flows, which could also negatively impact the demand for our services.
Employees and Subcontractors
As of February 28, 2018, we had 1,237 employees, 88 of whom were located in the United States. From time to time and on
an as-needed basis, we supplement our regular workforce with individuals that we hire temporarily or as independent
contractors in order to meet certain business needs. Our U.S. employees are not represented by any collective bargaining
agreement, and we believe that our employee relations are good.
Generally, the choice of whether to subcontract out services depends on the expertise available in a certain region and
whether that expertise is more efficiently hired through subcontractors or by using our own labor force. For the most part,
services are subcontracted within North America and our personnel are used in other regions where we operate. When
subcontractors are used, we manage them and require that they comply with our work policies and QHSE systems.
ITEM 1A. Risk Factors.
Our business, financial position, results of operations or liquidity could be adversely affected by any of these risks. The risks
and uncertainties we describe are not the only ones facing us. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business or operations. Any adverse effect on our business, financial
position, results of operations or liquidity could result in a decline in the value of our common stock and other securities.
Risks Relating to Our Business and Industry
Our business largely depends on the levels of exploration and development activity in the oil and natural gas industry, a
historically cyclical industry. A decrease in this activity caused by low oil and natural gas prices, increased supply, and
reduced demand, such as has occurred over the last several years, has had an adverse effect on our business, liquidity and
results of operations.
Demand for our services depends upon the level of spending by oil and natural gas companies for exploration, production,
development and field management activities, which depend, in part, on oil and natural gas supplies and prices. The markets
for oil and natural gas have historically been volatile and are likely to continue to be so in the future. In addition to the market
prices of oil and natural gas, our customers’ willingness to explore, develop and produce depends largely upon prevailing
10
industry conditions that are influenced by numerous factors over which our management has no control. A decline in oil and
natural gas exploration activities and commodity prices, as has occurred over the last several years, has adversely affected the
demand for our services and our results of operations.
Factors affecting the prices of oil and natural gas and our customers’ desire to explore, develop and produce include:
the level of supply and demand for oil and natural gas;
expectations about future prices for oil and natural gas;
the worldwide political, military and economic conditions;
the ability of the Organization of Petroleum Exporting Countries to set and maintain production levels and prices for
oil;
the rate of discovery of new oil and natural gas reserves and the decline of existing oil and natural gas reserves;
the cost of exploring for, developing and producing oil and natural gas;
the ability of exploration and production companies to generate funds or otherwise obtain capital for exploration,
development and production operations;
technological advances affecting energy exploration, production and consumption;
government policies, including environmental regulations and tax policies, regarding the exploration for, production
and development of oil and natural gas reserves, the use of fossil fuels and alternative energy sources and climate
change;
weather conditions, including large-scale weather events such as hurricanes that affect oil and natural gas operations
over a wide area or affect prices; and
changes in the Alaskan oil and gas tax credit system which may significantly affect the level of exploration spending
within Alaska and has negatively affected our current liquidity position.
Since the third quarter of 2014, oil prices have declined significantly due in large part to increasing supplies, weakening
demand growth, some oil and gas producing countries' position to not cut production and the lifting of sanctions against Iran.
While the price of crude oil has recovered from its low, it still has not reached pre-2014 prices.
As a result of these decreases in crude oil prices, many E&P companies have reduced their capital expenditures, which has
resulted in diminished demand for our services and products and downward pressure on the prices we charge or the level of
work we do for our customers.
We cannot assure you that the exploration and development activities by our customers will be maintained at current levels.
Any significant decline in exploration or production-related spending by our customers, whether due to a decrease in the
market prices for oil and natural gas or otherwise, would have a material adverse effect on our results of operations.
Additionally, increases in oil and natural gas prices may not increase demand for our products and services or otherwise have
a positive effect on our results of operations or financial condition.
Our revenues are subject to fluctuations that are beyond our control, which may be significant and could adversely affect
our results of operations in any financial period.
Our operating results may vary in material respects from quarter to quarter. Factors that cause variations include the timing of
the receipt and commencement of contracts for seismic data acquisition, processing or interpretation and customers’
budgetary cycles, all of which are beyond our control. In addition, in any given period, we could have idle crews which result
in a significant portion of our revenues, cash flows and earnings coming from a relatively small number of crews. Lower
crew utilization rates can be caused by land access permit and weather delays, seasonal factors such as holiday schedules,
shorter winter days or agricultural or hunting seasons, and crew repositioning and crew utilization and productivity.
Additionally, due to location, type of service or particular project, some of our individual crews may achieve results that
constitute a significant percentage of our consolidated operating results. Should any of our crews experience changes in
timing or delays due to one or more of these factors, our financial results could be subject to significant variations from
period to period. Combined with our fixed costs, these revenue fluctuations could also produce unexpected adverse results of
operations in any fiscal period.
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In addition to the above potential fluctuations in our revenue, we may also have significant third-party pass-through costs that
are reflected in our revenues but correspond to a very small administrative margin charged to the customer. Therefore, our
revenues for certain periods may include a large amount of these third-party charges and can cause our gross profit margin to
be lower.
Revenues derived from our projects may not be sufficient to cover our costs of completing those projects or may not result
in the profit we anticipated when we entered into the contract.
Our revenue is determined, in part, by the prices we receive for our services, the productivity of our crews and the accuracy
of our cost estimates. The productivity of our crews is partly a function of external factors, such as weather and third-party
delays, over which we have no control. In addition, cost estimates for our projects may be inadequate due to unknown factors
associated with the work to be performed and market conditions, resulting in cost over-runs. If our crews encounter
operational difficulties or delays, or if we have not correctly priced our services, our results of operation may vary and, in
some cases, may be adversely affected.
Our projects are performed on both a turnkey basis where a defined amount and scope of work is provided by us for a fixed
price and additional work, which is subject to customer approval, is billed separately, and is performed on a term basis where
work is provided by us for a fixed hourly, daily or monthly fee. The relative mix of turnkey and term agreements, as related
to our projects, can vary widely from time to time. The revenue, cost and gross profit realized on a turnkey contract can vary
from our estimated amount because of changes in job conditions, variations in labor and equipment productivity from the
original estimates, and the performance of subcontractors. In addition, if conditions exist on a particular project that were not
anticipated in the customer contract such as excessive weather delays, community issues, governmental issues or equipment
failure, then the revenue timing and amount from a project can be affected substantially. Turnkey contracts may also cause us
to bear substantially all of the risks of business interruption caused by weather delays and other hazards. Those variations,
delays and risks inherent in billing customers at a fixed price may result in us experiencing reduced profitability or losses on
projects.
The significant fixed costs of our operations could result in operating losses.
We are subject to significant fixed operating costs, which primarily consist of depreciation and maintenance expenses
associated with our equipment, certain crew costs and interest expense on our outstanding indebtedness. Extended periods of
significant downtime or low productivity caused by reduced demand, weather interruptions, equipment failures, permit
delays or other causes could negatively affect our results and have a material adverse effect on our financial condition and
results of operations because we will not be able to reduce our fixed costs as fast as revenues decline.
Our results of operations could be adversely affected by asset impairments.
We periodically review our portfolio of equipment for impairment. A prolonged downturn could affect the carrying value of
our equipment or other assets and require us to recognize a loss. We may be required to write down the value of our
equipment if the present value of future cash flows anticipated to be generated from the related equipment falls below net
book value. A decline in oil and natural gas prices, if sustained, can result in future impairments. Because the impairment of
long-lived assets or goodwill would be recorded as an operating expense, such a write-down would negatively affect our net
income and may result in a breach of certain of our financial covenants under the terms of the documents governing our
indebtedness.
Our working capital needs are difficult to forecast and may vary significantly, which could cause liquidity issues and
require us to seek additional financing that we may not be able to obtain on satisfactory terms, or at all.
Our working capital needs are difficult to predict with certainty. Our available cash varies in material respects as a result of,
among other things, the timing of our projects, our customers’ budgetary cycles and our receipt of payment. In particular,
delays in receiving payments on our accounts receivable relating to our Alaskan tax credits discussed below may cause
liquidity issues for us in the future. Our working capital requirements may continue to increase, due to contraction in our
business or expansion of infrastructure that may be required to keep pace with technological advances. Over time, we must
continue to invest additional capital to maintain, upgrade and expand our seismic data acquisition capabilities. In addition,
some of our larger projects require significant upfront costs. We therefore may be subject to significant and rapid increases in
our working capital needs that could require us to seek additional financing sources. While we currently have a senior loan
facility and a credit facility, and we have reduced our outstanding indebtedness as a result of the Restructurings, we are at our
borrowing limits under the senior loan facility and have to obtain lender approval to borrow additional funds under our credit
facility. Our current cash flow and liquidity difficulties may impair our ability to obtain other sources of financing, and
access to additional sources of financing may not be available on terms acceptable to us, or at all.
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Developments in the State of Alaska and their consequences for the market for exploration tax credits and the impacts of
those developments on our cash flow have intensified the negative impact on our current liquidity and cash flow.
At December 31, 2017, our largest accounts receivable from one customer was $78.1 million, representing 93% of total
consolidated accounts receivable. This customer was relying on monetization of Alaskan exploration tax credits (“Tax
Credits”), which monetization was historically accomplished by receipt of predictable payments from the State of Alaska or
from third party financing sources. Due to changed economic and political circumstances in the State of Alaska, however,
substantial uncertainty regarding the timing of payments from the State of Alaska has developed, which has affected the
availability of funding from other sources, which in turn has affected the timing of our receiving payments on this account
receivable. As a result, as of December 31, 2017, we classified the entire receivable from the customer as a long-term
accounts receivable totaling $78.1 million, including an additional $42.1 million reclassification to long-term accounts
receivable during the quarter ended December 31, 2017.
Due to our customer’s inability to monetize the Tax Credits, our customer assigned $89.0 million of Tax Credits to us as
security so that we could seek to monetize these Tax Credits and apply the resulting cash, as monetization occurs, toward our
customer’s overdue account receivable. As of December 31, 2017, the State of Alaska has completed its audits of
approximately $59.1 million of Tax Credit applications. These audits resulted in our receiving approximately $56.2 million
of Tax Credit certificates from the State of Alaska in 2016 and 2017. Subsequent to December 31, 2017, the State of Alaska
completed its audit of $8.6 million of Tax Credit applications. This audit and the successful appeal of certain previously
disallowed expenses resulted in our receiving an additional $8.3 million and $2.9 million of Tax Credit certificates, for a total
of $64.5 million of Tax Credit certificates. In 2018 we expect that the State of Alaska will complete its audit on the last Tax
Credit application for approximately $21.3 million.
We recorded a reduction of the accounts receivable balance of $3.5 million and $10.9 million related to the monetization of
Tax Credit certificates during the years ended December 31, 2017 and 2016, respectively, from the sale of some of our Tax
Credit certificates at a slight discount to an Alaskan producer of oil and gas that used the certificates to satisfy production
taxes it owed to the State of Alaska.
We have identified a number of paths to payment of our account receivable. These paths include receiving payment on the
account receivable by the following means: (i) receiving cash in payment in full of the Tax Credit certificates from the State
of Alaska, (ii) receiving proceeds from the possible issuance by the State of Alaska of bonds to pay its Tax Credit liabilities
at a discount, (iii) selling Tax Credit certificates into the secondary market to producers at a discount, (iv) receiving cash
from a third party to purchase Tax Credit certificates at what is likely to be a more substantial discount, (v) receiving license
fees from additional licenses of the seismic data produced for the customer and (vi) selling some or all the seismic data
produced for the customer. There can be no assurance that we will receive payment in full of our accounts receivable from
these paths, but we continue to diligently pursue them.
Historically, the State of Alaska annually appropriated the amounts needed to pay all Tax Credit certificates for the prior
fiscal year. Falling oil and gas prices have substantially reduced Alaska’s revenue from production taxes resulting in
significant Alaskan budget deficits. While the Alaskan legislature has appropriated funds for the last two fiscal years to pay
outstanding Tax Credit certificates, the Alaskan Governor has vetoed the line item in each year, and limited the appropriation
in the last fiscal year to the statutorily established minimum amount of appropriations. In February 2018 we were advised by
the State of Alaska that, so long as the payment is limited to the statutorily established minimum amount, we should not
expect to receive any payments until fiscal year 2021 and possibly should not expect to be fully paid until fiscal year 2024. In
addition, the Alaskan Department of Revenue has acted to limit the secondary market for Tax Credit certificates by not only
slowing down the timing for auditing Tax Credit applications and for making payments, but also by issuing advisory opinions
in the third quarter of 2016 and the first quarter of 2017 that, contrary to earlier advice, effectively cut-off the secondary
market for Tax Credit certificates. These advisory rulings cut -off using transferred Tax Credit certificates for prior years’ tax
obligations and not allowing them to be used to pay taxes owed below the four percent minimum production tax rate. While
in mid-2017, the Alaska legislature subsequently reversed the prohibition on using transferred Tax Credit certificates for
prior years' obligations, to date transferred Tax Credit certificates cannot be used to go below the four percent floor, and the
secondary market remains inactive.
One recent development may accelerate payment of the account receivable. The Governor of Alaska has introduced
legislation to allow Alaska to issue bonds to pay-off at a discount its approximately $1.2 billion liability for Tax Credits.
There can be no assurance, however, that this alternative will provide a viable means to monetize our Tax Credit certificates.
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We continue to explore all the options described above to monetize the Tax Credit certificates. We continue to believe that
selling the certificates at a discount to producers that are able to apply the certificates to reduce their own Alaskan tax
liabilities should yet again become a viable monetization option. We have a contract with a producer that provides that the
producer will purchase our Tax Credit certificates to the extent that it can use them to satisfy its tax liabilities. In December
2017 the active Alaskan producers agreed to a $786 million settlement regarding tariffs relating to the Trans Alaskan pipeline
with FERC, which was approved by FERC in March 2018 that will result in significantly increased production taxes being
owed by the producers to the State of Alaska. Those taxes could be satisfied by purchase of Tax Credit certificates at a
discount to the face value of the Tax Credit certificate. Alternatively we could sell our Tax Credit certificates to other third
parties, at a discount. We also believe that rising oil prices may increase the market for the Tax Credit certificates, but there
can be no assurance that prices will increase sufficient to improve the market or when it might occur.
We have other possible ways to receive payments on its account receivable that do not involve monetization of the Tax
Credits. We continue to assist the customer in actively marketing and licensing of the seismic data we collected on behalf of
our customer. Licensing revenues received must be paid to us in satisfaction of our account receivable. In addition, subject
to any licenses granted, our customer has the right to sell the data and apply the proceeds to our receivable. We believe that
the receipt of these licensing revenues and sales proceeds may be sufficient to cover the difference between the outstanding
account receivable and the cash we are able to generate by monetization of the Tax Credits, but there can be no assurance that
it will occur or when any such payments will be received.
A risk exists that any monetization of the Tax Credit certificates will require a selling at a discount, and that the discount may
be substantial, resulting in proceeds insufficient to fully repay the customer’s outstanding account receivable. Should this
result, and we do not receive additional payments from our customer from either licensing or selling the seismic data, we may
be required to record an impairment to the amount due from our customer, which may materially and adversely affect us.
As part of the 2016 Restructuring, we entered into a senior loan facility, which added up to $30.0 million in additional
liquidity. The senior loan facility is secured by a junior first lien on our accounts receivable, which includes the Tax Credits
and certificates evidencing the Tax Credits. Those Tax Credits and certificates are also pledged on a senior first lien basis to
the lender under our credit facility. All proceeds from monetizing the Tax Credits or Tax Credit certificates are paid into an
account at the lender under the credit facility and automatically reduce the amount we have borrowed under that line of
credit. The senior loan facility requires that once we have received $15 million in proceeds from the Tax Credits or Tax
Credit certificates, unless waived by the lenders (or individual lenders) under the senior loan facility, mandatory repayments
of the amount received for the Tax Credits or Tax Credit certificates must be made. As a result, once we have received $15
million in proceeds from the Tax Credits or Tax Credit certificates, and until the outstanding balance on the senior loan
facility is paid in full, the amount owed to the lender under the senior loan facility must come from cash or from a borrowing
of the amount under our credit facility. Currently, however, we have borrowed the full amount that is committed under the
credit facility.
Until we are able to finally resolve the issue described above, we may continue to experience liquidity and cash flow issues.
The Restructurings, provided significant levels of short term liquidity, which should mitigated the acuteness of this issue, but
there can be no assurance that they will solve the issue of our need to monetize our Tax Credit certificates.
Our operations are subject to weather and seasonality, which may affect our ability to timely complete projects.
Our seismic data acquisition services are performed outdoors and often in difficult or harsh climate conditions, and are
therefore subject to weather and seasonality. In Canada and Alaska, the primary season for seismic data acquisition is during
the winter, from December to April, as many areas are only accessible when the ground is frozen. The weather conditions
during this time of year can affect the timing and efficiency of operations. In addition, this prime season can be shortened by
warmer weather conditions.
In South America and Southeast Asia, our operations are affected by the periods of heavy rain in the areas where seismic
operations are conducted. In all areas in which we operate, the weather is an uncontrollable factor that affects our operations
at various times of the year. Due to the unpredictability of weather conditions, there may be times when adverse conditions
may cause our operations to be delayed and result in additional costs and may negatively affect our results of operations.
Our operations are subject to delays related to obtaining government permits and land access rights from third parties
which could result in delays affecting our results of operations.
Our seismic data acquisition operations could be adversely affected by our inability to obtain timely right of way usage from
both public and private land and/or mineral owners. We cannot begin surveys on property without obtaining any required
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permits from governmental entities as well as the permission of the private landowners who own the land being surveyed. In
recent years, it has become more difficult, costly and time-consuming to obtain access rights of way as drilling activities have
expanded into more populated areas. Additionally, while landowners generally are cooperative in granting access rights,
some have become more resistant to seismic and drilling activities occurring on their property. In addition, governmental
entities do not always grant permits within the time periods expected. Delays associated with obtaining such permits and
rights of way may negatively affect our results of operations.
Our backlog can vary significantly from time to time and our backlog estimates are based on certain assumptions and are
subject to unexpected adjustments and cancellations and thus may not be timely converted to revenues in any particular
fiscal period, if at all, or be indicative of our actual operating results for any future period.
Our backlog estimates represent those projects for which a customer has executed a contract or signed a binding letter of
award. Our backlog can vary significantly from time to time, particularly if the backlog is made up of multi-year contracts
with some of our more significant customers. Backlog estimates are based on a number of assumptions and estimates
including assumptions related to foreign exchange rates and proportionate performance of contracts. The realization of our
backlog estimates is further affected by our performance under term rate contracts, as the early or late completion of a project
under term rate contracts will generally result in decreased or increased, as the case may be, revenues derived from those
projects. Contracts for services are also occasionally modified by mutual consent and often can be terminated for
convenience by the customer. Because of potential changes in the scope or schedule of our customers’ projects, and the
possibility of early termination of customer contracts, we cannot predict with certainty when or if our backlog will be
realized. Material delays, payment defaults or cancellations on the underlying contracts could reduce the amount of backlog
currently reported and, consequently, could inhibit the conversion of that backlog into revenues. In addition, worsening
overall market conditions could result in further reductions of backlog which will impact our financial performance.
We face intense competition in our business that could result in downward pricing pressure and the loss of market share.
Competition among seismic contractors historically has been, and likely will continue to be, intense. Competitive factors
have in recent years included price, crew experience, asset availability and capacity, technological expertise and reputation
for quality and dependability. We also face increasing competition from nationally owned companies in various international
jurisdictions that operate under less significant financial constraints than those we experience. Many of our competitors have
greater financial and other resources, more customers, greater market recognition and more established relationships and
alliances in the industry than we do. They and other competitors may be better positioned to withstand and adjust more
quickly to volatile market conditions, such as fluctuations in oil and natural gas prices and production levels, as well as
changes in government regulations. Additionally, the seismic data acquisition business is extremely price competitive and has
a history of protracted periods of months or years where seismic contractors under financial duress bid jobs at unattractive
pricing levels and therefore adversely affect industry pricing. Competition from those and other competitors could result in
downward pricing pressure, which could adversely affect our margins, and could result in the loss of market share.
Capital requirements for the technology we use can be significant. If we are unable to finance these requirements, we may
not be able to maintain our competitive advantage.
Seismic data acquisition technologies historically have steadily improved and progressed, and, over the long-term, we expect
this trend to continue. Manufacturers of seismic equipment may develop new systems that have competitive advantages
relative to systems now in use that either render the equipment we currently use obsolete or require us to make substantial
capital expenditures to maintain our competitive position. In order to remain competitive, we may need to continue to invest
additional capital to maintain, upgrade and expand our seismic data acquisition capabilities.
Our capital requirements, which are primarily the cost of equipment, historically have been significant. We attempt to
minimize our capital expenditures by restricting our purchase of equipment to equipment that we believe will remain highly
utilized, and we strategically rent equipment utilizing the most current technology to cover peak periods in equipment
demands. We may not be able to finance all of our capital requirements, however, when and if needed, to acquire new
equipment. If we are unable to do so, there may be a material negative impact on our operations and financial condition.
Under our current business model, however, capital expenditures will be kept at minimum levels, other than for maintenance
expenditures, until we see improvement in the market for seismic services. While we own or can rent the equipment needed
for our current levels of business, long-term limiting our capital expenditures may result in an increased competitive
disadvantage.
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Our revenues are generated by a concentrated number of customers.
We derive our revenues from a concentrated customer base in the international oil and natural gas industry. Although we
historically have not been dependent on any one customer, recently we had one customer that has represented a significant
portion of our accounts receivable. Our largest customers can and typically do change from year to year and our largest
customers in any one year may not be indicative of our largest customers in the future. If any of our customers were to
terminate their contract with us on a large project or fail to contract for our services in the future because they are acquired,
alter their exploration or development strategy, experience financial difficulties, as a result of concerns over our current cash
flow and liquidity difficulties or for any other reason, and we were not able to replace their business with business from other
customers, our business, financial condition and results of operations could be materially and adversely affected.
We operate under hazardous conditions that subject us and our employees to risk of damage to property or personal injury
and limitations on our insurance coverage may expose us to potentially significant liability costs.
Our activities are often conducted in dangerous environments and include hazardous conditions, including operation of heavy
equipment, the detonation of explosives, and operations in remote areas of developing countries. Operating in such
environments, and under such conditions, carries with it inherent risks, such as loss of human life or equipment, as well as the
risk of downtime or reduced productivity resulting from equipment failures caused by an adverse operating environment.
Those risks could cause us to experience injuries to our personnel, equipment losses, and interruptions in our business.
Although we maintain insurance, our insurance contains certain coverage exclusions and policy limits. There can be no
assurance that our insurance will be sufficient or adequate to cover all losses or liabilities or that insurance will continue to be
available to us on acceptable terms, or at all. Further, we may experience difficulties in collecting from insurers as such
insurers may deny all or a portion of our claims for insurance coverage. A claim for which we are not fully insured, or which
is excluded from coverage or exceeds the policy limits of our applicable insurance, could have a material adverse effect on
our financial condition.
We may be held liable for the actions of our subcontractors.
We often work as the general contractor on seismic data acquisition surveys and consequently engage a number of
subcontractors to perform services and provide products. While we generally obtain contractual indemnification and
insurance covering the acts of those subcontractors, and require the subcontractors to obtain insurance for our benefit, there
can be no assurance we will not be held liable for the actions of those subcontractors. In addition, subcontractors may cause
damage or injury to our personnel and property that is not fully covered by insurance or by claims against the subcontractors.
Our agreements with our customers may not adequately protect us from unforeseen events or address all issues that could
arise with our customers. The occurrence of unforeseen events or disputes with customers could result in increased
liability, costs and expenses for our projects.
We enter into master service agreements with many of our customers that allocate certain operational risks. Despite the
inclusion of risk allocation provisions in our agreements, our operations may be affected by a number of events that are
unforeseen or not within our control and our agreements may not adequately protect us from each possible event. If an event
occurs which we have not contemplated or otherwise addressed in our agreement we, and not our customer, will likely bear
the increased cost or liability.
To the extent our agreements do not adequately address those and other issues, or we are not able to successfully resolve
resulting disputes, we may incur increased liability, costs and expenses. This may have a material adverse effect on our
results of operations.
We, along with our customers, are subject to compliance with governmental laws and regulations that may expose us to
significant costs and liabilities and may adversely affect the demand for our services.
Our operations, and those of our customers, are subject to a variety of federal, provincial, state and local laws and regulations
in the United States and foreign jurisdictions, including stringent laws and regulations relating to protection of the
environment, particularly those relating to emissions to air, discharges to water, treatment, storage and disposal of regulated
materials and remediation of soil and groundwater contamination. Those laws and regulations may impose numerous
obligations that are applicable to our operations including:
the acquisition of permits before commencing regulated activities; and
the limitation or prohibition of seismic activities in environmentally sensitive or protected areas such as wetlands or
wilderness areas.
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Numerous governmental authorities, such as the U.S. Environmental Protection Agency (the “EPA”) and analogous state
agencies in the United States and governmental bodies with control over environmental matters in foreign jurisdictions, have
the power to enforce compliance with those laws and regulations and any permits issued under them, oftentimes requiring
difficult and costly actions. We may incur substantial costs, including fines, damages, criminal or civil sanctions, remediation
costs and natural resource damage claims, or experience interruptions in our operations for violations or liabilities arising
under these laws and regulations. Further, we may become liable for damages against which we cannot adequately insure or
against which we may elect not to insure because of high costs or other reasons. Our customers are subject to similar
environmental laws and regulations.
We expend financial and managerial resources to comply with all the laws and regulations applicable to our operations. Any
changes in environmental laws and regulations or re-interpretation of enforcement policies that result in more stringent and
costly regulations, or that change waste handling, storage, transport, disposal or remediation requirements could have a
material adverse effect on our results of operations and financial position. The fact that such laws or regulations change
frequently makes it impossible for us to predict the cost or impact of such laws and regulations on our future operations. The
costs of complying with applicable environmental laws and regulations are likely to increase over time and we cannot
provide any assurance that we will be able to remain in compliance with respect to existing or new laws and regulations or
that such compliance will not have a material adverse effect on our business, financial condition and results of operations, or
on the operations of our customers which could affect demand for our services. Although regulatory developments that may
occur in subsequent years could have the effect of reducing industry activity, we cannot predict the nature of any new
restrictions or regulations that may be imposed. We may be required to increase operating expenses or capital expenditures in
order to comply with any new restrictions or regulations.
In addition, as a result of the mobility of our equipment, operations in foreign jurisdictions and the utilization of a multi-
national work force, we and our customers are subject to various federal, provincial, state and local laws and regulations in
the United States and foreign jurisdictions relating to the import or export of equipment and the immigration and employment
of non-citizen employees or sub-contractors. Numerous governmental authorities, such as the U.S. Customs and Border
Protection, the Bureau of Industry and Security and the Office of Foreign Assets Control, and analogous governmental bodies
in foreign jurisdictions have laws and regulations which prohibit or restrict operations in certain jurisdictions and doing
business with certain persons in such jurisdictions, and we and our customers may be required to obtain and maintain
licenses, permits, visas and similar documentation for operations. We may incur substantial costs, including fines and
damages, criminal or civil sanctions for violations or liabilities arising under these laws and regulations.
Our operations outside of the United States are subject to additional political, economic, and other risks and uncertainties
that could adversely affect our business, financial condition, results of operations, or cash flows, and our exposure to such
risks will increase as we expand our international operations.
Our operations outside of North America accounted for a substantial portion of our consolidated revenue. Our international
operations are subject to a number of risks inherent in any business operating in foreign countries, and especially those
operating in emerging markets. As we continue to increase our presence in those countries, our operations will continue to
encounter the following risks, among others:
government instability or armed conflict, which can cause our potential customers to withdraw or delay investment
in capital projects, thereby reducing or eliminating the viability of some markets for our services;
potential expropriation, seizure, nationalization or detention of assets;
risks relating to foreign currency, as described below;
import/export quotas or unexpected changes in regulatory environments and trade barriers;
civil uprisings, riots and war, which can make it unsafe to continue operations, adversely affect both budgets and
schedules and expose us to losses;
availability of suitable personnel and equipment, which can be affected by government policy, or changes in policy,
which limit the importation of qualified crew members or specialized equipment in areas where local resources are
insufficient, and legal restrictions or other limitations on our ability to dismiss employees;
laws, regulations, decrees and court decisions under legal systems that are not always fully developed and that may
be retroactively applied and cause us to incur unanticipated and/or unrecoverable costs, as well as delays which may
result in real or opportunity costs; and
terrorist attacks, including kidnappings of our personnel.
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If any of those or other similar events should occur, it could have a material adverse effect on our financial condition and
results of operations.
We are subject to taxation in many foreign jurisdictions and the final determination of our tax liabilities involves the
interpretation of the statutes and requirements of taxing authorities worldwide. Our tax returns are subject to routine
examination by taxing authorities, and those examinations may result in assessments of additional taxes, penalties and/or
interest.
Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and
political conditions. We may not succeed in developing and implementing policies and strategies that are effective in each
location where we do business, and we may experience project disruptions and losses, which could negatively affect our
profitability.
Our results of operations can be significantly affected by foreign currency fluctuations and regulations.
A portion of our revenues is derived in the local currencies of the foreign jurisdictions in which we operate. Accordingly, we
are subject to risks relating to fluctuations in currency exchange rates. In the future, and especially as we further expand our
operations in international markets, our customers may increasingly make payments in non-U.S. currencies. Fluctuations in
foreign currency exchange rates could affect our revenues, operating costs and operating margins. In addition, currency
devaluation can result in a loss to us if we hold deposits of that currency. Hedging foreign currencies can be difficult,
especially if the currency is not actively traded. We cannot predict the effect of future exchange rate fluctuations on our
operating results.
In addition, we are subject to risks relating to governmental regulation of foreign currency, which may limit our ability to:
transfer funds from or convert currencies in certain countries;
repatriate foreign currency received in excess of local currency requirements; and
repatriate funds held by our foreign subsidiaries to the United States at favorable tax rates.
As we continue to develop our operations in foreign countries, there is an increased risk that foreign currency controls may
create difficulty in repatriating profits from foreign countries in the form of taxes or other restrictions, which could restrict
our cash flow.
Economic and political conditions in Latin America pose numerous risks to our operations.
Our business operations in the Latin American region constitute a material portion of our business. As events in the region
have demonstrated, negative economic or political developments in one country in the region can lead to or exacerbate
economic or political instability elsewhere in the region. Furthermore, events in recent years in other developing markets
have placed pressures on the stability of the currencies of a number of countries in Latin America in which we operate,
including Brazil, Colombia and Peru. While certain areas in the Latin American region have experienced economic growth,
this recovery remains fragile.
Certain Latin American economies have experienced shortages in foreign currency reserves and have adopted restrictions on
the use of certain mechanisms to expatriate local earnings and convert local currencies into U.S. Dollars. Any such shortages
or restrictions may limit or impede our ability to transfer or to convert such currencies into U.S. Dollars and to expatriate
such funds for the purpose of making timely payments of interest and principal on our indebtedness. In addition, currency
devaluations in one country may have adverse effects in another country. Some Latin American countries have historically
experienced high rates of inflation. Inflation and some measures implemented to curb inflation have had significant negative
effects on the economies of these countries. Governmental actions taken in an effort to curb inflation, coupled with
speculation about possible future actions, have contributed to economic uncertainty at times in most Latin American
countries. These countries may experience high levels of inflation in the future that could lead to further government
intervention in the economy, including the introduction of government policies that could adversely affect our results of
operations. In addition, if any of these countries experience high rates of inflation, we may not be able to adjust the price of
our services sufficiently to offset the effects of inflation on our cost structures. A high inflation environment would also have
negative effects on the level of economic activity and employment and adversely affect our business, results of operations
and financial condition.
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Current and future legislation or regulation relating to climate change and hydraulic fracturing could negatively affect
the exploration and production of oil and gas and adversely affect demand for our services.
In response to concerns suggesting that emissions of certain gases, commonly referred to as “greenhouse gases” (“GHG”)
(including carbon dioxide and methane), may be contributing to global climate change, legislative and regulatory measures to
address the concerns are in various phases of discussion or implementation at the federal, state and international levels. Many
states, either individually or through multi-state regional initiatives, have already taken legal measures intended to reduce
GHG emissions, primarily through the planned development of GHG emission inventories and/or GHG cap and trade
programs.
This increasing focus on global warming may result in new environmental laws or regulations that may negatively affect us
and our customers. This could cause us to incur additional direct costs in complying with any new environmental regulations,
as well as increased indirect costs resulting from our customers incurring additional compliance costs that get passed on to us.
Moreover, passage of climate change legislation or other legislative or regulatory initiatives that regulate or restrict emissions
of GHG may curtail production and demand for fossil fuels such as oil and natural gas in areas where our customers operate
and thus adversely affect future demand for our services. Reductions in our revenues or increases in our expenses as a result
of climate control initiatives could have adverse effects on our business, financial position, results of operations and
prospects.
Hydraulic fracturing is an important and commonly used process in the completion of oil and natural gas wells. Hydraulic
fracturing involves the injection of water, sand and chemical additives under pressure into rock formations to stimulate oil
and natural gas production. Due to public concerns raised regarding potential impacts of hydraulic fracturing, legislative and
regulatory efforts at the federal level and in some states, have been initiated to require or make more stringent the permitting,
reporting and compliance requirements for hydraulic fracturing operations. These legislative and regulatory initiatives
imposing additional reporting obligations on, or otherwise limiting, the hydraulic fracturing process could make it more
difficult or costly to complete oil and natural gas wells. Shale gas and shale oil cannot be economically produced without
extensive fracturing. In the event such initiatives are successful, demand for our seismic acquisition services may be
adversely affected.
As a company subject to compliance with the Foreign Corrupt Practices Act (the “FCPA”), our business may suffer
because our efforts to comply with U.S. laws could restrict our ability to do business in foreign markets relative to our
competitors who are not subject to U.S. law. Any determination that we or our foreign agents have violated the FCPA may
adversely affect our business, operations and reputation.
We operate in certain parts of the world that have experienced governmental corruption to some degree and, in certain
circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We may be subject to
competitive disadvantages to the extent that our competitors are able to secure business, licenses or other preferential
treatment by making payments to government officials and others in positions of influence or using other methods that U.S.
law and regulations prohibit us from using.
As a U.S. corporation, we are subject to the regulations imposed by the FCPA, which generally prohibits U.S. companies and
their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and
which imposes stringent recordkeeping requirements. In particular, we may be held liable for actions taken by our strategic or
local partners even though our partners are not subject to the FCPA. Any such violations could result in substantial civil
and/or criminal penalties and might adversely affect our results of operations and our ability to continue to work in those
countries.
The enactment of legislation implementing changes in U.S. or foreign tax laws affecting the taxation of international
business activities or the adoption of other tax reform policies could materially impact our financial position and results of
operations.
Changes to U.S. or foreign tax laws could impact the tax treatment of our foreign earnings. Due to the scope of our
international business operations, any changes in the U.S. or foreign taxation of these operations may increase our worldwide
effective tax rate and adversely affect our financial condition and operating results. The international scope of our operations
and our corporate and financing structure may expose us to potentially adverse tax consequences. We are subject to taxation
in and to the tax laws and regulations of multiple jurisdictions as a result of the international scope of our operations and our
corporate and financing structure. We are also subject to intercompany pricing laws, including those relating to the flow of
funds between our companies. Adverse developments in these laws or regulations, or any change in position regarding the
application, administration or interpretation of these laws or regulations in any applicable jurisdiction, could have a material
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adverse effect on our business, financial condition and results of operations. In addition, the tax authorities in any applicable
jurisdiction, including the United States, may disagree with the positions we have taken or intend to take regarding the tax
treatment or characterization of any of our transactions, including the tax treatment or characterization of our indebtedness,
intercompany loans and guarantees. If any applicable tax authorities, including the U.S. tax authorities, were to successfully
challenge the tax treatment or characterization of any of our transactions, it could result in the disallowance of deductions and
the imposition of tax withholding.
We may be unable to attract and retain executive officers and skilled and technically knowledgeable employees, which
could adversely affect our business.
Our continued success depends upon retaining and attracting executive officers and highly skilled employees. A number of
our executive officers and employees possess many years of industry experience and are highly skilled, and members of our
management team also have relationships with oil and gas companies and others in the industry that are integral to our ability
to market and sell our services. Our inability to retain such individuals could adversely affect our ability to compete in the
seismic service industry. We may face significant competition for such skilled personnel, particularly during periods of
increased demand for seismic services. Although we utilize employment agreements and other incentives to retain certain of
our key employees, there is no guarantee that we will be able to retain those personnel.
If we do not manage growth and contractions in our business effectively, our results of operations could be adversely
affected.
Historically, we have experienced significant growth but for the last several years we have contracted our business in
response to the decline in oil and natural gas exploration activities. Both growth and contraction have placed significant
demands on our personnel, management, infrastructure and support mechanisms and other resources. We must continue to
improve our operational, financial, management, legal compliance and information systems to keep pace with the growth of
or contractions in our business. We may also expand through the strategic acquisition of companies and assets. We must plan
and manage any acquisitions effectively to achieve revenue growth and maintain profitability in our evolving market. If we
fail to manage growth of or contractions in our business effectively, our ability to provide services could be adversely
affected, which could negatively affect our operating results.
The requirements of being a public company increase our operating expenses and divert management’s attention.
As a public company, we are subject to the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act and other applicable securities rules and regulations. Compliance with
these rules and regulations require us to incur significant additional legal, accounting and other expenses that we would not
incur if we were not a public company.
The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business
and operating results. The Sarbanes-Oxley Act and the rules subsequently implemented by the SEC and the national
securities exchanges, establish certain requirements for the corporate governance practices of public companies. For example,
as a result of becoming a public company, we have additional board committees and are required to maintain effective
disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve
our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant
resources and management oversight are required. As a result, management’s attention has been and will continue to be
diverted from other business concerns, which could harm our business and operating results.
Because we are a smaller reporting company, to date our independent auditor has not been required to issue an attestation
report regarding our internal control over financial reporting in the annual reports on Form 10-K that we file with the SEC,
and we have been subject to scaled disclosure requirements. We will remain a smaller reporting company as long as the
market value of our securities held by non-affiliates is below $75 million, as of the end of our second fiscal quarter each year.
If we cease to be a smaller reporting company, our expenses will further increase and additional time will be required of our
management to comply with those additional requirements.
Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our
financial obligations.
While the Restructurings have caused our total debt outstanding to significantly decrease, our high level of indebtedness
could still have significant effects on our business. For example, our level of indebtedness and the terms of our debt
agreements may:
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increase the risk that we may default on our debt obligations;
require us to use a substantial portion of our cash flow from operations to pay interest and principal on our
indebtedness, which would reduce the funds available for working capital, capital expenditures and other general
corporate purposes;
limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other
investments, or general corporate purposes particularly in light of the fact that a substantial portion of our assets
have been pledged to secure our indebtedness, which may limit the ability to execute our business strategy;
heighten our vulnerability to downturns in our business, our industry or in the general economy and restrict us from
exploiting business opportunities or making acquisitions;
place us at a competitive disadvantage compared to those of our competitors that may have proportionately less
debt;
limit management’s discretion in operating our business;
limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the
general economy; and
result in higher interest expense if interest rates increase and we have outstanding floating rate borrowings.
Each of these factors may have a material adverse effect on our business, financial condition and results of operations. Our
ability to make payments with respect to our indebtedness will depend on our future operating performance, which will be
affected by a broad range of factors, including our ability to monetize our Tax Credits, prevailing economic conditions and
financial, business and other factors affecting us and our industry, many of which are beyond our control.
Despite existing debt levels, we may still be able to incur substantially more debt, which would increase the risks
associated with our leverage.
Even with our existing debt levels, we and our subsidiaries may be able to incur additional debt in the future, including debt
under our credit facility. Although the terms of our debt agreements limit our ability to incur additional debt, they do not
prevent us from incurring amounts of additional debt. If new debt is added to our current debt levels, however, the risks
associated with our leverage may intensify.
Our debt agreements impose or may impose significant operating and financial restrictions on us and our subsidiaries
that may prevent us from pursuing certain business opportunities and restrict our ability to operate our business.
Our debt agreements contain covenants that restrict our and our restricted subsidiaries’ ability to take various actions, such
as:
transferring or selling certain assets;
paying dividends or distributions, repaying subordinated indebtedness (if any) or making certain investments or
other restricted payments;
incurring or guaranteeing additional indebtedness or, with respect to our restricted subsidiaries, issuing preferred
stock;
creating or incurring liens securing indebtedness;
incurring dividend or similar payment restrictions affecting restricted subsidiaries;
consummating a merger, consolidation or sale of all or substantially all our and our restricted subsidiaries’ assets;
entering into transactions with affiliates; and
engaging in a business other than our current business and businesses related, ancillary or complementary, to our
current businesses or immaterial businesses.
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In addition, the security documents relating to our indebtedness restrict us and our restricted subsidiaries from taking or
omitting to take certain actions that would adversely affect or impair in any material respect the collateral securing those
obligations. Any future debt may also require us to comply with a number of affirmative and negative covenants in addition
to the covenants listed above.
We may be prevented from taking advantage of business opportunities that arise if we fail to meet certain financial ratios or
because of the limitations imposed on us by the restrictive covenants under these agreements. In addition, the restrictions
contained in our debt agreements may also limit our ability to plan for or react to market conditions or meet capital needs, or
may otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, enter into
acquisitions, execute our business strategy, effectively compete with companies that are not similarly restricted or engage in
other business activities that would be in our interest. In the future, we may incur other debt obligations that might subject us
to additional and different restrictive covenants that could also adversely affect our financial and operational flexibility.
If we are unable to comply with the restrictions and covenants in our debt agreements, there could be a default under the
terms of such agreements, which could result in an acceleration of repayment and the sale of our assets to satisfy our
obligations with our lenders. Failure to maintain existing financing or to secure new financing could have a material
adverse effect on our liquidity and financial position.
If we are unable to comply with the restrictions and covenants in our debt agreements, there could be a default under the
terms of those agreements. In the event of a default under those agreements, lenders could terminate their commitments to
lend or accelerate the loans and declare all amounts borrowed due and payable. Borrowings under other debt that contain
cross-acceleration or cross-default provisions, may also be accelerated and become due and payable. In addition, substantially
all of our debt obligations are secured by a lien on substantially all of our U.S. assets and certain of our foreign assets,
including 65% of the equity interests in our first-tier foreign subsidiaries. In the event of foreclosure, liquidation, bankruptcy
or other insolvency proceeding relating to us or to our subsidiaries that have guaranteed our debt, holders of our secured
indebtedness and our other lenders will have prior claims on our assets. If any of those events occur, our assets might not be
sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing. Even if we
could obtain alternative financing, it might not be on terms that are favorable or acceptable to us. Additionally, we may not
be able to amend our debt agreements or obtain needed waivers on satisfactory terms or without incurring substantial costs.
Failure to maintain existing or secure new financing could have a material adverse effect on our liquidity and financial
position.
Risks Relating to Our Securities and the Restructurings
There are limited trading markets for our securities and the market prices of our securities are subject to volatility.
The market price of our common stock, like that of the securities of other energy companies, has been and may continue to be
highly volatile. In addition, the volatility and market price of our common stock has been negatively impacted by the
significant cash flow and liquidity difficulties that we are currently experiencing. Factors such as announcements concerning
changes in prices of oil and natural gas, exploration and development activities, the availability of capital, our cash flow and
liquidity situation and negotiations regarding potential restructuring transactions, and economic and other external factors, as
well as period-to-period fluctuations and financial results, may have a significant effect on the market price of our common
stock. Because our preferred shares and warrants are convertible into shares of our common stock, volatility or depressed
prices for our common stock is likely to have a similar effect on the trading price of the preferred shares and warrants, which
may make them difficult to resell.
From time to time, there has been limited trading volume in our common stock. In addition, there can be no assurance that
there will continue to be an active trading market for our common stock or that any securities research analysts will provide
research coverage on our common stock. It is possible that such factors will adversely affect the market for our common
stock. After completion of the 2017 Restructuring, we expect there will likely be even less trading in, and greater trading
volatility with respect to, our common stock. There is currently no market for, and we do not intend to list, the preferred
shares or the warrants issued in the 2017 Restructuring on any securities exchange or any automated dealer quotation system.
Accordingly, there may not be development of, or liquidity in, any market for the preferred shares or warrants. If a market
were to develop, these securities could trade at prices that may be higher or lower than their initial price depending upon
many factors, including the price of our common stock, prevailing interest rates, our operating results and markets for similar
securities
22
Our preferred shares rank junior to all of our indebtedness and other liabilities, have no public market, are subject to
restrictions on transfer and have limited voting rights.
In the event of our bankruptcy, liquidation, reorganization or other winding-up, our assets will be available to pay obligations
on the preferred shares only after all of our indebtedness and other liabilities have been paid. Consequently, if we are forced
to liquidate our assets to pay our creditors, we may not have sufficient assets remaining to pay amounts due on the preferred
shares then outstanding.
Neither the preferred shares nor the shares of our common stock issuable upon conversion of the preferred shares have been
registered under the Securities Act and we do not intend to file a registration statement for the resale of the preferred shares.
The restrictions on transfer applicable to the preferred shares may affect the ability to resell such securities or reduce the price
that may be received in doing so.
The preferred shares do not have voting rights, except under limited circumstances such as under Delaware law or if the
action involves the authorization or issuance of any class or series of senior stock or parity stock and for amendments to our
certificate of incorporation by merger or otherwise that would affect adversely the rights of holders of the preferred shares
including dividends thereon, the liquidation preference, redemption and conversion rights, ranking and certain other
protections, including an anti-layering provision and certain consent rights with respect to the granting of liens on the Alaska
Tax Credits (other than the liens granted to secure obligations under our credit facilities).
The Restructurings significantly altered our capital structure but may not solve our liquidity problems.
As a result of our Restructurings, our capital structure has been substantially improved but there can be no assurance that we
will not have any additional capital structure or liquidity issues. Moreover, our continued implementation of restructuring and
cost saving initiatives may have a material adverse effect on our business, financial condition, results of operations and cash
flows.
We do not expect to pay dividends on our common stock in the near future and, while the preferred stock pays dividends,
we are not obligated to pay them unless our board declares them.
We do not anticipate that cash dividends or other distributions will be paid on our common stock in the foreseeable future. In
addition, restrictive covenants in certain debt agreements to which we are, or may be, a party, may limit our ability to pay
dividends or for us to receive dividends from our operating companies, any of which may negatively impact the trading price
of our common stock.
We are not obligated to pay dividends on our Series B Preferred Stock and no payment or adjustment will be made upon
conversion for accumulated dividends. Dividends on the Series B Preferred Stock are only payable when, as and if declared
by our board, but our board is not legally obligated to do so. Further, our current indebtedness and any indentures and other
financing agreements that we enter into in the future may limit our ability to pay dividends on our capital stock, including the
preferred stock, in which case we will be unable to pay dividends on the preferred stock unless we can refinance amounts
outstanding under those agreements. For example, our credit facility and senior loan facility contain certain restrictions on
our ability to make cash dividend payments.
Under Delaware law, dividends on capital stock may only be paid from “surplus” or, if there is no “surplus,” from a
company’s net profits for the then-current or the preceding fiscal year. Unless we operate profitably, our ability to pay cash
dividends on the preferred stock would require the availability of adequate “surplus,” which is defined as the excess, if any,
of our net assets over our capital. Further, even if adequate surplus is available to pay dividends on the preferred stock, we
may not have sufficient cash to pay such dividends.
Certain provisions of our certificate of incorporation and our bylaws may make it difficult for stockholders to change the
composition of our board and may discourage, delay or prevent a merger or acquisition that some stockholders may
consider beneficial.
Certain provisions of our certificate of incorporation and bylaws may have the effect of delaying or preventing changes in
control if our board determines that such changes in control are not in our best interests and in the best interests of our
stockholders. Those provisions in our certificate of incorporation and bylaws include, among other things, those that:
limit the ability of stockholders to nominate or remove directors;
authorize our board to issue preferred stock and to determine the price and other terms, including preferences and
voting rights, of those shares without stockholder approval;
23
establish advance notice procedures for nominating directors or presenting matters at stockholder meetings; and
limit the persons who may call special meetings of stockholders.
While these provisions have the effect of encouraging persons seeking to acquire control of us to negotiate with our board,
they could enable the board to hinder or frustrate a transaction that some stockholders may believe to be in their best interests
and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. These provisions may
frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more
difficult for stockholders to replace members of our board, which is responsible for appointing the members of our
management.
ITEM 2. Properties.
Properties
We lease all of the facilities used in our operations. Our principal facilities are summarized in the table below.
Location
Houston, Texas, U.S.A. .......................................................................
Calgary, Alberta, Canada .....................................................................
Calgary, Alberta, Canada .....................................................................
Anchorage, Alaska, U.S.A. .................................................................
Anchorage, Alaska, U.S.A. .................................................................
Lima, Peru ............................................................................................
Lima, Peru ............................................................................................
Iquitos, Peru .........................................................................................
Bogotá, Colombia ................................................................................
Bogotá, Colombia ................................................................................
Santa Cruz, Bolivia ..............................................................................
Santa Cruz, Bolivia ..............................................................................
Rio de Janeiro, Brazil ...........................................................................
Square Footage
7,454
9,008
15,000
4,800
7,524
4,112
9,235
24,757
2,629
34,821
5,382
15,069
452
Purpose
Executive offices
Executive offices
Warehouse
Field Office
Warehouse
Field Office
Warehouse
Warehouse
Field Office
Warehouse
Field Office
Warehouse
Field Office
The leases expire at various times over the next seven years and most contain renewal options for additional one-year
periods. The leases generally require us to pay all operating costs, such as maintenance, property taxes and insurance. We
believe that our facilities are generally well maintained and adequate to meet our current and foreseeable requirements for the
next several years.
ITEM 3. Legal Proceedings.
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 matters should have a material adverse effect on
our business, results of operations, cash flows or financial condition.
24
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Price of Common Stock and Warrants
Our common stock is traded on the Nasdaq Capital Market under the symbol “SAEX.” Originally, we were traded on the
Nasdaq Global Market. In 2016 we received certain deficiency notices from the Nasdaq Global Market stating that we had
not met certain continued listing standards. In January 2017, we received notification from the Nasdaq Global Market that we
had regained compliance. In August 2017, we changed to being traded on the Nasdaq Capital Market. All share prices for
common stock reflect the 135-for-1 reverse stock split, which was effective July 26, 2016.
Our 2011 warrants were quoted on the Over-the-Counter Bulletin Board under the symbol “SAEXW” prior to their
expiration. on June 24, 2016 (the “Expired Warrants”). No Expired Warrants remained outstanding after that date. As a part
of the 2016 Restructuring, we issued Series A Warrants and Series B Warrants to holders of common stock of record on July
26, 2016. While our Series A Warrants and the Series B Warrants are quoted on the Over-the Counter Bulletin Board under
the symbol “SXPLW”, there is currently no established public trading market for them. In addition, there is no established
public market for our Series A Preferred Stock, Series C Warrants or Series D Warrants issued as a result of our 2017
Restructuring.
The following table sets forth the high and low sales prices for the common stock and bid prices for the Expired Warrants for
the periods indicated:
Common Stock
High
Low
Expired Warrants
Low
High
Fiscal 2017:
Fourth Quarter .................................................................... $
Third Quarter ...................................................................... $
Second Quarter ................................................................... $
First Quarter ....................................................................... $
2.95 $
3.50 $
6.62 $
8.25 $
Fiscal 2016:
Fourth Quarter .................................................................... $
Third Quarter ...................................................................... $
Second Quarter ................................................................... $
First Quarter ....................................................................... $
12.17 $
75.00 $
118.80 $
271.35 $
1.18
1.50
3.03
4.41
6.02
6.32
16.20 $
89.10 $
N/A
N/A
N/A
N/A
N/A
N/A
8.10 $
8.10 $
N/A
N/A
N/A
N/A
N/A
N/A
2.70
8.10
Holders
As of March 9, 2018, there were 110 holders of record of our common stock. Based upon individual participants in certain
position listings, we believe there are more than 1,100 beneficial owners of our common stock. As of March 9, 2018, there
was one holder of record of the Series A Preferred Stock and we estimate approximately 33 beneficial owners of our Series A
Preferred Stock. Due to the mandatory conversion of the Series B Preferred Stock on March 6, 2018, as of March 9, 2018,
there were no holders of such preferred shares. Due to the expiration of the Expired Warrants on June 26, 2016, there are no
holders of record of such warrants. As of March 9, 2018 there were 74 holders of record of each of the Series A Warrants and
Series B Warrants, one holder of record of the Series C Warrants and 14 holders of record of the Series D Warrants. We
estimate there are approximately 35 beneficial owners of our Series C Warrants.
Dividends
We have not paid any cash dividends on our common stock to date and it is the present intention of our board of directors to
retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any
dividends on our common stock in the foreseeable future. Commencing April 1, 2018, our Series A Preferred Stock has an
8% dividend payable quarterly in arrears and whether or not earned or declared under certain circumstances, at our option,
dividends may be paid in the form of additional shares of Series A Preferred Stock. See Note 13 to the Consolidated
Financial Statements for further discussion regarding the terms of our Series A Preferred Stock.
25
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and notes to those statements included in this report. This discussion contains forward-
looking statements that involve risks and uncertainties. Please see the sections entitled “Cautionary Note regarding Forward-
Looking Statements” and “Risk Factors” in this report.
Introduction
We are an internationally-focused oilfield services company offering a full range of vertically-integrated seismic data
acquisition and logistical support services in Alaska, Canada, South America, Southeast Asia and West Africa to our
customers in the oil and natural gas industry. We were initially formed on February 2, 2011 as a blank check company in
order to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more
business entities. On June 24, 2013, our wholly-owned subsidiary completed the Merger with Former SAE, at which time the
business of Former SAE became our business.
The Merger was accounted for as a reverse acquisition in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). Under this method of accounting, we were treated as the “acquired” company for
financial reporting purposes. This determination was primarily based on Former SAE comprising the ongoing operations of
the combined entity, Former SAE senior management comprising the senior management of the combined company, and the
Former SAE common stockholders having a majority of the voting power of the combined entity. In accordance with
guidance applicable to these circumstances, the Merger was considered to be a capital transaction in substance. Accordingly,
for accounting purposes, the Merger was treated as the equivalent of Former SAE issuing stock for our net assets,
accompanied by a recapitalization. Our net assets were stated at fair value, with no goodwill or other intangible assets
recorded. Operations prior to the Merger are those of Former SAE. The equity structure after the Merger reflects our equity
structure.
Overview of our Business
Our services include the acquisition of 2D, 3D, time-lapse 4D and multi-component seismic data on land, in transition zones
between land and water, and offshore in depths reaching 3,000 meters. In addition, we offer a full suite of logistical support
and in-field data processing services. Our customers include major integrated oil companies, national oil companies and
independent oil and gas exploration and production companies. Our services are primarily used by our customers to identify
and analyze drilling prospects and to maximize successful drilling, making demand for such services dependent upon the
level of customer spending on exploration, production, development and field management activities, which is influenced by
the fluctuation in oil and natural gas commodity prices. Demand for our services is also impacted by long-term supply
concerns based on significant increases in production, national oil policies and other country-specific economic and
geopolitical conditions. We have expertise in logistics and focus upon providing a complete service package, particularly in
our international operations, which allows efficient movement into remote areas, giving us what we believe to be a strategic
advantage over our competitors. Many of the areas of the world where we work have limited seasons for seismic data
acquisition, requiring high utilization of key personnel and redeployment of equipment from one part of the world to another.
All of our remote area camps, drills and support equipment are easily containerized and made for easy transport to locations
anywhere in the world. As a result, if conditions deteriorate in a current location or demand rises in another location, we are
able to quickly redeploy our crews and equipment to other parts of the world. By contrast, we tend to subcontract out more of
our services in North America than in other regions, and our North American revenues tend to be more dependent upon data
acquisition services rather than our full line of services.
While our revenues from services are mainly affected by the level of customer demand for our services, operating revenue is
also affected by the bargaining power of our customers relating to our services, as well as the productivity and utilization
levels of our data acquisition crews. Our logistical expertise can be a mitigating factor in service price negotiation with our
customers, allowing us to maintain larger margins in certain regions of the world, particularly in the most remote or most
challenging climates of the world. Factors impacting the productivity and utilization levels of our crews include permitting
delays, downtime related to inclement weather, decrease in daylight working hours during winter months, time and expense
of repositioning crews, the number and size of each crew, and the number of recording channels available to each crew. We
have the ability to optimize the utilization of personnel and equipment, which is a key factor to stabilizing margins in the
various regions in which we operate. Specifically, we have invested in equipment that is lighter weight and more easily
shipped between the different regions. The ability to reduce both the costs of shipment and the amount of shipping time
increases our operating margins and utilization of equipment. Similar logic applies to the utilization of personnel. We focus
on employing field managers who are mobile and have the expertise and knowledge of many different markets within our
26
operations. This allows for better timing of operations and the ability of management staff to run those operations while at the
same time minimizing personnel costs. An added benefit of a highly mobile field management team is better internal transfer
of skill and operational knowledge and the ability to spread operational efficiencies rapidly between the various regions.
Generally, the choice of whether to subcontract out services depends on the expertise available in a certain region and
whether that expertise is more efficiently obtained through subcontractors or by using our own labor force. For the most part,
services are subcontracted within North America and our personnel are used in other regions where we operate. When
subcontractors are used, we manage them and require that they comply with our work policies and QHSE objectives.
Key Accomplishments
While the prolonged downturn in the oil and gas industry has had significant effects on our revenue and 2017 was our most
challenging year to date, we continue to strive to maximize opportunities for revenue as well as managing our operating
margins through cost reductions and field-level efficiencies. We continue to develop our core markets while consistently
evaluating opportunities to further expand our geographical footprint, operational capabilities and logistical expertise to
provide seismic data acquisition and related services in logistically challenging areas.
Since our progression from providing services exclusively in South America to now operating in North America, West Africa
and Southeast Asia, we are able to achieve improved levels of utilization through redeployment of key personnel and seismic
equipment from off-season areas to in-season areas, helping reduce some of the peaks and valleys in our financial
performance. We anticipate future improvement in long-term financial performance and more consistent operating results as
a result of reducing the impact of our otherwise highly seasonal business through such redeployments.
Capital Investments and Impact on Operations
During 2017, we made minimal capital expenditures of approximately $2.7 million, primarily related to the purchase of a set
of vibrators and additional camp equipment. During 2016, we made capital expenditures of approximately $3.4 million for
the purchase of vibrators for our North American operations. Under our current business model, capital expenditures will be
kept at minimum levels other than very low maintenance expenditures until we see improvement in the overall oil and natural
gas market.
Historically, in line with our focus on wireless land data acquisition, we purchased a wireless seismic data acquisition system
which allows up to three crews to operate under the system at the same time. Following customer needs for higher density
land programs using a single point receiver application and to answer the demand for conventional and unconventional oil
and gas exploration, we purchased high sensitivity geophones and two types of vibrators, further strengthening our position
as a full solution provider for land data acquisition methods and technologies. Additional equipment investments were made
for ongoing operations in Alaska in order to increase efficiency. We also invested in cable equipment in order to provide
customers in South America with reliable systems as wireless technology is slower to take hold in that market.
We will continue to employ our wireless equipment on a worldwide basis while maintaining the ability to provide services to
the still existing cable markets. Our capital purchases have allowed us to take advantage of all aspects of the geophysical
services market, ranging from land, marine and transition zone data acquisition; 2D, 3D, time lapse 4D and multi-component
data acquisition; use of different methods to acquire data such as using vibroseis (vibrating) and impulsive sources; as well as
vertical seismic profiling and reservoir monitoring. Any investments in expanding further into our onshore markets in South
America and Southeast Asia will likely also focus upon surveying, drilling and base camp operations.
Fiscal 2017 Summary
The following discussion is intended to assist in understanding our financial position at December 31, 2017, and our results
of operations for the year ended December 31, 2017. Financial and operating results for the year ended December 31, 2017
include:
Revenues from services were $127.0 million in 2017, a decrease of 38.2% from $205.6 million in 2016.
Gross profit was $22.1 million in 2017, a decrease of $23.0 million, or 51.0%, from $45.0 million in 2016.
Operating loss was $3.5 million in 2017, a decrease of $14.8 million, or 131.4%, from operating income of $11.2
million in 2016.
Net loss was $38.8 million in 2017, an increase of $16.8 million in losses, from a net loss of $22.0 million in 2016.
27
Adjusted EBITDA, which is a non-GAAP figure and defined below, was $11.0 million in 2017, a decrease of 69.7%
from $36.1 million in 2016.
Cash and cash equivalents totaled $3.6 million as of December 31, 2017 compared to $11.5 million as of December
31, 2016.
Results of Operations
The following section sets forth, for the periods indicated, certain financial data derived from our consolidated statements of
operations. Amounts are presented in thousands unless otherwise indicated.
Revenues by Geographic Region
The following table is a summary of our revenues by the geographic region in which we provided services for the years
ended December 31, 2017 and 2016:
Years Ended December 31,
2017
% of
Revenue
2016
% of
Revenue
Increase
(Decrease)
Percentage
Change
Revenue from services:
North America ........................................ $
South America ........................................
Southeast Asia ........................................
West Africa ............................................
54,963
32,672
4,266
35,121
43.3% $ 86,967
25.7% 116,542
1,734
3.4%
321
27.6%
42.3% $
56.7%
0.8%
0.2%
(32,004)
(83,870)
2,532
34,800
(36.8)%
(72.0)%
146.0 %
10,841.1 %
Total revenue ....................................... $ 127,022
100.0% $205,564
100.0% $
(78,542)
(38.2)%
North America: In Alaska, we experienced a significant decrease in the overall number of projects performed in 2017
compared to the same period in 2016. The decrease in activity was mainly due to uncertainties and changes in the state
legislation affecting oil and gas exploration activities and tax credits and overall oil and gas market conditions. Revenue in
Alaska is primarily all earned in the first fourth months of the year due to weather conditions and the corresponding
seasonality of projects. Activity in Canada increased when comparing 2017 to 2016 due to marginal improvement in market
conditions in Canada and the timing of the commencement of the season.
South America: The substantial decrease in revenue during 2017 in South America is primarily due to a large project in
Bolivia in 2016 that was substantially completed during the third quarter of 2016 versus having other small projects in
Bolivia in 2017. Activity in Colombia decreased in 2017 when compared to 2016 due to a fewer number of active customers
resulting in a decrease in revenue.
Southeast Asia: The increase in revenue during 2017 was primarily due to a small project in New Zealand in 2017 versus no
active revenue in 2016 in Southeast Asia.
West Africa: The increase in 2017 revenue for West Africa was primarily due to a large ocean bottom marine project in
Nigeria which commenced in late December 2016 and was completed during the first quarter of 2017.
28
Comparison of Operating Results for the Years Ended December 31, 2017 and 2016
The following table is a summary of the results of operations for the years ended December 31, 2017 and 2016:
Years Ended December 31,
2017
% of
Revenue
2016
% of
Revenue
Revenue from services ....................................................................... $ 127,022
22,068
Gross profit ........................................................................................
25,697
Selling, general and administrative expenses .....................................
(101)
(Gain) loss on disposal of property and equipment, net .....................
(3,528)
Income (loss) from operations .........................................................
(30,943)
Other expense, net ..............................................................................
4,313
Provision for income taxes .................................................................
1,972
Less: net income attributable to noncontrolling interest ....................
100.0 % $ 205,564
45,036
17.3 %
29,253
20.2 %
4,542
(0.1)%
11,241
(2.8)%
(27,194)
(24.4)%
6,056
3.4 %
3,021
1.6 %
Net loss attributable to the Corporation .......................................... $
(40,756)
(32.1)% $
(25,030)
100.0 %
21.9 %
14.2 %
2.2 %
5.5 %
(13.2)%
3.0 %
1.5 %
(12.2)%
Revenue from Services. Our revenue from services decreased by $78,542 or 38.2%, from $205,564 in 2016 to $127,022 in
2017. As explained above, 2017 revenue decreased significantly in Alaska due to a decrease in the amount of active projects
compared to the prior year. In addition, we had a large decrease in South America due to a large project in Bolivia in 2016
that was not repeated in 2017 and decreases in activity in Colombia. These decreases were partially offset by a large ocean
bottom marine project in Nigeria that was primarily completed in 2017, and increases in revenues in Southeast Asia and
Canada.
Gross Profit. Gross profit decreased by $22,968 or 51.0%, from $45,036 in 2016, representing 21.9% of revenue, to $22,068
in 2017, representing 17.3% of revenue. The decrease in gross profit was largely due to a decrease in active projects in 2017
primarily in Alaska and Bolivia compared to 2016. Gross profit as a percentage of sales decreased slightly due to a decline in
revenues resulting in a reduced ability to absorb certain fixed costs and tightening margins on projects. Although our costs
primarily vary with revenue, the substantial decrease in revenue we have seen has caused significant decreases in our gross
profit and gross profit margins. These decreases were partially offset by an increase in revenues in West Africa due to a large
ocean bottom marine project as well as a decrease in depreciation expense due to the sale of ocean bottom nodal equipment in
the fourth quarter of 2016.
Adjusted Gross Profit. Adjusted gross profit decreased by $27,653 or 45.0%, from $61,446 in 2016, representing 29.9% of
revenue, to $33,793 in 2017, representing 26.6% of revenue. The decrease in adjusted gross profit and adjusted gross profit as
a percentage of revenues was due to the decrease in revenues. We have also experienced increased pricing pressure due to the
downturn in the oil and gas market, which has caused decreases in our margins.
Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses decreased in 2017 by
$3,556 to $25,697 or 20.2% of revenues compared to $29,253 or 14.2% of revenues for 2016. SG&A expense decreased due
to the decrease in revenue, severance costs and payroll related liabilities partially offset by an increase in share-based
compensation expense. The increase in SG&A as a percentage of revenue is due to the substantial decrease in revenue and an
increase in share-based compensation expense. SG&A expense for 2016 includes $928 in severance costs incurred in our
Peru, Colombia, Canada, Alaska and corporate locations related to the workforce reduction program that began in early 2015.
(Gain) loss on disposal of property and equipment. In 2017, we recorded total net gains on disposal of property and
equipment of $101 while in 2016 we recorded a loss of $4,542. This gain is primarily due to the sale of nodal recording
equipment and related support gear in Alaska in the fourth quarter of 2016.
29
Total Other Income (Expense). Total other income (expense) was comprised of the following:
Years Ended December 31,
2017
2016
Increase
(Decrease)
Other income (expense):
Costs incurred on restructurings .................................................................... $
Interest expense, net ......................................................................................
Foreign exchange gain (loss), net ..................................................................
Other expense, net .........................................................................................
— $
(5,439) $
(29,363)
(1,308)
(272)
(23,697)
1,977
(35)
Total other expense, net .............................................................................. $
(30,943) $
(27,194) $
5,439
(5,666)
(3,285)
(237)
(3,749)
The increase in 2017 other expense was primarily due to:
Increase in interest expense related to the amortization of deferred financing costs for the senior loan facility;
Decrease in foreign currency gains primarily related to unrealized transactions, in early 2016, related to the
weakening US Dollar compared to Canadian and South American currencies creating large gains;
Increase in foreign currency loss due to losses from physical trades of the Nigerian currency for US dollars totaling
$1,310; partially offset by
Decrease in costs incurred for the 2016 Restructuring of $5,439.
Income Taxes. Our income tax provision decreased $1,743 in 2017 compared to 2016 primarily as a result of pre-tax income
in our foreign operations, offset by the valuation allowance decrease of $5,761 and the effects of differences between U.S.
and foreign tax rates.
We operate in Bolivia,Colombia and Nigeria as subsidiaries or branches of a U.S. entity (whereby the earnings of the
branches are included as U.S. taxable income). These subsidiaries or branches are subject to foreign taxation based on the
financial results of the operations under the laws of each applicable tax jurisdiction.
Corporate income taxes are calculated based on GAAP and U.S. and various international tax codes and regulations. The
appropriate foreign taxes paid in the country of operations are credited against U.S. corporate taxes subject to the U.S. foreign
tax credit limitations. Deferred tax assets and liabilities are recognized using the asset and liability method based on the
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases,
operating losses and tax credit carry forwards, as stipulated under GAAP. Where appropriate, valuation allowances are
provided to reserve the amount of net operating loss and tax credit carry forwards where it is not more likely than not that
they will be realized due to various provisions of both U.S. and foreign tax laws.
A comprehensive model is used to account for uncertain tax positions, which includes consideration of how we recognize,
measure, present and disclose uncertain tax positions taken or to be taken on a tax return. The income tax laws and
regulations are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and
judgments regarding our tax positions that can materially affect amounts recognized in our consolidated balance sheets and
statements of operations.
Our U.S. statutory tax rate was 35% for years ended December 31, 2017 and 2016. For 2017, our effective tax rate was
(12.5)% due to the effects of differences between U.S. and foreign tax rates, net of federal benefit and recording of the
valuation allowance against U.S. and foreign deferred tax assets. For 2016, our effective tax rate was (38.0)% principally due
to permanent differences, the effects of differences between U.S. and foreign tax rates, and the recording of the valuation
allowances against the U.S. deferred tax assets.
Net Income Attributable to Noncontrolling Interest. The $1,049 decrease in 2017 compared to 2016 is due to the decreased
income earned by the noncontrolling interest (“Joint Venture Partner”) under contracts performed by us on the North Slope of
Alaska related to the decrease in Alaska revenue discussed above. Under the terms of our agreement with the Joint Venture
Partner, they receive 51% of the portion of the applicable contracts' gross revenues paid to the joint venture entity as
discussed further under Note 15 of “Notes to Consolidated Financial Statements”.
30
Net Loss Attributable to the Corporation. For the year ended December 31, 2017, net loss attributable to the Corporation was
$40,756 compared to a net loss of $25,030 for the year ended December 31, 2016. The increase in net loss attributable to the
Corporation for the year ended December 31, 2017 was primarily due to the following factors:
Lower gross profit primarily due to lower revenue;
Increase in interest expense primarily due to the increase of $6,147 in amortization of deferred financing costs
related to our Senior Loan Facility;
Decrease in gains on foreign currency transactions due to large gains in 2016 related to the strengthening US dollar
during that time period;
Increase in foreign currency losses due to trades and foreign currency exposure on our project in Nigeria; and
Proportionately higher provision for income taxes in 2016; partially offset by
Decrease in SG&A expenses primarily due to the lower revenue; and
Decrease in costs of debt restructuring of $5,439.
Liquidity and Capital Resources
Our principal source of cash is from the seismic data acquisition services we provide to customers, supplemented as
necessary by drawing against our credit facility and advances under our senior loan facility. Our cash is primarily used to
provide additional seismic data acquisition services, including the payment of expenses related to operations and the
acquisition of new seismic data equipment, and to pay the interest on outstanding debt obligations. Our cash position and
revenues depend on the level of demand for our services. Historically, cash generated from operations, along with cash
reserves and borrowings from commercial, private, and related parties, have been sufficient to fund our working capital and
to acquire or lease seismic data equipment. Amounts in the remainder of this section are presented in thousands unless
otherwise indicated. References to Notes are to the notes of our consolidated financial statements.
Working Capital. Working capital as of December 31, 2017 was negative $2,960 compared to positive $40,807 as of
December 31, 2016. The decrease in working capital was principally due to the reclassification of $48,100 of accounts
receivable from short term to long term related to a customer in Alaska as further discussed in Note 3 and below. The
decrease in activity in 2017 and cash used in operations also contributed to a decrease in working capital in 2017.
In September 2017, we entered into the Credit Facility which provides for funding for our working capital needs up to
$20,000 subject to our lenders in their sole discretion to fund borrowings exceeding $5,000. It now has a maturity date of
January 2, 2020. In addition, we entered into amendments that extended the maturity date of $29,000 of the principal balance
of our Senior Loan Facility to January 2, 2020, but that facility is fully drawn. See additional information on these facilities
below.
Cash Flows. Cash used by operations during 2017 was $4,553, compared to cash used in operations of $19,830 during 2016,
a increase in cash provided by operations of $15,277. Cash used by the net loss and net cash adjustments decreased to $3,424
for 2017 compared to cash provided of $11,042 for 2016, as a result of the increase in net loss in 2017 and decrease in losses
on disposal of property and depreciation and amortization expense partially offset by an increase in amortization of deferred
financing costs related to our Senior Loan Facility, an increase in payment in kind interest on our Second Lien Notes and a
decrease in foreign currency gains. Net changes in operating assets and liabilities resulted in cash used of $1,129 for 2017
compared to cash used of $30,872 for 2016. The significant cash used last year was primarily due to the large increase in
unpaid accounts receivable described below and in Note 3. This was partially offset by higher taxes paid than incurred
primarily incurred in South America in the year ended December 31, 2017.
At December 31, 2017, our largest accounts receivable from one customer was $78.1 million, representing 93% of total
consolidated accounts receivable. This customer was relying on monetization of Tax Credits, which monetization was
historically accomplished by receipt of predictable payments from the State of Alaska or from third party financing sources.
Due to changed economic and political circumstances in the State of Alaska, however, substantial uncertainty regarding the
timing of payments from the State of Alaska has developed, which has affected the availability of funding from other
sources, which in turn affected the timing of our receiving payments on this account receivable. As a result, as of December
31, 2017, we classified the entire receivable from the customer as a long-term accounts receivable totaling $78.1 million,
including an additional $42.1 million reclassification to long-term accounts receivable during the quarter ended December 31,
2017. As of December 31, 2016, $38.0 million was classified as long-term accounts receivable based on the expected timing
to monetize the Tax Credits at that point in time.
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Due to our customer’s inability to monetize the Tax Credits, the customer assigned $89.0 million of Tax Credits to us as
security so that we could seek to monetize these Tax Credits and apply the resulting cash, as monetization occurs, toward the
customer’s overdue account receivable. As of December 31, 2017, the State of Alaska has completed its audits of
approximately $59.1 million of Tax Credit applications. These audits resulted in our receiving approximately $56.2 million
of Tax Credit certificates from the State of Alaska in 2016 and 2017. Subsequent to December 31, 2017, the State of Alaska
completed its audit of $8.6 million of Tax Credit applications. This audit and the successful appeal of certain previously
disallowed expenses resulted in our receiving an additional $8.3 million and $2.9 million of Tax Credit certificates, for a total
of $64.5 million of Tax Credit certificates. In 2018 we expect that the State of Alaska will complete its audit on the last Tax
Credit application for approximately $21.3 million.
We recorded a reduction of the accounts receivable balance of $3.5 million and $10.9 million related to the monetization of
Tax Credit certificates during the years ended December 31, 2017 and 2016, respectively, from the sale of some of our Tax
Credit certificates at a slight discount to an Alaskan producer of oil and gas that used the certificates to satisfy production
taxes it owed to the State of Alaska.
We have identified a number of paths to payment of its account receivable and continue to diligently pursue them. These
paths include receiving payment on the account receivable by the following means: (i) receiving cash in payment in full of
the Tax Credit certificates from the State of Alaska, (ii) receiving proceeds from the possible issuance by the State of Alaska
of bonds to pay its Tax Credit liabilities at a discount, (iii) selling Tax Credit certificates into the secondary market to
producers at a discount, (iv) receiving cash from a third party to purchase Tax Credit certificates at what is likely to be a more
substantial discount, (v) receiving license fees from additional licenses of the seismic data produced for the customer and (vi)
selling some or all the seismic data produced for the customer.
Historically, the State of Alaska annually appropriated the amounts needed to pay all Tax Credit certificates for the prior
fiscal year. Falling oil and gas prices have substantially reduced Alaska’s revenue from production taxes resulting in
significant Alaskan budget deficits. While the Alaskan legislature has appropriated funds for the last two fiscal years to pay
outstanding Tax Credit certificates, the Alaskan Governor has vetoed the line item in each year, and limited the appropriation
in the last fiscal year to the statutorily established minimum amount of appropriations. In February 2018 we were advised by
the State of Alaska that, so long as the payment is limited to the statutorily established minimum amount, we should not
expect to receive any payments until fiscal year 2021 and possibly should not expect to be fully paid until fiscal year 2024. In
addition, the Alaskan Department of Revenue has acted to limit the secondary market for Tax Credit certificates by not only
slowing down the timing for auditing Tax Credit applications and for making payments, but also by issuing advisory opinions
in the third quarter of 2016 and the first quarter of 2017 that, contrary to earlier advice, effectively cut-off the secondary
market for Tax Credit certificates. These advisory rulings cut -off using transferred Tax Credit certificates for prior years’ tax
obligations and not allowing them to be used to pay taxes owed below the four percent minimum production tax rate. While
in mid-2017, the Alaska legislature subsequently reversed the prohibition on using transferred Tax Credit certificates for
prior year’s obligations, to date transferred Tax Credit certificates cannot be used to go below the four percent floor, and the
secondary market remains inactive.
One recent development may accelerate payment of the account receivable. The Governor of Alaska has introduced
legislation to allow Alaska to issue bonds to pay-off at a discount its approximately $1.2 billion liability for Tax Credits.
There can be no assurance, however, that this alternative will provide a viable means to monetize our Tax Credit certificates.
We continue to explore all the options described above to monetize the Tax Credit certificates. We continue to believe that
selling the certificates at a discount to producers that are able to apply the certificates to reduce their own Alaskan tax
liabilities should yet again become a viable monetization option. We have a contract with a producer that provides that the
producer will purchase our Tax Credit certificates to the extent that it can use them to satisfy its tax liabilities. In December
2017 the active Alaskan producers agreed to a $786 million settlement regarding tariffs relating to the Trans Alaskan pipeline
with FERC, which FERC approved in March 2018 that will result in significantly increased production taxes being owed by
the producers to the State of Alaska. Those taxes could be satisfied by purchase of Tax Credit certificates, at a discount to the
face value of the Tax Credit certificate. Alternatively we could sell our Tax Credit certificates to other third parties, at a
discount. We also believe that rising oil prices may increase the market for the Tax Credit certificates, but there can be no
assurance that prices will increase sufficient to improve the market or when it might occur.
We have other possible ways to receive payments on our account receivable that do not involve monetization of the Tax
Credits. We continue to assist the customer in actively marketing and licensing of the seismic data we collected on behalf of
our customer. Licensing revenues received must be paid to us in satisfaction of our account receivable. In addition, subject
to any licenses granted, the customer has the right to sell the data and apply the proceeds to our receivable. We believe that
the receipt of these licensing revenues and sales proceeds may be sufficient to cover the difference between the outstanding
account receivable and the cash we are able to generate by monetization of the Tax Credits, but there can be no assurance that
it will occur or when any such payments will be received.
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A risk exists that any monetization of the Tax Credit certificates will require a selling at a discount, and that the discount may
be substantial, resulting in proceeds insufficient to fully repay the customer’s outstanding account receivable. Should this
result, and we do not receive additional payments from our customer from either licensing or selling the seismic data, we may
be required to record an impairment to the amount due from our customer. At this point, however, we do not believe that it is
probable that the account receivable was impaired as of December 31, 2017, due in main part to the fact that the State of
Alaska is obligated to fully fund its Tax Credit certificate liabilities regardless of the timing of such payments.
During 2016 and 2017, we explored a range of transactions to address our significant cash flow and liquidity difficulties and
the longer term need to realign our capital structure with our current business. On December 19, 2017, we entered into a
restructuring support agreement (the “2017 Restructuring Support Agreement”) with holders (the “2017 Supporting
Holders”) that beneficially owned in excess of 85% in principal amount of our Second Lien Notes to provide additional
liquidity and realign our capital structure to better support operations during the prolonged industry downturn. On June 13,
2016, we entered into a comprehensive restructuring support agreement (the “2016 Restructuring Support Agreement”) with
holders (the “2016 Supporting Holders”) of approximately 66% of the par value of the 10% Senior Secured Notes due 2019
(the “Senior Secured Notes”) to address its cash flow and liquidity difficulties and uncertainty regarding the State of Alaska
tax credit program, and continued downturn in the oil and natural gas exploration sector. The 2016 Supporting Holders
agreed to a comprehensive restructuring of our balance sheet, which included the funding of up to $30 million in new capital
(the “2016 Restructuring”). The 2017 Restructuring and the 2016 Restructuring are further discussed in Note 2.
As a part of the 2017 Restructuring, we completed a debt for equity exchange primarily involving holders of our Second Lien
Notes, which exchanged 91.8% of the outstanding aggregate principal amount of the Second Lien Notes for common stock,
preferred stock and warrants. As a part of the 2016 Restructuring, we completed a debt for equity exchange involving our
Senior Secured Notes, which deferred the cash requirement for the July 2016 interest payment and at our election allowed for
the payment of interest in kind for a period of up to 12 months on the exchanged debt, with the deferred and in-kind interest
payments ultimately due at the maturity of the Second Lien Notes. As a result of the completion of the Restructurings, at
March 8, 2018, our total outstanding indebtedness was $57,817 consisting of Senior Secured Notes of $1,865, Second Lien
Notes of $6,952, borrowings under our Senior Loan Facility of $29,000 and borrowings under our Credit Facility of $20,000.
The 2016 and 2017 Restructurings are further discussed in Note 8.
While the Restructurings have mitigated the acuteness of our liquidity and cash flow issues, there can be no assurance that
they will solve our need to monetize our Tax Credit certificates.
Capital Expenditures. Cash used in investing activities during 2017 was $760, compared to $2,864 during 2016, a decrease
in cash used of $2,104. The decrease in purchase of property and equipment primarily resulted from lower capital
expenditures during 2017 compared to 2016, primarily due to the prolonged downturn in the oil and gas market. Our 2017
capital expenditures primarily relate to remaining cash payments for the 2016 purchase of a set of vibrators as well as the
purchase of additional camp equipment and vibrators in the first quarter of 2017. The proceeds from sale of assets represents
cash received from the sale of ocean bottom nodal equipment in the fourth quarter of 2016. Based on current information, we
expect our total capital expenditures for 2018 to be under $5.0 million. This amount will permit us to maintain the operational
capability of our current fleet of equipment so that we can execute ongoing projects without delay or increased costs. This
amount, however, will not allow us to purchase any new technology or make any significant upgrades to existing capital
assets. Capital expenditures in 2016 totaled $3,352, which primarily consisted of a set of vibrators purchased for our North
America operations.
Financing. Cash used in financing activities during 2017 was $3,274, compared to cash provided by financing activities of
$21,842 during 2016, an increase in cash provided by financing activities of $25,116. Cash used in financing activities in
2017 was primarily related to our net repayments of our Prior Credit Agreement in 2017, distributions to our noncontrolling
interest and financing costs paid for the 2017 Restructuring. Cash provided by financing activities in 2016 primarily resulted
from borrowings under our Senior Loan Facility, partially offset by payment of loan issuance costs related to the 2016
Restructuring, repayment of our Prior Credit Agreement, and the distribution payment to our noncontrolling interest. As of
December 31, 2017, our total outstanding indebtedness was $121,293, consisting of Senior Secured Notes of $1,847, Second
Lien Notes of $85,050, borrowings under our Senior Loan Facility of $29,995, and borrowings under our Credit Facility of
$4,401.
Senior Secured Notes. On July 2, 2014, we entered into an indenture (“Indenture”) under which we issued $150,000 of senior
secured notes due July 15, 2019, in a private offering to qualified institutional buyers pursuant to Rule 144A under the
Securities Act and to non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. On
June 19, 2015, all outstanding senior secured notes were exchanged for an equal amount of new Senior Secured Notes, which
are substantially identical in terms to the original senior secured notes except that the Senior Secured Notes are registered
33
under the Securities Act of 1933, as amended. The Senior Secured Notes bear interest at the annual rate of 10% payable semi-
annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2015. For a complete discussion of
the terms and security for the Senior Secured Notes, see Note 8.
The Indenture relating to the Senior Secured Notes contains covenants which include limitations on our ability to:
transfer or sell assets;
pay dividends, redeem subordinated indebtedness or make other restricted payments;
incur or guarantee additional indebtedness or, with respect to our restricted subsidiaries, issue preferred stock;
create or incur liens;
incur dividend or other payment restrictions affecting our restricted subsidiaries;
consummate a merger, consolidation or sale of all or substantially all of our or our subsidiaries’ assets;
enter into transactions with affiliates;
engage in business other than our current business and reasonably related extensions thereof; and
take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing
the Senior Secured Notes.
We were in compliance with the Indenture covenants for the Senior Secured Notes as of December 31, 2017.
Exchange of Senior Secured Notes for Second Lien Notes. As discussed in Note 2, we commenced an offer on June 24, 2016
to exchange each $1 of the Senior Secured Notes for (i) $0.50 of newly issued 10% Senior Secured Second Lien Notes due
2019 (“Second Lien Notes”) and (ii) 46.41 shares of the newly issued common stock (giving effect to a 135-for-1 reverse
stock split that was effected in connection with closing of the exchange offer). The exchange offer closed on July 27, 2016
(the “2016 Closing Date”). On the 2016 Closing Date, a total of $138,128 face value of the Senior Secured Notes were
exchanged for (i) $76,523 Second Lien Notes, including $7,459 Second Lien Notes representing accrued and unpaid interest
and (ii) 6,410,502 shares of our common stock.
The exchange was accounted for as a modification in the year ended December 31, 2016. The Second Lien Notes were
recorded at the net carrying value of the Senior Secured Notes exchanged of $134,522, less the fair value of our common
stock issued to participating noteholders of $65,003, plus the accrued and unpaid interest of $7,459 included in the exchange.
The resulting $455 excess of carrying value over face value of the Second Lien Notes is being amortized over the term of the
Second Lien Notes. The fair value of the common stock was determined using the probability-weighted expected return
method based on a combination of the income and market approaches and a mergers and acquisition scenario. Costs incurred
by the participating noteholders during the exchange of $345 were recognized as debt discount and are being amortized over
the term of the Second Lien Notes.
In connection with the exchange offer, we also completed a consent solicitation to make certain proposed limited
amendments to the terms of the indenture for the Senior Secured Notes, the related security documents and the existing
intercreditor agreement to permit the Restructuring as discussed in Note 7. The Second Lien Notes terms are substantially
similar to the Senior Secured Notes with the following modifications:
The Second Lien Notes have a maturity date of September 24, 2019, provided that, if any of the Senior Secured
Notes remain outstanding as of March 31, 2019, the maturity date of the Second Lien Notes will become April 14,
2019 upon the vote of the holders of a majority of the then-outstanding Second Lien Notes.
The liens securing the Second Lien Notes are junior to the liens securing the Senior Loan Facility and senior to the
liens securing the Senior Secured Notes after the Closing Date.
In addition to the exchange consideration, each participating holder received accrued and unpaid interest on its
tendered Senior Secured Notes that were accepted for exchange from their last interest payment date of January 15,
2016 to, but not including, the settlement date, which was paid in the form of Second Lien Notes with a principal
amount equal to the amount of such accrued and unpaid interest totaling $7,459.
Interest on the Second Lien Notes is payable quarterly. We had the election to pay interest on the Second Lien Notes
in kind with additional Second Lien Notes for the first twelve months of interest payment dates, provided that, if we
34
made this election, the interest on the Second Lien Notes for such in kind payments will accrue at a per annum rate
1% percent higher than the cash interest rate of 10%. We elected to pay interest in the year ended December 31,
2017 and 2016 of $4,848 and $3,619, respectively, in kind, which was capitalized within the Second Lien Notes
balance.
The Second Lien Notes have a special redemption right at par of up to $35 million of the issuance to be paid out of
the proceeds of the Alaska Tax Credit certificates and is conditioned upon payment in full of the credit facility and
the senior loan facility.
The Second Lien Notes include a make-whole provision requiring that if the Second Lien Notes are accelerated or
otherwise become due and payable prior to their stated maturity due to an Event of Default (including but not
limited to our bankruptcy or liquidation (including the acceleration of claims by operation of law)), then the
applicable premium payable with respect to an optional redemption will also be immediately due and payable, along
with the principal of, accrued and unpaid interest on, the Second Lien Notes and constitutes part of the obligations in
respect thereof as if such acceleration were an optional redemption of the Second Lien Notes, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of each holder’s lost profits as a result thereof.
Exchange of Senior Secured Notes and Second Lien Notes for Equity. As discussed in Note 2, in exchange for $78,037 in
aggregate principal amount of Second Lien Notes, plus accrued and unpaid interest from and including January 15, 2018
thereon, representing approximately 91.8% of the outstanding aggregate principal amount of the Second Lien Notes, validly
tendered and accepted for exchange in the 2017 Exchange Offer, and $7 in aggregate principal amount of Senior Secured
Notes, plus accrued and unpaid interest from and including January 15, 2018 thereon, representing less than 1% of the
outstanding aggregate principal amount of the Senior Secured Notes, validly tendered and accepted for exchange in the 2017
Exchange Offer, we issued (i) 812,321 newly issued shares of the our common stock, (ii) 31,669 newly issued shares of the
our Series A perpetual convertible preferred stock, (iii) 855,195 newly issued shares of our Series B convertible preferred
stock, which is mandatorily convertible, subject to certain conditions, and (iv) 8,286,061 newly issued Series C Warrant to
purchase 8,286,061 shares of Common Stock.
Concurrently with the 2017 Exchange Offer, we solicited consents related to the adoption of proposed amendments to each of
the indenture governing the Second Lien Notes and the Indenture governing the Senior Secured Notes, Holders of
approximately 91.8% of the principal amount of the Second Lien Notes delivered their consents for us to adopt the proposed
amendments to the indenture governing the Second Lien Notes, and to effect the proposed collateral release.
On January 26, 2018, we entered into a first supplemental indenture to the Indenture governing the Second Lien Notes and a
first amendment to the security agreement relating to the Second Lien Notes to effect the proposed amendments and
collateral release.
We may from time to time seek to retire or purchase our remaining outstanding Senior Secured Notes and Second Lien Notes
through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or
otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the availability of cash and
our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Credit Facility. On September 22, 2017, SAExploration, Inc. (“Borrower”), us and our other domestic subsidiaries entered
into the First Amended and Restated Credit and Security Agreement (the “Credit Agreement”) with the lenders from time to
time party thereto and Cantor Fitzgerald Securities, as agent (the “Agent”). The Credit Agreement amends and restates the
Credit and Security Agreement dated as of November 6, 2014 and as amended on June 29, 2016 (the “Prior Credit
Agreement”) by and among the Borrower, the Guarantors, and Wells Fargo Bank, National Association as lender (the
“Original Lender”). Immediately prior to entering into the Credit Agreement, the Original Lender sold its interest in the Prior
Credit Agreement upon entering into the Loan Assignment, Assumption and Indemnity Agreement (the “Assignment
Agreement”) with the Agent who subsequently assigned those rights and obligations to one of our Supporting Holders (the
“Assignee”). Two additional holders elected to join the Credit Agreement (together with the Assignee, the “Lenders”),
including one holder as further described in Note 6.
On December 22, 2017, the parties entered into an amendment to the Credit Agreement (“First Amendment”) which among
other things: (1) increased the maximum borrowings to $20,000 from $16,000 and (2) added two additional lenders. The First
Amendment was accounted for as a modification in the year ended December 31, 2017.
The Credit Agreement provides for up to $20,000 in borrowings secured primarily by the Borrower's North American assets,
mainly accounts receivable and equipment subject to certain exclusions (the “Credit Facility”). The proceeds of the Credit
35
Facility will primarily be used to fund the Borrower's working capital needs for its operations and for general corporate
purposes. As of December 31, 2017, borrowings outstanding under the Credit Facility were:
Principal outstanding ......................................................................................................... $
Less: unamortized deferred loan issuance costs .................................................................
Total Credit Facility outstanding ....................................................................................... $
5,000
(599)
4,401
December 31,
2017
Additional borrowings under the Credit Facility are subject to Lenders’ sole discretion and must be in minimum increments
of $1,000.
In addition to the above and among other things, the Credit Agreement:
eliminated the ability to redraw borrowings once repaid and placed certain restrictions on the ability to repay
borrowings;
eliminated the sub-facility for letters of credit;
provided for mandatory prepayment with any proceeds from Tax Credits that exceeded $15,000, unless waived by
the Lenders; and
removed certain covenants including those to maintain a minimum EBITDA specified above and to maintain
eligible equipment of a certain amount.
The Credit Agreement was accounted for as a modification during the year ended December 31, 2017. In connection with the
Credit Agreement, deferred loan issuance costs totaling $782 were recorded during the year ended December 31, 2017
consisting of $400 of fees, payable to the Lenders, and $382 of legal and investment banking costs.
Borrowings made under the Credit Facility bear interest at a rate of 10.25% per annum for the period from September 22,
2017 through and including March 22, 2018, 10.75% per annum for the period from March 23, 2018 through and including
September 22, 2018 and 11.75% per annum for the period from September 23, 2018 and thereafter.
On February 28, 2018, we entered into an amendment to, among other things, remove the provision providing for an
accelerated maturity date of September 14, 2018 under certain conditions. The maturity date of the Credit Agreement is
January 2, 2020.
The Credit Agreement contains covenants including, but not limited to (i) commitments to maintain and deliver to the
Lenders, as required, certain financial reports, records and other items and (ii) subject to certain exceptions under the Credit
Agreement, restrictions on our ability to incur indebtedness, create or incur liens, enter into fundamental changes to corporate
structure or to the nature of our business, dispose of assets, permit a change in control, acquire non-permitted investments,
enter into affiliate transactions or make distributions. The Credit Agreement also contains representations, warranties,
covenants and other terms and conditions, including relating to the payment of fees to the Lenders, which are customary for
agreements of this type. We are in compliance with the Credit Agreement covenants as of December 31, 2017.
Prior Credit Agreement. Borrowings outstanding under the Prior Credit Agreement were $5,844 as of December 31, 2016.
Borrowings made under the Prior Credit Agreement bore interest, payable monthly, at a rate of daily three months LIBOR
plus 3% (4.00% at December 31, 2016). he Prior Credit Agreement had a maturity date of November 6, 2017, unless
terminated earlier.
The Prior Credit Agreement also included a sub-facility for letters of credit in amounts up to the lesser of the available
borrowing base or $10,000. Letters of credit were subject to Lender approval and a fee that accrued at the annual rate of 3%
of the undrawn daily balance of the outstanding letters of credit, payable monthly. An unused line fee of 0.5% per annum of
the daily average of the maximum Credit Facility amount reduced by outstanding borrowings and letters of credit is payable
monthly. As of December 31, 2016, there were no letters of credit outstanding under the sub-facility and the sub-facility was
eliminated in the Credit Agreement.
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Senior Loan Facility. On June 29, 2016, we, as borrower, and each of our domestic subsidiaries, as guarantors (the
“Guarantors”), entered into the Senior Loan Facility with the Supporting Holders of the Senior Secured Notes. In addition to
the Supporting Holders, one additional holder of the senior secured notes subsequently elected to participate as a lender in the
Senior Loan Facility based on their proportionate ownership of the Senior Secured Notes as discussed in Note 7. The Senior
Loan Facility provides funding up to a maximum borrowing amount of $30,000. Under the terms of the Senior Loan Facility,
$15,000 became immediately available and the remaining $15,000 became available when we entered into the first
amendment to the Senior Loan Facility. As of December 31, 2017 and 2016, borrowings of $29,995 were outstanding under
the Senior Loan Facility.
On September 8, 2017, we entered into the Second Amendment to the Senior Loan Facility that amended and extended a
majority of the Senior Loan Facility held by consenting lenders representing $29,000 of the total principal outstanding (the
“Extended Loans”). The Second Amendment, among other things, for the Extended Loans:
extended the maturity date to January 2, 2020; provided that the maturity is January 2, 2019 if there are any
outstanding Senior Secured Notes or Second Lien Notes at that time;
increased the interest rate from 10% per year to 10.5% beginning on September 8, 2017 to, but not including,
February 8, 2018, 11.5% per year for the succeeding six-month period, and 12.5% per year thereafter until the
maturity, payable monthly in cash;
provided for a mandatory prepayment with the proceeds from any Tax Credit; and
provided for a call premium with respect to certain prepayments.
On February 28, 2018, we entered into an amendment to the Senior Loan Facility to, among other things, remove the
provision providing for an accelerated maturity date of January 2, 2019 under certain conditions. The maturity date of the
Senior Loan Facility is January 2, 2020.
The remaining $995 of advances under the Senior Loan Facility (the “Residual Loans”) remain under the original terms of
the Senior Loan Facility where borrowings bear interest at a rate of 10% per year, payable monthly and the maturity date is
January 2, 2018, unless terminated earlier. The Residual Loans also require mandatory prepayment from the proceeds of any
Tax Credit after we have received $15,000 in proceeds from the Tax Credits. The Residual Loans were paid in full on
January 2, 2018.
The Second Amendment was accounted for as a modification during the year ended December 31, 2017. In connection with
the Second Amendment, deferred loan issuance costs totaling $914 were recorded in the year ended December 31, 2017. The
deferred loan issuance costs recorded during these periods consisted of $600 of fees, which were paid to the lenders, and
$314 of legal and investment banking costs. In connection with the initial borrowing, costs totaling $30,082 were recorded as
a deferred loan issuance cost on the balance sheet in the year ended December 31, 2016. The deferred loan issuance costs
recorded in 2016 included a $600 facility fee, legal and investment banking costs, and $28,425 for the fair value of 2,803,302
shares of our common stock issued to the lenders on July 27, 2016. The fair value of the common stock was determined using
the probability-weighted expected return method based on a combination of the income and market approaches and a mergers
and acquisition scenario.
The Senior Loan Facility is secured by substantially all of the collateral securing the obligations under (i) the Credit
Agreement (ii) the Senior Secured Notes and (iii) the Second Lien Notes, including the receivable due to us discussed in Note
3. This security interest is junior to the security interest in such collateral securing the obligations under the Credit Facility
and senior to the security interests in such collateral securing the obligations under the Second Lien Notes and the Senior
Secured Notes.
The Senior Loan Facility contains negative covenants that restrict our and the Guarantors’ ability to incur indebtedness,
create or incur liens, enter into fundamental changes to our corporate structure or to the nature of our business, dispose of
assets, permit a change in control to occur, make certain prepayments, other payments and distributions, make certain
investments, enter into affiliate transactions or make certain distributions, and requires that we maintain and deliver certain
financial reports, projections, records and other items. The Senior Loan Facility also contains customary representations,
warranties, covenants and other terms and conditions, including relating to the payment of fees to the Senior Loan Facility
agent and the lenders, and customary events of default. We were in compliance with the Senior Loan Facility covenants as of
December 31, 2017.
37
On June 29, 2016, we, the guarantors party thereto (the “Existing Notes Guarantors”) and Wilmington Savings Fund Society,
FSB (successor to U.S. Bank National Association), as trustee for the Senior Secured Notes (the “Existing Trustee”), entered
into a first supplemental indenture (the “Supplemental Indenture”) to the indenture governing the Senior Secured Notes (the
“Existing Indenture”). The Supplemental Indenture modified the Existing Indenture to, among other things, permit the
incurrence of additional secured indebtedness pursuant to the Senior Loan Facility and the issuance of the Second Lien Notes
in the Exchange Offer. The Supplemental Indenture includes additional changes necessary to give effect to the 2016
Restructuring and directed the Existing Trustee, in its capacity as noteholder collateral agent for the Senior Secured Notes, to
enter into the Amended and Restated Intercreditor Agreement and the amendment to the Existing Security Agreement, each
as described below, on behalf of the Existing Holders. The material terms of the Existing Indenture, other than the
amendments summarized above, remain substantially as set forth in the Existing Indenture.
On June 29, 2016, Wells Fargo, in its capacity as lender and collateral agent under the Prior Credit Agreement, Wilmington
Savings Fund Society, FSB (successor to U.S. Bank National Association), in its capacity as trustee and collateral agent for
the Senior Secured Notes (“Noteholder Collateral Agent”), and Delaware Trust Corporation, in its capacity as administrative
agent and collateral agent for the Senior Loan Facility, amended and restated the Intercreditor Agreement, dated as of
November 6, 2014, by and between Wells Fargo and Wilmington Savings Fund Society, FSB (as successor to U.S. Bank
National Association) (the “Existing Intercreditor Agreement” and as amended and restated, the “Amended and Restated
Intercreditor Agreement”), to govern the relationship of the Existing Holders, the holders of Second Lien Notes, and the
lenders under our Credit Facility and Senior Loan Facility, with respect to the collateral and certain other matters. On
September 22, 2017, the Assignment Agreement was entered into between Wells Fargo under the Prior Credit Agreement
and the Agent as further described in Note 6. As a result of the Assignment Agreement, the Agent has succeeded Wells Fargo
in its capacity as administrative agent and collateral agent for the Credit Facility under the Amended and Restated
Intercreditor Agreement. The Amended and Restated Intercreditor Agreement, among other things, modifies the terms of the
Existing Intercreditor Agreement to (i) establish the relative priorities, rights, obligations and remedies with respect to the
collateral among the Existing Holders, the holders of the Second Lien Notes, the lenders under the Credit Facility, the lenders
under the Senior Loan Facility, the holders of future debt that is permitted to share the security interests currently held by
them and the collateral agents of the foregoing (collectively, the “Secured Parties”); and (ii) modify the terms of the Existing
Intercreditor Agreement to permit the holders of obligations under the Senior Loan Facility and the Second Lien Notes to
share the security interests currently held by the Existing Holders and Wells Fargo as the lender under the Credit Facility as
follows:
the obligations under the Credit Facility are secured by all of the existing collateral on a senior first lien priority
basis;
the obligations under the Senior Loan Facility are secured by all of the existing collateral on a junior first lien
priority basis;
the obligations under the Second Lien Notes are secured by substantially all of the existing collateral on a second
lien priority basis; and
the obligations under the Senior Secured Notes are secured by substantially all of the existing collateral on a third
lien priority basis.
In addition, the Amended and Restated Intercreditor Agreement provides that, following a triggering event, as among the
Secured Parties, the Senior Representative (defined below) will have the right (subject to a purchase option by the other
Secured Parties) to, or the right to direct any other collateral agent to, adjust or settle insurance policies or claims in the event
of any loss thereunder relating to insurance proceeds with respect to collateral, to approve any award granted in any
condemnation or similar proceeding affecting such insurance proceeds and to enforce rights, exercise remedies and
discretionary rights and powers with respect to collateral. The Secured Parties agreed that if we or any guarantor becomes
subject to a case under the U.S. Bankruptcy Code, the Secured Parties will only be permitted to object to a debtor-in-
possession financing or the use of cash collateral if the Secured Parties for which the Senior Representative is the collateral
agent also object. The “Senior Representative” under the Amended and Restated Intercreditor Agreement is Wells Fargo as
the Credit Facility agent, until the obligations under the Credit Facility have been discharged in full, after which the Senior
Loan Facility agent will be the Senior Representative; and once the Credit Facility agent and the Senior Loan Facility agent
each cease to be the Senior Representative and the obligations under each of the Credit Facility and Senior Loan Facility have
been discharged in full, the Senior Representative will be Wilmington Savings Fund Society, FSB, as the New Noteholder
Collateral Agent. The material terms of the Amended and Restated Intercreditor Agreement, other than those summarized
above, remain substantially as set forth in the Existing Intercreditor Agreement, except that the Noteholder Collateral Agent
will no longer have a first-priority security interest in the “Noteholder Priority Collateral” (as such term is defined in the
Existing Intercreditor Agreement).
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On June 29, 2016, we and the Senior Secured Notes Guarantors, as pledgors, also entered into an amendment (the “Security
Agreement Amendment”) to the Security Agreement, dated as of July 2, 2014 (as amended from time to time, the “Existing
Security Agreement”), with Wilmington Savings Fund Society, FSB, as Noteholder Collateral Agent for the Senior Secured
Notes. The Security Agreement Amendment introduced conforming changes to reflect the provisions incorporated into the
Amended and Restated Intercreditor Agreement.
Use of Adjusted EBITDA and Adjusted Gross Profit (Non-GAAP measures) as Performance Measures
Adjusted EBITDA
We use an adjusted form of EBITDA to measure period over period performance, which is a non-GAAP measurement.
Adjusted EBITDA is defined as net loss plus depreciation and amortization, plus interest expense, plus income taxes, plus
share-based compensation, plus loss (gain) on disposal of property and equipment, plus costs incurred on debt restructuring,
plus foreign exchange loss (gain) and plus nonrecurring one-time expenses. Our management uses Adjusted EBITDA as a
supplemental financial measure to assess:
the financial performance of our assets without regard to financing methods, capital structures, taxes, historical cost
basis or nonrecurring expenses;
our liquidity and operating performance over time in relation to other companies that own similar assets and
calculate Adjusted EBITDA in a similar manner; and
the ability of our assets to generate cash sufficient to pay potential interest cost.
We consider Adjusted EBITDA as presented below to be the primary measure of period-over-period changes in our
operational cash flow performance.
The computation of our Adjusted EBITDA (a non-GAAP measure) from net loss, the most directly comparable GAAP
financial measure, is provided in the table below (in thousands):
Years Ended December 31,
Net loss ........................................................................................................................................ $
Depreciation and amortization (1) ...............................................................................................
Interest expense, net ....................................................................................................................
Provision for income taxes ..........................................................................................................
Share-based compensation (2) ....................................................................................................
Loss (gain) on disposal of property and equipment, net (3) ........................................................
Costs incurred on debt restructuring (4) ......................................................................................
Foreign exchange loss (gain), net (5) ..........................................................................................
Nonrecurring expenses (6)(7) ......................................................................................................
Adjusted EBITDA ....................................................................................................................... $
2017
(38,784) $
12,099
29,363
4,313
1,925
(101)
—
1,308
832
10,955 $
2016
(22,009)
16,910
23,697
6,056
1,383
4,542
5,439
(1,977)
2,092
36,133
(1) Depreciation and amortization expense was charged to the statements of operations as follows:
Years Ended December 31,
2017
2016
Cost of services ............................................................................................................... $
Selling, general and administrative expenses ..................................................................
Total depreciation and amortization expense .................................................................. $
11,725 $
374
12,099 $
16,410
500
16,910
(2) Share-based compensation primarily relates to the non-cash value of stock options and restricted stock awards granted to
our employees and directors.
(3) Loss (gain) on disposal of property and equipment, net is primarily the impact of sale of equipment.
(4) Costs were incurred during the Restructurings.
39
(5) Foreign exchange (gain) loss, net includes the effect of both realized and unrealized foreign exchange transactions.
(6) Nonrecurring expenses in 2017 primarily consist of severance payments of $263 incurred in our Peru and Alaska
locations, legal and claim costs related to employees in our Alaska and Bolivia locations, and various non-operating
expenses incurred at our corporate location.
(7) Nonrecurring expenses in 2016 primarily consist of severance payments of $928 incurred in our Peru, Colombia,
Canada, Alaska and corporate locations payments related to tax services provided in connection with our Restructurings,
and various non-operating expenses incurred at the corporate and Peru locations.
Adjusted Gross Profit
We use an adjusted form of gross profit to measure period over period performance, which is not derived in accordance with
GAAP. Adjusted Gross Profit is defined as gross profit plus depreciation and amortization expense related to the cost of
services. Our management uses Adjusted Gross Profit as a substantial financial measure to assess the cost management and
performance of our projects. Within the seismic data services industry, companies present gross profit both with and without
depreciation and amortization expense on equipment used in operations, and therefore we also use this measure to assess our
performance over time in relation to other companies that own similar assets and calculate gross profit in the same manner.
The computation of our Adjusted Gross Profit (a non-GAAP measure) from gross profit, the most directly comparable GAAP
financial measure, is provided in the table below (in thousands):
Gross profit as presented ....................... $
Depreciation and amortization expense
included in cost of services .............
Gross profit excluding depreciation and
amortization expense included in
cost of services ............................... $
Years Ended December 31,
2017
% of
Revenue
2016
% of
Revenue
Increase
(Decrease)
Percentage
Change
22,068
17.3% $
45,036
21.9% $
(22,968)
(51.0)%
11,725
9.3%
16,410
8.0%
(4,685)
(28.5)%
33,793
26.6% $
61,446
29.9% $
(27,653)
(45.0)%
(1) Depreciation and amortization expense included in cost of services includes depreciation and amortization on equipment
used in operations.
The terms EBITDA, adjusted EBITDA and Adjusted Gross Profit are not defined under GAAP, and we acknowledge that
these are not measures 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, gross profit, cash flow from operating activities or other cash flow data calculated in accordance
with GAAP. In addition, our calculation of Adjusted EBITDA and Adjusted Gross Profit may not be comparable to EBITDA
or Adjusted Gross Profit or similarly titled measures utilized by other companies since such other companies may not
calculate EBITDA or Adjusted Gross Profit in the same manner. Further, the results presented by Adjusted EBITDA and
Adjusted Gross Profit cannot be achieved without incurring the costs that the measures exclude.
Critical Accounting Policies
Our financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. Preparation of
financial statements in conformity with GAAP requires certain assumptions and estimates to be made that affect the reported
amounts of assets and liabilities at the financial statement date and the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements. Because of the use of assumptions and estimates inherent in the
reporting process, actual results could differ from those estimates.
Revenue Recognition
Our services are provided under master service agreements that set forth our obligations and the obligations of our customers.
A supplemental agreement is entered into for each data acquisition project which sets forth the terms of the specific project
including the right of either party to cancel on short notice. Customer contracts for services vary in terms and conditions.
Contracts are either “turnkey” (fixed price) agreements that provide for a fixed fee per unit of measure, or “term” (variable
price) agreements that provide for a fixed hourly, daily or monthly fee during the term of the project. Under turnkey
agreements, we recognize revenue based upon output measures as work is performed. This method requires revenue
40
recognition to be based upon quantifiable measures of progress, such as square or linear kilometers surveyed or each unit of
data recorded. Expenses associated with each unit of measure are immediately recognized. If it is determined that a contract
will have a loss, the entire amount of the loss associated with the contract is immediately recognized. Revenue under a “term”
contract is billed as the applicable rate is earned under the terms of the agreement. Under contracts that require the customer
to pay separately for the mobilization of equipment, we recognize such mobilization fees as revenue during the performance
of the seismic data acquisition, using the same output measures as for the seismic work. To the extent costs have been
incurred under service contracts for which the revenue has not yet been earned, those costs are deferred on the balance sheet
within deferred costs on contracts until the revenue is earned, at which point the costs are recognized as cost of services over
the life of the contract. If we determine that the costs are not recoverable, the costs are expensed.
We invoice customers for certain out-of-pocket expenses under the terms of the contracts. Amounts billed to customers are
recorded in revenue at the gross amount including out-of-pocket expenses. We also utilize subcontractors to perform certain
services to facilitate the completion of customer contracts. Customers are billed for the cost of these subcontractors plus an
administrative fee. We record amounts billed to our customers related to subcontractors at the gross amount and record the
related cost of subcontractors as cost of services. Sales taxes collected from customers and remitted to government authorities
are accounted for on a net basis and are excluded from revenues in the consolidated statements of operations.
Deferred Revenue
Deferred revenue primarily represents amounts billed or payments received for services in advance of the services to be
rendered over a future period or advance payments from customers related to equipment leasing.
Multiple-Element Arrangements
We evaluate each contract to determine if the contract is a multiple-element arrangement requiring different accounting
treatments for varying components of the contract. If a contract is deemed to have separate units of accounting, arrangement
consideration is allocated based on each unit of accounting's relative selling price and the applicable revenue recognition
criteria are considered separately for each of the separate units of accounting. We account for each contract element when the
applicable criteria for revenue recognition have been met. We use our best estimate of selling price when allocating multiple-
element arrangement consideration.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses in our accounts receivable portfolio. We utilize the
specific identification method for establishing and maintaining the allowance for doubtful accounts. Account balances are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery is
considered remote. While the collectability of outstanding customer invoices is continually assessed, the cyclical nature of
our industry may affect our customers’ operating performance and cash flows, impacting our ability to collect on the
invoices. Some of our customers are located in certain international areas that are inherently subject to economic, political
and civil risks, which may also impact our ability to collect receivables.
Property and Equipment
Our property and equipment is capitalized at historical cost and depreciated over the estimated useful life of the asset. The
estimation of useful life is based on circumstances that exist in the seismic industry and information available at the time of
the asset purchase. Changes in technology have a significant impact on these estimates. As circumstances change and new
information becomes available, these estimates could change. Seismic equipment is typically depreciated over three to ten
years.
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 such period.
Leases as Lessee
We lease certain equipment and vehicles under lease agreements. Each lease is evaluated to determine its appropriate
classification as an operating or capital lease for financial reporting purposes. Any lease that does not meet the criteria for a
capital lease is accounted for as an operating lease. Minimum rent payments under operating leases are recognized on a
straight-line basis over the term of the lease including any periods of free rent. The assets and liabilities under capital leases
41
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 capital leases are amortized using the straight-line method over the initial lease term. Amortization of assets
under capital leases is included in depreciation expense.
Long-Lived Assets
Long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare
undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of
the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is recognized to
the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques
including discounted cash flow models, quoted market values and third-party independent appraisals, as considered
necessary.
Currency Translation
The majority of our operations are conducted outside the United States in countries with stable currencies. Many contracts
and local expenses are paid in local currencies and not in U.S. Dollars (“USD”). Our results of operations and cash flows
could be impacted by changes in foreign currency exchange rates. We do not hold or issue foreign currency forward
contracts, option contracts or other derivative financial instruments for speculative purposes or to mitigate the currency
exchange rate risk.
Our reporting currency is in USD. For foreign subsidiaries and branches using the local currency as their functional currency,
assets and liabilities are translated at exchange rates in effect at the balance sheet dates. Revenues and expenses of these
foreign subsidiaries are translated at average exchange rates for the period. Equity is translated at historical rates, and the
resulting cumulative foreign currency translation adjustments resulting from this process are included as a component of
accumulated other comprehensive income (loss), net of income taxes. Therefore, the USD value of these items in the
financial statements fluctuates from period to period, depending on the value of the USD against these functional currencies.
Exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the
entity involved are included in the consolidated statements of operations as foreign exchange gain (loss), net. For the foreign
subsidiaries and branches using USD as their functional currency, any local currency operations are re-measured to USD. The
re-measurement of these operations is included in the consolidated statements of operations as foreign exchange gain (loss).
Income Taxes
Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred income
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. This method also requires the
recognition of future tax benefits for net operating loss (“NOL”) carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as
income in the period that includes the enactment date. The deferred tax asset is reduced by a valuation allowance if, based on
available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including
the valuation of deferred tax assets, which can create a variance between actual results and estimates and could have a
material impact on our provision or benefit for income taxes. In certain foreign jurisdictions, the local income tax rate may
exceed the U.S. or Canadian statutory rates, and in many of those cases we receive a foreign tax credit for U.S. or Canadian
purposes. In other foreign jurisdictions, the local income tax rate may be less than the U.S. or Canadian statutory rates. In
other foreign jurisdictions we may be subject to a tax on revenues when the amount of tax liability would exceed that
computed on our net income before tax in the jurisdiction, and in such cases, the tax is treated as an income tax for
accounting purposes. Uncertain tax positions and the related interest and penalties are provided for based upon management’s
assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.
We have historically and continue to assert that foreign earnings are permanently reinvested. While we have not currently
changed the assertion with respect to foreign earnings compared to prior years, we are currently evaluating the impact of U.S.
Tax Reform on the global structure and any associated impacts it may have on our assertion on a go forward basis and as
such have not included a provisional estimate of the impact.
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The U.S. Tax Reform Act includes two new U.S. tax base erosion provisions, the GILTI provisions and the BEAT
provisions. The GILTI provisions require us to include in our U.S. income tax return foreign subsidiary earnings in excess of
an allowable return on the foreign subsidiary’s tangible assets. We have elected to account for GILTI tax in the period in
which it is incurred, and therefore have not provided any deferred tax impacts of GILTI in our consolidated financial
statements for year ended December 31, 2017. The BEAT provision in the Tax Reform Act eliminates the deduction of
certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax.
Starting January 1, 2018, we will account for BEAT in the period in which it is incurred to the extent we are subject to it.
Goodwill
Goodwill represents the excess of purchase price over the fair value of the net assets acquired in the 2011 Datum Exploration
Ltd. acquisition. All of our goodwill resides in the Canadian operations reporting unit (“Reporting Unit”).
We are required to evaluate the carrying value of its goodwill at least annually for impairment, or more frequently if facts and
circumstances indicate that it is more likely than not impairment has occurred. We first perform a qualitative assessment by
evaluating relevant events or circumstances to determine whether it is more likely than not that the fair value of the Reporting
Unit exceeds its carrying amount. If we are unable to conclude qualitatively that it is more likely than not that the Reporting
Unit’s fair value exceeds its carrying value, we will then apply a two-step quantitative assessment.
First, the fair value of the Reporting Unit is compared to its carrying value. If the fair value exceeds the carrying value,
goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the
fair value. The implied fair value of the Reporting Unit’s goodwill must be determined and compared to the carrying value of
the goodwill. If the carrying value of the Reporting Unit’s goodwill exceeds its implied fair value, an impairment loss equal
to the difference will be recorded.
In determining the fair value of the Reporting Unit, we rely on the Income Approach and the Market Approach. Under the
Income Approach, the fair value of a business unit is based on the discounted cash flows it can be expected to generate over
its remaining life. The estimated cash flows are converted to their present value equivalent using an appropriate rate of return.
Under the Market Approach, the fair value of the business is based on the Guideline Public Company (“GPC”) methodology
using guideline public companies whose stocks are actively traded that were considered similar to ours as of the valuation
date. Valuation multiples for the GPCs were determined as of the valuation date and were applied to the Reporting Unit's
operating results to arrive at an estimate of value.
Share-Based Compensation
We record the grant date fair value of share-based compensation arrangements as compensation cost using a straight-line
method over the requisite service period for each separately vesting tranche of an award. The amount of share-based
compensation cost recognized during a period is based on the value of the awards that are ultimately expected to vest.
Forfeitures are recognized as they occur except in certain circumstances where they are required to be estimated.
Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources, are
recorded when it is probable that a liability has been incurred and the amount of the assessment and remediation can be
reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Comprehensive Income
Comprehensive income includes net income (loss) as currently reported and considers the effect of additional economic
events that are not required to be recorded in determining net income (loss) but rather reported as a separate component of
stockholders’ equity. We report foreign currency translation gains and losses as a component of comprehensive (loss)
income. Foreign currency translation gains and losses are not presented net of income taxes because the earnings of the
foreign subsidiaries are considered permanently invested abroad and therefore not subject to income taxes or the income tax
benefit of foreign currency translation losses would be offset by a valuation allowance.
Variable Interest Entities
We evaluate our joint venture and other entities in which we have a variable interest (a “VIE”), to determine if we have a
controlling financial interest and are required to consolidate the entity as a result. The reporting entity with a controlling
43
financial interest in the VIE will have both of the following characteristics: (i) the power to direct the activities of a VIE that
most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE that could
potentially be significant to the VIE or the right to receive benefit from the VIE that could potentially be significant to the
VIE.
Fair Value Measurements
We have certain assets and liabilities that are required to be measured and disclosed at fair value in accordance with GAAP.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most
advantageous market in an orderly transaction between market participants on the measurement date. When an asset or
liability is required to be measured at fair value, an entity is required to maximize the use of observable inputs and minimize
the use of unobservable inputs using a fair value hierarchy as follows:
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability,
including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or
liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. Measurement is based on prices or
valuation models requiring inputs that are both significant to the fair value measurement and supported by little or no
market activity.
Our financial instruments include cash and cash equivalents, restricted cash, accounts receivable, other current assets,
accounts payable, accrued liabilities, borrowings under the credit facility and borrowings under the senior loan facility. Due
to their short-term maturities, the carrying amounts of these financial instruments approximate fair value at the respective
balance sheet dates. Our financial instruments also include various issuances of notes payable. There were no financial
instruments measured at fair value on a recurring basis at December 31, 2017 and 2016.
Our non-financial assets include goodwill, property and equipment, and other intangible assets, which are classified as Level
3 assets. These assets are measured at fair value on a nonrecurring basis as part of our impairment assessments and as
circumstances require.
Reportable Segment
The 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 it operates represents a reporting unit. To determine our reportable
segments, we evaluated whether and to what extent the reporting units should be aggregated. The evaluation included
consideration of each reporting unit's services, types of customers, methods used to provide our services, and regulatory
environment. We determined that our reporting units sold similar types of seismic data contract services to similar types of
major non-U.S. and government owned/controlled oil and gas customers operating in a global market. We concluded that our
seismic data contract services operations comprise one single reportable segment.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2017 or 2016.
Effect of Inflation
We do not believe that inflation has had a material effect on our business, results of operations, or financial condition during
the past two fiscal years.
Recently Issued Accounting Pronouncements
For a detail of recently issued accounting standards, see Note 4 to the accompanying Consolidated Financial Statements.
44
ITEM 8. Financial Statements and Supplementary Data.
The information required by this item appears beginning on page FS-1 hereof and is incorporated herein by reference.
ITEM 9A. 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 principal financial officers, 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 Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2017, 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 Chief Executive Officer and our Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting was designed by
management, under the supervision of the Chief Executive Officer and Chief Financial Officer, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America, and includes those policies and
procedures that:
(i)
(ii)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America, and that
our receipts and expenditures are being made only in accordance with authorizations of our management and
directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making
this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (2013).
Based on our evaluation under the criteria in Internal Control-Integrated Framework (2013), management has concluded that
we maintained effective internal control over financial reporting as of December 31, 2017.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of the period
covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
45
ITEM 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item is incorporated by reference to our definitive Proxy Statement to be delivered to
stockholders in connection with our 2018 Annual Meeting of Stockholders.
ITEM 11. Executive Compensation.
The information required by this item is incorporated by reference to our definitive Proxy Statement to be delivered to
stockholders in connection with our 2018 Annual Meeting of Stockholders.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference to our definitive Proxy Statement to be delivered to
stockholders in connection with our 2018 Annual Meeting of Stockholders.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to our definitive Proxy Statement to be delivered to
stockholders in connection with our 2018 Annual Meeting of Stockholders.
ITEM 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to our definitive Proxy Statement to be delivered to
stockholders in connection with our 2018 Annual Meeting of Stockholders.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
(1) Financial Statements.
The following consolidated financial statements of the Company appear beginning on page FS-1 and are incorporated by
reference into Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2017 and 2016
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2017 and 2016
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
All schedules are omitted because they are either not applicable or the required information is shown in the financial
statements or notes thereto.
(3) Exhibits.
The information required by this item 15(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on
Form 10-K and is hereby incorporated by reference.
46
Pursuant to the requirements of the Section 13 or 15 or 15(d) 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.
SIGNATURES
Date: March 15, 2018
By: /s/ Brent Whiteley
SAEXPLORATION HOLDINGS, INC.
Brent Whiteley
Chief Financial Officer, General Counsel and Secretary
POWER OF ATTORNEY
The undersigned directors and officers of SAExploration Holdings, Inc. hereby constitute and appoint Jeff Hastings and
Brent Whiteley, and each of them, with full power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute in our name and behalf in the capacities
indicated below, this annual report on Form 10-K and any and all amendments thereto and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby ratify and
confirm all that such attorneys-in-fact, or any of them, or their substitutes shall lawfully do or cause to be done by virtue
hereof.
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Jeff Hastings
Jeff Hastings
/s/ Brian Beatty
Brian Beatty
Chief Executive Officer and Chairman of the Board
March 15, 2018
(Principal Executive Officer)
Chief Operating Officer and Director
March 15, 2018
/s/ Brent Whiteley
Brent Whiteley
Chief Financial Officer, General Counsel, and
Secretary (Principal Financial Officer and
March 15, 2018
Principal Accounting Officer)
/s/ L. Melvin Cooper
L. Melvin Cooper
/s/ Gary Dalton
Gary Dalton
/s/ Michael Faust
Michael Faust
/s/ Alan B. Menkes
Alan B. Menkes
/s/ Jacob Mercer
Jacob Mercer
Director
Director
Director
Director
Director
47
March 15, 2018
March 15, 2018
March 15, 2018
March 15, 2018
March 15, 2018
EXHIBIT INDEX
Exhibit
No.
2.1
2.2
2.3
2.4
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Description
Agreement and Plan of Reorganization dated as of December 10, 2012,
by and among the Corporation, Trio Merger Sub, Inc., SAExploration
Holdings, Inc. and CLCH, LLC.
First Amendment to Agreement and Plan of Reorganization dated as of
May 23, 2013, by and among the Corporation, Trio Merger Sub, Inc.,
SAExploration Holdings, Inc. and CLCH, LLC.
Restructuring Support Agreement dated as of June 13, 2016, among the
Corporation, the members of management identified therein and the
supporting holders identified therein.
Restructuring Support Agreement dated as of December 19, 2017, by
and among SAExploration Holdings, Inc., certain subsidiaries of
SAExplorations Holdings, Inc., the members of management identified
therein and the supporting holders identified therein.
Included
By Reference
Form
Filing Date
8-K
December 11, 2012
By Reference
8-K
May 28, 2013
By Reference
8-K
June 13, 2016
By Reference
8-K
December 20, 2017
Third Amended and Restated Certificate of Incorporation.
By Reference
8-K/A
September 9, 2016
Certificate of Amendment to Third Amended and Restated Certificate
of Incorporation.
By Reference
8-K
March 8, 2018
Second Amended and Restated By-Laws.
By Reference
8-K
August 1, 2016
Amendment No. 1 to Second Amended and Restated By-Laws.
By Reference
8-K
March 8, 2018
Certificate of Designations of 8.0% Cumulative Perpetual Series A
Preferred Stock and Form of Series A Preferred Stock Certificate.
Certificate of Designations of Mandatorily Convertible Series B
Preferred Stock and Form of Series B Preferred Stock Certificate..
By Reference
8-K
February 1, 2018
By Reference
8-K
February 1, 2018
Specimen Common Stock Certificate.
By Reference
8-K
June 28, 2013
Indenture, dated July 2, 2014, by and among the Corporation, the
guarantors named therein and U.S. Bank National Association, as
trustee and noteholder collateral agent.
By Reference
8-K
July 9, 2014
Form of 10.000% Senior Secured Notes due 2019.
By Reference
10-Q
August 7, 2015
Notation of Guarantee executed June 19, 2015, among the Corporation,
SAExploration Sub, Inc., SAExploration, Inc., SAExploration Seismic
Services (US), LLC and NES, LLC.
First Supplemental Indenture, dated as of June 29, 2016, among the
Corporation, the guarantors party thereto, and Wilmington Savings
Fund Society, FSB, as trustee and noteholder collateral agent.
Indenture, dated July 27, 2016, by and among the Corporation, the
guarantors named therein and Wilmington Savings Fund Society, FSB,
as trustee and noteholder collateral agent.
By Reference
10-Q
August 7, 2015
By Reference
8-K
July 1, 2016
By Reference
8-K
August 1, 2016
Form of 10.000% Senior Secured Second Lien Notes due 2019.
By Reference
8-K
August 1, 2016
Notation of Guarantee executed July 27, 2016, among SAExploration
Sub, Inc., SAExploration, Inc., SAExploration Seismic Services (US),
LLC and NES, LLC.
First Supplemental Indenture, dated January 26, 2018, to Indenture,
dated July 27, 2016, by and among the Corporation, the guarantors
named therein and Wilmington Savings Fund Society, FSB, as trustee
and noteholder collateral agent.
By Reference
8-K
August 1, 2016
By Reference
8-K
February 1, 2018
48
4.10
4.11
4.12
4.13
4.14
4.15
4.16
10.1
Warrant Agreement, dated as of July 27, 2016 between the Corporation
and Continental Stock Transfer & Trust Company, as Warrant Agent.
By Reference
8-K
August 1, 2016
Warrant Agreement, dated as of January 29, 2018, between the
Corporation and Continental Stock Transfer & Trust Company, as
Warrant Agent and the form of Series C Warrant Certificates.
Warrant Agreement, dated as of March 8, 2018, between the
Corporation and Continental Stock Transfer & Trust Company, as
Warrant Agent and the form of Series D Warrant Certificates.
By Reference
8-K
February 1, 2018
By Reference
8-K
March 8, 2018
Registration Rights Agreement dated June 24, 2013, by and between
the Corporation and CLCH, LLC.
By Reference
8-K
June 28, 2013
Registration Rights Agreement dated July 27, 2016, between the
Corporation and the holders named therein.
By Reference
8-K
August 1, 2016
First Amendment dated as of August 25, 2016 to Registration Rights
Agreement dated July 27, 2016, between the Corporation and the
holders named therein.
By Reference
8-K
August 25, 2016
Registration Rights Agreement, dated January 29, 2018, by and among
the Corporation and the holders named therein.
By Reference
8-K
February 1, 2018
Merger Consideration Escrow Agreement dated as of June 24, 2013,
by and among the Corporation, CLCH, LLC and Continental Stock
Transfer & Trust Company.
By Reference
8-K
June 28, 2013
10.2
Form of Indemnification Agreement.
By Reference
8-K
June 28, 2013
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Security Agreement, dated July 2, 2014, by and among
the
Corporation, the guarantors named therein and U.S. Bank National
Association, as noteholder collateral agent.
By Reference
8-K
July 9, 2014
Credit and Security Agreement, dated November 6, 2014, by and
among SAExploration,
the Corporation,
SAExploration Sub, Inc., SAExploration Seismic Services (US), LLC,
and NES, LLC as Guarantors, and Wells Fargo Bank, National
Association as Lender.
as Borrower,
Inc.
First Amendment to Credit and Security Agreement dated as of June
29, 2016, by and among Wells Fargo Bank, National Association,
SAExploration, Inc., the Corporation, SAExploration Sub, Inc., NES,
LLC, and SAExploration Seismic Services (US), LLC.
First Amended and Restated Credit and Security Agreement, dated as
of September 22, 2017, by and among SAExploration, Inc., as
Borrower, the Guarantors from time to time party thereto, the Lenders
from time to time party thereto and Cantor Fitzgerald Securities, as
Agent.
Amendment No. 1 to First Amended and Restated Credit and Security
Agreement, dated as of December 21, 2017, by and among
SAExploration, Inc., as Borrower, the Guarantors party thereto, the
Lenders party thereto and Cantor Fitzgerald Securities, as Agent.
Amendment No. 2 to First Amended and Restated Credit and Security
Agreement, dated as of February 28, 2018, by and among
SAExploration, Inc., as Borrower, the Guarantors party thereto, the
Lenders party thereto and Cantor Fitzgerald Securities, as Agent.
Term Loan and Security Agreement, dated as of June 29, 2016, by and
among the Corporation, as borrower, the guarantors named therein, as
guarantors, the lenders, from time to time party thereto, as lenders and
Delaware Trust Company, as collateral agent and administrative agent.
49
By Reference
8-K
November 12, 2014
By Reference
8-K
July 1, 2016
By Reference
8-K
September 29, 2017
By Reference
8-K
December 26, 2017
By Reference
8-K
March 2, 2018
By Reference
8-K
July 1, 2016
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Amended and Restated Intercreditor Agreement, dated as of June 29,
2016, by and among Wells Fargo Bank, National Association, as
lender and collateral agent, Wilmington Savings Fund Society, FSB, as
trustee and collateral agent, Delaware Trust Company, as
administrative agent, collateral agent and, upon execution of an
additional indebtedness joinder and designation, the additional
noteholder agent.
Security Agreement, dated July 27, 2016, by and among the
Corporation, the guarantors named therein and Wilmington Savings
Fund Society, FSB, as noteholder collateral agent.
Additional Indebtedness Joinder and Designation, dated as of July 27,
2016, by and among Wells Fargo Bank, National Association, as ABL
Agent, Wilmington Savings Fund Society, FSB, as Existing
Noteholder Agent, Delaware Trust Company, as Term Agent, and
Wilmington Savings Fund Society, FSB, as Additional Noteholder
Agent.
By Reference
8-K
July 1, 2016
By Reference
8-K
August 1, 2016
By Reference
8-K
August 1, 2016
Amendment No. 1 dated as of October 24, 2016 to Term Loan and
Security Agreement, dated as of June 29, 2016.
By Reference
8-K
October 27, 2016
Amendment No. 2 dated as of September 8, 2017 to Term Loan and
Security Agreement.
By Reference
8-K
September 14, 2017
Amendment No. 3 dated as of February 28, 2018 to Term Loan and
Security Agreement.
By Reference
8-K
March 2, 2018
Amendment No. 1, dated as of January 26, 2018, to Security
Agreement dated July 27, 2016, by and among the Corporation, the
Guarantors named therein and Wilmington Savings Fund Society,
FSB, as noteholder collateral agent.
By Reference
8-K
February 1, 2018
10.17
Form of Director and Officer Indemnification Agreement.
By Reference
8-K
August 1, 2016
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Amended and Restated Executive Employment Agreement, dated
August 3, 2016, by and between the Corporation and Jeff Hastings.
By Reference (*) 8-K
August 9, 2016
First Amendment to Amended and Restated Executive Employment
Agreement, dated August 3, 2016, by and between the Corporation and
Jeff Hastings.
By Reference (*)
10-Q
August 21, 2017
Second Amendment to Amended and Restated Executive Employment
Agreement, dated January 29, 2018, by and between the Corporation
and Jeff Hastings.
Herewith
Amended and Restated Executive Employment Agreement, dated
August 3, 2016, by and between the Corporation and Brian Beatty.
By Reference (*) 8-K
August 9, 2016
First Amendment to Amended and Restated Executive Employment
Agreement, dated August 3, 2016, by and between the Corporation
and Brian Beatty.
By Reference (*)
10-Q
August 21, 2017
Second Amendment to Amended and Restated Executive
Employment Agreement, dated January 29, 2018, by and between the
Corporation and Brian Beatty.
Herewith
Amended and Restated Executive Employment Agreement, dated
August 3, 2016, by and between the Corporation and Brent Whiteley.
By Reference (*) 8-K
August 9, 2016
First Amendment to Amended and Restated Executive Employment
Agreement, dated August 3, 2016, by and between the Corporation
and Brent Whiteley.
By Reference (*)
10-Q
August 21, 2017
Second Amendment to Amended and Restated Executive
Employment Agreement, dated January 29, 2018, by and between the
Corporation and Brent Whiteley.
Herewith
50
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Amended and Restated Executive Employment Agreement, dated
August 3, 2016, by and between the Corporation and Mike Scott.
By Reference (*) 8-K
August 9, 2016
First Amendment to Amended and Restated Executive Employment
Agreement, dated January 29, 2018, by and between the Corporation
and Mike Scott.
Herewith
Amended and Restated Executive Employment Agreement, dated
August 3, 2016, by and between the Corporation and Darin
Silvernagle.
By Reference (*) 8-K
August 9, 2016
First Amendment to Amended and Restated Executive Employment
Agreement, dated January 29, 2018, by and between the Corporation
and Darin Silvernagle.
Herewith
Executive Employment Agreement, dated August 3, 2016, by and
between the Corporation and Ryan Abney.
By Reference (*) 8-K
August 9, 2016
First Amendment to Executive Employment Agreement, dated
November 10, 2016, by and between the Corporation and Ryan
Abney.
By Reference (*)
8-K
November 15, 2016
Second Amendment to Executive Employment Agreement, dated
January 29, 2018, by and between the Corporation and Ryan Abney.
Herewith
SAExploration Holdings, Inc. 2016 Long-Term Incentive Plan, Form
of Notice of Stock Option Award-MIP Options and Form of Stock
Option Award Agreement-MIP Options and Form of Notice of Stock
Units Award-MIP Stock Units and Form of Stock Units Award
Agreement-MIP Stock Units.
By Reference (*)
8-K
August 9, 2016
10.35
Amended and Restated 2016 Long-Term Incentive Plan.
By Reference (*) 8-K
May 10, 2017
10.36
2018 Long-Term Incentive Plan.
By Reference (*) DEF14C February 9, 2018
14.1
21.1
23.1
31.1
Code of Ethics.
List of subsidiaries.
By Reference
S-1/A
April 28, 2011
By Reference
S-4
April 30, 2015
Consent of Pannell Kerr Forster of Texas, P.C.
Herewith
Certification of Chief Executive Officer pursuant to Section 302 of
Herewith
the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the
Herewith
Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to Section 906 of
Herewith
the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the
Herewith
Sarbanes-Oxley Act of 2002.
101.IN
XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Scheme Document.
101.CAL XBRL Taxonomy Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Document.
101.LAB XBRL Taxonomy Label Linkbase Document.
101.PRE XBRL Taxonomy Presentation Linkbase Document.
_____________________________________________
(*) Denotes compensation arrangement.
Herewith
Herewith
Herewith
Herewith
Herewith
Herewith
51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SAEXPLORATION HOLDINGS, INC.
Page
Report of Independent Registered Public Accounting Firm .............................................................................................. FS-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2017 and 2016 ............................................................................... FS-3
Consolidated Statements of Operations for the years ended December 31, 2017 and 2016 ......................................... FS-4
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2017 and 2016 ......................... FS-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2017
and 2016 .............................................................................................................................................................. FS-6
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016 ....................................... FS-7
Notes to Consolidated Financial Statements ................................................................................................................ FS-8
FS-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of SAExploration Holdings, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of SAExploration Holdings, Inc. (a Delaware corporation)
and subsidiaries (the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations,
comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period
ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years
in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We
believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2014.
/s/ Pannell Kerr Forster of Texas, P.C.
Houston, Texas
March 15, 2018
FS-2
SAExploration Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
As of December 31,
2017
2016
Current assets:
ASSETS
Cash and cash equivalents ............................................................................................................................................ $
3,613 $
Restricted cash ..............................................................................................................................................................
Accounts receivable, net ...............................................................................................................................................
Deferred costs on contracts ...........................................................................................................................................
Prepaid expenses ...........................................................................................................................................................
Total current assets ...............................................................................................................................................
Property and equipment, net .............................................................................................................................................
Intangible assets, net .........................................................................................................................................................
Goodwill ...........................................................................................................................................................................
Deferred loan issuance costs, net .....................................................................................................................................
Accounts receivable, net, noncurrent ...............................................................................................................................
Deferred income tax assets ...............................................................................................................................................
Other assets .......................................................................................................................................................................
41
6,105
2,107
6,395
18,261
32,946
671
1,832
5,352
78,102
4,592
182
11,460
536
69,721
8,644
1,977
92,338
42,759
721
1,711
20,856
37,984
5,122
164
Total assets ........................................................................................................................................................... $
141,938 $
201,655
Current liabilities:
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable .......................................................................................................................................................... $
4,551 $
Accrued liabilities .........................................................................................................................................................
Income and other taxes payable ....................................................................................................................................
Borrowings under senior loan facility ..........................................................................................................................
Borrowings under credit facility ...................................................................................................................................
Current portion of capital leases ...................................................................................................................................
Deferred revenue ...........................................................................................................................................................
Total current liabilities ..........................................................................................................................................
Borrowings under senior loan facility ..............................................................................................................................
Borrowings under credit facility .......................................................................................................................................
Second lien notes, net .......................................................................................................................................................
Senior secured notes, net ..................................................................................................................................................
Other long-term liabilities ................................................................................................................................................
6,311
7,887
995
—
—
1,477
21,221
29,000
4,401
85,050
1,847
608
9,301
12,750
15,605
—
5,844
56
7,975
51,531
29,995
—
80,238
1,830
—
Total liabilities .....................................................................................................................................................
142,127
163,594
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value, 1,000,000 shares authorized and no shares outstanding ..................................
Common stock, $0.0001 par value, 55,000,000 shares authorized, and 9,424,334 and 9,358,529 outstanding at
December 31, 2017 and 2016, respectively ......................................................................................................
Additional paid-in capital ..........................................................................................................................................
Accumulated deficit ...................................................................................................................................................
Accumulated other comprehensive loss ....................................................................................................................
Treasury stock, 38,024 shares at cost ........................................................................................................................
Total stockholders’ equity (deficit) attributable to the Corporation ...................................................................
Noncontrolling interest ..............................................................................................................................................
Total stockholders’ equity (deficit) .....................................................................................................................
—
1
133,741
(133,306)
(5,082)
(113)
(4,759)
4,570
(189)
—
1
131,816
(92,550)
(4,822)
—
34,445
3,616
38,061
Total liabilities and stockholders’ equity (deficit) .............................................................................................. $
141,938 $
201,655
The accompanying notes are an integral part of these consolidated financial statements.
FS-3
SAExploration Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Years Ended December 31,
2017
2016
Revenue from services ............................................................................................................ $
Cost of services excluding depreciation and amortization ......................................................
Depreciation and amortization included in cost of services ....................................................
Gross profit ...................................................................................................................
Selling, general and administrative expenses ..........................................................................
(Gain)/loss on disposal of property and equipment, net ..........................................................
Income (loss) from operations ......................................................................................
Other income (expense):
Costs incurred on debt restructuring ..................................................................................
Interest expense, net ...........................................................................................................
Foreign exchange gain (loss), net ......................................................................................
Other, net ...........................................................................................................................
Total other expense, net ................................................................................................
Loss before income taxes ..............................................................................................
Provision for income taxes ......................................................................................................
Net loss .........................................................................................................................
Less: net income attributable to noncontrolling interest .........................................................
Net loss attributable to the Corporation .................................................................................. $
127,022 $
93,229
11,725
22,068
25,697
(101)
(3,528)
—
(29,363)
(1,308)
(272)
(30,943)
(34,471)
4,313
(38,784)
1,972
(40,756) $
205,564
144,118
16,410
45,036
29,253
4,542
11,241
(5,439)
(23,697)
1,977
(35)
(27,194)
(15,953)
6,056
(22,009)
3,021
(25,030)
Net loss attributable to Corporation per common share:
Basic .................................................................................................................................. $
Diluted ............................................................................................................................... $
(4.34) $
(4.34) $
(6.13)
(6.13)
Weighted average shares:
Basic ..................................................................................................................................
9,386,910
4,083,103
Diluted ...............................................................................................................................
9,386,910
4,083,103
The accompanying notes are an integral part of these consolidated financial statements.
FS-4
SAExploration Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss ...................................................................................................................................... $
Foreign currency translation loss ..............................................................................................
Total comprehensive loss ..........................................................................................................
Less: net income attributable to noncontrolling interest ...........................................................
Comprehensive loss attributable to the Corporation ................................................................. $
(38,784) $
(260)
(39,044)
1,972
(41,016) $
(22,009)
(551)
(22,560)
3,021
(25,581)
Years Ended December 31,
2017
2016
The accompanying notes are an integral part of these consolidated financial statements.
FS-5
Foreign currency
translation ...............
Distribution to
noncontrolling
interest ....................
Employee share-based
compensation ..........
Grantee election to
fund payroll taxes
out of restricted
stock grant ..............
Issuance of shares to
non-employee
directors ..................
Common stock issued
in exchange of
senior secured notes
for second lien
notes ........................
Common stock issued
to participants in
senior loan facility ..
Fair value of warrants
issued to
stockholders ............
Adjustment for reverse
stock split ................
Legal costs of issuing
stock associated
with restructuring ...
SAExploration Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 2017 and 2016
(In thousands, except share amounts)
Common
Stock at
Par
Value
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss - Foreign
Currency
Translation
Total
Corporation
Stockholders’
Equity
(Deficit)
Treasury
Stock
Non-
controlling
Interest
Total
Stockholders’
Equity (Deficit)
Balances at December
31, 2015 ....................... $
2 $ 35,763 $
(66,139) $
(4,271) $
— $
(34,645) $
4,433 $
(30,212)
—
—
—
(551)
—
(551)
—
(551)
—
—
—
1,254
—
—
—
—
—
—
—
(3,838)
1,254
—
(3,838)
1,254
—
(9)
—
—
—
(9)
—
—
129
—
—
—
129
—
(9)
129
1
65,002
—
—
—
65,003
—
65,003
—
28,425
—
—
—
28,425
—
28,425
—
1,381
(1,381)
(2)
2
—
Net income (loss) ........
—
(131)
—
—
(25,030)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(131)
(25,030)
—
3,021
(131)
(22,009)
Balances at December
31, 2016 .......................
Foreign currency
translation ...............
Distribution to
noncontrolling
interest ....................
Employee share-based
compensation
expense ...................
Purchase of treasury
stock ........................
Loss of control of
variable interest
entity (see Note 15) ..
Net income (loss) ........
Balances at December
31, 2017 ....................... $
1
131,816
(92,550)
(4,822)
—
34,445
3,616
38,061
—
—
—
(260)
—
(260)
—
(260)
—
—
—
—
—
—
(1,095)
(1,095)
—
1,925
—
—
—
—
—
—
—
—
—
(40,756)
—
—
—
—
—
1,925
(113)
(113)
—
—
1,925
(113)
—
—
—
(40,756)
77
1,972
77
(38,784)
1 $ 133,741 $ (133,306) $
(5,082) $
(113) $
(4,759) $
4,570 $
(189)
The accompanying notes are an integral part of these consolidated financial statements.
FS-6
SAExploration Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2016
2017
Operating activities:
Net loss attributable to Corporation .....................................................................................................................................................
Net income attributable to noncontrolling interest ...............................................................................................................................
Net loss .................................................................................................................................................................................................
$
$
(40,756)
1,972
(38,784)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ......................................................................................................................................................
Amortization of loan issuance costs, debt discount and debt premium ........................................................................................
Capitalization of in kind interest ...................................................................................................................................................
Deferred income taxes ...................................................................................................................................................................
(Gain)/loss on disposal of property and equipment, net ................................................................................................................
Employee share-based compensation ............................................................................................................................................
Bad debt expense ...........................................................................................................................................................................
Unrealized gain on foreign currency transactions .........................................................................................................................
Changes in operating assets and liabilities:
Accounts receivable .......................................................................................................................................................................
Prepaid expenses ............................................................................................................................................................................
Deferred costs on contracts............................................................................................................................................................
Accounts payable ...........................................................................................................................................................................
Accrued liabilities ..........................................................................................................................................................................
Income and other taxes payable ....................................................................................................................................................
Deferred revenue ...........................................................................................................................................................................
Other, net .......................................................................................................................................................................................
Net cash used in operating activities ..........................................................................................................................................
Investing activities:
Purchase of property and equipment ....................................................................................................................................................
Proceeds from disposal of property and equipment .............................................................................................................................
Net cash used in investing activities ..........................................................................................................................................
Financing activities:
Borrowings under senior loan facility ..................................................................................................................................................
Payment of senior loan facility fee, debt discount and loan issuance costs.........................................................................................
Credit facility borrowings .....................................................................................................................................................................
Credit facility repayments ....................................................................................................................................................................
Purchase of treasury stock ....................................................................................................................................................................
Distribution to noncontrolling interest .................................................................................................................................................
Legal fees for stock issuance associated with restructuring .................................................................................................................
Other financing activities .....................................................................................................................................................................
Net cash provided by (used in) financing activities ...................................................................................................................
Effect of exchange rate changes on cash, cash equivalents and restricted cash.......................................................................................
Net change in cash, cash equivalents and restricted cash .........................................................................................................................
Cash, cash equivalents and restricted cash at the beginning of year ........................................................................................................
Cash, cash equivalents and restricted cash at the end of year ..................................................................................................................
$
Supplemental disclosures of cash flow information:
Interest paid .......................................................................................................................................................................................
Income taxes paid ..............................................................................................................................................................................
Non-cash investing and financing activities:
Debt issuance costs included in accounts payable ............................................................................................................................
Capital assets acquired included in accounts payable ......................................................................................................................
Capital assets sold included in accounts receivable..........................................................................................................................
Common stock issued to senior loan facility participants ................................................................................................................
Senior secured notes exchanged for equity .......................................................................................................................................
Accrued interest exchanged for second lien notes ............................................................................................................................
Fair value of warrants issued to stockholders ...................................................................................................................................
$
$
$
$
$
$
$
$
$
12,099
16,602
4,848
530
(101)
1,925
—
(543)
21,766
(4,420)
6,546
(4,868)
(5,933)
(7,710)
(6,496)
(14)
(4,553)
(2,670)
1,910
(760)
—
(1,166)
33,401
(34,245)
(113)
(1,095)
—
(56)
(3,274)
245
(8,342)
11,996
3,654
6,154
7,668
550
49
$
$
$
$
$
— $
— $
— $
— $
— $
The accompanying notes are an integral part of these consolidated financial statements.
FS-7
(25,030)
3,021
(22,009)
16,910
10,455
3,619
(1,322)
4,542
1,383
12
(2,548)
(37,421)
(1,060)
(3,489)
(8,012)
2,153
12,898
4,072
(13)
(19,830)
(3,352)
488
(2,864)
29,995
(2,002)
44,470
(46,525)
—
(3,838)
(131)
(127)
21,842
1,030
178
11,818
11,996
8,462
254
—
559
1,850
28,425
65,003
7,459
1,381
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 1 — NATURE OF OPERATIONS
SAExploration Holdings, Inc. and its Subsidiaries (collectively, the “Corporation”) is an internationally-focused oilfield
services company offering seismic data acquisition and logistical support services in Alaska, Canada, South America,
Southeast Asia, and West Africa to its customers in the oil and natural gas industry. In addition to the acquisition of 2D, 3D,
time-lapse 4D and multi-component seismic data on land, in transition zones between land and water, and offshore in depths
reaching 3,000 meters, the Corporation offers a full-suite of logistical support and in-field data processing services. The
Corporation operates crews around the world that utilize over 27,500 owned land and marine channels of seismic data
acquisition equipment and other equipment as needed to complete particular projects. Seismic data is used by its customers,
including major integrated oil companies, national oil companies and large international independent oil and gas exploration
and production companies, to identify and analyze drilling prospects and maximize successful drilling. The results of the
seismic surveys the Corporation conducts belong to its customers and are proprietary in nature; the Corporation does not
acquire data for its own account or for future sale or maintain multi-client data libraries.
NOTE 2 — RESTRUCTURINGS
2017 Restructuring
On December 19, 2017, the Corporation entered into a restructuring support agreement (the “2017 Restructuring Support
Agreement”) with holders (the “2017 Supporting Holders”) that beneficially own in excess of 85% in principal amount of the
Corporation’s 10% Senior Secured Second Lien Notes due 2019 (the “Second Lien Notes”) to provide additional liquidity
and realign its capital structure to better support operations during the prolonged industry downturn.
The following is a summary of the key aspects of the 2017 Restructuring:
Exchange of Second Lien Notes for Common Stock, Convertible Preferred Stock and Warrants. The Corporation
commenced an offer on December 22, 2017 (“2017 Exchange Offer”) to exchange each $1 of Second Lien Notes and 10%
Senior Secured Notes due 2019 (the “Senior Secured Notes”) held by the holders participating in the 2017 Exchange Offer
(“2017 Participating Holders”) for (i) 21.8457 shares of newly issued Corporation common stock, (ii) 0.4058 shares of newly
issued 8% divided convertible preferred stock (the “Series A Preferred Stock”), (iii) 10.9578 shares of newly issued
convertible preferred stock (the “Series B Preferred Stock”, together with the Series A Preferred Stock, the “Preferred
Stock”) and (iv) 94.7339 newly created Series C Warrants with an exercise price of $0.0001 (the “Series C Warrants”). The
2017 Exchange Offer closed on January 29, 2018 (the “2017 Closing Date”). In connection with the 2017 Exchange Offer,
the Corporation also completed a consent solicitation to make certain changes to the indenture for the Second Lien Notes and
related security agreements, which among other matters released all the collateral from the liens securing the Second Lien
Notes, removed substantially all restrictive covenants and deleted certain events of default. For accounting purposes, the
2017 exchange will be recognized during the first quarter of 2018. A further description of the Second Lien Notes and Senior
Secured Notes is provided in Note 8, a further description of the Preferred Stock is provided in Note 13 and a further
description of the Series C Warrants is provided in Note 12.
Issuance of Common Stock, Preferred Stock, and Series C Warrants. Pursuant to the 2017 Exchange Offer, in exchange for
approximately $78,037 of Second Lien Notes, or 91.8% of the principal amount of Second Lien Notes outstanding and $7 of
Senior Secured Notes, or less than 1% of the Senior Secured Notes outstanding, the Corporation newly issued (i) 812,321
shares of common stock, (ii) 31,669 shares of Series A Preferred Stock, (iii) 855,195 shares of Series B Preferred Stock, and
(iv) 8,286,061 Series C Warrants.
Conversion of Mandatorily Convertible Series B Preferred Stock and Series D Warrants. Each outstanding share of Series
B Preferred Stock was convertible into 21.7378 shares of common stock or, if an election is made by an eligible holder, into
warrants representing the right to receive 21.7378 shares of common stock. On March 6, 2018, all of the Series B Preferred
Stock was automatically converted into 4,491,674 shares of common stock and 14,098,370 Series D Warrants with an
exercise price of $0.0001 (the “Series D Warrants”). A further description of Series B Preferred Stock is provided in Note 13
and a further description of the Series D Warrants is provided in Note 12.
FS-8
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 2 — RESTRUCTURING – (continued)
Change in Priority of Secured Indebtedness. After the 2017 Closing Date, the priority claims of the Corporation’s secured
indebtedness were (i) the Credit Facility, which is secured by all of the existing collateral on a senior first lien priority basis,
(ii) the Senior Loan Facility, which is secured by all of the existing collateral on a junior first lien priority basis, and (iii) the
Senior Secured Notes, which are secured by substantially all of the existing collateral on what is effectively a second lien
priority basis as a result of the release of the liens on the collateral by the holders of the Second Lien Notes.
Maturity Dates on the Senior Loan, Facility and the Credit Facility. Effective February 28, 2018, the maturity dates on the
Corporation’s Senior Loan Facility and Credit Facility were set at January 2, 2020 by amendments to those agreements
removing provisions allowing for the acceleration of the maturity dates under certain conditions.
Board of Directors. As of the 2017 Closing Date, the Board of the Corporation (the “Board of Directors”) is comprised of
seven directors. As a result of an amendment to the Corporation’s certificate of incorporation and bylaws, effective as of
March 5, 2018, each holder of common stock whose holdings exceed nine percent of the total shares of common stock
outstanding is entitled to nominate one member of the Board of Directors so long as its respective holdings continue to
exceed nine percent. As a result, three of the 2017 Supporting Holders are entitled to nominate a director, and two of them
have done so.
Senior Management and Share-Based Compensation. The Corporation entered into amendments to the employment
agreements with members of its existing senior management. Existing equity grants under the 2016 Amended and Restated
Long-Term Incentive Plan vested as of the 2017 Closing Date for all current participants and 178,787 shares of common
stock were issued net of income tax and exercise price withholdings. Additionally, the Corporation adopted a new 2018 Long
Term Incentive Plan for directors, management and key employees.
2016 Restructuring
On June 13, 2016, the Corporation entered into a comprehensive restructuring support agreement (the “2016 Restructuring
Support Agreement”) with holders (the “2016 Supporting Holders”) of approximately 66% of the par value of the Senior
Secured Notes to address its cash flow and liquidity difficulties and uncertainty regarding the State of Alaska tax credit
program, and continued downturn in the oil and natural gas exploration sector. The 2016 Supporting Holders and the
Corporation agreed to a comprehensive restructuring of the Corporation’s balance sheet, which included the funding of up to
$30 million in new capital (the “2016 Restructuring”).
The following is a summary of the key aspects of the 2016 Restructuring:
Exchange of Senior Secured Notes for Second Lien Notes. The Corporation commenced an offer on June 24, 2016 (“2016
Exchange Offer”) to exchange each $1 of Senior Secured Notes for (i) $0.50 of newly issued Second Lien Notes and (ii)
46.41 shares of newly issued Corporation common stock (giving effect to a 135-for-1 reverse stock split that was effected in
connection with closing of the exchange offer, (the “Reverse Stock Split”). The 2016 Exchange Offer closed on July 27, 2016
(“2016 Closing Date”). In connection with the 2016 Exchange Offer, the Corporation also completed a consent solicitation to
make certain proposed limited amendments to the terms of the indenture for the Senior Secured Notes, the related security
documents and the existing intercreditor agreement to permit the 2016 Restructuring. For accounting purposes, the 2016
exchange was recognized during the third quarter of 2016. A further description of the terms of the Second Lien Notes and
revised terms of the Senior Secured Notes is provided in Note 8.
Senior Loan Facility. On June 29, 2016, the Supporting Holders and the Corporation entered into a $30 million multi-draw
senior secured term loan facility (the “Senior Loan Facility”). All holders of Senior Secured Notes that participated in the
2016 Exchange Offer were also able to participate in the Senior Loan Facility. Borrowings under the Senior Loan Facility
bear interest at a rate of 10% per year, payable monthly. As part of the consideration for providing the Senior Loan Facility,
the Corporation issued to the lenders shares equal to 28.2% of the outstanding shares of its common stock as of the 2016
Closing Date, after giving effect to the Reverse Stock Split. A further description of the terms of the Senior Loan Facility is
provided in Note 7.
FS-9
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 2 — RESTRUCTURING – (continued)
Change in Priority of Secured Indebtedness. After the 2016 Closing Date, the priority claims of the Corporation’s secured
indebtedness were (i) the credit facility, which was secured by all of the existing collateral on a senior first lien priority basis,
(ii) the Senior Loan Facility, which was secured by all of the existing collateral on a junior first lien priority basis, (iii) the
Second Lien Notes, which were secured by substantially all of the existing collateral on a second lien priority basis and (iv)
the Senior Secured Notes, which were secured by substantially all of the existing collateral on a third lien priority basis.
Reverse Stock Split and Issuance of Common Stock. The Corporation’s stockholders approved a 135-for-1 reverse stock
split that was effected on the 2016 Closing Date. After the reverse stock split, 9,213,804 shares of common stock,
representing 92.69% of the shares outstanding as of the 2016 Closing Date, were issued to the lenders under the Senior Loan
Facility and to tendering holders of the Senior Secured Notes. The effect of the Reverse Stock Split on current and prior
periods’ earnings per share is discussed in Note 10 and the effect on shares of common stock outstanding is discussed in Note
13.
Board of Directors. As of the 2016 Closing Date, the Board of Directors was intended to be comprised of seven directors
with the final director appointment made on January 11, 2017. The Board of Directors then consisted of: one member of
senior management, four directors chosen by the 2016 Supporting Holders, including one member of senior management,
one director chosen by Whitebox Advisors LLC and one director chosen by BlueMountain Capital Management, LLC. Each
of Blue Mountain Capital Management, LLC and Whitebox Advisors LLC has the right to choose one director to be
nominated by the Corporation for so long as each of their common stock holdings following the 2016 Closing Date exceed
10% of the total shares outstanding.
Senior Management and Share-Based Compensation. The Corporation entered into new employment agreements with
members of its existing senior management. Existing equity grants under the 2013 Long-Term Incentive Plan vested as of the
Closing Date for all current participants. Additionally, the Corporation adopted a management Long Term Incentive Plan,
which was amended and restated during 2017 as further discussed in Note 14.
Series A Warrants and Series B Warrants. As of the 2016 Closing Date, the Corporation issued warrants to existing holders
of its common stock for 4.5% of the outstanding common stock. A further description of the terms of the warrants is provided
in Note 12.
NOTE 3 — CREDIT CONCENTRATION
At December 31, 2017, the Corporation's largest accounts receivable from one customer was $78.1 million, representing 93%
of total consolidated accounts receivable. This customer was relying on monetization of exploration tax credits under a State
of Alaska tax credit program (“Tax Credits”), which monetization was historically accomplished by receipt of predictable
payments from the State of Alaska or from third party financing sources. Due to changed economic and political
circumstances in the State of Alaska, however, substantial uncertainty regarding the timing of payments from the State of
Alaska has developed, which affected the availability of funding from other sources, which in turn has affected the timing of
the Corporation receiving payments on its account receivable. As a result, as of December 31, 2017, the Corporation
classified the entire receivable from the customer as a long-term accounts receivable totaling $78.1 million, including an
additional $42.1 million reclassification to long-term accounts receivable during the quarter ended December 31, 2017. As of
December 31, 2016, $38.0 million was classified as long-term accounts receivable based on the expected timing to monetize
the Tax Credits at that point in time.
Due to the customer’s inability to monetize the Tax Credits, the customer assigned $89.0 million of Tax Credits to the
Corporation as security so that the Corporation could seek to monetize these Tax Credits and apply the resulting cash, as
monetization occurs, toward the customer’s overdue account receivable. As of December 31, 2017, the State of Alaska has
completed its audits of approximately $59.1 million of Tax Credit applications. These audits resulted in the Corporation
receiving approximately $56.2 million of Tax Credit certificates from the State of Alaska in 2016 and 2017. Subsequent to
December 31, 2017, the State of Alaska completed its audit of $8.6 million of Tax Credit applications. This audit and
successful appeal of certain previously disallowed expenses resulted in the Corporation receiving an additional $8.3 million
and $2.9 million of Tax Credit certificates, for a total of $64.5 million of Tax Credit certificates. In 2018 the Corporation
expects that the State of Alaska will complete its audit on the last Tax Credit application for approximately $21.3 million.
FS-10
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 3 — CREDIT CONCENTRATION – (continued)
The Corporation recorded a reduction of the accounts receivable balance of $3.5 million and $10.9 million related to the
monetization of Tax Credit certificates during the years ended December 31, 2017 and 2016, respectively, from the sale of
some of its Tax Credit certificates at a slight discount to an Alaskan producer of oil and gas that used the certificates to
satisfy production taxes it owed to the State of Alaska.
The Corporation has identified a number of paths to payment of its account receivable and continues to diligently pursue
them. These paths include receiving payment on the account receivable by the following means: (i) receiving cash in payment
in full of the Tax Credit certificates from the State of Alaska, (ii) receiving proceeds from the possible issuance by the State
of Alaska of bonds to pay its Tax Credit liabilities at a discount, (iii) selling Tax Credit certificates into the secondary market
to producers at a discount, (iv) receiving cash from a third party to purchase the Tax Credit certificates at what is likely to be
a more substantial discount, (v) receiving license fees from additional licenses of the seismic data produced for the customer
and (vi) selling some or all the seismic data produced for the customer.
Historically, the State of Alaska annually appropriated the amounts needed to pay all Tax Credit certificates for the prior
fiscal year. Falling oil and gas prices have substantially reduced Alaska’s revenue from production taxes resulting in
significant Alaskan budget deficits. While the Alaskan legislature has appropriated funds for the last two fiscal years to pay
outstanding Tax Credit certificates, the Alaskan Governor has vetoed the line item in each year, and limited the appropriation
in the last fiscal year to the statutorily established minimum amount of appropriations. In February 2018, the Corporation was
advised by the State of Alaska that, so long as the payment is limited to the statutorily established minimum amount, it
should not expect to receive any payments until fiscal year 2021 and possibly should not expect to be fully paid until fiscal
year 2024. In addition, the Alaskan Department of Revenue has acted to limit the secondary market for Tax Credit certificates
by not only slowing down the timing for auditing Tax Credit applications and for making payments, but also by issuing
advisory opinions in the third quarter of 2016 and the first quarter of 2017 that, contrary to earlier advice, effectively cut-off
the secondary market for Tax Credit certificates. These advisory rulings cut-off using transferred Tax Credit certificates for
prior years’ tax obligations and not allowing them to be used to pay taxes owed below the four percent minimum production
tax rate. While in mid-2017, the Alaska legislature subsequently reversed the prohibition on using transferred Tax Credit
certificates for prior years' obligations, to date transferred Tax Credit certificates cannot be used to go below the four percent
floor, and the secondary market remains inactive.
One recent development may accelerate payment of the account receivable. The Governor of Alaska has introduced
legislation to allow Alaska to issue bonds to pay-off at a discount its approximately $1.2 billion liability for Tax Credits.
There can be no assurance, however, that this alternative will provide a viable means to more quickly monetize the
Corporation’s Tax Credit certificates.
The Corporation continues to explore all the options described above to monetize the Tax Credit certificates. It continues to
believe that selling the certificates at a discount to producers that are able to apply the certificates to reduce their own
Alaskan tax liabilities should yet again become a viable monetization option. The Corporation has a contract with a producer
that provides that the producer will purchase the Corporation’s Tax Credit certificates to the extent that it can use them to
satisfy its tax liabilities. In December 2017 the active Alaskan producers agreed to a $786 million settlement regarding tariffs
relating to the Trans Alaskan pipeline with FERC, which FERC approved in March 2018 that will result in significantly
increased production taxes being owed by the producers to the State of Alaska. Those taxes could be satisfied by purchase of
Tax Credit certificates, at a discount to the face value of the Tax Credit certificate. The Corporation also believes that rising
oil prices may increase the market for the Tax Credit certificates, but there can be no assurance that prices will increase
sufficient to improve the market or when it might occur.
The Corporation has other possible ways to receive payments on its account receivable that do not involve monetization of
the Tax Credits. The Corporation continues to assist the customer in actively marketing and licensing the seismic data it
collected on behalf of the customer. Licensing revenues received must be paid to the Corporation in satisfaction of the
Corporation's account receivable. In addition, subject to any licenses granted, the customer has the right to sell the data and
apply the proceeds to the Corporation's receivable. The Corporation believes that the receipt of these licensing revenues and
sales proceeds may be sufficient to cover the difference between the outstanding account receivable and the cash it is able to
generate by monetization of the Tax Credits, but there can be no assurance that it will occur or when any such payments will
be received.
FS-11
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 3 — CREDIT CONCENTRATION – (continued)
A risk exists that any monetization of the Tax Credit certificates will require a selling at a discount, and that the discount may
be substantial, resulting in proceeds insufficient to fully repay the customer’s outstanding account receivable. Should this
result, and the Corporation does not receive additional payments from either licensing or selling of the seismic data, the
Corporation may be required to record an impairment to the amount due from the customer. At this point, however, the
Corporation does not believe that it is probable that the account receivable was impaired as of December 31, 2017, due in
main part to the fact that the State of Alaska is obligated to fully fund its Tax Credit certificate liabilities regardless of the
timing of such payments.
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of SAExploration Holdings, Inc., its wholly-owned
subsidiaries and controlled entities. All intercompany balances and transactions have been eliminated upon consolidation.
The consolidated financial statements of the Corporation have been prepared on the accrual basis of accounting in accordance
with accounting principles generally accepted in the United States of America (“GAAP”).
Certain amounts in the consolidated statement of cash flows for the year ended December 31, 2017 and notes to consolidated
financial statements presented herein have been reclassified to conform to the current period presentation. These reclassifications
had no effect on net loss attributable to the Corporation, comprehensive loss, or stockholders' equity (deficit).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the amounts of revenues and expenses during the reporting period. Significant areas
requiring the use of management estimates and assumptions include, but are not limited to, accounting for contracts in
process, allowance for doubtful accounts, useful lives for depreciation and amortization purposes, valuation of property and
equipment, valuation of goodwill and intangible assets, deferred income taxes and income tax uncertainties, share-based
compensation, warrants, and contingencies. While management believes current estimates are reasonable and appropriate
actual results could differ materially from current estimates.
Significant Risks and Uncertainties
The Corporation’s primary market risks include fluctuations in oil and natural gas commodity prices, which affect demand
for and pricing of services. Also, the Corporation conducts operations outside the United States, which exposes the
Corporation to market risks from changes in exchange rates. All of the Corporation’s customers are involved in the oil and
natural gas industry, which exposes the Corporation to credit risk because the customers may be similarly affected by
changes in economic and industry conditions. Further, the Corporation generally provides services and extends credit to a
relatively small group of key customers that account for a significant percentage of revenues and accounts receivable of the
Corporation at any given time as discussed further in Note 17. Due to the nature of the Corporation’s contracts and
customers’ projects, the largest customers can change from year to year and the largest customers in any year may not be
indicative of the largest customers in any subsequent year. If any key customers were to terminate their contracts or fail to
contract for future services due to changes in ownership or business strategy or for any other reason, the Corporation’s results
of operations could be affected. As of December 31, 2017 and 2016, a significant portion of our receivables are due from one
customer as further described in Note 3.
Cash and Cash Equivalents
The Corporation considers all highly-liquid investments with a maturity of three months or less when purchased to be cash
equivalents. The Corporation has cash in banks that may exceed insured limits established in the United States and foreign
countries. The Corporation has not experienced any losses in such accounts and management believes it is not exposed to any
significant credit risk on cash and cash equivalents. The Corporation conducts operations outside the United States, which
exposes the Corporation to market risks from changes in exchange rates. As of December 31, 2017 and 2016, the balance of
cash in subsidiaries outside of the United States totaled $2,508 and $5,960, respectively.
FS-12
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES – (continued)
Restricted Cash
Restricted cash consists primarily of cash collateral for labor claims, office rental, cash in another country restricted by
exchange control regulations and customs bonds.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are uncollateralized obligations recorded at the invoiced amount and do not bear interest. Amounts
collected on accounts receivable are included in net cash provided by operating activities in the consolidated statements of
cash flows. The cyclical nature of the Corporation’s industry may affect the Corporation’s customers’ operating performance
and cash flows, which could impact the Corporation’s ability to collect on these obligations. Additionally, some of the
Corporation’s customers are located in certain international areas that are inherently subject to economic, political and civil
risks, which may impact the Corporation’s ability to collect receivables. Approximately 5% and 19% of the Corporation's
trade accounts receivable at December 31, 2017 and 2016, respectively, were from customers outside the United States. The
Corporation maintains an allowance for doubtful accounts for estimated losses in its accounts receivable portfolio. It utilizes
the specific identification method for establishing and maintaining the allowance for doubtful accounts. Account balances are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery is
considered remote.
Revenue Recognition
The Corporation’s services are provided under master service agreements that set forth the respective obligations of the
Corporation and its customers. A supplemental agreement is entered into for each data acquisition project, which sets forth
the terms of the specific project including the right of either party to cancel on short notice. Customer contracts for services
vary in terms and conditions. Contracts are either “turnkey” (fixed price) agreements that provide for a fixed fee per unit of
measure, or “term” (variable price) agreements that provide for a fixed hourly, daily or monthly fee during the term of the
project. Under turnkey agreements, the Corporation recognizes revenue based upon output measures as work is performed.
This method requires that the Corporation recognize revenue based upon quantifiable measures of progress, such as square or
linear kilometers surveyed or each unit of data recorded. Expenses associated with each unit of measure are immediately
recognized. If it is determined that a contract will have a loss, the entire amount of the loss associated with the contract is
immediately recognized. Revenue under a “term” contract is billed as the applicable rate is earned under the terms of the
agreement. Under contracts that require the customer to pay separately for the mobilization of equipment, the Corporation
recognizes such mobilization fees as revenue during the performance of the seismic data acquisition, using the same output
measures as for the seismic work. To the extent costs have been incurred under service contracts for which the revenue has
not yet been earned, those costs are deferred on the balance sheet within deferred costs on contracts until the revenue is
earned, at which point the costs are recognized as cost of services over the life of the contract or, until the Corporation
determines the costs are not recoverable, at which time they are expensed.
The Corporation invoices customers for certain out-of-pocket expenses under the terms of the contracts. Amounts billed to
customers are recorded in revenue at the gross amount including out-of-pocket expenses. The Corporation also utilizes
subcontractors to perform certain services to facilitate the completion of customer contracts. The Corporation bills its
customers for the cost of these subcontractors plus an administrative fee. The Corporation records amounts billed to its
customers related to subcontractors at the gross amount and records the related cost of subcontractors as cost of services.
Sales taxes collected from customers and remitted to government authorities are accounted for on a net basis and are
excluded from revenue in the consolidated statements of operations.
Deferred Revenue
Deferred revenue primarily represents amounts billed or payments received for services in advance of the services to be
rendered over a future period. Deferred revenue of $1,477 and $7,975 at December 31, 2017 and 2016, respectively, consists
primarily of payments for mobilization and seismic services.
FS-13
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES – (continued)
Multiple-Element Arrangements
The Corporation evaluates each contract to determine if the contract is a multiple-element arrangement requiring different
accounting treatments for varying components of the contract. If a contract is deemed to have separate units of accounting,
the Corporation allocates arrangement consideration based on their relative selling price and the applicable revenue
recognition criteria are considered separately for each of the separate units of accounting. The Corporation accounts for each
contract element when the applicable criteria for revenue recognition have been met. The Corporation uses its best estimate
of selling price when allocating multiple-element arrangement consideration.
Leases as Lessee
The Corporation leases certain equipment and vehicles under lease agreements. The Corporation evaluates each lease to
determine its appropriate classification as an operating or capital lease for financial reporting purposes. Any lease that does
not meet the criteria for a capital lease is accounted for as an operating lease. Minimum rent payments under operating leases
are recognized on a straight-line basis over the term of the lease including any periods of free rent. The assets and liabilities
under capital 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 capital leases are amortized using the straight-line method over the initial lease term.
Amortization of assets under capital leases is included in depreciation expense.
Property and Equipment
Property and equipment is capitalized at historical cost and depreciated over the useful life of the asset. Depreciation on
property and equipment is calculated on the straight-line method over the estimated useful lives of the assets or the lesser of
the lease term, as applicable. Management’s estimate of this useful life is based on circumstances that exist in the seismic
industry and information available at the time of the purchase of the asset. Useful lives and residual values of property and
equipment are reviewed on an ongoing basis considering the effect of events or changes in circumstances. Repairs and
maintenance, which are not considered betterments and do not extend the useful life of the property, are charged to expense
as incurred. When property and equipment are retired or otherwise disposed of the asset and accumulated depreciation or
amortization are removed from the accounts and the resulting gain or loss is reflected in the results of operations for such
period.
Long-Lived Assets
Long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Corporation first
compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying
value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is
recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation
techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as
considered necessary. No long-lived assets were impaired during the years ended December 31, 2017 or 2016.
Goodwill
Goodwill represents the excess of purchase price over the fair value of the net assets acquired in the 2011 Datum Exploration
Ltd. acquisition. All of the Corporation’s goodwill resides in its Canadian operations reporting unit (“Reporting Unit”).
Changes in the carrying value of goodwill since 2011 are the result of foreign currency translation adjustments.
The Corporation is required to evaluate the carrying value of its goodwill at least annually for impairment, or more frequently
if facts and circumstances indicate that it is more likely than not impairment has occurred. The Corporation first performs a
qualitative assessment by evaluating relevant events or circumstances to determine whether it is more likely than not that the
fair value of the Reporting Unit exceeds its carrying amount. If the Corporation is unable to conclude qualitatively that it is
more likely than not that the Reporting Unit’s fair value exceeds its carrying value, it will then apply a two-step quantitative
assessment.
FS-14
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES – (continued)
First, the fair value of the Reporting Unit is compared to its carrying value. If the fair value exceeds the carrying value,
goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the
fair value. The implied fair value of the Reporting Unit’s goodwill must be determined and compared to the carrying value of
the goodwill. If the carrying value of the Reporting Unit’s goodwill exceeds its implied fair value, an impairment loss equal
to the difference will be recorded. The Corporation’s 2017 and 2016 evaluations of goodwill concluded that it was not
impaired.
In determining the fair value of the Reporting Unit, the Corporation relied on the Income Approach and the Market
Approach. Under the Income Approach, the fair value of a business unit is based on the discounted cash flows it can be
expected to generate over its remaining life. The estimated cash flows are converted to their present value equivalent using an
appropriate rate of return. Under the Market Approach, the fair value of the business is based on the Guideline Public
Company (“GPC”) methodology using guideline public companies whose stocks are actively traded that were considered
similar to the Corporation as of the valuation date. Valuation multiples for the GPCs were determined as of the valuation date
and were applied to the Reporting Unit’s operating results to arrive at an estimate of value.
Intangible Assets
Intangible assets represent customer relationships recorded at cost in connection with the 2011 Datum Exploration Ltd.
acquisition. Intangible assets are amortized over their estimated useful lives of 13 years and recorded in selling, general and
administrative expense.
Deferred Loan Issuance Costs
Deferred loan issuance costs are amortized over the term of the related debt (which approximates amortization using the
interest method) and recorded in interest expense.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred income
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. This method also requires the
recognition of future tax benefits for net operating loss (“NOL”) carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as
income in the period that includes the enactment date. The deferred tax asset is reduced by a valuation allowance if, based on
available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Corporation's methodology for recording income taxes requires judgment regarding assumptions and the use of
estimates, including the valuation of deferred tax assets, which can create a variance between actual results and estimates and
could have a material impact on the provision or benefit for income taxes. The Corporation is required to file income tax
returns in the United States (federal) and in various state and local jurisdictions, as well as in international jurisdictions. In
certain foreign jurisdictions, the local income tax rate may exceed the U.S. or Canadian statutory rates, and in many of those
cases the Corporation receives a foreign tax credit for U.S. or Canadian purposes. In other foreign jurisdictions, the local
income tax rate may be less than the U.S. or Canadian statutory rates. In other foreign jurisdictions the Corporation may be
subject to a tax on revenues when the amount of tax liability would exceed that computed on net income before tax in the
jurisdiction and, in such cases, the tax is treated as an income tax for accounting purposes.
The Corporation has historically and continues to assert that foreign earnings are permanently reinvested. While the
Corporation has not currently changed the assertion with respect to foreign earnings compared to prior years, the Corporation
is currently evaluating the impact of U.S. Tax Reform on the global structure and any associated impacts it may have on the
Corporation’s assertion on a go forward basis and as such have not included a provisional estimate of the impact. See Note
11, “Income Taxes”, for additional information regarding U.S. Tax Reform.
FS-15
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES – (continued)
The U.S. Tax Reform Act includes two new U.S. tax base erosion provisions, the GILTI provisions and the BEAT
provisions. The GILTI provisions require the Corporation to include in its U.S. income tax return foreign subsidiary earnings
in excess of an allowable return on the foreign subsidiary’s tangible assets. The Corporation has elected to account for GILTI
tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated
financial statements for year ended December 31, 2017. The BEAT provision in the Tax Reform Act eliminate the deduction
of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax.
Starting January 1, 2018, the Corporation will account for BEAT in the period in which it is incurred to the extent the
Corporation is subject to it.
Foreign Exchange Gains and Losses
The Corporation conducts operations outside the United States, which exposes the Corporation to market risks from changes
in foreign exchange rates. The Corporation’s reporting currency is the U.S. dollar (“USD”). For foreign subsidiaries and
branches using local currency as their functional currency, assets and liabilities are translated at exchange rates in effect at the
balance sheet dates. Revenues and expenses of these foreign subsidiaries are translated at average exchange rates for the
period. Equity is translated at historical rates, and the resulting cumulative foreign currency translation adjustments resulting
from this process are reported as a component of accumulated other comprehensive income (loss), net of income taxes.
Therefore, the USD value of these items in the financial statements fluctuates from period to period, depending on the value
of the USD against these functional currencies. The foreign subsidiaries and branches using USD as their functional currency
are Bolivia, Peru, Malaysia, United Kingdom and Singapore.
Exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the
entity involved are included in the consolidated statements of operations as foreign exchange gain (loss). For the foreign
subsidiaries and branches using USD as their functional currency, any local currency operations are re-measured to USD. The
re-measurement of these operations is included in the consolidated statements of operations as foreign exchange gain (loss).
Share-Based Compensation
The Corporation records the grant date fair value of share-based compensation arrangements as compensation cost using a
straight-line method over the requisite service period for each separately vesting tranche of an award. The amount of share-
based compensation cost recognized during a period is based on the value of the awards that are ultimately expected to vest.
Forfeitures are recognized as they occur except in certain circumstances where they are required to be estimated.
Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources, are
recorded when it is probable that a liability has been incurred and the amount of the assessment and remediation can be
reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Comprehensive Income
Comprehensive income includes net income (loss) as currently reported and also considers the effect of additional economic
events that are not required to be recorded in determining net income but rather reported as a separate component of
stockholders’ equity. The Corporation reports foreign currency translation gains and losses as a component of other
comprehensive income (loss). Foreign currency translation gains and losses are not presented net of income taxes because the
earnings of the foreign subsidiaries are considered permanently invested abroad and therefore not subject to income taxes or
the income tax benefit of foreign currency translation losses would be offset by a valuation allowance.
Variable Interest Entities
The Corporation evaluates its joint venture and other entities in which it has a variable interest (a “VIE”), to determine if it
has a controlling financial interest and is required to consolidate the entity as a result. The reporting entity with a controlling
financial interest in the VIE will have both of the following characteristics: (i) the power to direct the activities of a VIE that
most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE that could
potentially be significant to the VIE or the right to receive benefit from the VIE that could potentially be significant to the
VIE. See the discussion on the Corporation’s variable interest entities in Note 15.
FS-16
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES – (continued)
Fair Value Measurements
The Corporation has certain assets and liabilities that are required to be measured and disclosed at fair value in accordance
with GAAP. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the
principal or most advantageous market in an orderly transaction between market participants on the measurement date. When
an asset or liability is required to be measured at fair value, an entity is required to maximize the use of observable inputs and
minimize the use of unobservable inputs using a fair value hierarchy as follows:
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability,
including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or
liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. Measurement is based on prices or
valuation models requiring inputs that are both significant to the fair value measurement and supported by little or no
market activity.
The Corporation’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts
payable, accrued liabilities, borrowings under the credit facility and borrowings under the senior loan facility. Due to their
short-term maturities, the carrying amounts of these financial instruments approximate fair value at the respective balance
sheet dates. The Corporation's financial instruments also include various issuances of notes payable. There were no
Corporation financial instruments measured at fair value on a recurring basis at December 31, 2017 and 2016.
The Corporation's non-financial assets include goodwill, property and equipment, and other intangible assets, which are
classified as Level 3 assets. These assets are measured at fair value on a nonrecurring basis as part of the Corporation's
impairment assessments and as circumstances require.
Reportable Segment
The 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 it operates represents a reporting unit. To determine its reportable
segments, the Corporation evaluated whether and to what extent the reporting units should be aggregated. The evaluation
included consideration of each reporting unit's services, types of customers, methods used to provide its services, and
regulatory environment. The Corporation determined that its reporting units sold similar types of seismic data contract
services to similar types of major non-U.S. and government owned/controlled oil and gas customers operating in a global
market. The Corporation concluded that its seismic data contract services operations comprise one single reportable segment.
Recently Issued Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance intended to change the criteria for
recognition of revenue. The new guidance establishes a single revenue recognition model for all contracts with customers,
eliminates industry specific requirements and expands disclosure requirements. The core principle of the guidance is that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core
principle, an entity should apply the following five steps: (1) identify contracts with customers, (2) identify the performance
obligations in the contracts, (3) determine the transaction price, (4) allocate the transaction price to the performance
obligation in the contract, and (5) recognize revenue as the entity satisfies performance obligations. The new guidance is
effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting
period. Early application is permitted for annual reporting periods beginning after December 15, 2016, including interim
periods within that reporting period.
FS-17
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES – (continued)
The Corporation has completed its assessment of the impact of the standard on its consolidated financial statements and
related disclosures. The Corporation adopted the standard using the modified retrospective method on January 1, 2018. The
modified retrospective method requires a company to recognize the cumulative effect of initially applying the new standard
as an adjustment to retained earnings. The Corporation had no adjustment to retained earnings as a result of initially applying
the standard. The adoption of this standard affects the timing in which the Corporation recognizes certain miscellaneous
revenues of its contracts and requires expanded disclosure. The Corporation does not expect the adoption of this standard to
have a material effect on the financial position, results of operations, and cash flows on an ongoing basis.
Going Concern
In August 2014, the FASB issued new guidance on disclosures of uncertainties about an entity's ability to continue as a going
concern. The guidance requires management's evaluation of whether there are conditions or events that raise substantial
doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are
issued. This assessment must be made in connection with preparing financial statements for each annual and interim
reporting period. Management's evaluation should be based on the relevant conditions and events that are known and
reasonably knowable at the date the financial statements are issued. If conditions or events raise substantial doubt about the
entity's ability to continue as a going concern, but this doubt is alleviated by management's plans, the entity should disclose
information that enables the reader to understand what the conditions or events are, management's evaluation of those
conditions or events and management's plans that alleviate that substantial doubt. If conditions or events raise substantial
doubt and the substantial doubt is not alleviated, the entity must disclose this in the footnotes. The entity must also disclose
information that enables the reader to understand what the conditions or events are, management's evaluation of those
conditions or events and management's plans that are intended to alleviate that substantial doubt. The amendments are
effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. The
Corporation adopted this guidance effective January 1, 2017. The Corporation's adoption of this guidance had no impact on
its financial position, results of operations, cash flows or disclosures.
Leases
In February 2016, the FASB issued new guidance on lease accounting affecting lessees and lessors. Lessees will be required
to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more
than 12 months. As under current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising
from a lease for lessees will primarily depend on its classification as a finance or operating lease. For operating leases, lessees
will recognize a single total lease expense. For finance leases, lessees will recognize amortization of the right-of-use asset
separately from interest on the lease liability. For both types of leases, lessees will recognize a right-of-use asset and a lease
liability on its balance sheet. Lessor accounting under the new standard will remain similar to lessor accounting under current
GAAP. The new standard contains changes that are intended to align lessor accounting with the lessee accounting model and
the revenue recognition standard issued in 2014. For public companies, the new guidance is effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The
Corporation is currently evaluating what impact adoption of this guidance will have on its financial position, results of
operations, cash flows and disclosures.
Share-Based Compensation
In March 2016, the FASB issued new guidance intended to simplify various aspects of the accounting for share-based
compensation. The new guidance requires the income tax effects related to share-based compensation to be recorded in the
income statement at settlement (or expiration), applied prospectively to all excess tax benefits and tax deficiencies resulting
from settlements after the date of adoption of the new guidance. The new guidance also removes the requirement to delay
recognition of a windfall tax benefit until it reduces current taxes payable. Under the new guidance, the benefit will be
recorded when it arises, subject to normal valuation allowance considerations. This change is required to be applied on a
modified retrospective basis, with a cumulative effect adjustment to opening retained earnings. All income tax related cash
flows resulting from share-based payments are to be reported as operating activities on the statement of cash flows. Either
prospective or retrospective transition of this provision is permitted.
FS-18
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES – (continued)
Currently, employers are permitted to withhold shares upon settlement of an award to satisfy the employer’s tax withholding
requirement without causing the award to be liability classified. However, the amount is strictly limited to the employer’s
minimum statutory tax withholding requirement. The simplification under the new guidance allows entities to withhold an
amount up to the employees’ maximum individual tax rate in the relevant jurisdiction without resulting in liability
classification of the award. This provision is required to be adopted using a modified retrospective approach, with a
cumulative effect adjustment to opening retained earnings for any outstanding liability awards that qualify for equity
classification. Additionally, the new guidance clarifies that all cash payments made to taxing authorities on the employees’
behalf for withheld shares should be presented as financing activities on the statement of cash flows. This change is required
to be applied retrospectively. Under the new guidance, entities are permitted to make an accounting policy election for the
impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required
today, or recognized when they occur. Estimates of forfeitures will still be required in certain circumstances, such as at the
time of modification of an award or issuance of a replacement award in a business combination. If elected, the change to
recognize forfeitures when they occur needs to be adopted using a modified retrospective approach, with a cumulative effect
adjustment recorded to opening retained earnings.
The classification and measurement guidance will be effective for public business entities in fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Corporation
adopted the new guidance as of January 1, 2016, including electing to recognize forfeitures when they occur. Adoption of the
new guidance did not have a material impact on the Corporation’s financial position, results of operations, cash flows or
disclosures.
Statement of Cash Flows
In August 2016, the FASB issued new guidance that clarifies the classification and presentation of certain cash flow receipts
and payments on the statement of cash flows. It also requires that transactions with more than one category of classification
be separated where possible or, if they are not able to be separated, be classified based on the predominant source or use of
the cash flows. The new guidance includes the requirement to classify cash paid for debt prepayment or debt extinguishment
costs as a financing outflow. The new guidance is effective for fiscal years beginning after December 15, 2017 for all public
business entities with early adoption permitted. The Corporation has adopted the new guidance effective as of September 30,
2016 and retrospectively for all periods presented. The adoption of the new guidance had no impact on the Corporation's
financial position, results of operations, cash flows and disclosures.
Income Taxes
In October 2016, the FASB issued new guidance intended to improve the accounting for the income tax consequences of
intra-entity transfers of assets other than inventory. Under current GAAP, the income tax consequences of intra-entity
transfers of assets other than inventory are not recognized until the assets are sold to an outside party. The new guidance
requires the recognition of current and deferred income taxes when the intra-entity transfer of an asset other than inventory
occurs. The new guidance is effective for fiscal years beginning after December 15, 2017 for all public business entities with
early adoption permitted. The adoption of the new guidance had no impact on the Corporation's financial position, results of
operations, cash flows and disclosures.
Restricted Cash
In November 2016, the FASB issued new guidance intended to reduce the diversity in classification and presentation of
restricted cash on the statement of cash flows. The new guidance will require the beginning-of-period and end-of-period
totals on the statement of cash flows to include restricted cash and restricted cash equivalents. The new guidance is effective
for fiscal years beginning after December 15, 2017 with early adoption permitted. The Corporation has adopted the guidance
effective as of March 31, 2017, and retrospectively for all periods presented. As a result of this adoption, the Corporation's
consolidated statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash.
See Note 5 for a reconciliation of the totals in the consolidated statement of cash flows and in the consolidated balance
sheets.
FS-19
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES – (continued)
Goodwill
In January 2017, the FASB issued new guidance intended to simplify how an entity tests goodwill for impairment. The new
guidance eliminates Step 2 from the goodwill impairment test, which measured the impairment loss by comparing the
implied fair value of a reporting unit's goodwill with the carrying amount of the goodwill. Under the new guidance, the
impairment loss will be measured as the amount by which the reporting unit's fair value exceeds its carrying value. The new
guidance is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual
goodwill impairment tests performed after January 1, 2017. The Corporation adopted the guidance for its 2017 goodwill
impairment test and it did not have a material impact on its financial position, results of operations, cash flows and
disclosures.
NOTE 5 — DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated
balance sheet to the amounts shown in the consolidated statements of cash flows.
December 31,
2017
2016
Cash and cash equivalents .................................................................................................... $
Restricted cash ....................................................................................................................
3,613 $
41
11,460
536
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated
statements of cash flows ................................................................................................ $
3,654 $
11,996
Restricted cash primarily consists of cash collateral for labor claims, office rental and cash in another country restricted by
exchange control regulations.
During the year ended December 31, 2017, a variable interest entity in West Africa (“SAE Nigeria”) that the Corporation
previously controlled entered into multiple physical trades of the Naira currency (classified as restricted cash) for US dollars
at various exchange rates. The US dollars received in the trades are no longer subject to exchange control regulations. As a
result of these trades, a foreign exchange loss of $1,310 was recognized during the year ended December 31, 2017. As of
December 31, 2017, the Corporation no longer controls SAE Nigeria. For further information on this entity, see Note 15.
Accounts Receivable
Accounts receivable is comprised of the following:
December 31,
2017
2016
Current:
Accounts receivable ........................................................................................................... $
Less: allowance for doubtful accounts ...............................................................................
Accounts receivable, net .................................................................................................... $
Noncurrent:
Accounts receivable ........................................................................................................... $
Less: allowance for doubtful accounts ...............................................................................
6,117 $
(12)
6,105 $
78,102 $
—
Accounts receivable, net, noncurrent ................................................................................. $
78,102 $
69,733
(12)
69,721
37,984
—
37,984
FS-20
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 5 — DETAIL OF SELECTED BALANCE SHEET ACCOUNTS – (continued)
Changes in the allowance for doubtful accounts were as follows:
Beginning balance .............................................................................................................. $
Charges to expense .............................................................................................................
Write-offs ...........................................................................................................................
Ending balance ................................................................................................................... $
12 $
—
—
12 $
—
12
—
12
Years Ended December 31,
2017
2016
Prepaid Expenses
Prepaid expenses include the following:
Income taxes ...................................................................................................................... $
Deposits ..............................................................................................................................
Debt restructuring costs ......................................................................................................
Other ..................................................................................................................................
Total prepaid expenses ....................................................................................................... $
1,278 $
459
2,904
1,754
6,395 $
—
1,310
—
667
1,977
December 31,
2017
2016
Property and Equipment
Property and equipment is comprised of the following:
Estimated Useful Life
2017
2016
December 31,
Field operating equipment .....................................................
Vehicles .................................................................................
Leasehold improvements ......................................................
Software ................................................................................
Computer equipment .............................................................
Office equipment ...................................................................
3 – 10 years
3 – 5 years
2 – 5 years
3 – 5 years
3 – 5 years
3 – 10 years
$
Less: accumulated depreciation and amortization .................
Property and equipment, net ..................................................
$
82,295 $
15,914
328
2,065
4,055
938
105,595
(72,649)
32,946 $
80,780
15,905
511
2,081
4,005
921
104,203
(61,444)
42,759
Total depreciation and amortization expense related to property and equipment for the years ended December 31, 2017 and
2016 was $12,002 and $16,815, respectively, of which $11,725 and $16,410, respectively, was recorded in cost of services
and $277 and $405, respectively, was recorded in selling, general and administrative expense.
During the year ended December 31, 2016, the Corporation sold a group of ocean bottom nodes and supporting equipment
for aggregate net proceeds of $1,850, which resulted in a pretax loss of $4,580.
FS-21
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 5 — DETAIL OF SELECTED BALANCE SHEET ACCOUNTS – (continued)
Goodwill
Changes in the carrying value of goodwill were as follows:
Balances at December 31, 2015 ...................................................................................................................... $
Foreign currency translation adjustment .........................................................................................................
Balances at December 31, 2016 ......................................................................................................................
Foreign currency translation adjustment .........................................................................................................
Balances at December 31, 2017 ...................................................................................................................... $
1,658
53
1,711
121
1,832
There have been no goodwill impairment charges since the 2011 Datum Exploration Ltd. acquisition was initially recorded.
Intangible Assets
Changes in the carrying value of intangible assets and related accumulated amortization were as follows:
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Balances at December 31, 2015 ..................................................................... $
Amortization expense .....................................................................................
Foreign currency translation adjustment ........................................................
Balances at December 31, 2016 .....................................................................
Amortization expense .....................................................................................
Foreign currency translation adjustment ........................................................
Balances at December 31, 2017 ..................................................................... $
1,329 $
—
27
1,356
—
47
1,403 $
(540) $
(95)
—
(635)
(97)
—
(732) $
789
(95)
27
721
(97)
47
671
Intangible assets consist of customer relationships recorded in connection with the 2011 Datum Exploration Ltd. acquisition.
At inception, the weighted average useful life of customer relationships at December 31, 2017 and 2016 was 13 years.
Future amortization expense is as follows:
2018 ................................................................................................................................................................. $
2019 .................................................................................................................................................................
2020 .................................................................................................................................................................
2021 .................................................................................................................................................................
2022 .................................................................................................................................................................
Thereafter ........................................................................................................................................................
Total ................................................................................................................................................................ $
94
94
94
94
94
201
671
FS-22
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 5 — DETAIL OF SELECTED BALANCE SHEET ACCOUNTS – (continued)
Deferred Loan Issuance Costs
Changes in deferred loan issuance costs and related accumulated amortization were as follows:
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Balances at December 31, 2015 ...................................................................... $
Senior loan facility issuance costs ...................................................................
Amortization expense ......................................................................................
Balances at December 31, 2016 ......................................................................
Senior loan facility amendment costs ..............................................................
Amortization expense ......................................................................................
Reclass ............................................................................................................
852 $
30,082
—
30,934
914
—
(852)
(331) $
(9,747)
(10,078)
—
(16,387)
821
521
30,082
(9,747)
20,856
914
(16,387)
(31)
Balances at December 31, 2017 ...................................................................... $
30,996 $
(25,644) $
5,352
Loan issuance costs incurred for the credit agreement signed in November 2014 were capitalized during the year ended
December 31, 2014 and are being amortized over three years. In September 2017, the credit agreement was modified to a
term loan and the associated loan issuance costs were reclassified to the balance of the term loan. See Note 6 for further
discussion. Loan issuance costs incurred for the Senior Loan Facility signed in June 2016 were capitalized during the year
ended December 31, 2016 and are being amortized over 18 months. In September 2017, the Senior Loan Facility was
modified and extended and the costs associated with the extension were capitalized and are being amortized over the
extended life of the Senior Loan Facility. See Note 7 for further discussion.
Accrued Liabilities
Accrued liabilities include the following:
December 31,
2017
2016
Accrued payroll liabilities ................................................................................................. $
Accrued interest ................................................................................................................
Other accrued liabilities ....................................................................................................
Total accrued liabilities ..................................................................................................... $
2,781 $
1,877
1,653
6,311 $
7,432
106
5,212
12,750
NOTE 6 — CREDIT FACILITY
On September 22, 2017, SAExploration, Inc. (“Borrower”), the Corporation, and the Corporation’s other domestic
subsidiaries entered into the First Amended and Restated Credit and Security Agreement (the “Credit Agreement”) with the
lenders from time to time party thereto and Cantor Fitzgerald Securities, as agent (the “Agent”). The Credit Agreement
amends and restates the Credit and Security Agreement dated as of November 6, 2014 and as amended on June 29, 2016 (the
“Prior Credit Agreement”) by and among the Borrower, the Guarantors, and Wells Fargo Bank, National Association as
lender (the “Original Lender”). Immediately prior to entering into the Credit Agreement, the Original Lender sold its interest
in the Prior Credit Agreement upon entering into the Loan Assignment, Assumption and Indemnity Agreement (the
“Assignment Agreement”) with the Agent who subsequently assigned those rights and obligations to one of the Corporation's
Supporting Holders (the “Assignee”). Two additional holders elected to join the Credit Agreement (together with the
Assignee, the “Lenders”), including one holder as further described in Note 19.
FS-23
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 6 — CREDIT FACILITY – (continued)
On December 22, 2017, the parties entered into an amendment to the Credit Agreement (“First Amendment”) which among
other things: (1) increased the maximum borrowings to $20,000 from $16,000 and (2) added two additional lenders. The First
Amendment was accounted for as a modification in the year ended December 31, 2017.
The Credit Agreement provides for up to $20,000 in borrowings secured primarily by the Borrower's North American assets,
mainly accounts receivable and equipment subject to certain exclusions (the “Credit Facility”). The proceeds of the Credit
Facility will primarily be used to fund the Borrower's working capital needs for its operations and for general corporate
purposes. As of December 31, 2017, borrowings outstanding under the Credit Facility were:
December 31, 2017
Principal outstanding ............................................................................................................................... $
Less: unamortized deferred loan issuance costs .......................................................................................
Total Credit Facility outstanding ............................................................................................................. $
5,000
(599)
4,401
Additional borrowings under the Credit Facility are subject to the Lenders’ sole discretion and must be in minimum
increments of $1,000.
In addition to the above and among other things, the Credit Agreement revised the Prior Credit Agreement to:
eliminate the ability to redraw borrowings once repaid and placed certain restrictions on the ability to repay
borrowings;
eliminate the sub-facility for letters of credit;
provide for mandatory prepayment with any proceeds from Tax Credits that exceeded $15,000, unless waived by the
Lenders; and
remove certain covenants including those to maintain a minimum EBITDA specified above and to maintain eligible
equipment of a certain amount.
The Credit Agreement was accounted for as a modification during the year ended December 31, 2017. In connection with the
Credit Agreement, deferred loan issuance costs totaling $782 were recorded in the year ended December 31, 2017 consisting
of $400 of fees, payable to the Lenders, and $382 of legal and investment banking costs.
Borrowings made under the Credit Facility bear interest at a rate of 10.25% per annum for the period from September 22,
2017 through and including March 22, 2018, 10.75% per annum for the period from March 23, 2018 through and including
September 22, 2018 and 11.75% per annum for the period from September 23, 2018 and thereafter. The parties entered into
Amendment No. 2 to the Credit Agreement on February 28, 2018 to provide that the Credit Facility matures on January 2,
2020.
The Credit Agreement contains covenants including, but not limited to (i) commitments to maintain and deliver to the
Lenders, as required, certain financial reports, records and other items and (ii) subject to certain exceptions under the Credit
Agreement, restrictions on the ability of the Corporation to incur indebtedness, create or incur liens, enter into fundamental
changes to corporate structure or to the nature of the business of the Corporation, dispose of assets, permit a change in
control, acquire non-permitted investments, enter into affiliate transactions or make distributions. The Credit Agreement also
contains representations, warranties, covenants and other terms and conditions, including relating to the payment of fees to
the Lenders, which are customary for agreements of this type. The Corporation is in compliance with the Credit Agreement
covenants as of December 31, 2017.
FS-24
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 6 — CREDIT FACILITY – (continued)
Prior Credit Agreement
Borrowings outstanding under the Prior Credit Agreement were $5,844 as of December 31, 2016. Borrowings made under
the Prior Credit Agreement bore interest, payable monthly, at a rate of daily three months LIBOR plus 3% (4.00% at
December 31, 2016). The Prior Credit Agreement had a maturity date of November 6, 2017, unless terminated earlier.
The Prior Credit Agreement also included a sub-facility for letters of credit in amounts up to the lesser of the available
borrowing base or $10,000. Letters of credit were subject to Lender approval and a fee that accrued at the annual rate of 3%
of the undrawn daily balance of the outstanding letters of credit, payable monthly. An unused line fee of 0.5% per annum of
the daily average of the maximum Credit Facility amount reduced by outstanding borrowings and letters of credit is payable
monthly. As of December 31, 2016, there were no letters of credit outstanding under the sub-facility and the sub-facility was
eliminated in the Credit Agreement.
NOTE 7 — SENIOR LOAN FACILITY
On June 29, 2016, the Corporation, as borrower, and each of the Corporation’s domestic subsidiaries, as guarantors (the
“Guarantors”), entered into the Senior Loan Facility with the Supporting Holders of the Senior Secured Notes. In addition to
the Supporting Holders, one additional holder of the senior secured notes subsequently elected to participate as a lender in the
Senior Loan Facility as discussed in Note 19. The lender's funding obligations are based on their proportionate ownership of
the Senior Secured Notes. The Senior Loan Facility provides funding up to a maximum borrowing amount of $30,000. Under
the terms of the Senior Loan Facility, $15,000 became immediately available and the remaining $15,000 became available
when the Corporation entered into Amendment No. 1 to the Senior Loan Facility on October 24, 2016. As of December 31,
2017 and 2016, borrowings of $29,995 were outstanding under the Senior Loan Facility.
On September 8, 2017, the Corporation entered into Amendment No. 2 to the Senior Loan Facility (the “Second
Amendment”) that amended and extended a majority of the Senior Loan Facility held by consenting lenders representing
$29,000 of the total principal outstanding (the “Extended Loans”). The Second Amendment, among other things, for the
Extended Loans:
extended the maturity date to January 2, 2020; but provided that the maturity would be January 2, 2019 if there are
any outstanding Senior Secured Notes or Second Lien Notes at that time;
increased the interest rate from 10% per year to 10.5% beginning on September 8, 2017 to, but not including,
February 8, 2018, 11.5% per year for the succeeding six-month period, and 12.5% per year thereafter until the
maturity, payable monthly in cash;
provided for a mandatory prepayment with the proceeds from any Tax Credit; and
provided for a call premium with respect to certain prepayments.
On February 28, 2018, the Corporation entered into Amendment No. 3 to the Senior Loan Facility to provide that the Senior
Loan Facility matures on January 2, 2020.
The remaining $995 of advances under the Senior Loan Facility (the “Residual Loans”) remained under the original terms of
the Senior Loan Facility where borrowings bear interest at a rate of 10% per year, payable monthly and the maturity date is
January 2, 2018, unless terminated earlier. The Residual Loans also require mandatory prepayment from the proceeds of any
Tax Credit after the Corporation has received $15,000 in proceeds from the Tax Credits. The Residual Loans matured
January 2, 2018, and were paid off.
The Second Amendment was accounted for as a modification during the year ended December 31, 2017. In connection with
the Second Amendment, deferred loan issuance costs totaling $914 were recorded in the year ended December 31, 2017. The
deferred loan issuance costs recorded during these periods consisted of $600 of fees, which were paid to the lenders, and
$314 of legal and investment banking costs. In connection with the initial borrowing, costs totaling $30,082 were recorded as
a deferred loan issuance cost on the balance sheet in the year ended December 31, 2016. The deferred loan issuance costs
recorded in 2016 related to the initial debt issuance included a $600 facility fee, legal and investment banking costs, and
$28,425 for the fair value of 2,803,302 shares of the Corporation's common stock issued to the lenders on July 27, 2016. The
fair value of the common stock was determined using the probability-weighted expected return method based on a
combination of the income and market approaches and a mergers and acquisition scenario.
FS-25
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 7 — SENIOR LOAN FACILITY – (continued)
The Senior Loan Facility is secured by substantially all of the collateral securing the obligations under (i) the Credit
Agreement (ii) the Senior Secured Notes and (iii) the Second Lien Notes, including the receivable due to the Corporation
discussed in Note 3. This security interest is junior to the security interest in such collateral securing the obligations under the
Credit Facility and senior to the security interests in such collateral securing the obligations under the Second Lien Notes and
the Senior Secured Notes.
The Senior Loan Facility contains negative covenants that restrict the Corporation’s and the Guarantors’ ability to incur
indebtedness, create or incur liens, enter into fundamental changes to the Corporation’s corporate structure or to the nature of
the Corporation’s business, dispose of assets, permit a change in control to occur, make certain prepayments, other payments
and distributions, make certain investments, enter into affiliate transactions or make certain distributions, and requires that
the Corporation maintain and deliver certain financial reports, projections, records and other items. The Senior Loan Facility
also contains customary representations, warranties, covenants and other terms and conditions, including relating to the
payment of fees to the Senior Loan Facility agent and the lenders, and customary events of default. The Corporation was in
compliance with the Senior Loan Facility covenants as of December 31, 2017.
On June 29, 2016, the Corporation, the guarantors party thereto (the “Existing Notes Guarantors”) and Wilmington Savings
Fund Society, FSB (successor to U.S. Bank National Association), as trustee for the Senior Secured Notes (the “Existing
Trustee”), entered into a first supplemental indenture (the “Supplemental Indenture”) to the indenture governing the Senior
Secured Notes (the “Existing Indenture”). The Supplemental Indenture modified the Existing Indenture to, among other
things, permit the incurrence of additional secured indebtedness pursuant to the Senior Loan Facility and the issuance of the
Second Lien Notes in the Exchange Offer. The Supplemental Indenture includes additional changes necessary to give effect
to the 2016 Restructuring and directed the Existing Trustee, in its capacity as noteholder collateral agent for the Senior
Secured Notes, to enter into the Amended and Restated Intercreditor Agreement and the amendment to the Existing Security
Agreement, each as described below, on behalf of the Existing Holders. The material terms of the Existing Indenture, other
than the amendments summarized above, remain substantially as set forth in the Existing Indenture.
On June 29, 2016, Wells Fargo, in its capacity as lender and collateral agent under the Prior Credit Agreement, Wilmington
Savings Fund Society, FSB (successor to U.S. Bank National Association), in its capacity as trustee and collateral agent for
the Senior Secured Notes (“Noteholder Collateral Agent”), and Delaware Trust Corporation, in its capacity as administrative
agent and collateral agent for the Senior Loan Facility, amended and restated the Intercreditor Agreement, dated as of
November 6, 2014, by and between Wells Fargo and Wilmington Savings Fund Society, FSB (as successor to U.S. Bank
National Association) (the “Existing Intercreditor Agreement” and as amended and restated, the “Amended and Restated
Intercreditor Agreement”), to govern the relationship of the Existing Holders, the holders of Second Lien Notes, and the
lenders under the Corporation’s Credit Facility and Senior Loan Facility, with respect to the collateral and certain other
matters. On September 22, 2017, the Assignment Agreement was entered into between the Original Lender under the Prior
Credit Agreement and the Agent as further described in Note 6. As a result of the Assignment Agreement, the Agent has
succeeded Wells Fargo in its capacity as administrative agent and collateral agent for the Credit Facility under the Amended
and Restated Intercreditor Agreement. The Amended and Restated Intercreditor Agreement, among other things, modifies the
terms of the Existing Intercreditor Agreement to (i) establish the relative priorities, rights, obligations and remedies with
respect to the collateral among the Existing Holders, the holders of the Second Lien Notes, the lenders under the Credit
Facility, the lenders under the Senior Loan Facility, the holders of future debt that is permitted to share the security interests
currently held by them and the collateral agents of the foregoing (collectively, the “Secured Parties”); and (ii) modify the
terms of the Existing Intercreditor Agreement to permit the holders of obligations under the Senior Loan Facility and the
Second Lien Notes to share the security interests currently held by the Existing Holders and Wells Fargo as the lender under
the Credit Facility as follows:
the obligations under the Credit Facility are secured by all of the existing collateral on a senior first lien priority
basis;
the obligations under the Senior Loan Facility are secured by all of the existing collateral on a junior first lien
priority basis;
the obligations under the Second Lien Notes are secured by substantially all of the existing collateral on a second
lien priority basis; and
the obligations under the Senior Secured Notes are secured by substantially all of the existing collateral on a third
lien priority basis.
FS-26
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 7 — SENIOR LOAN FACILITY – (continued)
In addition, the Amended and Restated Intercreditor Agreement provides that, following a triggering event, as among the
Secured Parties, the Senior Representative (defined below) will have the right (subject to a purchase option by the other
Secured Parties) to, or the right to direct any other collateral agent to, adjust or settle insurance policies or claims in the event
of any loss thereunder relating to insurance proceeds with respect to collateral, to approve any award granted in any
condemnation or similar proceeding affecting such insurance proceeds and to enforce rights, exercise remedies and
discretionary rights and powers with respect to collateral. The Secured Parties agreed that if the Corporation or any guarantor
becomes subject to a case under the U.S. Bankruptcy Code, the Secured Parties will only be permitted to object to a debtor-
in-possession financing or the use of cash collateral if the Secured Parties for which the Senior Representative is the
collateral agent also object. The “Senior Representative” under the Amended and Restated Intercreditor Agreement is Wells
Fargo as the Credit Facility agent, until the obligations under the Credit Facility have been discharged in full, after which the
Senior Loan Facility agent will be the Senior Representative; and once the Credit Facility agent and the Senior Loan Facility
agent each cease to be the Senior Representative and the obligations under each of the Credit Facility and Senior Loan
Facility have been discharged in full, the Senior Representative will be Wilmington Savings Fund Society, FSB, as the New
Noteholder Collateral Agent. The material terms of the Amended and Restated Intercreditor Agreement, other than those
summarized above, remain substantially as set forth in the Existing Intercreditor Agreement, except that the Noteholder
Collateral Agent will no longer have a first-priority security interest in the “Noteholder Priority Collateral” (as such term is
defined in the Existing Intercreditor Agreement).
On June 29, 2016, the Corporation and the Senior Secured Notes Guarantors, as pledgors, also entered into an amendment
(the “Security Agreement Amendment”) to the Security Agreement, dated as of July 2, 2014 (as amended from time to time,
the “Existing Security Agreement”), with Wilmington Savings Fund Society, FSB, as Noteholder Collateral Agent for the
Senior Secured Notes. The Security Agreement Amendment introduced conforming changes to reflect the provisions
incorporated into the Amended and Restated Intercreditor Agreement. On January 26, 2018, the parties to the Existing
Security Agreement entered into Amendment No. 1 to the Security Agreement to release the collateral securing the
Corporation's and Guarantor's obligations relating to the Second Lien Notes.
NOTE 8 — NOTES PAYABLE
Notes payable consist of the following:
December 31,
2017
2016
10% second lien notes due 2019:
Carrying value, including cumulative paid-in-kind interest of $8,467 and
$3,619 as of December 31, 2017 and 2016, respectively ............................... $
Less: unamortized debt discount ...........................................................................
Total second lien notes outstanding ......................................................................
10% senior secured notes due 2019:
Principal outstanding ............................................................................................
Less: unamortized deferred loan issuance costs ....................................................
Total senior secured notes outstanding .................................................................
85,239 $
(189)
85,050
1,872
(25)
1,847
Total notes payable outstanding (long-term) ........................................................ $
86,897 $
80,536
(298)
80,238
1,872
(42)
1,830
82,068
Senior Secured Notes
On July 2, 2014, the Corporation entered into an Indenture (as amended the “Indenture”) under which it issued $150,000 of
senior secured notes due July 15, 2019, in a private offering. Those Notes were exchanged on June 29, 2015 for an equal
amount of new senior secured notes (“Senior Secured Notes”), which were substantially identical in terms to the existing
senior secured notes except that the Senior Secured Notes were registered under the Securities Act.
FS-27
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 8 — NOTES PAYABLE – (continued)
The Senior Secured Notes bear interest at the annual rate of 10% payable semi-annually in arrears on January 15 and July 15
of each year, commencing on January 15, 2015.
The Corporation has the right to redeem some or all of the Senior Secured Notes at the redemption prices (expressed as
percentages of the principal amount to be redeemed) set forth below, together with accrued and unpaid interest to, but not
including, the redemption date, if redeemed on or after January 15, 2017 as indicated:
Period
On or after July 15, 2017 and prior to July 15, 2018 ..................................................................................
On and after July 15, 2018 .........................................................................................................................
Percentage
105.0%
100.0%
Subject to certain exceptions, upon the occurrence of a Change of Control (as defined in the Indenture), each holder of Senior
Secured Notes has the right to require the Corporation to purchase that holder’s Senior Secured Notes for a cash price equal
to 101% of the principal amounts to be purchased, plus accrued and unpaid interest to the date of purchase. Upon the
occurrence of an Asset Sale (as defined in the Indenture), each holder of Senior Secured Notes has the right to require the
Corporation to purchase that holder’s Senior Secured Notes for a cash price equal to 100% of the principal amounts to be
purchased, plus accrued and unpaid interest to the date of purchase from any proceeds from the Asset Sale in excess of $7.5
million that are not otherwise used by the Corporation to either reduce its debt, reinvest in assets or acquire a permitted
business.
The Senior Secured Notes were secured by the collateral described in the Existing Security Agreement and governed by the
Amended and Restated Intercreditor Agreement, all as described in Note 7.
The Indenture contains covenants which include limitations on the Corporation's ability to: (i) transfer or sell assets; (ii) pay
dividends, redeem subordinated indebtedness or make other restricted payments; (iii) incur or guarantee additional
indebtedness or, with respect to the Corporation's restricted subsidiaries, issue preferred stock; (iv) create or incur liens; (v)
incur dividend or other payment restrictions affecting its restricted subsidiaries; (vi) consummate a merger, consolidation or
sale of all or substantially all of its or its subsidiaries’ assets; (vii) enter into transactions with affiliates; (viii) engage in
business other than its current business and reasonably related extensions thereof; and (ix) take or omit to take any actions
that would adversely affect or impair in any material respect the collateral securing the Senior Secured Notes. The
Corporation was in compliance with the Indenture covenants as of December 31, 2017.
Exchange of Senior Secured Notes for 10% Second Lien Notes due 2019 in the 2016 Restructuring
As discussed in Note 2, the Corporation commenced an offer on June 24, 2016 to exchange each $1 of the Senior Secured
Notes for (i) $0.50 of newly issued 10% Second Lien Notes due 2019 and (ii) 46.41 shares of newly issued Corporation
common stock (giving effect to a 135-for-1 reverse stock split that was effected in connection with closing of the 2016
Exchange Offer). The 2016 Exchange Offer closed on July 27, 2016. On the 2016 Closing Date, a total of $138,128 face
value of the Senior Secured Notes were exchanged for (i) $76,523 Second Lien Notes, including $7,459 Second Lien Notes
representing accrued and unpaid interest and (ii) 6,410,502 shares of Corporation common stock.
The 2016 exchange was accounted for as a modification during the year ended December 31, 2016. The Second Lien Notes
were recorded at the net carrying value of the Senior Secured Notes exchanged of $134,522, less the fair value of the
Corporation common stock issued to participating noteholders of $65,003, plus the accrued and unpaid interest of $7,459
included in the exchange. The resulting $455 excess of carrying value over face value of the Second Lien Notes is being
amortized to interest expense over the term of the Second Lien Notes. The fair value of the common stock was determined
using the probability-weighted expected return method based on a combination of the income and market approaches and a
mergers and acquisition scenario. Costs incurred by the participating noteholders during the 2016 exchange of $345 were
recognized as debt discount and are being amortized over the term of the Second Lien Notes.
FS-28
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 8 — NOTES PAYABLE – (continued)
In connection with the 2016 Exchange Offer, the Corporation also completed a consent solicitation to make certain
amendments to the terms of the Indenture for the Senior Secured Notes, the related security documents and the existing
intercreditor agreement to permit the 2016 Restructuring as discussed in Note 7. The terms of the Second Lien Notes issued
in the 2016 Restructuring were set forth in an indenture (the “Second Lien Note Indenture”) and are substantially similar to
the Indenture relating Senior Secured Notes with the following modifications:
The Second Lien Notes have a maturity date of September 24, 2019, provided that, if any of the Senior Secured
Notes remain outstanding as of March 31, 2019, the maturity date of the Second Lien Notes will become due on
April 14, 2019 upon the affirmative vote of the holders of a majority of the then-outstanding Second Lien Notes.
The liens securing the Second Lien Notes are junior to the liens securing the Senior Loan Facility and the Credit
Facility, and are senior to the liens securing the Senior Secured Notes.
In addition to the exchange consideration, each participating holder received accrued and unpaid interest on its
tendered Senior Secured Notes that were accepted for exchange from their last interest payment date of January 15,
2016 to, but not including, the settlement date, which was paid in the form of Second Lien Notes with a principal
amount equal to the amount of such accrued and unpaid interest totaling $7,459.
Interest on the Second Lien Notes is payable quarterly. The Corporation had the option to pay interest on the Second
Lien Notes in kind with additional Second Lien Notes for the first twelve months of interest payment dates of
interest payment dates, provided that, if the Corporation made the election, the interest on the Second Lien Notes for
such in kind payments would accrue at a per annum rate 1% percent higher than the cash interest rate of 10%. The
Corporation elected to pay interest in kind during the years ended December 31, 2017 and 2016 of $4,848 and
$3,619, respectively, which has been capitalized within the Second Lien Note balance.
The Second Lien Notes have a special redemption right at par of up to $35 million of the issuance to be paid out of
the proceeds of the Alaska Tax Credit certificates and is conditioned upon payment in full of the Credit Facility and
the Senior Loan Facility.
The Second Lien Notes include a make-whole provision requiring that if the Second Lien Notes are accelerated or
otherwise become due and payable prior to their stated maturity due to an Event of Default (including but not
limited to a bankruptcy or liquidation of the Corporation (including the acceleration of claims by operation of law)),
then the applicable premium payable with respect to an optional redemption will also be immediately due and
payable, along with the principal of, accrued and unpaid interest on, the Second Lien Notes and constitutes part of
the obligations in respect thereof as if such acceleration were an optional redemption of the Second Lien Notes, in
view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the
parties as to a reasonable calculation of each holder’s lost profits as a result thereof.
The Second Lien Note Indenture contains substantially the same covenants as the Indenture. The Corporation was in
compliance with the Second Lien Note Indenture covenants as of December 31, 2017.
Exchange of Senior Secured Notes and Second Lien Notes for Equity in the 2017 Restructuring
As discussed in Note 2, as part of the 2017 Restructuring, in exchange for $78,037 in aggregate principal amount of Second
Lien Notes, plus accrued and unpaid interest from and including January 15, 2018 thereon, representing approximately 91.8%
of the outstanding aggregate principal amount of the Second Lien Notes accepted for exchange in the 2017 Exchange Offer,
and $7 in aggregate principal amount of Senior Secured Notes, plus accrued and unpaid interest from and including
January 15, 2018 thereon, representing less than 1% of the outstanding aggregate principal amount of the Senior Secured
Notes accepted for exchange in the 2017 Exchange Offer, the Corporation newly issued: (i) 812,321 shares of common stock,
(ii) 31,669 shares of Series A perpetual convertible preferred stock, (iii) 855,195 shares of Series B convertible preferred
stock, and (iv) 8,286,061 Series C Warrants to purchase 8,286,061 shares of common stock.
Concurrent with the 2017 Exchange Offer, the Corporation solicited consents related to the adoption of proposed
amendments to the Second Lien Note Indenture and the Indenture governing the Senior Secured Notes. Holders of
approximately 91.8% of the principal amount of the Second Lien Notes delivered their consents to adopt the proposed
amendments to the Second Lien Note Indenture to remove a number of restrictive covenants, to eliminate some events of
default, and to release the collateral securing repayment of the Second Lien Notes. Holders of the Senior Secured Notes did
not consent to the adoption of the proposed amendments to the Indenture governing the Senior Secured Notes, including the
collateral release. As a result, the Senior Secured Notes continue to be secured by the collateral.
FS-29
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 8 — NOTES PAYABLE – (continued)
On January 26, 2018, the Corporation entered into a first supplemental indenture to the Second Lien Note Indenture and a
first amendment to the security agreement relating to the Second Lien Notes to effect the proposed amendments and
collateral release with respect to the Second Lien Notes.
Future Principal Payments for Notes Payable
Required future principal payments for notes payable outstanding at December 31, 2017 are as follows during the years
ending December 31:
2018 .................................................................................................................................................................... $
2019 ....................................................................................................................................................................
2020 ....................................................................................................................................................................
2021 ....................................................................................................................................................................
2022 ....................................................................................................................................................................
Thereafter ...........................................................................................................................................................
Total ................................................................................................................................................................... $
Amount
—
86,861
—
—
—
—
86,861
As of the 2017 Closing Date, there remain outstanding $1,865 in principal amount of the Senior Secured Notes and $6,952 in
principal amount of the Second Lien Notes, all of which continue to be governed by the Indenture and the Second Lien Note
Indenture, respectively, all of which will mature in 2019.
NOTE 9 — LEASES
Operating Leases
The Corporation has several noncancelable operating leases, primarily for office, warehouse space, and corporate apartments
that are set to expire over the next seven years. These leases generally contain renewal options for a one-year period and
require the Corporation to pay all executory costs such as maintenance and insurance. Rental expense for operating leases for
the years ended December 31, 2017 and 2016 was $4,667 and $23,269, respectively.
As of December 31, 2017, future minimum lease payments under noncancelable operating leases (with initial or remaining
lease terms in excess of one year) for the years ending December 31 are as follows:
2018 .................................................................................................................................................................... $
2019 ....................................................................................................................................................................
2020 ....................................................................................................................................................................
2021 ....................................................................................................................................................................
2022 ....................................................................................................................................................................
Thereafter ...........................................................................................................................................................
Total future minimum lease payments ............................................................................................................... $
Amount
2,834
1,199
487
279
266
558
5,623
NOTE 10 — EARNINGS PER SHARE
Basic income (loss) per share is computed by dividing net income (loss) attributable to the Corporation by the weighted
average number of common shares outstanding during each period. Diluted income (loss) per share is computed by dividing
net income (loss) attributable to the Corporation by the sum of the weighted-average number of shares outstanding during
each period and the dilutive potential common shares outstanding during the period determined under the treasury stock
method. In loss periods, basic net loss and diluted net loss are the same since the effect of potential common shares is anti-
dilutive and therefore excluded.
FS-30
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 10 — EARNINGS PER SHARE – (continued)
Dilutive potential common shares consist of shares issuable upon (i) the vesting of restricted stock, (ii) the exercising of
warrants at average market prices greater than their exercise prices, and (iii) the exercising of stock options at average market
prices greater than their exercise prices. Under the treasury stock method, dilutive potential common shares are determined
based on the assumed exercise of dilutive restricted stock, stock options and warrants less the number of treasury shares
assumed to be purchased from the amount that must be paid to exercise stock options, the amount of compensation expense
for future service that has not yet been recognized for restricted stock and stock options, and the amount of tax benefits that
will be recorded in additional paid-in capital when the dilutive awards become deductible.
As discussed in Note 2, the Corporation completed a 135-for-1 reverse split of the outstanding common stock effective as of
the Closing Date of the 2016 Restructuring. As a result, all share and per share amounts for all periods presented have been
adjusted to reflect the reverse split as though it had occurred prior to the earliest period presented.
The computation of basic and diluted net loss per share is as follows:
Net Loss
Attributable
to the
Corporation
Shares
Per Share
Year Ended December 31, 2017:
Basic loss per share ..................................................................................... $
Effect of dilutive securities .........................................................................
(40,756)
—
9,386,910 $
—
Diluted loss per share .................................................................................. $
(40,756)
9,386,910 $
Year Ended December 31, 2016:
Basic loss per share ..................................................................................... $
Effect of dilutive securities .........................................................................
(25,030)
—
4,083,103 $
—
Diluted loss per share .................................................................................. $
(25,030)
4,083,103 $
(4.34)
—
(4.34)
(6.13)
—
(6.13)
Options to purchase 311,477 shares of common stock were excluded from the calculation of diluted net loss per share for the
years ended December 31, 2017 and 2016, since the option exercise price was higher than the weighted average share price
during the period the options were outstanding, thus being anti-dilutive. Unvested restricted stock units representing 23,257
and 21,668 issuable shares were excluded from the calculation of diluted net loss per share for the years ended December 31,
2017 and 2016, respectively, since they were anti-dilutive. Warrants to purchase 308,752 shares of common stock were
excluded from the calculation of diluted net loss per share for the years ended December 31, 2017 and 2016, respectively,
since the warrant exercise price was higher than the weighted average share price during the respective periods, thus being
anti-dilutive.
NOTE 11 — INCOME TAXES
Income (loss) before income taxes attributable to U.S. (including its foreign branches) and foreign operations are as follows:
U.S. ................................................................................................................................... $
Foreign ...............................................................................................................................
Total ................................................................................................................................... $
No income taxes are attributable to the noncontrolling interest.
FS-31
Years Ended December 31,
2017
2016
(33,327 ) $
(1,144)
(34,471 ) $
(29,867)
13,914
(15,953)
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 11 — INCOME TAXES – (continued)
The provision for income taxes shown in the consolidated statements of operations and comprehensive loss consists of
current and deferred expense (benefit) as shown in the following table:
Current income tax expense:
U.S. – federal and state ................................................................................................. $
Foreign ..........................................................................................................................
Total current income tax expense ................................................................................. $
Deferred income tax expense/(benefit):
U.S. – federal and state ................................................................................................. $
Foreign ..........................................................................................................................
Total deferred income tax expense/(benefit).................................................................
Total provision for income taxes ........................................................................................ $
Years Ended December 31,
2017
2016
— $
3,783
3,783 $
— $
530
530
4,313 $
102
7,276
7,378
—
(1,322)
(1,322)
6,056
A reconciliation of the provision for income tax expense (benefit) expected at the U.S. federal statutory income tax rate to the
effective income tax rate is as follows:
Years Ended December 31,
2017
2016
Expected income tax expense (benefit) at 35% ................................................................. $
Effects of expenses not deductible for tax purposes ..........................................................
Tax effect of valuation allowance on deferred tax assets ...................................................
Effects of differences between U.S. and foreign tax rates, net of federal benefit ..............
Net income attributable to noncontrolling interest .............................................................
Branch tax\Foreign withholding and AMT ........................................................................
Rate changes ......................................................................................................................
Other adjustments...............................................................................................................
Provision for income taxes ................................................................................................. $
(12,065 ) $
1,398
5,299
1,865
(717)
(182)
8,272
443
4,313 $
(5,583)
1,312
7,115
6,020
(1,057)
(1,466)
(285)
—
6,056
The net deferred tax assets consist of the following:
Noncurrent deferred tax assets, net .................................................................................... $
Noncurrent deferred tax liability, net .................................................................................
Net deferred tax assets ....................................................................................................... $
4,592 $
—
4,592 $
5,122
—
5,122
December 31,
2017
2016
FS-32
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 11 — INCOME TAXES – (continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
Deferred tax assets:
Deferred charges ........................................................................................................... $
Stock compensation expense ........................................................................................
Other accruals ...............................................................................................................
Research and development credits ................................................................................
Capital lease obligation .................................................................................................
Foreign tax credit and AMT credit carry forwards .......................................................
Financing costs .............................................................................................................
Unrealized loss on foreign currency transactions .........................................................
Net operating loss carry forwards .................................................................................
Total deferred tax assets ...............................................................................................
Less: valuation allowance .............................................................................................
Total deferred tax assets, net .................................................................................... $
Deferred tax liabilities:
Property and equipment ................................................................................................ $
Intangible assets ............................................................................................................
Total deferred tax liabilities .....................................................................................
Net deferred tax assets ....................................................................................................... $
December 31,
2017
2016
363 $
142
2,226
160
134
2,087
75
663
22,404
28,254
(22,651)
5,603 $
(671 ) $
(340)
(1,011)
4,592 $
1,553
237
4,421
160
134
2,087
453
700
15,668
25,413
(16,890)
8,523
(3,061)
(340)
(3,401)
5,122
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Corporation has evaluated the available evidence and the
likelihood of realizing the benefit of its net deferred tax assets. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in making this assessment. From its evaluation, the
Corporation has concluded that based on the weight of available evidence, it is not more likely than not to realize the benefit
of its deferred tax assets recorded in the United States, Malaysia, Brazil, Canada and Peru at December 31, 2017.
Accordingly, the Corporation had a valuation allowance totaling $22,651 and $16,890 at December 31, 2017 and 2016,
respectively. Should the factors underlying management’s analysis change, future valuation adjustments to the Corporation’s
net deferred tax assets may be necessary. The valuation allowance was increased by $5,761 and decreased by $9,247 during
the years ended December 31, 2017 and 2016, respectively.
The Corporation is subject to examination in all jurisdictions in which it operates. The Corporation is no longer subject to
examination by the Internal Revenue Service or other foreign taxing authorities in which it files for years prior to 2008.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law in the United States, making significant
changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease
from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from
a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of
cumulative foreign earnings as of December 31, 2017.
FS-33
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 11 — INCOME TAXES – (continued)
On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in
situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of U.S. Tax Reform. In
accordance with SAB 118, the Corporation provisionally determined an adjustment to deferred tax assets, along with a
corresponding adjustment to valuation allowance, was not necessary, which resulted in no tax expense recorded in connection
with the re-measurement of certain deferred tax assets and liabilities. Additionally, as a reasonable estimate, the Corporation
has provisionally recorded no tax expense in connection with the transition tax on the mandatory deemed repatriation of
foreign earnings, based upon an aggregate tax losses of its foreign subsidiaries. Additional work may be necessary for a more
detailed analysis of the Corporation’s deferred tax assets and liabilities and its historical foreign earnings. Any subsequent
adjustment to these amounts will be recorded in 2018 when the analysis is complete.
Foreign earnings are considered to be permanently reinvested in operations outside the United States and therefore the
Corporation has not provided for U.S. income taxes on these unrepatriated foreign earnings. The Corporation is currently
evaluating the impact of U.S. Tax Reform on the global structure and any associated impacts it may have on the assertion on
a go forward basis and as such have not included a provisional estimate of the impact.
The details of the Corporation’s tax attributes are shown below:
Net Operating Loss Carryforwards:
December 31,
2017
2016
United States ...................................................................................................................... $
Canada ................................................................................................................................
Malaysia .............................................................................................................................
Brazil ..................................................................................................................................
Peru ....................................................................................................................................
Others .................................................................................................................................
Total ................................................................................................................................... $
59,065 $
7,072
5,426
6,241
4,713
6,240
88,757 $
22,505
6,117
5,726
5,149
2,957
4,847
47,301
Foreign Tax Credit Carryforwards:
December 31,
2017
2016
United States ...................................................................................................................... $
Canada ................................................................................................................................
United Kingdom .................................................................................................................
Total ................................................................................................................................... $
100 $
654
727
1,481 $
100
654
727
1,481
Net Deferred Tax Assets:
Bolivia ................................................................................................................................ $
Colombia ............................................................................................................................
Malaysia .............................................................................................................................
Peru ....................................................................................................................................
875 $
3,392
325
—
Total ................................................................................................................................... $
4,592 $
FS-34
December 31,
2017
2016
1,368
2,249
233
1,272
5,122
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 11 — INCOME TAXES – (continued)
As of December 31, 2017, the Corporation has approximately $192 of unrecognized tax benefits and does not expect to
recognize any significant increases or decreases in unrecognized tax benefits during the next twelve-month period. Interest
and penalties, if any, related to unrecognized tax benefits are recorded in tax expense. During 2017 and 2016, the aggregate
changes in the Corporation's total gross amount of unrecognized tax benefits are as follows:
Years Ended December 31,
2017
2016
Unrecognized tax benefits, beginning balance ................................................................ $
Additions for tax positions taken in prior years ...............................................................
Unrecognized tax benefits, ending balance ..................................................................... $
— $
192
192
—
—
—
There was no accrued interest and penalties included in accrued expenses as of December 31, 2017 and 2016. Interest and
penalties recognized as expense amounted to $206 and $11 for the years ended December 31, 2017 and 2016, respectively.
Net Operating Losses
Due to the Restructuring, the Corporation's U.S. federal tax net operating loss (“NOL”) carryforwards, foreign tax credits
(“FTC”) carryforwards and Research and Development Credits (“R&D”) carryforwards were subject to Section 382 and
Section 383 annual limitations due to the ownership changes from the Restructuring. The Corporation determined some of
the carryforwards will expire unutilized and were written down from the deferred tax assets against a full valuation
allowance.
As of December 31, 2017, the Corporation had U.S. federal tax NOL carryforwards of $59,065, which begin to expire in
fiscal year 2034. These NOL carryforwards, subject to certain requirements and restrictions, including limitations on their use
in the event of future ownership changes, may be used to offset future taxable income and thereby reduce the Corporation’s
U.S. federal income taxes otherwise payable. Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”),
imposes an annual limit on the ability of a corporation that undergoes an ownership change to use its NOL carryforwards to
reduce its tax liability.
NOTE 12 — WARRANTS
Former SAE Warrants
Two classes of warrants were issued in 2012 convertible into an aggregate of 2% of Former SAE’s common stock deemed
outstanding at the time of the exercise, including any securities or contracts of a dilutive nature, whether or not exercisable at
the time of the determination at an exercise price of $0.01 a share (the “Former SAE Warrants”). A portion of the merger
consideration payable at Closing of the Merger was allocable to the Former SAE Warrants that were not converted or
exchanged prior to the Merger and were held in escrow pending the conversion or exercise of those warrants (the “Merger
Consideration Escrow”). On December 12, 2017, the Former SAE Warrants were exercised and the warrant holders accepted
a cash settlement of $0.5 in lieu of the release of shares from the Merger Consideration Escrow upon exercise of the warrants.
Series A and Series B Warrants
As an element of the 2016 Restructuring discussed in Note 2, the Corporation granted to stockholders of record on July 26,
2016, 154,376 Series A Warrants and 154,376 Series B Warrants (together, the “Warrants”) to purchase shares of the
Corporation's common stock. Each Warrant entitles the holder to purchase one share of the Corporation's common stock. The
Series A Warrants and Series B Warrants have exercise prices of $10.30 and $12.88, respectively, and expire on July 27,
2021. The Warrants will become exercisable 30 days in advance of their expiration date contingent upon the receipt by the
Corporation of Tax Credit certificates in a face amount of at least $25 million issued by the State of Alaska to the
Corporation. The warrants were accounted for in equity and recorded at a fair value of $1,381 during the year ended
December 31, 2016.
FS-35
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 12 — WARRANTS – (continued)
Series C Warrants
As an element of the 2017 Exchange Offer discussed in Note 2 and Note 8, on the 2017 Closing Date, the Corporation issued
8,286,061 Series C Warrants to the 2017 Supporting Holders. Each warrant entitles the holder to purchase one share of the
Corporation's common stock. The Series C Warrants have an exercise price of $0.0001 and have no expiration date. The
Series C Warrants are immediately exercisable by the Supporting Holders and are exercisable by the Corporation in
connection with (i) a full redemption of the Series A Preferred Stock and Series B Preferred Stock provided that it does not
result in a holder owning 10% or more of the outstanding shares of common stock of the Corporation or (ii) upon a change in
control of the Corporation.
Series D Warrants
As an element of the 2017 Exchange Offer discussed in Note 2, on March 8, 2018, the Corporation issued 14,098,370 Series
D Warrants to the holders of the mandatorily convertible Series B Preferred Stock in connection with the mandatory
conversion of the Series B Preferred Stock upon effectiveness of the required shareholder approval to issue the securities in
connection with the conversion. Each Series D warrant entitles the holder to purchase one share of the Corporation's common
stock. The Series D Warrants have an exercise price of $0.0001 and have no expiration date. The Series D Warrants are
immediately exercisable by the holders and are exercisable by the Corporation in connection with (i) a full redemption of the
Series A Preferred Stock and Series B Preferred Stock, provided that it does not result in a holder owning 10% or more of the
outstanding shares of common stock of the Corporation or (ii) upon a change in control of the Corporation.
NOTE 13 — STOCKHOLDERS’ EQUITY
Preferred Stock
The Corporation is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such
designations, rights and preferences as may be determined from time to time by the Corporation’s Board of Directors. As of
December 31, 2017 and 2016, there were no shares of preferred stock issued or outstanding.
Series A Preferred Stock. As a part of the 2017 Restructuring described in Note 2, in January 2018, the Corporation issued
31,669 shares of Series A Preferred Stock. The Series A Preferred Stock has an 8% dividend payable quarterly in arrears and
accumulates whether or not earned or declared beginning on April 1, 2018. Dependent upon the Corporation achieving
certain financial metrics, the Corporation may pay dividends on the shares of Series A Preferred Shares in the form of
additional shares of Series A Preferred Shares. The Series A Preferred Stock is senior to the Corporation's Common Stock
and Series B Preferred Stock in the event of a liquidation of the Corporation. The Series A Preferred Stock is contingently
convertible into 3,271.4653 shares of Common Stock per one share of Series A Preferred Stock, at any time after the third
anniversary of the 2017 Closing Date. The conversion is subject to certain exceptions including receipt of shareholder
approval and a limitation on the ability of certain holders to convert if it would cause such holder to beneficially own in
excess of 9.99% of the outstanding common stock. The Series A Preferred Stock is redeemable by the holders on a pro rata
basis for cash only upon the monetization of the Alaska Tax Credits in excess of the amount to repay the Credit Facility,
Senior Loan Facility, and an additional $2,000, on a pro rata basis. The Corporation can redeem the Series A Preferred Stock
for cash at any time.
Series B Preferred Stock. As a part of the 2017 Restructuring described in Note 2, in January 2018, the Corporation issued
855,195 shares of Series B Preferred Stock. The Series B Preferred Stock has no stated dividend and dividends are at the
discretion of the Board of Directors. Upon receipt of shareholder approval, the Series B Preferred Stock is convertible into
21.7378 shares of common stock per one share of Series B Preferred Stock. The Series B Preferred Stock is senior to the
Corporation's common stock and junior to the Series A Preferred Stock in the event of the liquidation of the Corporation. The
Corporation obtained the necessary shareholder approval on January 26, 2018 and on March 6, 2018, all of the Series B
Preferred Stock was converted into 4,491,674 new shares of common stock and 14,098,370 Series D Warrants, which were
issued on March 8, 2018. As of the date of this filing, there remains no issued or outstanding shares of Series B Preferred
Stock.
FS-36
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 13 — STOCKHOLDERS’ EQUITY – (continued)
Common Stock
As of December 31, 2017, the Corporation was authorized to issue 55,000,000 shares of common stock with a par value of
$0.0001 per share. On June 15, 2016, the Corporation’s board of directors authorized a 135-for-1 reverse split of the
outstanding common stock effective as of the 2016 Closing Date of the 2016 Restructuring. All share and per share amounts
for all periods presented have been adjusted to reflect the reverse split as though it had occurred prior to the earliest period
presented. The changes in the number of shares outstanding and treasury shares held by the Corporation are as follows:
For the year ended December 31,
2017
2016
Shares issued
Beginning balance as of January 1 ............................................................................
Vesting of restricted stock awards .................................................................................
Grantee election to fund payroll taxes out of restricted stock ........................................
Exercise of stock options ...............................................................................................
Issuance of shares to non-employee directors ................................................................
Common stock issued in exchange of Senior Secured Notes for Second Lien Notes ....
Common stock issued to participants in senior loan facility ..........................................
Fractional shares cancelled in reverse stock split ...........................................................
9,358,529
103,829
—
—
—
—
—
—
Ending balance as of December 31 ...........................................................................
9,462,358
129,269
1,542
(386)
85
15,016
6,410,502
2,803,302
(801)
9,358,529
Shares held as treasury shares
Beginning balance as of January 1 ............................................................................
Purchase of treasury stock ........................................................................................
Ending balance as of December 31 ...........................................................................
—
38,024
38,024
—
—
—
Shares outstanding at December 31 ...............................................................................
9,424,334
9,358,529
As part of the 2017 Restructuring described in Note 2, on March 5, 2018, the certificate of incorporation of the Corporation
was amended to change the authorized number of shares of common stock to 200,000,000.
NOTE 14 — SHARE-BASED COMPENSATION
2018 Long-Term Incentive Plan
As part of the 2017 Restructuring, the Corporation received written consent from holders of a majority of the Corporation's
common stock outstanding approving and adopting the Corporation's 2018 Long-Term Incentive Plan (the “2018 Plan”). The
2018 Plan became effective March 5, 2018. The 2018 Plan reserves for the issuance of 19,500,000 shares of common stock.
To date, no awards have been made under the 2018 Plan.
Amended and Restated 2016 Long Term Incentive Plan
On May 8, 2017, the Corporation received written consent from holders of a majority of the Corporation's common stock
outstanding approving and adopting the Corporation's Amended and Restated 2016 Long-Term Incentive Plan (the “2016
Amended and Restated Plan”). The 2016 Amended and Restated Plan became effective on May 30, 2017. The 2016 Amended
and Restated Plan (i) combines the shares under the 2016 Long Term Incentive Plan and the 2013 Non-Employee Director
Plan (the “Original Plans”) into a common pool of common stock, (ii) allows the granting of awards for payment of annual
bonuses provided for under employment agreements with officers and under its bonus program for employees and (iii) adopts
FS-37
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 14 — SHARE-BASED COMPENSATION – (continued)
other amendments necessary for granting awards to both employees and non-employee directors. No further shares will be
issued under the Original Plans and any remaining shares under the Original Plans are reserved for issuance under the 2016
Amended and Restated Plan. The total number of shares of common stock reserved for issuance under the 2016 Amended
and Restated Plan is 1,438,258 less any shares that have been previously issued under the Original Plans. As of December 31,
2017, there were 639,167 restricted shares, restricted stock units and options issued under the original plans issued under the
2016 Amended and Restated Plan. As an element of the 2017 Restructuring discussed in Note 2, the Corporation terminated
the 2016 Amended and Restated Plan and all outstanding awards thereunder immediately vested and converted into shares of
the Corporation's Common Stock after exercise price and income tax withholdings in the first quarter of 2018.
2016 Long Term Incentive Plan
On August 3, 2016, the Board of Directors approved and adopted the 2016 Long Term Incentive Plan (“2016 Plan”), for the
purpose of promoting the long-term success of the Corporation and the creation of value for its stockholders. On August 4,
2016, the Corporation received written consents from the holders of a majority of the shares of its common stock outstanding
approving and adopting the 2016 Plan.
The 2016 Plan provided for awards of stock options, stock appreciation rights, restricted shares, stock units and performance
cash awards. The 2016 Plan reserved 1,438,258 shares of common stock for distribution to covered employees, including a
maximum of 919,129 shares that were reserved for issuance pursuant to awards of restricted stock or stock units. On
September 26, 2016, stock units and stock options for 311,477 shares of Corporation common stock at an exercise price of
$10.19 were granted under the 2016 Plan (the “MIP Awards”).
The MIP Awards vest: (a) one-third on the earliest to occur of (1) the date on which the Corporation receives Tax Credit
certificates assigned to the Corporation by Alaska Seismic Ventures, LLC and issued by the Tax Division of the State of
Alaska that, together with all such certificates received by the Corporation after the Closing Date, have an aggregate face
amount of $25 million or more, or (2) the first anniversary of the Closing Date; and (b) one-third each on the second and third
anniversaries of the Closing Date. The MIP Awards expire upon the earlier of termination of the grantee’s employment or ten
years after the grant date.
Non-Employee Director Share Incentive Plan
Effective November 1, 2013, stockholders approved the Corporation’s non-employee director share incentive plan, which
provided for discretionary grants of stock awards to the Corporation’s independent non-employee directors as determined by
the Corporation’s board of directors. The 2013 Non-Employee Director Plan was amended effective November 3, 2016 to
increase the number of shares of the Corporation's common stock available for issuance under the plan from 2,962 (after
taking into account the 135-for-1 reverse stock split of the Corporation's common stock effected on July 27, 2016) to 400,000
shares. The awards could have taken the form of unrestricted or restricted shares of the Corporation’s unissued common
stock or options to purchase shares of the Corporation’s unissued common stock.
During 2016, 15,016 restricted shares were issued under the plan that vested immediately upon issuance, resulting in share-
based compensation expense of $129 for the year ended December 31, 2016. The restricted shares granted and vested had a
weighted-average grant date fair value of $8.54.
2013 Long-Term Incentive Compensation Plan
On June 21, 2013, the stockholders approved the Corporation’s 2013 Long-Term Incentive Compensation Plan (“2013 Plan”)
for the benefit of certain employees performing services for the Corporation. The 2013 Plan reserved up to 5,870 unissued
shares of Corporation common stock for issuance in accordance with the 2013 Plan’s terms including a maximum of up to
2,935 shares that could have been issued pursuant to awards of restricted stock. On June 29, 2015, the initial awards were
granted under the 2013 Plan of 1,790 stock options with an exercise price of $556.20 and 2,416 restricted stock units. The
awards originally had vesting terms of one-third on each of ninety days, one year, and two years after the date of grant. As an
element of the 2016 Restructuring discussed in Note 2, the Corporation terminated the 2013 Plan and all outstanding awards
thereunder immediately vested and converted into shares of the Corporation's Common Stock. As a result of the accelerated
vesting, the Corporation charged the remaining unrecognized compensation expense on existing awards to the results of
operations during the year ended December 31, 2016.
FS-38
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 14 — SHARE-BASED COMPENSATION – (continued)
Share-Based Compensation Expense
Share-based compensation expense for stock option, restricted stock and restricted stock unit awards was as follows:
Selling, general and administrative expenses ............................................................................ $
Income tax benefit ..................................................................................................................... $
1,925 $
(674) $
1,383
(484)
Stock Options
A summary of stock option activity for the year ended December 31, 2017 was as follows:
Years Ended December 31,
2017
2016
Number of
Underlying
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2016 ................
311,477 $
10.19 $
3.89
9.74 $
Granted .....................................................
Exercised ..................................................
Forfeited ....................................................
Expired ......................................................
— $
— $
— $
— $
—
—
—
—
Outstanding at December 31, 2017 ................
311,477 $
10.19 $
Exercisable at December 31, 2017 .................
— $
— $
—
—
—
—
3.89
—
—
—
—
—
8.74 $
— $
—
—
—
—
—
—
—
The total grant date fair value of stock options awarded during the years ended December 31, 2017 and 2016 was $0 and
$1,212, respectively. The total fair value of stock options vested during the years ended December 31, 2017 and 2016 was
$404 and $3, respectively.
The Corporation computes the fair value of each stock option on the date of grant using a Black-Scholes option pricing
model. The following table summarizes the weighted average assumptions used in the Black-Scholes pricing model for the
years ended December 31, 2016 as no options were granted during 2017: :
Expected volatility ...............................................................................................................................
2016
60.68%
5.92
Expected lives (in years) ......................................................................................................................
Risk-free interest rate ...........................................................................................................................
1.21%
Expected dividend yield ....................................................................................................................... —%
The expected volatility is based on the historical volatility of comparable companies for a period commensurate with the
expected lives assumption. The simplified method is used to estimate expected lives for options granted during the period for
each vesting tranche. The risk-free interest rate is based on the yield on U.S. Treasury securities for a period commensurate
with the expected lives assumption. The Corporation has not historically issued dividends on its common stock and does not
expect to do so in the future.
At December 31, 2017, there was approximately $349 of unrecognized compensation expense for unvested stock option
awards with a weighted average vesting period of 1.57 years.
FS-39
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 14 — SHARE-BASED COMPENSATION – (continued)
Restricted Stock Units
A summary of restricted stock units activity for the year ended December 31, 2017 was as follows:
Weighted
Average Grant
Date Fair
Value
Number of
Shares
Nonvested at December 31, 2016.......................................................................................
Granted .........................................................................................................................
Vested ...........................................................................................................................
Forfeited ........................................................................................................................
Nonvested at December 31, 2017.......................................................................................
311,477 $
— $
(103,829) $
— $
207,648 $
7.85
—
7.85
—
7.85
The total grant date fair value of stock units awarded during the years ended December 31, 2017 and 2016 was $0 and
$2,445, respectively. The total fair value of stock units vested during the years ended December 31, 2017 and 2016 was $309
and $37. At December 31, 2017, there was approximately $704 of unrecognized compensation expense, net of estimated
forfeitures, for unvested restricted stock unit awards with a weighted average vesting period of 1.57 years.
NOTE 15 — VARIABLE INTEREST ENTITIES
Effective November 19, 2012, an agreement was entered into between a subsidiary of the Corporation and Kuukpik
Corporation (“Kuukpik”) to form a separate legal entity (“Joint Venture”) for the purpose of performing contracts for the
acquisition and development of geophysical and seismic data and for geophysical and seismic services and any and all related
work anywhere on the North Slope of Alaska (onshore or offshore) for a period of five years. Effective November 19, 2017,
the Corporation and Kuukpik signed an amendment extending the life of the Joint Venture until December 31, 2020. The
Corporation and Kuukpik’s percentage ownership interest in the Joint Venture are 49% and 51%, respectively. The sole
source of revenue of the Joint Venture is contracts performed by the Corporation. Pre-award costs incurred on potential
contracts by Kuukpik and the Corporation are absorbed by each party and not by the Joint Venture. The Joint Venture
receives 10% of gross revenues of all North Slope of Alaska contracts performed by the Corporation, which is distributed to
Kuukpik and the Corporation based on their relative ownership percentages. Risk of loss on a contract, including credit risk,
is the Corporation's sole responsibility. Based on its power to influence the significant business activities of the Joint Venture
and its responsibility to absorb contract losses, the Corporation was determined to be the primary beneficiary under GAAP
and as such consolidates the Joint Venture. The results of the Joint Venture are combined with the Corporation and all
intercompany transactions are eliminated upon consolidation. Amounts reflected for the Joint Venture in the consolidated
financial statements consist of the balances reported under net income attributable to noncontrolling interest for the years
ended December 31, 2017 and 2016 and noncontrolling interest on the December 31, 2017 and 2016 balance sheets.
Effective October 18, 2016, an agreement was entered into between the Corporation and SAExploration Nigeria Limited
(“SAE Nigeria”) for the purpose of performing acquisition and development of geophysical and seismic data on a specific
project in West Nigeria (“West Nigeria Project”). While the Corporation does not hold an ownership interest in SAE Nigeria,
risk of loss on the West Nigeria Project, including credit risk, was the Corporation's sole responsibility. All profits from the
West Nigeria Project remain with the Corporation. Based on its power to influence the significant business activities of SAE
Nigeria during the completion of the West Nigeria Project, its responsibility to absorb contract losses and the proportion of
SAE Nigeria's operations dedicated to the West Nigeria Project, the Corporation was determined to be the primary
beneficiary under GAAP and as such SAE Nigeria was consolidated for the term of the West Nigeria Project. As of August
31, 2017, the project was completed and all amounts due from SAE Nigeria to the Corporation were repaid. As a result, the
Corporation no longer holds a variable interest in SAE Nigeria, no longer has a controlling interest in SAE Nigeria and its
results are no longer combined with the Corporation's.
FS-40
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 16 — EMPLOYEE BENEFITS
The Corporation offers a Retirement Registered Saving Plan for all eligible employees of its Canadian operations. The
Corporation's plan allows for the match of each employee’s contributions up to the maximum allowed under the plan or until
the Canada Revenue Agency annual limit is reached, but due to the downturn in the oil industry matching contributions were
suspended as of June 1, 2015.
The Corporation offers a 401(k) Plan for all eligible employees of its U.S. operations. The plan allows for the match of each
employee’s contributions up to the maximum allowed under the plan, but due to the downturn in the oil industry matching
contributions were suspended as of June 1, 2015. For the years ended December 31, 2017 and 2016, the Corporation made no
matching contributions and had no expense related to either benefit plan.
NOTE 17 — GEOGRAPHIC AND RELATED INFORMATION
A summary of revenue and identifiable assets by geographic areas is as follows:
Revenue from Services
Years Ended December 31,
Identifiable Assets
December 31,
2017
2016
2017
2016
North America:
United States ............................................................. $
Canada ......................................................................
40,504 $
14,459
77,626 $
9,341
33,647 $
3,625
Total ..........................................................................
54,963
86,967
37,272
South America:
Peru ...........................................................................
Colombia ..................................................................
Bolivia ......................................................................
Other .........................................................................
Total ..........................................................................
Southeast Asia:
Malaysia ....................................................................
New Zealand .............................................................
Other .........................................................................
Total ..........................................................................
West Africa:
(82)
30,268
2,473
13
32,672
—
4,266
—
4,266
Nigeria ......................................................................
Total ..........................................................................
35,121
35,121
252
37,394
76,928
1,968
116,542
1,734
—
—
1,734
321
321
15
1,396
409
1,420
3,240
471
—
—
471
—
—
Consolidated ................................................................... $
127,022 $
205,564 $
40,983 $
Total excluding United States ........................................ $
86,518 $
127,938 $
7,336 $
55,282
3,804
59,086
495
2,644
922
2,167
6,228
875
—
6
881
—
—
66,195
10,913
Revenue is presented based on the location of the services provided. Identifiable assets include property and equipment,
intangible assets and goodwill.
FS-41
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 17 — GEOGRAPHIC AND RELATED INFORMATION – (continued)
A summary of customers with revenue or accounts receivable in excess of 10% of the consolidated total for 2017 and 2016 is
as follows:
Revenue from Services
Years Ended December 31,
Accounts Receivable, Net
December 31,
Amount
% of
Consolidated
Amount
% of
Consolidated
2017
Customer A ................................................................ $
Customer B ................................................................ $
Customer C ................................................................ $
Customer D ................................................................ $
2016
Customer E ................................................................. $
Customer D ................................................................ $
Customer C ................................................................ $
40,186
35,121
19,503
—
74,407
57,254
21,161
32%
28%
15%
—%
36%
28%
10%
NOTE 18 — FAIR VALUE OF FINANCIAL INSTRUMENTS
$
78,102
93%
$
81,609
76%
The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities,
borrowings under the Credit Facility and borrowings under the Senior Loan Facility are a reasonable estimate of their fair
values due to their short duration.
There were no Corporation financial instruments measured at fair value on a recurring basis at December 31, 2017 and 2016.
The Corporation's financial instruments not recorded at fair value consist of the Senior Secured Notes and the Second Lien
Notes. At December 31, 2017, the carrying value of the Senior Secured Notes and Second Lien Notes was $1,847 and
$85,050, respectively. At December 31, 2017, the estimated fair value of the Senior Secured Notes and Second Lien Notes
was $1,123 and $31,163, respectively. The fair value is determined by a market approach using dealer quoted period-end
bond prices. These instruments are classified as Level 2 as valuation inputs for fair value measurements are dealer quoted
market prices at December 31, 2017 obtained from independent third-party sources. However, no assurance can be given that
the fair value would be the amount realized in an active market exchange.
The Corporation's non-financial assets include goodwill, property and equipment, and other intangible assets, which are
classified as Level 3 assets. These assets are measured at fair value on a nonrecurring basis as part of the Corporation's
impairment assessments and as circumstances require. Goodwill is subjected to an annual review for impairment or more
frequently as required.
NOTE 19 — RELATED PARTY TRANSACTIONS
Jeff Hastings, the Corporation’s Chief Executive Officer and Chairman of the Board of Directors, beneficially owns and
controls Speculative Seismic Investments, LLC (“SSI”), which as of December 31, 2017, holds 27,000 shares of the
Corporation’s common stock. SSI is a lender under the Corporation’s Senior Loan Facility in the principal amount of $543
and exchanged $2,352 of the Corporation’s Senior Secured Notes for $1,334 of Second Lien Notes in the 2016 Restructuring
consummated on July 27, 2016. SSI subsequently sold $1,334 of Second Lien Notes in November 2016 representing $1,176
of face value and $158 of interest paid in kind for the period outstanding and is no longer a holder of any Second Lien Notes.
In addition, in September 2017, Mr. Hastings committed to funding $400 of the Credit Facility, which was subsequently
reduced to $375 as of December 21, 2017. The Corporation has drawn $125 of that commitment as of December 31, 2017.
FS-42
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 19 — RELATED PARTY TRANSACTIONS – (continued)
Mr. Hastings also controls CLCH, LLC, which holds 24,221 shares of the Corporation’s common stock. Pursuant to a
registration rights agreement dated June 24, 2013, CLCH had one right to demand registration of its shares of our common
stock that it acquired in the Merger, as well as piggy-back rights on any offering of our common stock or securities
exercisable or exchangeable for our common stock. CLCH has exercised its piggy-back registration rights, and all 24,221 of
its shares were registered for resale pursuant to a registration statement on Form S-3, Registration No. 333-213386, that
became effective mid-September 2016. The Corporation bore the expense incurred in connection with the registration
statement.
NOTE 20 — COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Corporation can be involved in legal proceedings involving contractual and
employment relationships, liability claims, and a variety of other matters. Although the final outcome of such legal
proceedings cannot be predicted with certainty, the Corporation believes the final outcome will not have a materially adverse
effect on its financial position, results of operations, or cash flows.
NOTE 21 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In July 2014, the Corporation sold $150,000 of senior secured notes due in 2019. On June 19, 2015, all outstanding senior
secured notes were exchanged for an equal amount of new senior secured notes (“Senior Secured Notes”), which are
substantially identical in terms to the existing senior secured notes except that the Senior Secured Notes are registered under
the Securities Act. In July 2016, a total of $138,128 face value of the Senior Secured Notes were exchanged for (i) $76,523
Second Lien Notes, including $7,459 Second Lien Notes representing accrued and unpaid interest and (ii) 6,410,502 shares
of Corporation common stock. See Note 8 for further details on the Senior Secured Notes. The Senior Secured Notes were
issued by SAExploration Holdings, Inc. and are guaranteed by its 100% owned U.S. subsidiaries: SAExploration Sub, Inc.;
SAExploration, Inc.; NES LLC; and SAExploration Seismic Services (U.S.), Inc. (“the Guarantors”). The Guarantors have
fully and unconditionally guaranteed the payment obligations of SAExploration Holdings, Inc. on a joint and several basis
with respect to these debt securities. As of December 31, 2014, foreign branches of the Guarantors in Bolivia, Colombia and
Peru have been reorganized as 100% owned foreign subsidiaries of SAExploration, Inc. and are reported under “Other
Subsidiaries” in the condensed consolidated financial statements for all periods presented.
The following condensed consolidating financial information presents the results of operations, financial position and cash
flows for:
SAExploration Holdings, Inc. (Reflects investments in subsidiaries utilizing the equity method of accounting. The
equity in earnings of subsidiaries is recognized for the period beginning after the Closing of the Merger on June 24,
2013).
Guarantor subsidiaries (Reflects investments in subsidiaries utilizing the equity method of accounting).
All other subsidiaries of SAExploration Holdings, Inc. that are not Guarantors.
The consolidating adjustments necessary to present SAExploration Holdings, Inc. and subsidiaries' financial
statements on a consolidated basis.
The condensed consolidating financial information should be read in conjunction with the accompanying consolidated
financial statements and notes. Certain amounts in the condensed consolidated balance sheets and consolidated statement of
cash flows as of December 31, 2016 presented herein have been reclassified to conform to the current period presentation.
These reclassifications had no effect on net loss attributable to the Corporation, comprehensive income (loss), or
stockholders' equity (deficit).
FS-43
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 21 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION – (continued)
Balance Sheet
Current assets:
ASSETS
SAExploration
Holdings, Inc.
The
Guarantors
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
December 31, 2017
Cash and cash equivalents ............................................................. $
8 $
1,097 $
2,508 $
— $
Restricted cash ...............................................................................
Accounts receivable, net ................................................................
Deferred costs on contracts ...........................................................
Prepaid expenses............................................................................
Total current assets ..................................................................
Property and equipment, net .............................................................
Investment in subsidiaries .................................................................
Intercompany receivables ..................................................................
Intangible assets, net .........................................................................
Goodwill ............................................................................................
Deferred loan issuance costs, net ......................................................
Accounts receivable, net, noncurrent ................................................
Deferred income tax assets ................................................................
Other assets ........................................................................................
—
—
—
3,162
3,170
—
(32,901)
134,502
—
—
5,352
—
322
144
240
1,803
28,143
51,210
—
—
—
—
—
—
—
78,102
—
150
41
5,783
1,963
2,993
13,288
4,803
7,500
—
671
1,832
—
—
4,592
32
—
—
—
—
—
—
(25,809)
(134,502)
—
—
—
—
—
—
3,613
41
6,105
2,107
6,395
18,261
32,946
—
—
671
1,832
5,352
78,102
4,592
182
Total assets .............................................................................. $
110,123 $
159,408 $
32,718 $
(160,311) $
141,938
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................................................................... $
1,782 $
590 $
2,179 $
— $
Accrued liabilities ..........................................................................
1,885
2,223
Income and other taxes payable ....................................................
Borrowings under senior loan facility ...........................................
Deferred revenue ...........................................................................
10
995
—
24
—
—
Total current liabilities ............................................................
4,672
2,837
Intercompany payables ......................................................................
—
93,200
Borrowings under senior loan facility ...............................................
Borrowings under credit facility .......................................................
Second lien notes, net ........................................................................
Senior secured notes, net ...................................................................
Other long-term liabilities .................................................................
29,000
—
85,050
1,847
300
—
4,401
—
—
250
2,203
7,853
—
1,477
13,712
41,302
—
—
—
—
58
—
—
—
—
—
(134,502)
—
—
—
—
—
4,551
6,311
7,887
995
1,477
21,221
—
29,000
4,401
85,050
1,847
608
Total liabilities .........................................................................
120,869
100,688
55,072
(134,502)
142,127
Stockholders’ equity (deficit):
Common stock ...............................................................................
Additional paid-in capital ..............................................................
Retained earnings (accumulated deficit) .......................................
Accumulated other comprehensive loss ........................................
Treasury stock ................................................................................
Total stockholders’ equity (deficit) attributable to the
1
133,741
(144,375)
—
(113)
—
43,861
10,289
—
—
—
22,057
(39,329)
(5,082)
—
Corporation .......................................................................
(10,746)
54,150
(22,354)
(25,809)
Noncontrolling interest .................................................................. $
— $
4,570 $
— $
— $
Total stockholders’ equity (deficit) .........................................
(10,746)
58,720
(22,354)
(25,809)
Total liabilities and stockholders’ equity (deficit) .................. $
110,123 $
159,408 $
32,718 $
(160,311) $
141,938
FS-44
—
1
(65,918)
133,741
40,109
(133,306)
—
—
(5,082)
(113)
(4,759)
4,570
(189)
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 21 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION – (continued)
Balance Sheet
Current assets:
ASSETS
SAExploration
Holdings, Inc.
The
Guarantors
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
December 31, 2016
Cash and cash equivalents .............................................................. $
2,054 $
3,446 $
5,960 $
— $
11,460
Restricted cash ................................................................................
Accounts receivable, net .................................................................
Deferred costs on contracts .............................................................
Prepaid expenses .............................................................................
Total current assets ...................................................................
Property and equipment, net ...............................................................
Investment in subsidiaries ...................................................................
Intercompany receivables ...................................................................
Intangible assets, net ...........................................................................
Goodwill .............................................................................................
—
22
—
22
2,098
—
(12,653)
130,433
—
—
Deferred loan issuance costs, net ........................................................
20,619
Accounts receivable, net, noncurrent .................................................
Deferred income tax assets .................................................................
Other assets .........................................................................................
—
—
—
—
52,101
8,378
268
64,193
34,277
63,247
—
—
—
237
37,984
—
164
536
17,598
266
1,687
26,047
8,482
7,500
—
721
1,711
—
—
5,122
—
—
—
—
—
—
—
(58,094)
(130,433)
—
—
—
—
—
—
536
69,721
8,644
1,977
92,338
42,759
—
—
721
1,711
20,856
37,984
5,122
164
Total assets ................................................................................ $
140,497 $
200,102 $
49,583 $
(188,527) $
201,655
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................................................ $
128 $
5,155 $
4,018 $
— $
Accrued liabilities ...........................................................................
Income and other taxes payable ......................................................
Borrowings under credit facility .....................................................
Current portion of capital leases .....................................................
Deferred revenue .............................................................................
88
20
—
—
—
5,769
746
5,844
39
7,975
6,893
14,839
—
17
—
Total current liabilities ..............................................................
236
25,528
25,767
Borrowings under senior loan facility ................................................
Second lien notes, net .........................................................................
Senior secured notes, net ....................................................................
29,995
80,238
1,830
—
—
—
Intercompany payables .......................................................................
—
96,559
Total liabilities ..........................................................................
112,299
122,087
—
—
—
33,874
59,641
Stockholders’ equity (deficit):
—
—
—
—
—
—
—
(130,433)
9,301
12,750
15,605
5,844
56
7,975
51,531
29,995
80,238
1,830
—
(130,433)
163,594
Common stock ................................................................................
Additional paid-in capital ...............................................................
Retained earnings (accumulated deficit) ........................................
Accumulated other comprehensive loss .........................................
1
131,816
(103,619)
—
—
43,861
30,538
—
—
22,058
(27,294 )
(4,822 )
—
1
(65,919)
131,816
7,825
—
(92,550)
(4,822)
Total stockholders’ equity (deficit) attributable to the
Corporation ...........................................................................
28,198
74,399
(10,058 )
(58,094)
Noncontrolling interest ...................................................................
—
3,616
—
—
Total stockholders’ equity (deficit) ..........................................
28,198
78,015
(10,058 )
(58,094)
34,445
3,616
38,061
Total liabilities and stockholders’ equity (deficit) .................... $
140,497 $
200,102 $
49,583 $
(188,527) $
201,655
FS-45
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 21 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION – (continued)
Statement of Operations
Year Ended December 31, 2017
SAExploration
Holdings, Inc.
The
Guarantors
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Revenue from services ................................................ $
Cost of services ...........................................................
Gross profit .................................................................
Selling, general and administrative expenses ..............
— $ 75,625 $
—
—
3,943
59,263
16,362
11,097
51,397 $
45,691
5,706
10,657
Gain on disposal of property and equipment, net ........
—
(45)
Income (loss) from operations ........................
Other expense, net .......................................................
(3,943)
(16,569)
5,310
(13,453)
Equity in income (losses) of investments ....................
(20,249)
(7,297)
Income (loss) before income taxes ....................
Provision for income taxes ..........................................
Net income (loss) ..............................................
Less: net income (loss) attributable to noncontrolling
interest ....................................................................
(40,761)
(5)
(40,756)
(15,440)
2,760
(18,200)
(56)
(4,895)
(921)
—
(5,816)
1,558
(7,374)
— $ 127,022
104,954
—
22,068
—
25,697
—
—
—
—
27,546
27,546
—
27,546
(101)
(3,528)
(30,943)
—
(34,471)
4,313
(38,784)
—
2,049
(77)
—
1,972
Net income (loss) attributable to the Corporation ....... $
(40,756) $ (20,249) $
(7,297) $
27,546 $ (40,756)
Comprehensive net income (loss) ............................... $
(40,756) $ (18,200) $
(7,634) $
27,546 $ (39,044)
Less: comprehensive net income (loss) attributable
to noncontrolling interest ..................................
Comprehensive net income (loss) attributable to the
—
2,049
(77)
—
1,972
Corporation ............................................................ $
(40,756) $ (20,249) $
(7,557) $
27,546 $ (41,016)
FS-46
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 21 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION – (continued)
Statement of Operations
Year Ended December 31, 2016
SAExploration
Holdings, Inc.
The
Guarantors
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Revenue from services ................................................ $
Cost of services ...........................................................
Gross profit .................................................................
— $ 77,947 $ 127,617 $
—
—
101,083
26,534
59,445
18,502
Selling, general and administrative expenses ..............
3,862
11,378
14,013
— $ 205,564
160,528
—
45,036
—
—
29,253
Loss (gain) on disposal of property and equipment,
net ...........................................................................
—
4,830
(288)
—
4,542
Income (loss) from operations ........................
Other (expense) income, net ........................................
Equity in income (losses) of investments ....................
Income (loss) before income taxes ....................
Provision for income taxes ..........................................
Net income (loss) ..............................................
Less: net income attributable to noncontrolling
(3,862)
(23,492)
2,369
(24,985)
45
(25,030)
2,294
(4,510)
8,010
5,794
404
5,390
12,809
808
—
13,617
5,607
8,010
—
—
(10,379)
(10,379)
—
(10,379)
11,241
(27,194)
—
(15,953)
6,056
(22,009)
interest ....................................................................
—
3,021
—
—
3,021
Net income (loss) attributable to the Corporation ....... $
(25,030) $
2,369 $
8,010 $
(10,379) $ (25,030)
Comprehensive net income (loss) ............................... $
(25,030) $
5,390 $
7,459 $
(10,379) $ (22,560)
Less: comprehensive net income attributable to
noncontrolling interest ......................................
—
3,021
—
—
3,021
Comprehensive net income (loss) attributable to the
Corporation ............................................................. $
(25,030) $
2,369 $
7,459 $
(10,379) $ (25,581)
FS-47
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 21 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION – (continued)
Statement of Cash Flows
Operating activities:
Net cash provided by (used in) operating
Year Ended December 31, 2017
SAExploration
Holdings, Inc.
The
Guarantors
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
activities ........................................................ $
2,750 $
3,619 $
(6,180) $
(4,742) $
(4,553)
Investing activities:
Purchase of property and equipment .......................
Proceeds from sale of property and equipment .......
—
—
(1,931)
1,850
(739)
60
—
—
(2,670)
1,910
Net cash provided by (used in) investing
activities ........................................................
—
(81)
(679)
—
(760)
Financing activities:
Payment of senior loan facility fee, debt discount
and loan issuance costs .......................................
Credit facility borrowings ........................................
Credit facility repayments .......................................
Purchase of treasury stock .......................................
Distribution to noncontrolling interest ....................
Intercompany lending ..............................................
Dividend payments to affiliate ................................
Other financing activities ........................................
Net cash provided by (used in) financing
(614)
—
—
(113)
—
(4,069)
—
—
(552)
33,401
(34,245)
—
(1,095)
(3,359)
—
(39)
—
—
—
—
—
7,428
(4,742)
(17)
—
—
—
—
—
—
4,742
—
(1,166)
33,401
(34,245)
(113)
(1,095)
—
—
(56)
activities ........................................................
(4,796)
(5,889)
2,669
4,742
(3,274)
Effects of exchange rate changes on cash, cash
equivalents and restricted cash .............................
—
2
243
—
245
Net change in cash, cash equivalents and restricted
cash .......................................................................
(2,046)
(2,349)
(3,947)
—
(8,342)
Cash, cash equivalents and restricted cash at the
beginning of period ...............................................
2,054
3,446
6,496
—
11,996
Cash, cash equivalents and restricted cash at the end
of period................................................................ $
8 $
1,097 $
2,549
— $
3,654
FS-48
SAExploration Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share amounts and as otherwise noted)
NOTE 21 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION – (continued)
Statement of Cash Flows
Operating activities:
Net cash provided by (used in) operating
Year Ended December 31, 2016
SAExploration
Holdings, Inc.
The
Guarantors
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
activities ........................................................ $
(11,057) $ (23,540) $
17,632 $
(2,865) $ (19,830)
Investing activities:
Purchase of property and equipment ........................
Capital contribution to affiliate ................................
Proceeds from sale of property and equipment ........
Net cash provided by (used in) investing
—
—
—
(2,917)
650
—
(435)
—
488
—
(650)
—
(3,352)
—
488
activities ........................................................
—
(2,267)
53
(650)
(2,864)
Financing activities:
Borrowings under senior loan facility ......................
Payment of loan facility fee, debt discount, and
loan issuance costs ..............................................
Credit facility borrowings ........................................
Credit facility repayments ........................................
Distribution to noncontrolling interest .....................
Intercompany lending ..............................................
Return of capital to affiliate .....................................
Dividend payments to affiliate .................................
Legal fees associated with stock issuance on
restructuring ........................................................
Other financing activities .........................................
Net cash provided by (used in) financing
29,995
—
—
—
29,995
(2,002)
—
—
—
(14,742)
—
—
—
44,470
(46,525)
(3,838)
27,142
—
—
—
—
—
—
(12,400)
(650)
(2,865)
—
—
—
—
—
650
2,865
(2,002)
44,470
(46,525)
(3,838)
—
—
—
(131)
(9)
—
(57)
—
(61)
—
—
(131)
(127)
activities ........................................................
13,111
21,192
(15,976)
3,515
21,842
Effects of exchange rate changes on cash, cash
equivalents and restricted cash ...............................
—
36
994
—
1,030
Net change in cash, cash equivalents and restricted
cash .........................................................................
2,054
(4,579)
2,703
—
178
Cash, cash equivalents and restricted cash at the
beginning of period ................................................
—
8,025
3,793
—
11,818
Cash, cash equivalents and restricted cash at the end
of period ................................................................. $
2,054 $
3,446 $
6,496 $
— $
11,996
FS-49
FIRST AMENDMENT
TO
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.20
This First Amendment to the Amended and Restated Executive Employment Agreement (the “Amendment”) is
effective as of January __, 2018, by and between SAExploration Holdings, Inc., a Delaware corporation (the “Employer”)
and Jeff Hastings (the “Executive”), and hereby amends the Amended and Restated Executive Employment Agreement
between the Employer and Executive (the “Agreement”). Words and phrases used herein with initial capital letters that are
defined in the Agreement are used herein as so defined.
I.
The first sentence of Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The Employer hereby agrees to continue to employ the Executive commencing on the Effective Date and ending on
December 31, 2020 (the “Initial Term”); provided, however, that at the end of the Initial Term, the Executive’s employment
and this Agreement shall automatically renew or extend for consecutive terms of one (1) year on each succeeding anniversary
of December 31, 2020 (each such renewal or extension a “Renewal Term”), unless either Party gives prior written notice to
the other Party of its desire to terminate the Agreement at least 90 days prior to the expiration of the Initial Term or any
Renewal Term, as applicable (the Initial Term and each Renewal Term, collectively, the “Term”).”
II.
The second to last sentence in Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The obligations of the Parties under Sections 5 through 25 herein shall survive according to the terms of each
provision; provided, that the provisions of Sections 7(a) and 7(c) shall be immediately void and of no further force or effect if
the Employer gives prior written notice to the Executive of its desire to terminate this Agreement at the expiration of the
Initial Term or any Renewal Term, as described above. For the avoidance of doubt, if prior to the expiration of the Initial
Term or any Renewal Term the Executive is offered a renewal of this Agreement by the Company at the same or better terms,
and the Executive refuses to renew this Agreement, then the post-employment obligations set for in Sections 7(a) and 7(c)
shall remain in effect.”
Section 4(a) of the Agreement is hereby amended in its entirety to read as follows:
III.
“(a) receive payment of the Executive’s annual base salary (the “Base Salary”) at an annual rate of not less than
US$552,780.00, less deductions required by law, payable in accordance with the Employer’s standard payroll schedule, but
not less frequently than monthly. Notwithstanding the foregoing, the Base Salary may be increased (but not decreased
without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject to approval
of the Compensation Committee of the Board (the “Compensation Committee”).
Notwithstanding anything to the contrary herein, for any calendar year during the Term in which the prior calendar
year’s Free Cash Flow (as defined below) equals or exceeds $15,000,000, the Base Salary for such calendar year will be not
less than US$664,198.00, less deductions required by law, payable in accordance with the Employer’s standard payroll
schedule, but not less frequently than monthly. The Compensation Committee will calculate Free Cash Flow for the prior
calendar year following delivery of the Employer’s earnings statements for such year, but in any event by March of the
following calendar year. In the event that the Executive becomes entitled to an increase in the Base Salary for any calendar
year pursuant to this Section 4(a), the corresponding increase in the Base Salary for such calendar year shall, following such
determination, be retroactive to January 1 of such calendar year, and any payments of additional Base Salary that become due
to the Executive for the period of such calendar year preceding the Compensation Committee’s determination shall be paid to
the Executive no later than the first payroll date immediately following the date on which the Compensation Committee
makes such determination.
For purposes of this Agreement, “Free Cash Flow” shall be determined by the Compensation Committee and shall
mean, with respect to any calendar year, the difference between the Employer’s Adjusted EBITDA (as defined in the
Employer’s financial statements and Notes thereto included in its periodic filings with the Securities and Exchange
Commission) for the full calendar year (as determined by the Board in the then-current calendar year) and the Employer’s
capital expenditures for the then-current calendar year approved by the Board as part of the Employer’s Board-approved
forecast for the preceding year. The Compensation Committee may adjust the Free Cash Flow calculation to reflect any
actual or projected increases in capital expenditures required to capture business opportunities.”
Section 4(c) of the Agreement is hereby amended in its entirety to read as follows:
IV.
“(c) continue to be eligible to receive annual performance cash awards (“Annual Cash Awards”) with a target
amount equal to 100% of Base Salary (the “Target Percentage”), and the Executive will be entitled to a guaranteed Annual
Cash Award equal to 50% of Base Salary and as much as 150% of Base Salary if certain executive goals (the “Executive
Goals”) are reached as identified and approved by the Compensation Committee; provided, that, notwithstanding the
foregoing, for any year in which the prior year’s Free Cash Flow is less than $15,000,000, the Target Percentage shall be
equal to 35%, and the Executive will be entitled to a guaranteed Annual Cash Award equal to 17.5% of Base Salary and as
much as 52.5% of Base Salary if the Executive Goals are reached as identified and approved by the Compensation
Committee.
Commencing with the Employer’s 2018 fiscal year, the Executive Goals will be set by the Compensation Committee
under the applicable long-term incentive plan for such annual award but in any event shall not exceed the maximum award
permissible under such applicable plan.
Notwithstanding the foregoing, the Executive’s Target Percentage for any calendar year may be increased (but not
decreased without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject
to approval of the Compensation Committee.
The Executive Goals will consist of Free Cash Flow targets, Adjusted EBITDA targets, individual performance
targets and health, safety and environment (“HSE”) targets, as determined by the Compensation Committee. The Executive’s
individual performance targets and HSE targets for any calendar year shall be set by the Compensation Committee prior to
December 31 of the prior calendar year. The financial targets for determining the Executive’s Free Cash Flow targets and
Adjusted EBITDA targets for any calendar year shall be determined by the Board at its third quarterly meeting of the prior
calendar year.
The Executive’s Annual Cash Award will be paid in the first pay period following the date of the earnings release
for the calendar year to which such Annual Cash Award relates unless an alternative timing of payment is agreed to by the
Executive; provided, that such Annual Cash Award will in any event be paid in the calendar year following the calendar year
to which such Annual Cash Award relates; provided, further, that notwithstanding the foregoing, the Executive’s Annual
Cash Award for 2017 will be paid in the ordinary course of business in accordance with past practice, and the amount of such
Annual Cash Award shall be no less than $555,000.00 and shall not be affected by the restructuring transactions
contemplated by the Exchange Offer Memorandum and Consent Solicitation Statement dated December 22, 2017 of the
Employer and the Restructuring Support Agreement dated as of December 19, 2017 (the “2017 RSA”) among the Employer,
SAExploration Sub, Inc., SAExploration Inc., SAExploration Seismic Services (US), LLC, NES, LLC and the Supporting
Holders Identified Therein.”
Section 4(g) of the Agreement is hereby amended in its entirety to read as follows:
“(g) Equity Compensation.
V.
(i) The Executive shall be eligible to participate in the SAExploration Holdings, Inc. 2018 Long-Term
Incentive Plan (the “Equity Incentive Plan”) as described in the Key Revisions to Management Compensation
Arrangements term sheet attached to the 2017 RSA as Exhibit A.
(ii) The Executive shall be eligible to participate in the Employer’s Management Incentive Program as
described in the Key Revisions to Management Compensation Arrangements term sheet attached to the 2017 RSA
as Exhibit A and which shall be established under the Equity Incentive Plan.”
Section 4(i) of the Agreement is hereby amended by deleting such section in entirety.
Except as specifically modified herein, the Agreement shall remain in full force and effect in accordance with all of
the terms and conditions thereof. This Amendment may be executed in separate counterparts, each of which will be deemed
an original, but all of which together will constitute one and the same instrument. Delivery of an executed signature page to
this Amendment by facsimile or other electronic transmission (including documents in Adobe PDF format) will be effective
as delivery of a manually executed counterpart to this Amendment.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
SAEXPLORATION HOLDINGS, INC.
By:
Name:
Title:
EXECUTIVE
By:
Name:
Jeff Hastings
FIRST AMENDMENT
TO
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.23
This First Amendment to the Amended and Restated Executive Employment Agreement (the “Amendment”) is
effective as of January __, 2018, by and between SAExploration Holdings, Inc., a Delaware corporation (the “Employer”)
and Brian Beatty (the “Executive”), and hereby amends the Amended and Restated Executive Employment Agreement
between the Employer and Executive (the “Agreement”). Words and phrases used herein with initial capital letters that are
defined in the Agreement are used herein as so defined.
I.
The first sentence of Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The Employer hereby agrees to continue to employ the Executive commencing on the Effective Date and ending on
December 31, 2020 (the “Initial Term”); provided, however, that at the end of the Initial Term, the Executive’s employment
and this Agreement shall automatically renew or extend for consecutive terms of one (1) year on each succeeding anniversary
of December 31, 2020 (each such renewal or extension a “Renewal Term”), unless either Party gives prior written notice to
the other Party of its desire to terminate the Agreement at least 90 days prior to the expiration of the Initial Term or any
Renewal Term, as applicable (the Initial Term and each Renewal Term, collectively, the “Term”).”
II.
The second to last sentence in Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The obligations of the Parties under Sections 5 through 25 herein shall survive according to the terms of each
provision; provided, that the provisions of Sections 7(a) and 7(c) shall be immediately void and of no further force or effect if
the Employer gives prior written notice to the Executive of its desire to terminate this Agreement at the expiration of the
Initial Term or any Renewal Term, as described above. For the avoidance of doubt, if prior to the expiration of the Initial
Term or any Renewal Term the Executive is offered a renewal of this Agreement by the Company at the same or better terms,
and the Executive refuses to renew this Agreement, then the post-employment obligations set for in Sections 7(a) and 7(c)
shall remain in effect.”
Section 4(a) of the Agreement is hereby amended in its entirety to read as follows:
III.
“(a) receive payment of the Executive’s annual base salary (the “Base Salary”) at an annual rate of not less than
US$552,780.00, less deductions required by law, payable in accordance with the Employer’s standard payroll schedule, but
not less frequently than monthly. Notwithstanding the foregoing, the Base Salary may be increased (but not decreased
without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject to approval
of the Compensation Committee of the Board (the “Compensation Committee”).
Notwithstanding anything to the contrary herein, for any calendar year during the Term in which the prior calendar
year’s Free Cash Flow (as defined below) equals or exceeds $15,000,000, the Base Salary for such calendar year will be not
less than US$664,198.00, less deductions required by law, payable in accordance with the Employer’s standard payroll
schedule, but not less frequently than monthly. The Compensation Committee will calculate Free Cash Flow for the prior
calendar year following delivery of the Employer’s earnings statements for such year, but in any event by March of the
following calendar year. In the event that the Executive becomes entitled to an increase in the Base Salary for any calendar
year pursuant to this Section 4(a), the corresponding increase in the Base Salary for such calendar year shall, following such
determination, be retroactive to January 1 of such calendar year, and any payments of additional Base Salary that become due
to the Executive for the period of such calendar year preceding the Compensation Committee’s determination shall be paid to
the Executive no later than the first payroll date immediately following the date on which the Compensation Committee
makes such determination.
For purposes of this Agreement, “Free Cash Flow” shall be determined by the Compensation Committee and shall
mean, with respect to any calendar year, the difference between the Employer’s Adjusted EBITDA (as defined in the
Employer’s financial statements and Notes thereto included in its periodic filings with the Securities and Exchange
Commission) for the full calendar year (as determined by the Board in the then-current calendar year) and the Employer’s
capital expenditures for the then-current calendar year approved by the Board as part of the Employer’s Board-approved
forecast for the preceding year. The Compensation Committee may adjust the Free Cash Flow calculation to reflect any
actual or projected increases in capital expenditures required to capture business opportunities.”
Section 4(c) of the Agreement is hereby amended in its entirety to read as follows:
IV.
“(c) continue to be eligible to receive annual performance cash awards (“Annual Cash Awards”) with a target
amount equal to 100% of Base Salary (the “Target Percentage”), and the Executive will be entitled to a guaranteed Annual
Cash Award equal to 50% of Base Salary and as much as 150% of Base Salary if certain executive goals (the “Executive
Goals”) are reached as identified and approved by the Compensation Committee; provided, that, notwithstanding the
foregoing, for any year in which the prior year’s Free Cash Flow is less than $15,000,000, the Target Percentage shall be
equal to 35%, and the Executive will be entitled to a guaranteed Annual Cash Award equal to 17.5% of Base Salary and as
much as 52.5% of Base Salary if the Executive Goals are reached as identified and approved by the Compensation
Committee.
Commencing with the Employer’s 2018 fiscal year, the Executive Goals will be set by the Compensation Committee
under the applicable long-term incentive plan for such annual award but in any event shall not exceed the maximum award
permissible under such applicable plan.
Notwithstanding the foregoing, the Executive’s Target Percentage for any calendar year may be increased (but not
decreased without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject
to approval of the Compensation Committee.
The Executive Goals will consist of Free Cash Flow targets, Adjusted EBITDA targets, individual performance
targets and health, safety and environment (“HSE”) targets, as determined by the Compensation Committee. The Executive’s
individual performance targets and HSE targets for any calendar year shall be set by the Compensation Committee prior to
December 31 of the prior calendar year. The financial targets for determining the Executive’s Free Cash Flow targets and
Adjusted EBITDA targets for any calendar year shall be determined by the Board at its third quarterly meeting of the prior
calendar year.
The Executive’s Annual Cash Award will be paid in the first pay period following the date of the earnings release
for the calendar year to which such Annual Cash Award relates unless an alternative timing of payment is agreed to by the
Executive; provided, that such Annual Cash Award will in any event be paid in the calendar year following the calendar year
to which such Annual Cash Award relates; provided, further, that notwithstanding the foregoing, the Executive’s Annual
Cash Award for 2017 will be paid in the ordinary course of business in accordance with past practice, and the amount of such
Annual Cash Award shall be no less than $555,000.00 and shall not be affected by the restructuring transactions
contemplated by the Exchange Offer Memorandum and Consent Solicitation Statement dated December 22, 2017 of the
Employer and the Restructuring Support Agreement dated as of December 19, 2017 (the “2017 RSA”) among the Employer,
SAExploration Sub, Inc., SAExploration Inc., SAExploration Seismic Services (US), LLC, NES, LLC and the Supporting
Holders Identified Therein.”
Section 4(g) of the Agreement is hereby amended in its entirety to read as follows:
“(g) Equity Compensation.
V.
(i) The Executive shall be eligible to participate in the SAExploration Holdings, Inc. 2018 Long-Term
Incentive Plan (the “Equity Incentive Plan”) as described in the Key Revisions to Management Compensation
Arrangements term sheet attached to the 2017 RSA as Exhibit A.
(ii) The Executive shall be eligible to participate in the Employer’s Management Incentive Program as
described in the Key Revisions to Management Compensation Arrangements term sheet attached to the 2017 RSA
as Exhibit A and which shall be established under the Equity Incentive Plan.”
Section 4(i) of the Agreement is hereby amended by deleting such section in entirety.
VI.
Except as specifically modified herein, the Agreement shall remain in full force and effect in accordance with all of
the terms and conditions thereof. This Amendment may be executed in separate counterparts, each of which will be deemed
an original, but all of which together will constitute one and the same instrument. Delivery of an executed signature page to
this Amendment by facsimile or other electronic transmission (including documents in Adobe PDF format) will be effective
as delivery of a manually executed counterpart to this Amendment.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
SAEXPLORATION HOLDINGS, INC.
By:
Name:
Title:
EXECUTIVE
By:
Name: Brian Beatty
FIRST AMENDMENT
TO
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.26
This First Amendment to the Amended and Restated Executive Employment Agreement (the “Amendment”) is
effective as of January 29, 2018, by and between SAExploration Holdings, Inc., a Delaware corporation (the “Employer”)
and Brent Whiteley (the “Executive”), and hereby amends the Amended and Restated Executive Employment Agreement
between the Employer and Executive (the “Agreement”). Words and phrases used herein with initial capital letters that are
defined in the Agreement are used herein as so defined.
I.
The first sentence of Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The Employer hereby agrees to continue to employ the Executive commencing on the Effective Date and ending on
December 31, 2020 (the “Initial Term”); provided, however, that at the end of the Initial Term, the Executive’s employment
and this Agreement shall automatically renew or extend for consecutive terms of one (1) year on each succeeding anniversary
of December 31, 2020 (each such renewal or extension a “Renewal Term”), unless either Party gives prior written notice to
the other Party of its desire to terminate the Agreement at least 90 days prior to the expiration of the Initial Term or any
Renewal Term, as applicable (the Initial Term and each Renewal Term, collectively, the “Term”).”
II.
The second to last sentence in Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The obligations of the Parties under Sections 5 through 25 herein shall survive according to the terms of each
provision; provided, that the provisions of Sections 7(a) and 7(c) shall be immediately void and of no further force or effect if
the Employer gives prior written notice to the Executive of its desire to terminate this Agreement at the expiration of the
Initial Term or any Renewal Term, as described above. For the avoidance of doubt, if prior to the expiration of the Initial
Term or any Renewal Term the Executive is offered a renewal of this Agreement by the Company at the same or better terms,
and the Executive refuses to renew this Agreement, then the post-employment obligations set for in Sections 7(a) and 7(c)
shall remain in effect.”
Section 4(a) of the Agreement is hereby amended in its entirety to read as follows:
III.
“(a) receive payment of the Executive’s annual base salary (the “Base Salary”) at an annual rate of not less than
US$403,410.00, less deductions required by law, payable in accordance with the Employer’s standard payroll schedule, but
not less frequently than monthly. Notwithstanding the foregoing, the Base Salary may be increased (but not decreased
without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject to approval
of the Compensation Committee of the Board (the “Compensation Committee”).
Notwithstanding anything to the contrary herein, for any calendar year during the Term in which the prior calendar
year’s Free Cash Flow (as defined below) equals or exceeds $15,000,000, the Base Salary for such calendar year will be not
less than US$448,231.00, less deductions required by law, payable in accordance with the Employer’s standard payroll
schedule, but not less frequently than monthly. The Compensation Committee will calculate Free Cash Flow for the prior
calendar year following delivery of the Employer’s earnings statements for such year, but in any event by March of the
following calendar year. In the event that the Executive becomes entitled to an increase in the Base Salary for any calendar
year pursuant to this Section 4(a), the corresponding increase in the Base Salary for such calendar year shall, following such
determination, be retroactive to January 1 of such calendar year, and any payments of additional Base Salary that become due
to the Executive for the period of such calendar year preceding the Compensation Committee’s determination shall be paid to
the Executive no later than the first payroll date immediately following the date on which the Compensation Committee
makes such determination.
For purposes of this Agreement, “Free Cash Flow” shall be determined by the Compensation Committee and shall
mean, with respect to any calendar year, the difference between the Employer’s Adjusted EBITDA (as defined in the
Employer’s financial statements and Notes thereto included in its periodic filings with the Securities and Exchange
Commission) for the full calendar year (as determined by the Board in the then-current calendar year) and the Employer’s
capital expenditures for the then-current calendar year approved by the Board as part of the Employer’s Board-approved
forecast for the preceding year. The Compensation Committee may adjust the Free Cash Flow calculation to reflect any
actual or projected increases in capital expenditures required to capture business opportunities.”
Section 4(c) of the Agreement is hereby amended in its entirety to read as follows:
IV.
“(c) continue to be eligible to receive annual performance cash awards (“Annual Cash Awards”) with a target
amount equal to 80% of Base Salary (the “Target Percentage”), and the Executive will be entitled to a guaranteed Annual
Cash Award equal to 40% of Base Salary and as much as 120% of Base Salary if certain executive goals (the “Executive
Goals”) are reached as identified and approved by the Compensation Committee; provided, that, notwithstanding the
foregoing, for any year in which the prior year’s Free Cash Flow is less than $15,000,000, the Target Percentage shall be
equal to 30%, and the Executive will be entitled to a guaranteed Annual Cash Award equal to 15% of Base Salary and as
much as 45% of Base Salary if the Executive Goals are reached as identified and approved by the Compensation Committee.
Commencing with the Employer’s 2018 fiscal year, the Executive Goals will be set by the Compensation Committee
under the applicable long-term incentive plan for such annual award but in any event shall not exceed the maximum award
permissible under such applicable plan.
Notwithstanding the foregoing, the Executive’s Target Percentage for any calendar year may be increased (but not
decreased without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject
to approval of the Compensation Committee.
The Executive Goals will consist of Free Cash Flow targets, Adjusted EBITDA targets, individual performance
targets and health, safety and environment (“HSE”) targets, as determined by the Compensation Committee. The Executive’s
individual performance targets and HSE targets for any calendar year shall be set by the Compensation Committee prior to
December 31 of the prior calendar year. The financial targets for determining the Executive’s Free Cash Flow targets and
Adjusted EBITDA targets for any calendar year shall be determined by the Board at its third quarterly meeting of the prior
calendar year.
The Executive’s Annual Cash Award will be paid in the first pay period following the date of the earnings release
for the calendar year to which such Annual Cash Award relates unless an alternative timing of payment is agreed to by the
Executive; provided, that such Annual Cash Award will in any event be paid in the calendar year following the calendar year
to which such Annual Cash Award relates; provided, further, that notwithstanding the foregoing, the Executive’s Annual
Cash Award for 2017 will be paid in the ordinary course of business in accordance with past practice, and the amount of such
Annual Cash Award shall be no less than $300,000.00 and shall not be affected by the restructuring transactions
contemplated by the Exchange Offer Memorandum and Consent Solicitation Statement dated December 22, 2017 of the
Employer and the Restructuring Support Agreement dated as of December 19, 2017 (the “2017 RSA”) among the Employer,
SAExploration Sub, Inc., SAExploration Inc., SAExploration Seismic Services (US), LLC, NES, LLC and the Supporting
Holders Identified Therein.”
Section 4(g) of the Agreement is hereby amended in its entirety to read as follows:
“(g) Equity Compensation.
V.
(i) The Executive shall be eligible to participate in the SAExploration Holdings, Inc. 2018 Long-Term
Incentive Plan (the “Equity Incentive Plan”) as described in the Key Revisions to Management Compensation
Arrangements term sheet attached to the 2017 RSA as Exhibit A.
(ii) The Executive shall be eligible to participate in the Employer’s Management Incentive Program as
described in the Key Revisions to Management Compensation Arrangements term sheet attached to the 2017 RSA
as Exhibit A and which shall be established under the Equity Incentive Plan.”
Section 4(i) of the Agreement is hereby amended by deleting such section in entirety.
VI.
Except as specifically modified herein, the Agreement shall remain in full force and effect in accordance with all of
the terms and conditions thereof. This Amendment may be executed in separate counterparts, each of which will be deemed
an original, but all of which together will constitute one and the same instrument. Delivery of an executed signature page to
this Amendment by facsimile or other electronic transmission (including documents in Adobe PDF format) will be effective
as delivery of a manually executed counterpart to this Amendment.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
SAEXPLORATION HOLDINGS, INC.
By:
Name:
Title:
EXECUTIVE
By:
Name: Brent Whiteley
FIRST AMENDMENT
TO
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.28
This First Amendment to the Amended and Restated Executive Employment Agreement (the “Amendment”) is
effective as of January __, 2018, by and between SAExploration Holdings, Inc., a Delaware corporation (the “Employer”)
and Mike Scott (the “Executive”), and hereby amends the Amended and Restated Executive Employment Agreement
between the Employer and Executive (the “Agreement”). Words and phrases used herein with initial capital letters that are
defined in the Agreement are used herein as so defined.
I.
The first sentence of Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The Employer hereby agrees to continue to employ the Executive commencing on the Effective Date and ending on
December 31, 2020 (the “Initial Term”); provided, however, that at the end of the Initial Term, the Executive’s employment
and this Agreement shall automatically renew or extend for consecutive terms of one (1) year on each succeeding anniversary
of December 31, 2020 (each such renewal or extension a “Renewal Term”), unless either Party gives prior written notice to
the other Party of its desire to terminate the Agreement at least 90 days prior to the expiration of the Initial Term or any
Renewal Term, as applicable (the Initial Term and each Renewal Term, collectively, the “Term”).”
II.
The second to last sentence in Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The obligations of the Parties under Sections 5 through 27 herein shall survive according to the terms of each
provision; provided, that the provisions of Sections 8(a) and 8(c) shall be immediately void and of no further force or effect if
the Employer gives prior written notice to the Executive of its desire to terminate this Agreement at the expiration of the
Initial Term or any Renewal Term, as described above. For the avoidance of doubt, if prior to the expiration of the Initial
Term or any Renewal Term the Executive is offered a renewal of this Agreement by the Company at the same or better terms,
and the Executive refuses to renew this Agreement, then the post-employment obligations set for in Sections 8(a) and 8(c)
shall remain in effect.”
Section 4(a) of the Agreement is hereby amended in its entirety to read as follows:
III.
“(a) receive payment of the Executive’s annual base salary (the “Base Salary”) at an annual rate of not less than
US$300,600.00, less deductions required by law, payable in accordance with the Employer’s standard payroll schedule, but
not less frequently than monthly. Notwithstanding the foregoing, the Base Salary may be increased (but not decreased
without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject to approval
of the Compensation Committee of the Board (the “Compensation Committee”).
Notwithstanding anything to the contrary herein, for any calendar year during the Term in which the prior calendar
year’s Free Cash Flow (as defined below) equals or exceeds $15,000,000, the Base Salary for such calendar year will be not
less than US$333,716.00, less deductions required by law, payable in accordance with the Employer’s standard payroll
schedule, but not less frequently than monthly. The Compensation Committee will calculate Free Cash Flow for the prior
calendar year following delivery of the Employer’s earnings statements for such year, but in any event by March of the
following calendar year. In the event that the Executive becomes entitled to an increase in the Base Salary for any calendar
year pursuant to this Section 4(a), the corresponding increase in the Base Salary for such calendar year shall, following such
determination, be retroactive to January 1 of such calendar year, and any payments of additional Base Salary that become due
to the Executive for the period of such calendar year preceding the Compensation Committee’s determination shall be paid to
the Executive no later than the first payroll date immediately following the date on which the Compensation Committee
makes such determination.
For purposes of this Agreement, “Free Cash Flow” shall be determined by the Compensation Committee and shall
mean, with respect to any calendar year, the difference between the Employer’s Adjusted EBITDA (as defined in the
Employer’s financial statements and Notes thereto included in its periodic filings with the Securities and Exchange
Commission) for the full calendar year (as determined by the Board in the then-current calendar year) and the Employer’s
capital expenditures for the then-current calendar year approved by the Board as part of the Employer’s Board-approved
forecast for the preceding year. The Compensation Committee may adjust the Free Cash Flow calculation to reflect any
actual or projected increases in capital expenditures required to capture business opportunities.”
Section 4(c) of the Agreement is hereby amended in its entirety to read as follows:
IV.
“(c) continue to be eligible to receive annual performance cash awards (“Annual Cash Awards”) with a target
amount equal to 50% of Base Salary (the “Target Percentage”), and the Executive will be entitled to a guaranteed Annual
Cash Award equal to 25% of Base Salary and as much as 75% of Base Salary if certain executive goals (the “Executive
Goals”) are reached as identified and approved by the Compensation Committee; provided, that, notwithstanding the
foregoing, for any year in which the prior year’s Free Cash Flow is less than $15,000,000, the Target Percentage shall be
equal to 30%, and the Executive will be entitled to a guaranteed Annual Cash Award equal to 15% of Base Salary and as
much as 45% of Base Salary if the Executive Goals are reached as identified and approved by the Compensation Committee.
Commencing with the Employer’s 2018 fiscal year, the Executive Goals will be set by the Compensation Committee
under the applicable long-term incentive plan for such annual award but in any event shall not exceed the maximum award
permissible under such applicable plan.
Notwithstanding the foregoing, the Executive’s Target Percentage for any calendar year may be increased (but not
decreased without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject
to approval of the Compensation Committee.
The Executive Goals will consist of Free Cash Flow targets, Adjusted EBITDA targets, individual performance
targets and health, safety and environment (“HSE”) targets, as determined by the Compensation Committee. The Executive’s
individual performance targets and HSE targets for any calendar year shall be set by the Compensation Committee prior to
December 31 of the prior calendar year. The financial targets for determining the Executive’s Free Cash Flow targets and
Adjusted EBITDA targets for any calendar year shall be determined by the Board at its third quarterly meeting of the prior
calendar year.
The Executive’s Annual Cash Award will be paid in the first pay period following the date of the earnings release
for the calendar year to which such Annual Cash Award relates unless an alternative timing of payment is agreed to by the
Executive; provided, that such Annual Cash Award will in any event be paid in the calendar year following the calendar year
to which such Annual Cash Award relates; provided, further, that notwithstanding the foregoing, the Executive’s Annual
Cash Award for 2017 will be paid in the ordinary course of business in accordance with past practice, and the amount of such
Annual Cash Award shall be no less than $140,000.00 and shall not be affected by the restructuring transactions
contemplated by the Exchange Offer Memorandum and Consent Solicitation Statement dated December 22, 2017 of the
Employer and the Restructuring Support Agreement dated as of December 19, 2017 (the “2017 RSA”) among the Employer,
SAExploration Sub, Inc., SAExploration Inc., SAExploration Seismic Services (US), LLC, NES, LLC and the Supporting
Holders Identified Therein.”
Section 4(g) of the Agreement is hereby amended in its entirety to read as follows:
“(g) Equity Compensation.
V.
(i) The Executive shall be eligible to participate in the SAExploration Holdings, Inc. 2018 Long-Term
Incentive Plan (the “Equity Incentive Plan”) as described in the Key Revisions to Management Compensation
Arrangements term sheet attached to the 2017 RSA as Exhibit A.
(ii) The Executive shall be eligible to participate in the Employer’s Management Incentive Program as
described in the Key Revisions to Management Compensation Arrangements term sheet attached to the 2017 RSA
as Exhibit A and which shall be established under the Equity Incentive Plan.”
Section 4(i) of the Agreement is hereby amended by deleting such section in entirety.
VI.
Except as specifically modified herein, the Agreement shall remain in full force and effect in accordance with all of
the terms and conditions thereof. This Amendment may be executed in separate counterparts, each of which will be deemed
an original, but all of which together will constitute one and the same instrument. Delivery of an executed signature page to
this Amendment by facsimile or other electronic transmission (including documents in Adobe PDF format) will be effective
as delivery of a manually executed counterpart to this Amendment.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
SAEXPLORATION HOLDINGS, INC.
By:
Name:
Title:
EXECUTIVE
By:
Name: Mike Scott
FIRST AMENDMENT
TO
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.30
This First Amendment to the Amended and Restated Executive Employment Agreement (the “Amendment”) is
effective as of January __, 2018, by and between SAExploration Holdings, Inc., a Delaware corporation (the “Employer”)
and Darin Silvernagle (the “Executive”), and hereby amends the Amended and Restated Executive Employment Agreement
between the Employer and Executive (the “Agreement”). Words and phrases used herein with initial capital letters that are
defined in the Agreement are used herein as so defined.
I.
The first sentence of Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The Employer hereby agrees to continue to employ the Executive commencing on the Effective Date and ending on
December 31, 2020 (the “Initial Term”); provided, however, that at the end of the Initial Term, the Executive’s employment
and this Agreement shall automatically renew or extend for consecutive terms of one (1) year on each succeeding anniversary
of December 31, 2020 (each such renewal or extension a “Renewal Term”), unless either Party gives prior written notice to
the other Party of its desire to terminate the Agreement at least 90 days prior to the expiration of the Initial Term or any
Renewal Term, as applicable (the Initial Term and each Renewal Term, collectively, the “Term”).”
II.
The second to last sentence in Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The obligations of the Parties under Sections 5 through 27 herein shall survive according to the terms of each
provision; provided, that the provisions of Sections 8(a) and 8(c) shall be immediately void and of no further force or effect if
the Employer gives prior written notice to the Executive of its desire to terminate this Agreement at the expiration of the
Initial Term or any Renewal Term, as described above. For the avoidance of doubt, if prior to the expiration of the Initial
Term or any Renewal Term the Executive is offered a renewal of this Agreement by the Company at the same or better terms,
and the Executive refuses to renew this Agreement, then the post-employment obligations set for in Sections 8(a) and 8(c)
shall remain in effect.”
Section 4(a) of the Agreement is hereby amended in its entirety to read as follows:
III.
“(a) receive payment of the Executive’s annual base salary (the “Base Salary”) at an annual rate of not less than
US$262,800.00, less deductions required by law, payable in accordance with the Employer’s standard payroll schedule, but
not less frequently than monthly. Notwithstanding the foregoing, the Base Salary may be increased (but not decreased
without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject to approval
of the Compensation Committee of the Board (the “Compensation Committee”).
Notwithstanding anything to the contrary herein, for any calendar year during the Term in which the prior calendar
year’s Free Cash Flow (as defined below) equals or exceeds $15,000,000, the Base Salary for such calendar year will be not
less than US$291,818.00, less deductions required by law, payable in accordance with the Employer’s standard payroll
schedule, but not less frequently than monthly. The Compensation Committee will calculate Free Cash Flow for the prior
calendar year following delivery of the Employer’s earnings statements for such year, but in any event by March of the
following calendar year. In the event that the Executive becomes entitled to an increase in the Base Salary for any calendar
year pursuant to this Section 4(a), the corresponding increase in the Base Salary for such calendar year shall, following such
determination, be retroactive to January 1 of such calendar year, and any payments of additional Base Salary that become due
to the Executive for the period of such calendar year preceding the Compensation Committee’s determination shall be paid to
the Executive no later than the first payroll date immediately following the date on which the Compensation Committee
makes such determination.
For purposes of this Agreement, “Free Cash Flow” shall be determined by the Compensation Committee and shall
mean, with respect to any calendar year, the difference between the Employer’s Adjusted EBITDA (as defined in the
Employer’s financial statements and Notes thereto included in its periodic filings with the Securities and Exchange
Commission) for the full calendar year (as determined by the Board in the then-current calendar year) and the Employer’s
capital expenditures for the then-current calendar year approved by the Board as part of the Employer’s Board-approved
forecast for the preceding year. The Compensation Committee may adjust the Free Cash Flow calculation to reflect any
actual or projected increases in capital expenditures required to capture business opportunities.”
Section 4(c) of the Agreement is hereby amended in its entirety to read as follows:
IV.
“(c) continue to be eligible to receive annual performance cash awards (“Annual Cash Awards”) with a target
amount equal to 40% of Base Salary (the “Target Percentage”), and the Executive will be entitled to a guaranteed Annual
Cash Award equal to 20% of Base Salary and as much as 60% of Base Salary if certain executive goals (the “Executive
Goals”) are reached as identified and approved by the Compensation Committee; provided, that, notwithstanding the
foregoing, for any year in which the prior year’s Free Cash Flow is less than $15,000,000, the Target Percentage shall be
equal to 30%, and the Executive will be entitled to a guaranteed Annual Cash Award equal to 15% of Base Salary and as
much as 45% of Base Salary if the Executive Goals are reached as identified and approved by the Compensation Committee.
Commencing with the Employer’s 2018 fiscal year, the Executive Goals will be set by the Compensation Committee
under the applicable long-term incentive plan for such annual award but in any event shall not exceed the maximum award
permissible under such applicable plan.
Notwithstanding the foregoing, the Executive’s Target Percentage for any calendar year may be increased (but not
decreased without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject
to approval of the Compensation Committee.
The Executive Goals will consist of Free Cash Flow targets, Adjusted EBITDA targets, individual performance
targets and health, safety and environment (“HSE”) targets, as determined by the Compensation Committee. The Executive’s
individual performance targets and HSE targets for any calendar year shall be set by the Compensation Committee prior to
December 31 of the prior calendar year. The financial targets for determining the Executive’s Free Cash Flow targets and
Adjusted EBITDA targets for any calendar year shall be determined by the Board at its third quarterly meeting of the prior
calendar year.
The Executive’s Annual Cash Award will be paid in the first pay period following the date of the earnings release
for the calendar year to which such Annual Cash Award relates unless an alternative timing of payment is agreed to by the
Executive; provided, that such Annual Cash Award will in any event be paid in the calendar year following the calendar year
to which such Annual Cash Award relates; provided, further, that notwithstanding the foregoing, the Executive’s Annual
Cash Award for 2017 will be paid in the ordinary course of business in accordance with past practice, and the amount of such
Annual Cash Award shall be no less than $95,000.00 and shall not be affected by the restructuring transactions contemplated
by the Exchange Offer Memorandum and Consent Solicitation Statement dated December 22, 2017 of the Employer and the
Restructuring Support Agreement dated as of December 19, 2017 (the “2017 RSA”) among the Employer, SAExploration
Sub, Inc., SAExploration Inc., SAExploration Seismic Services (US), LLC, NES, LLC and the Supporting Holders Identified
Therein.”
Section 4(g) of the Agreement is hereby amended in its entirety to read as follows:
“(g) Equity Compensation.
V.
(i) The Executive shall be eligible to participate in the SAExploration Holdings, Inc. 2018 Long-Term
Incentive Plan (the “Equity Incentive Plan”) as described in the Key Revisions to Management Compensation
Arrangements term sheet attached to the 2017 RSA as Exhibit A.
(ii) The Executive shall be eligible to participate in the Employer’s Management Incentive Program as
described in the Key Revisions to Management Compensation Arrangements term sheet attached to the 2017 RSA
as Exhibit A and which shall be established under the Equity Incentive Plan.”
Section 4(i) of the Agreement is hereby amended by deleting such section in entirety.
VI.
Except as specifically modified herein, the Agreement shall remain in full force and effect in accordance with all of
the terms and conditions thereof. This Amendment may be executed in separate counterparts, each of which will be deemed
an original, but all of which together will constitute one and the same instrument. Delivery of an executed signature page to
this Amendment by facsimile or other electronic transmission (including documents in Adobe PDF format) will be effective
as delivery of a manually executed counterpart to this Amendment.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
SAEXPLORATION HOLDINGS, INC.
By:
Name:
Title:
EXECUTIVE
By:
Name: Darin Silvernagle
SECOND AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.33
This Second Amendment to the Executive Employment Agreement, as amended by that First Amendment to
Executive Employment Agreement, dated as of November 10, 2016 (the “Amendment”) is effective as of January __, 2018,
by and between SAExploration Holdings, Inc., a Delaware corporation (the “Employer”) and Ryan Abney (the “Executive”),
and hereby amends the Executive Employment Agreement between the Employer and Executive (the “Agreement”). Words
and phrases used herein with initial capital letters that are defined in the Agreement are used herein as so defined.
I.
The first sentence of Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The Employer hereby agrees to continue to employ the Executive commencing on the Effective Date and ending on
December 31, 2020 (the “Initial Term”); provided, however, that at the end of the Initial Term, the Executive’s employment
and this Agreement shall automatically renew or extend for consecutive terms of one (1) year on each succeeding anniversary
of December 31, 2020 (each such renewal or extension a “Renewal Term”), unless either Party gives prior written notice to
the other Party of its desire to terminate the Agreement at least 90 days prior to the expiration of the Initial Term or any
Renewal Term, as applicable (the Initial Term and each Renewal Term, collectively, the “Term”).”
II.
The second to last sentence in Section 1 of the Agreement is hereby amended in its entirety to read as follows:
“The obligations of the Parties under Sections 5 through 25 herein shall survive according to the terms of each
provision; provided, that the provisions of Sections 7(a) and 7(c) shall be immediately void and of no further force or effect if
the Employer gives prior written notice to the Executive of its desire to terminate this Agreement at the expiration of the
Initial Term or any Renewal Term, as described above. For the avoidance of doubt, if prior to the expiration of the Initial
Term or any Renewal Term the Executive is offered a renewal of this Agreement by the Company at the same or better terms,
and the Executive refuses to renew this Agreement, then the post-employment obligations set for in Sections 7(a) and 7(c)
shall remain in effect.”
Section 4(a) of the Agreement is hereby amended in its entirety to read as follows:
III.
“(a) receive payment of the Executive’s annual base salary (the “Base Salary”) at an annual rate of not less than
US$193,500.00, less deductions required by law, payable in accordance with the Employer’s standard payroll schedule, but
not less frequently than monthly. Notwithstanding the foregoing, the Base Salary may be increased (but not decreased
without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject to approval
of the Compensation Committee of the Board (the “Compensation Committee”).
Notwithstanding anything to the contrary herein, for any calendar year during the Term in which the prior calendar
year’s Free Cash Flow (as defined below) equals or exceeds $15,000,000, the Base Salary for such calendar year will be not
less than US$215,000.00, less deductions required by law, payable in accordance with the Employer’s standard payroll
schedule, but not less frequently than monthly. The Compensation Committee will calculate Free Cash Flow for the prior
calendar year following delivery of the Employer’s earnings statements for such year, but in any event by March of the
following calendar year. In the event that the Executive becomes entitled to an increase in the Base Salary for any calendar
year pursuant to this Section 4(a), the corresponding increase in the Base Salary for such calendar year shall, following such
determination, be retroactive to January 1 of such calendar year, and any payments of additional Base Salary that become due
to the Executive for the period of such calendar year preceding the Compensation Committee’s determination shall be paid to
the Executive no later than the first payroll date immediately following the date on which the Compensation Committee
makes such determination.
NAI-1503370849v1
Employment Agreement Amendment – Abney
For purposes of this Agreement, “Free Cash Flow” shall be determined by the Compensation Committee and shall
mean, with respect to any calendar year, the difference between the Employer’s Adjusted EBITDA (as defined in the
Employer’s financial statements and Notes thereto included in its periodic filings with the Securities and Exchange
Commission) for the full calendar year (as determined by the Board in the then-current calendar year) and the Employer’s
capital expenditures for the then-current calendar year approved by the Board as part of the Employer’s Board-approved
forecast for the preceding year. The Compensation Committee may adjust the Free Cash Flow calculation to reflect any
actual or projected increases in capital expenditures required to capture business opportunities.”
Section 4(b) of the Agreement is hereby amended in its entirety to read as follows:
IV.
“(b) continue to be eligible to receive annual performance cash awards (“Annual Cash Awards”) with a target
amount equal to 35% of Base Salary (the “Target Percentage”), and the Executive will be entitled to a guaranteed Annual
Cash Award equal to 17.5% of Base Salary and as much as 52.5% of Base Salary if certain executive goals (the “Executive
Goals”) are reached as identified and approved by the Compensation Committee; provided, that, notwithstanding the
foregoing, for any year in which the prior year’s Free Cash Flow is less than $15,000,000, the Target Percentage shall be
equal to 30%, and the Executive will be entitled to a guaranteed Annual Cash Award equal to 15% of Base Salary and as
much as 45% of Base Salary if the Executive Goals are reached as identified and approved by the Compensation Committee.
Commencing with the Employer’s 2018 fiscal year, the Executive Goals will be set by the Compensation Committee
under the applicable long-term incentive plan for such annual award but in any event shall not exceed the maximum award
permissible under such applicable plan.
Notwithstanding the foregoing, the Executive’s Target Percentage for any calendar year may be increased (but not
decreased without the written consent of the Executive) in the discretion of the Employer’s Chief Executive Officer, subject
to approval of the Compensation Committee.
The Executive Goals will consist of Free Cash Flow targets, Adjusted EBITDA targets, individual performance
targets and health, safety and environment (“HSE”) targets, as determined by the Compensation Committee. The Executive’s
individual performance targets and HSE targets for any calendar year shall be set by the Compensation Committee prior to
December 31 of the prior calendar year. The financial targets for determining the Executive’s Free Cash Flow targets and
Adjusted EBITDA targets for any calendar year shall be determined by the Board at its third quarterly meeting of the prior
calendar year.
The Executive’s Annual Cash Award will be paid in the first pay period following the date of the earnings release
for the calendar year to which such Annual Cash Award relates unless an alternative timing of payment is agreed to by the
Executive; provided, that such Annual Cash Award will in any event be paid in the calendar year following the calendar year
to which such Annual Cash Award relates; provided, further, that notwithstanding the foregoing, the Executive’s Annual
Cash Award for 2017 will be paid in the ordinary course of business in accordance with past practice, and the amount of such
Annual Cash Award shall be no less than $63,000.00 and shall not be affected by the restructuring transactions contemplated
by the Exchange Offer Memorandum and Consent Solicitation Statement dated December 22, 2017 of the Employer and the
Restructuring Support Agreement dated as of December 19, 2017 (the “2017 RSA”) among the Employer, SAExploration
Sub, Inc., SAExploration Inc., SAExploration Seismic Services (US), LLC, NES, LLC and the Supporting Holders Identified
Therein.”
V.
Section 4(f) of the Agreement is hereby amended in its entirety to read as follows:
“(f) Equity Compensation.
(i) The Executive shall be eligible to participate in the SAExploration Holdings, Inc. 2018 Long-Term
Incentive Plan (the “Equity Incentive Plan”) as described in the Key Revisions to Management Compensation
Arrangements term sheet attached to the 2017 RSA as Exhibit A.
(ii) The Executive shall be eligible to participate in the Employer’s Management Incentive Program as
described in the Key Revisions to Management Compensation Arrangements term sheet attached to the 2017 RSA
as Exhibit A and which shall be established under the Equity Incentive Plan.”
Section 4(h) of the Agreement is hereby amended by deleting such section in entirety.
VI.
Except as specifically modified herein, the Agreement shall remain in full force and effect in accordance with all of
the terms and conditions thereof. This Amendment may be executed in separate counterparts, each of which will be deemed
an original, but all of which together will constitute one and the same instrument. Delivery of an executed signature page to
this Amendment by facsimile or other electronic transmission (including documents in Adobe PDF format) will be effective
as delivery of a manually executed counterpart to this Amendment.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
SAEXPLORATION HOLDINGS, INC.
By:
Name:
Title:
EXECUTIVE
By:
Name: Ryan Abney
Consent of Independent Registered Public Accounting Firm
We have issued our report dated March 15, 2018, with respect to the consolidated balance sheets as of December 31, 2017
and 2016 and the related consolidated statements of operations, comprehensive loss changes in stockholders’ equity (deficit),
and cash flows for each of the two years in the period ended December 31, 2017 included in the Annual Report of
SAExploration Holdings, Inc. on Form 10-K for the year ended December 31, 2017. We hereby consent to the incorporation
by reference of said report in the Registration Statements of SAExploration Holdings, Inc. on Form S-3 (File No. 333-
213386) effective September 16, 2016, Form S-8 (File No. 333-213756) effective September 23, 2016 and Form S-8 (File
No. 333-214852) effective November 30, 2016.
Exhibit 23.1
/s/ Pannell Kerr Forster of Texas, P.C.
Houston, Texas
March 15, 2018
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeff Hastings, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2017 of SAExploration Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 15, 2018
/s/ Jeff Hastings
Jeff Hastings
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brent Whiteley, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2017 of SAExploration Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 15, 2018
/s/ Brent Whiteley
Brent Whiteley
Chief Financial Officer, General Counsel and Secretary
(Principal Financial Officer and Principal Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of SAExploration Holdings, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeff
Hastings, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 15, 2018
/s/ Jeff Hastings
Jeff Hastings
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of SAExploration Holdings, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brent
Whiteley, Chief Financial Officer, General Counsel and Secretary of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 15, 2018
/s/ Brent Whiteley
Brent Whiteley
Chief Financial Officer, General Counsel and Secretary
(Principal Financial Officer and Principal Accounting Officer)