UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~March 31,~~September 30, 2017



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

Commission File Number: 001-10165

SEITEL, INC.

(Exact name of registrant as specified in its charter)



Delaware		76-0025431
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

10811 S. Westview Circle Drive Building C, Suite 100 Houston, Texas		77043
(Address of principal executive offices)		(Zip Code)

(713) 881-8900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨ No ý

(Explanatory Note: The registrant is a voluntary filer and is therefore not subject to the filing requirements of the Securities Exchange Act of 1934. However, during the preceding 12 months, the registrant has filed all reports that it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 if the registrant was subject to the filing requirements of the Securities Exchange Act of 1934 during such timeframe.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 ý No ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ý

As of ~~May 8,~~November 6, 2017, there were 100 shares of the Company’s common stock outstanding, par value $.001 per share.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

SEITEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	(Unaudited) March 31, 2017			December 31, 2016			(Unaudited) September 30, 2017			December 31, 2016
ASSETS
Cash and cash equivalents	$	64,251		$	55,997		$	80,273		$	55,997
Receivables
Trade, net of allowance for doubtful accounts of $223	24,146			24,481
Trade, net of allowance for doubtful accounts of $178 and $223, respectively							12,640			24,481
Notes and other	91			436			338			436
Due from Seitel Holdings, Inc.	1,180			1,177			1,188			1,177
Seismic data library, net of accumulated amortization of $1,200,848 and $1,176,828, respectively	105,162			115,922
Property and equipment, net of accumulated depreciation and amortization of $16,621 and $16,478, respectively	1,659			1,709
Seismic data library, net of accumulated amortization of $1,261,343 and $1,176,828, respectively							82,919			115,922
Property and equipment, net of accumulated depreciation and amortization of $17,214 and $16,478, respectively							1,591			1,709
Prepaid expenses, deferred charges and other	2,079			1,762			2,228			1,762
Intangible assets, net of accumulated amortization of $48,472 and $47,826, respectively	900			1,418
Intangible assets, net of accumulated amortization of $49,575 and $47,826, respectively							900			1,418
Goodwill	182,599			182,012			187,658			182,012
Deferred income taxes	292			257			284			257
TOTAL ASSETS	$	382,359		$	385,171		$	370,019		$	385,171
LIABILITIES AND STOCKHOLDER’S EQUITY
LIABILITIES
Accounts payable and accrued liabilities	$	24,786		$	17,007		$	24,675		$	17,007
Income taxes payable	714			620			2,519			620
Senior Notes	247,167			246,857			247,809			246,857
Obligations under capital leases	1,469			1,510			1,438			1,510
Deferred revenue	18,078			15,904			12,176			15,904
Deferred income taxes	1,645			2,214			1,550			2,214
TOTAL LIABILITIES	293,859			284,112			290,167			284,112
COMMITMENTS AND CONTINGENCIES (Note G)
STOCKHOLDER’S EQUITY
Common stock, par value $.001 per share; 100 shares authorized, issued and outstanding	—			—			—			—
Additional paid-in capital	400,580			400,582			400,591			400,582
Retained deficit	(296,569		)	(283,190		)	(312,549		)	(283,190		)
Accumulated other comprehensive loss	(15,511		)	(16,333		)	(8,190		)	(16,333		)
TOTAL STOCKHOLDER’S EQUITY	88,500			101,059			79,852			101,059
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	382,359		$	385,171		$	370,019		$	385,171

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

SEITEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands)


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016
REVENUE	$	20,595		$	11,950		$	24,013		$	23,255		$	68,308		$	59,545
EXPENSES:
Depreciation and amortization	22,263			15,101			17,714			18,933			61,946			58,839
Cost of sales	10			22			31			22			74			55
Selling, general and administrative	5,646			5,959			5,049			5,386			15,700			16,013
	27,919			21,082			22,794			24,341			77,720			74,907
LOSS FROM OPERATIONS	(7,324		)	(9,132		)
INCOME (LOSS) FROM OPERATIONS							1,219			(1,086		)	(9,412		)	(15,362		)
Interest expense, net	(6,210		)	(6,356		)	(6,139		)	(6,298		)	(18,536		)	(18,988		)
Foreign currency exchange gains (losses)	(51		)	173			(3		)	(20		)	(88		)	143
Other income	—			6			—			572			96			582
Loss before income taxes	(13,585		)	(15,309		)	(4,923		)	(6,832		)	(27,940		)	(33,625		)
Benefit for income taxes	(206		)	(1,445		)
Provision (benefit) for income taxes							1,421			(1,389		)	1,419			(5,083		)
NET LOSS	$	(13,379	)	$	(13,864	)	$	(6,344	)	$	(5,443	)	$	(29,359	)	$	(28,542	)

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

SEITEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(In thousands)


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016
Net loss	$	(13,379	)	$	(13,864	)	$	(6,344	)	$	(5,443	)	$	(29,359	)	$	(28,542	)
Foreign currency translation adjustments	822			6,744			4,752			(861		)	8,143			5,575
Comprehensive loss	$	(12,557	)	$	(7,120	)	$	(1,592	)	$	(6,304	)	$	(21,216	)	$	(22,967	)

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

SEITEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY (Unaudited)

(In thousands, except share amounts)


				Additional Paid-In Capital			Retained Deficit			Accumulated Other Comprehensive Loss						Additional Paid-In Capital		Retained Deficit			Accumulated Other Comprehensive Loss
	Common Stock												Common Stock
	Shares	Amount											Shares	Amount
Balance, December 31, 2016	100	$	—	$	400,582		$	(283,190	)	$	(16,333	)	100	$	—	$	400,582	$	(283,190	)	$	(16,333	)
Amortization of stock-based compensation costs	—	—		(2		)	—			—			—	—		9		—			—
Net loss	—	—		—			(13,379		)	—			—	—		—		(29,359		)	—
Foreign currency translation adjustments	—	—		—			—			822			—	—		—		—			8,143
Balance, March 31, 2017	100	$	—	$	400,580		$	(296,569	)	$	(15,511	)
Balance, September 30, 2017													100	$	—	$	400,591	$	(312,549	)	$	(8,190	)

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

SEITEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Three Months Ended March 31,						Nine Months Ended September 30,
	2017			2016			2017			2016
Cash flows from operating activities:
Reconciliation of net loss to net cash provided by operating activities:
Net loss	$	(13,379	)	$	(13,864	)	$	(29,359	)	$	(28,542	)
Depreciation and amortization	22,263			15,101			61,946			58,839
Deferred income tax benefit	(612		)	(1,445		)	(1,172		)	(5,127		)
Foreign currency exchange losses (gains)	51			(173		)	88			(143		)
Amortization of deferred financing costs	310			318			952			922
Amortization of stock-based compensation	(2		)	22			9			59
Gain on sale of property and equipment	—			(6		)
Decrease in allowance for doubtful accounts							—			(21		)
Gain on sale of seismic data and property and equipment							(96		)	(7		)
Non-cash other income							—			(572		)
Non-cash revenue	(289		)	(1		)	(1,554		)	(2,713		)
Decrease in receivables	780			6,734			12,470			6,508
Increase in other assets	(243		)	(232		)
Increase (decrease) in deferred revenue	2,188			(2,098		)
Decrease in other assets							35			424
Decrease in deferred revenue							(3,532		)	(7,244		)
Increase in accounts payable and other liabilities	3,067			6,333			4,494			6,748
Net cash provided by operating activities	14,134			10,689			44,281			29,131
Cash flows from investing activities:
Cash invested in seismic data	(5,748		)	(6,386		)	(20,518		)	(20,699		)
Cash paid to acquire property and equipment	(136		)	(75		)	(362		)	(176		)
Cash from sale of property and equipment	—			14			3			18
Advances to Seitel Holdings, Inc.	(3		)	(11		)	(11		)	(19		)
Net cash used in investing activities	(5,887		)	(6,458		)	(20,888		)	(20,876		)
Cash flows from financing activities:
Principal payments on capital lease obligations	(53		)	(48		)	(178		)	(152		)
Net cash used in financing activities	(53		)	(48		)	(178		)	(152		)
Effect of exchange rate changes	60			177			1,061			96
Net increase in cash and cash equivalents	8,254			4,360			24,276			8,199
Cash and cash equivalents at beginning of period	55,997			52,675			55,997			52,675
Cash and cash equivalents at end of period	$	64,251		$	57,035		$	80,273		$	60,874
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Cash paid (received) during the period for:
Interest	$	34		$	116		$	11,974		$	12,195
Income taxes	$	309		$	—
Income taxes, net of refunds received							$	774		$	(7	)
Supplemental schedule of non-cash investing and financing activities:
Additions to seismic data library	$	250		$	222		$	1,250		$	2,640

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

SEITEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)

~~March 31,~~September 30, 2017

NOTE A-BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of Seitel, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. In preparing the Company’s financial statements, a number of estimates and assumptions are made by management that affect the accounting for and recognition of assets, liabilities, revenues and expenses. Operating results for the three and nine months ended ~~March 31,~~September 30, 2017 are not necessarily indicative of the results that may be expected ~~for any other quarter of 2017 or~~ for the year ending December 31, 2017. The condensed consolidated balance sheet of the Company as of December 31, 2016 has been derived from the audited balance sheet of the Company as of that date. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

NOTE B-REVENUE RECOGNITION

Revenue from Data Acquisition

The Company generates revenue when it creates a new seismic survey that is initially licensed by one or more of its customers to use the resulting data. The payments for the initial licenses are sometimes referred to as acquisition underwriting or prefunding. Customers make periodic payments throughout the new survey creation period, which generally correspond to costs incurred and work performed. These payments are non-refundable. Contracts ~~which are~~ signed up to the time the Company makes a firm commitment to create the new seismic survey are considered acquisition underwriting. Any subsequent ~~licensing~~license of the data while the survey is in progress or once it is completed is considered a resale license (see “Revenue from Non-Exclusive Data Licenses”).

Acquisition underwriting revenue is recognized throughout the new survey creation period using the proportional performance method based upon costs incurred and work performed to date as a percentage of total estimated costs and work required. Management believes that this method is the most reliable and representative measure of progress for its ~~data~~new survey creation projects. On average, the duration of the ~~data~~new survey creation process is approximately ~~twelve~~12 to ~~eighteen~~18 months. Under ~~these~~the contracts related to the new survey, the Company creates new seismic data designed in conjunction with its customers and specifically suited to the geology of the area using the most appropriate technology available.

The Company outsources the substantial majority of the work required to complete data acquisition projects to third party contractors. The Company’s payments to these third party contractors comprise the substantial majority of the total estimated costs of the projects and are paid throughout the new survey creation period. A typical survey includes specific activities required to complete the survey creation, each of which has value to the customers. Typical activities, that often occur concurrently, include:

permitting for land access, mineral rights, and regulatory approval;

surveying;

drilling for the placement of energy sources;

recording the data in the field; and

processing the data.

The customers paying for the initial licenses to the data created from a new survey receive legally enforceable rights to any resulting product of each activity described above. The customers also receive access to and use of the newly acquired, processed data.

The customers’ access to and use of the results of the work performed and of the newly acquired, processed data is governed by a master license agreement, which is a separate agreement from the acquisition contract. The Company’s acquisition contracts require the customer either to have a master license agreement in place or to execute one at the time the acquisition contract is signed. The Company typically maintains sole ownership of the newly acquired data, which is added to its library, and is free to license the data to other customers.

Revenue from Non-Exclusive Data Licenses

The Company recognizes a substantial portion of its revenue from licensing of data once it is available for delivery. This revenue is sometimes referred to as resale licensing revenue, late sales or shelf sales.

These sales fall under the following four basic forms of non-exclusive license contracts, each of which is subject to the terms and conditions contained in a customer’s master license agreement.

Specific license contract—The customer licenses and selects specific data from the data library, including data currently in progress, at the time the contract is entered into and holds this license for a long-term period.

Library card license contract—The customer initially receives only the right to access a certain amount of data. The customer selects which data to access and hold long-term under its license agreement. The length of the selection ~~periods~~period under ~~the~~a library card ~~contracts~~contract is limited in time and varies from customer to customer.

Review and possession license contract—The customer receives the right to review a certain quantity of data for a limited period of time. During the review period, the customer may select specific data from that available for review to hold long-term under its license agreement. Any data not selected for long-term licensing must be returned to the Company at the end of the review period.

Review only license contract—The customer obtains rights to review a certain quantity of data for a limited period of time, but does not obtain the right to select specific data to hold long-term.

The Company’s non-exclusive license contracts specify the following:

that all customers must also have in place or execute a master license agreement that governs the use of all data received under ~~the Company’s~~each non-exclusive license ~~contracts;~~contract;

the specific payment terms, generally ranging from 30 days to 12 months, and that such payments are non-cancelable and non-refundable;

the actual data that is accessible to the customer; and

that the data is licensed in its present form, as is, where is, and that the Company is under no obligation to make any enhancements, modifications or additions to the data unless specific terms to the contrary are included.

Revenue from the non-exclusive licensing of seismic data is recognized when the following criteria are met:

the Company has an agreement with the customer that is validated by a signed contract;

the sales price is fixed and determinable;

collection is reasonably assured;

the customer has selected the specific data or the contract has expired without full selection;

the data is currently available for delivery; and

the license term has begun.

Copies of the licensed data are available to the customer immediately upon request.

For licenses that have been invoiced for which payment is due or has been received, but that have not met the aforementioned criteria, revenue is deferred along with the related direct costs (primarily consisting of sales commissions). This normally occurs under the library card, review and possession or review only license contracts because the data selection may occur over time. Additionally, if the contract allows licensing of data that is not currently available or enhancements, modifications or additions to the data are required per the contract, revenue is deferred until such time that the data is available.

Revenue from Non-Monetary Exchanges

In certain cases, the Company will take ownership of a customer’s seismic data or revenue interest (collectively referred to as “data”) in exchange for a non-exclusive license to selected seismic data from the Company’s library or, in some cases, reproduction or data processing services. In connection with specific data acquisition contracts, the Company may choose to receive both cash and ownership of seismic data from the customer as consideration for the underwriting of new data acquisition. In addition, the Company may receive advanced data processing services from a customer on selected existing data in exchange for a non-exclusive license to selected data from the Company’s library. These ~~exchanges~~transactions are referred to as non-monetary exchanges. A non-monetary exchange for data always complies with the following criteria:

the data licensed to a customer is always distinct from the data received from that customer;

the customer forfeits ownership of the data received by the Company; and

the Company retains ownership in the data licensed.

In non-monetary exchange transactions, the Company records a data library asset for the seismic data received or processed at the time the contract is entered into or the data is completed, as applicable, and recognizes revenue on the transaction in equal value in accordance with its policy on revenue from data licenses or data acquisition, or as services are provided by our Seitel Solutions business unit (“Solutions”), as applicable. The data license to the customer is in the form of one of the four basic forms of contracts discussed above. These transactions are valued at the fair value of the data received by the Company or the fair value of the license granted or services provided to the customer, whichever is more readily determinable.

Fair value of the data exchanged is determined using a multi-step process as follows:

First, the Company considers the value of the data or services received from the customer. In determining the value of the data received, the Company considers the age, quality, current demand and future marketability of the data and, in the case of 3D seismic data, the cost that would be required to create the data. In addition, the Company applies a limitation on the value it assigns per square mile on the data received. In determining the value of the services received, the Company considers the cost of such similar services that it could obtain from a third party provider.

Second, the Company determines the value of the license granted to the customer. Typically, the range of cash transactions by the Company for licenses of similar data during the prior six months are evaluated. In evaluating the range of cash transactions, the Company does not consider transactions that are disproportionately high or low.

Due to the Company’s revenue recognition policies, revenue recognized on non-monetary exchange transactions may not occur at the same time that the seismic data acquired is recorded as an asset. The activity related to non-monetary exchanges was as follows (in thousands):


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2017		2016
Seismic data library additions	$	250	$	222	$	—	$	1,618	$	1,250	$	2,640
Revenue recognized on specific data licenses or selections of data	250		—		—		1,295		1,250		2,635
Revenue recognized related to acquisition contracts	39		1		103		54		229		78
Revenue recognized related to Solutions and other revenue					44		—		75		—

Revenue from Solutions

Revenue from Solutions is recognized as the services for reproduction and delivery of seismic data are provided to customers.

NOTE C-SEISMIC DATA LIBRARY

The Company’s seismic data library consists of seismic surveys that are offered for license to customers on a non-exclusive basis. Costs associated with creating, acquiring or purchasing the seismic data library are capitalized and amortized principally on the income forecast method subject to a straight-line amortization period of four years, applied on a quarterly basis at the individual survey level.

Costs of Seismic Data Library

For newly created data, the capitalized costs include costs paid to third parties for the acquisition of data and related permitting, surveying and other activities associated with the data creation activity. In addition, the Company capitalizes certain internal costs related to processing the created data and reprocessing existing data. Such costs include salaries and benefits of the Company’s processing personnel and certain other costs incurred for the benefit of the processing activity. The Company believes that the internal processing costs capitalized are not greater than, and generally are less than, those that would be incurred and capitalized if such activity were performed by a third party. Capitalized costs for internal data processing were $~~0.7~~0.6 million and ~~$0.8~~$0.7 million for the three months ended ~~March 31,~~September 30, 2017 and 2016, respectively and $2.0 million and $2.3 million for the nine months ended September 30, 2017 and 2016, respectively.

For data received through a non-monetary exchange, the Company capitalizes an amount equal to the fair value of the data received by the Company or the fair value of the license granted or services provided to the customer, whichever is more readily determinable. See Note B – “Revenue Recognition – Revenue from Non-Monetary Exchanges” for discussion of the process used to determine fair value.

For purchased seismic data, the Company capitalizes the purchase price of the acquired data.

Data Library Amortization

The Company amortizes each survey in its seismic data library using the greater of the amortization that would result from the application of the income forecast method to each survey’s revenue, subject to a minimum amortization rate, or a straight-line basis over four years, commencing at the time such survey is completed and available for licensing to customers on a non-exclusive basis.

The Company applies the income forecast method by forecasting the ultimate revenue expected to be derived from a particular data library component over the estimated useful life of each survey comprising part of such component. This forecast is made by the Company annually and reviewed quarterly. If, during any such review, the Company determines that the ultimate revenue for a library component is expected to be significantly different than the most recent estimate of total revenue for such library component, the Company revises the amortization rate attributable to future revenue from each survey in such component. The Company applies a minimum amortization rate of 70%. In addition, in connection with the forecast reviews and updates, the Company evaluates the recoverability of its seismic data library investment, and if required, records an impairment charge with respect to such investment. See discussion on “Seismic Data Library Impairment” below.

The greater of the income forecast or straight-line amortization policy is applied quarterly on a cumulative basis at the individual survey level. Under this policy, the Company first records amortization using the income forecast method. The cumulative amortization recorded for each survey is then compared with the cumulative straight-line amortization. If the cumulative straight-line amortization is higher for any specific survey, additional amortization expense is recorded, resulting in accumulated amortization being equal to the cumulative straight-line amortization for such survey. This requirement is applied regardless of future-year revenue estimates for the library component of which the survey is a part and does not consider the existence of deferred revenue with respect to the library component or to any survey.

The actual aggregate rate of amortization depends on the specific seismic surveys licensed and selected by the Company’s customers during the period and the amount of straight-line amortization recorded. The income forecast amortization rates can vary by component and, as of ~~April~~October 1, 2017, is 70% for all components. For those seismic surveys which have been fully amortized, no amortization expense is required on revenue recorded.

Seismic Data Library Impairment

The Company evaluates its seismic data library investment by grouping individual surveys into components based on its operations and geological and geographical trends, resulting in the following data library segments for purposes of evaluating impairments: (I) North America 3D onshore comprised of the following components: (a) Texas Gulf Coast, (b) Eastern Texas, (c) Permian, (d) Anadarko Basin in North Texas/Oklahoma, (e) Southern Louisiana/Mississippi, (f) Northern Louisiana, (g) Rocky Mountains, (h) Utica/Marcellus in Pennsylvania, Ohio and West Virginia, (i) other United States, (j) Montney in British Columbia and Alberta, (k) Horn River in British Columbia, (l) Duvernay in Alberta and (m) other Canada; (II) United States 2D; (III) Canada 2D; (IV) Mexico; (V) Gulf of Mexico offshore; and (VI) international data outside North America. The Company believes that these library components constitute the lowest levels of independently identifiable cash flows.

The Company evaluates its seismic data library investment for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company considers the level of sales performance in each component compared to projected sales, as well as industry conditions, among others, to be key factors in determining when its seismic data investment should be evaluated for impairment. In evaluating sales performance of each component, the Company generally considers five consecutive quarters of actual performance below forecasted sales to be an indicator of potential impairment.

The impairment evaluation is based first on a comparison of the undiscounted future cash flows over each component’s remaining estimated useful life with the carrying value of each library component. If the undiscounted cash flows are equal to or greater than the carrying value of such component, no impairment is recorded. If undiscounted cash flows are less than the carrying value of any component, the forecast of future cash flows related to such component is discounted to fair value and compared with such component’s carrying amount. The difference between the library component’s carrying amount and the discounted future value of the expected revenue stream is recorded as an impairment charge.

For purposes of evaluating potential impairment losses, the Company estimates the future cash flows attributable to a library component by evaluating, among other factors, historical and recent revenue trends, oil and gas prospectivity in particular regions, general economic conditions affecting its customer base and expected changes in technology and other factors that the Company deems relevant. The cash flow estimates exclude expected future revenues attributable to non-monetary data exchanges and future data creation projects.

The estimation of future cash flows and fair value is highly subjective and inherently imprecise. Estimates can change materially from period to period based on many factors, including those described in the preceding paragraph. Accordingly, if

conditions change in the future, the Company may record impairment losses relative to its seismic data library investment, which could be material to any particular reporting period.

The Company did not have any impairment charges during the ~~three~~nine months ended ~~March 31,~~September 30, 2017 or 2016.

NOTE D-DEBT

The following is a summary of the Company’s debt (in thousands):


	March 31, 2017			December 31, 2016			September 30, 2017			December 31, 2016
9½% Senior Notes	$	250,000		$	250,000		$	250,000		$	250,000
Less: unamortized debt issuance costs	(2,833		)	(3,143		)	(2,191		)	(3,143		)
	$	247,167		$	246,857		$	247,809		$	246,857

9½% Senior Unsecured Notes: On March 20, 2013, the Company issued, in a private placement, $250.0 million aggregate principal amount of 9½% senior notes (the “9½% Senior Notes”). As required by their terms, the 9½% Senior Notes were exchanged for senior notes of like amounts and terms in a publicly registered exchange offer in August 2013. The 9½% Senior Notes mature on April 15, 2019. Interest is payable in cash, semi-annually on April 15 and October 15 of each year. The 9½% Senior Notes are unsecured and are jointly and severally guaranteed by substantially all of the Company’s significant ~~domestic~~100% owned U.S. subsidiaries on a senior basis. The 9½% Senior Notes contain restrictive covenants which limit the Company’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends and make other restricted payments, engage in transactions with affiliates, and complete mergers, acquisitions and sales of assets.

Upon a change of control (as defined in the indenture), each holder of the 9½% Senior Notes will have the right to require the Company to offer to purchase all of such holder's notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest.

NOTE E-FAIR VALUE MEASUREMENTS

Authoritative guidance on fair value measurements provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. In measuring the fair value of the Company’s assets and liabilities, market data or assumptions are used that the Company believes market participants would use in pricing an asset or liability, including assumptions about risk when appropriate. The Company’s assets that are measured at fair value on a recurring basis include the following (in thousands):


			Fair Value Measurements Using								Fair Value Measurements Using
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
At March 31, 2017:
At September 30, 2017:
Cash equivalents	$	62,906	$	62,906	$	—	$	—	$	79,979	$	79,979	$	—	$	—
At December 31, 2016:
Cash equivalents	$	55,674	$	55,674	$	—	$	—	$	55,674	$	55,674	$	—	$	—

The Company had no transfers of assets between any of the above levels during the ~~three~~nine months ended ~~March 31,~~September 30, 2017 or 2016.

Cash equivalents include treasury bills and money market funds that invest in United States government obligations and a Canadian ~~dollar~~ investment ~~account,~~accounts, all with original maturities of three months or less. The original costs of these assets approximate fair value due to their short-term maturities.

Other Financial Instruments:

At ~~March 31,~~September 30, 2017, the carrying value of the Company’s debt was $~~247.2~~247.8 million, net of ~~$2.8~~$2.2 million of unamortized debt issuance costs. At December 31, 2016, the carrying value was $246.9 million, net of $3.1 million of unamortized debt issuance costs. The estimated fair value of the debt was approximately $~~250.3~~254.4 million at ~~March 31,~~September 30, 2017 and $232.6 million at December 31, 2016. The fair value of the Company’s 9½% Senior Notes is based on quoted market prices (Level 1 inputs).

NOTE F-STATEMENT OF CASH FLOW INFORMATION

Cash and cash equivalents at ~~March 31,~~September 30, 2017 and December 31, 2016 included $0.6 million and $0.5 million, respectively of restricted cash related to collateral on seismic operations bonds. The balance at September 30, 2017 also included $0.2 million of restricted cash related to proceeds from broker sales held in escrow by the Company for specific use by an E&P client.

For purposes of the statement of cash flows, the Company considers all highly liquid investments or debt instruments with an original maturity of three months or less to be cash equivalents. The Company maintains its day-to-day operating cash and temporary excess cash with various banking institutions that, in turn, invest in time deposits and U.S. Treasury bills.

The Company had non-cash additions to its seismic data library comprised of the following (in thousands):

Three Months Ended
March 31,
2017 2016
Non-monetary exchanges related to resale licensing $ 250
$ 222



	Nine Months Ended September 30,
	2017		2016
Non-monetary exchanges related to resale licensing	$	1,250	$	1,840
Non-monetary exchanges from underwriting of new data acquisition	—		408
Non-monetary exchanges related to data processing and reproduction services	—		392
	$	1,250	$	2,640

Non-cash revenue consisted of the following (in thousands):


	Three Months Ended March 31,				Nine Months Ended September 30,
	2017		2016		2017		2016
Acquisition revenue on underwriting from non-monetary exchange contracts	$	39	$	1	$	229	$	78
Licensing revenue from specific data licenses and selections on non-monetary exchange contracts	250		—		1,250		2,635
Solutions and other revenue recognized from non-monetary exchange contracts					75		—
Total non-cash revenue	$	289	$	1	$	1,554	$	2,713

NOTE G-COMMITMENTS AND CONTINGENCIES

The Company is involved from time to time in ordinary, routine claims and lawsuits incidental to its business. In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters should not be material to the Company’s financial position, results of operations or cash flows. However, it is not possible to predict or determine the outcomes of the legal actions brought against it or by it, or to provide an estimate of all additional losses, if any, that may arise. At ~~March 31,~~September 30, 2017, the Company has recorded the estimated amount of potential exposure it may have with respect to claims. Such amounts are not material to the financial statements.

NOTE H-RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The objective of the ASU is to establish a single comprehensive model of accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of the guidance is that an entity recognizes revenue to depict the transfer of 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. This ASU also significantly expands disclosure requirements concerning revenues for most entities. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” which deferred the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, amending the principal-versus-agent implementation guidance set forth in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for

each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, which amends certain aspects of the guidance related to identifying performance obligations and licensing implementation. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” to address certain issues in the guidance on assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The Company is required to adopt the guidance set forth by these ASUs on January 1, 2018. Entities have the option of using either a full retrospective or modified

retrospective approach to adopt the new guidance. The Company ~~anticipates utilizing~~will utilize the modified retrospective approach when adopting the new revenue recognition guidance effective January 1, 2018 which will result in the application of the new guidance retrospectively with the cumulative effect of adoption recognized at January 1, ~~2018, the date of initial application.~~2018. The Company ~~is in the process~~has completed its review of ~~reviewing~~ its different types of customer contracts and ~~comparing~~has compared its current revenue recognition policies to the provisions of the new standard for each of its revenue categories, noting no change with regard to its accounting for revenue from data acquisition, revenue from non-monetary exchanges and revenue from Solutions and other. With regard to revenue from non-exclusive data licenses (resale licensing revenue), no changes from the Company’s current accounting policies were identified other than with regard to new licenses of data while a survey is in the process of being created, in which the resale licensing customer is granted the same legally enforceable rights and access to and use of the results of the acquisition work performed as the original acquisition underwriting clients. Currently, the Company recognizes revenue ~~categories. While~~on these resale licenses when the data is available for delivery; however, upon application of the new guidance, the Company will recognize revenue during the remaining survey creation period. This will result in revenue being recognized earlier than under the Company’s current policy. As of September 30, 2017, the Company has ~~not identified any material differences~~approximately $0.2 million in deferred revenue that is expected to be recognized upon adoption of the ~~amount and timing of revenue recognition for the categories the Company has reviewed to date, the Company’s evaluation is not complete and the~~new guidance effective January 1, 2018. The Company has not ~~concluded on~~completed its review of the ~~overall impacts of adopting~~disclosure requirements under the new ~~guidance. The FASB has issued, and may issue in the future, interpretive guidance which may cause the Company’s evaluation to change.~~standard but expects that its current disclosures will be expanded. The Company ~~believes it is following an appropriate timeline to allow~~will be ready for ~~proper recognition, presentation and disclosure upon adoption.~~adoption of the new standard effective January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” with the objective of increasing transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the present value of the rights and obligations created by all leases with terms of more than 12 months. The ASU will also require disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows arising from leases. The amendments in this ASU are to be applied using a modified retrospective approach and will be effective for the Company as of January 1, 2019, but early adoption is permitted. The Company is currently evaluating the impact of adopting this new standard on its consolidated financial statements as of January 1, 2019 and believes that the most significant change will be to the Company's balance sheet as its asset and liability balances will increase for operating leases that are currently off-balance sheet.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” in order to simplify the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment test. Currently, Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the same procedure that would be required for purchase price allocation in a business combination. Under the amendments in this ASU, a goodwill impairment loss will be measured using the difference between the carrying amount and the fair value of the reporting unit limited to the total carrying amount of that reporting unit’s goodwill. The guidance in this ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. However, entities must disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount. The amendments in this ASU are to be applied on a prospective basis and will be effective for the Company as of January 1, 2020, but early adoption is permitted for any impairment tests performed after January 1, 2017. The Company is currently evaluating the impact of adopting this new standard but does not expect that it will have a material effect on its consolidated financial statements.

NOTE I-SUPPLEMENTAL GUARANTORS CONSOLIDATING CONDENSED FINANCIAL INFORMATION

On March 20, 2013, the Company completed a private placement of 9½% Senior Notes in the aggregate principal amount of $250.0 million. The Company’s payment obligations under the 9½% Senior Notes are jointly and severally guaranteed on a senior basis by substantially all of the Company’s significant 100% owned U.S. subsidiaries (“Guarantor Subsidiaries”). All subsidiaries of the Company that do not guarantee the 9½% Senior Notes are referred to as Non-Guarantor Subsidiaries.

The indenture governing the 9½% Senior Notes provides that the guarantees by the Guarantor Subsidiaries will be released in the following customary circumstances: (i) upon a sale or other disposition, whether by merger, consolidation or otherwise, of the equity interests of that guarantor to a person that is not the Company or a restricted subsidiary of the Company; (ii) the guarantor sells all or substantially all of its assets to a person that is not the Company or a restricted subsidiary of the Company;

(iii) the guarantor is properly designated as an unrestricted subsidiary or ceases to be a restricted subsidiary; (iv) upon legal defeasance of the 9½% Senior Notes or satisfaction and discharge of the indenture governing the 9½% Senior Notes; (v) the guarantor becomes an immaterial subsidiary or (vi) the guarantor, having also been a guarantor under a credit facility, is released from its guarantee obligations under a credit facility and does not guarantee any indebtedness of the Company or the Guarantor Subsidiaries.

The consolidating condensed financial statements are presented below and should be read in connection with the condensed consolidated financial statements of the Company. Separate financial statements of the Guarantor Subsidiaries are not presented because (i) the Guarantor Subsidiaries are wholly-owned and have fully and unconditionally guaranteed the 9½% Senior Notes on a joint and several basis and (ii) the Company’s management has determined such separate financial statements are not material to investors.

The following consolidating condensed financial information presents the consolidating condensed balance sheets as of ~~March 31,~~September 30, 2017 and December 31, 2016, the consolidating condensed statements of operations and statements of comprehensive income (loss) for the three and nine months ended September 30, 2017 and September 30, 2016and the consolidating condensed statements of ~~operations, statements of comprehensive income (loss) and statements of~~ cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 and ~~March 31,~~ 2016 of (a) the Company; (b) the Guarantor Subsidiaries; (c) the Non-Guarantor Subsidiaries; (d) elimination entries; and (e) the Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis.

Investments in subsidiaries are accounted for under the equity method. The principal elimination entries eliminate investments in subsidiaries, intercompany balances, intercompany transactions and intercompany sales.

CONSOLIDATING CONDENSED BALANCE SHEET

As of ~~March 31,~~September 30, 2017

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
ASSETS
Cash and cash equivalents	$	—		$	52,421		$	11,830		$	—		$	64,251		$	—		$	55,172		$	25,101		$	—		$	80,273
Receivables
Trade, net	—			14,975			9,171			—			24,146			—			10,258			2,382			—			12,640
Notes and other	—			38			53			—			91			—			48			290			—			338
Due from Seitel Holdings, Inc.	—			1,180			—			—			1,180			—			1,188			—			—			1,188
Intercompany receivables (payables)	(51,768		)	51,612			156			—			—			(63,673		)	61,602			2,071			—			—
Investment in subsidiaries	412,923			420,031			870			(833,824		)	—			409,475			425,303			649			(835,427		)	—
Net seismic data library	—			83,772			21,402			(12		)	105,162			—			65,920			16,999			—			82,919
Net property and equipment	—			579			1,080			—			1,659			—			522			1,069			—			1,591
Prepaid expenses, deferred charges and other	69			1,678			332			—			2,079			94			1,225			909			—			2,228
Intangible assets, net	900			—			—			—			900			900			—			—			—			900
Goodwill	—			107,688			74,911			—			182,599			—			107,688			79,970			—			187,658
Deferred income taxes	—			95			197			—			292			—			99			185			—			284
TOTAL ASSETS	$	362,124		$	734,069		$	120,002		$	(833,836	)	$	382,359		$	346,796		$	729,025		$	129,625		$	(835,427	)	$	370,019
LIABILITIES AND STOCKHOLDER’S EQUITY
LIABILITIES
Accounts payable and accrued liabilities	$	10,946		$	7,679		$	6,161		$	—		$	24,786		$	10,945		$	11,468		$	2,262		$	—		$	24,675
Income taxes payable	—			24			690			—			714			—			24			2,495			—			2,519
Senior Notes	247,167			—			—			—			247,167			247,809			—			—			—			247,809
Obligations under capital leases	—			—			1,469			—			1,469			—			—			1,438			—			1,438
Deferred revenue	—			15,576			2,502			—			18,078			—			10,344			1,832			—			12,176
Deferred income taxes	—			—			1,645			—			1,645			—			—			1,550			—			1,550
TOTAL LIABILITIES	258,113			23,279			12,467			—			293,859			258,754			21,836			9,577			—			290,167
STOCKHOLDER’S EQUITY
Common stock	—			—			—			—			—			—			—			—			—			—
Additional paid-in capital	400,580			—			—			—			400,580			400,591			—			—			—			400,591
Parent investment	—			764,105			156,643			(920,748		)	—			—			764,105			156,728			(920,833		)	—
Retained deficit	(296,569		)	(53,315		)	(33,245		)	86,560			(296,569		)	(312,549		)	(56,916		)	(28,138		)	85,054			(312,549		)
Accumulated other comprehensive loss	—			—			(15,863		)	352			(15,511		)	—			—			(8,542		)	352			(8,190		)
TOTAL STOCKHOLDER’S EQUITY	104,011			710,790			107,535			(833,836		)	88,500			88,042			707,189			120,048			(835,427		)	79,852
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	362,124		$	734,069		$	120,002		$	(833,836	)	$	382,359		$	346,796		$	729,025		$	129,625		$	(835,427	)	$	370,019

CONSOLIDATING CONDENSED BALANCE SHEET

As of December 31, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
ASSETS
Cash and cash equivalents	$	—		$	47,971		$	8,026		$	—		$	55,997
Receivables
Trade, net	—			14,819			9,662			—			24,481
Notes and other	—			412			24			—			436
Due from Seitel Holdings, Inc.	—			1,177			—			—			1,177
Intercompany receivables (payables)	(51,982		)	51,262			720			—			—
Investment in subsidiaries	420,308			420,456			630			(841,394		)	—
Net seismic data library	—			94,039			21,907			(24		)	115,922
Net property and equipment	—			611			1,098			—			1,709
Prepaid expenses, deferred charges and other	30			1,413			319			—			1,762
Intangible assets, net	900			402			116			—			1,418
Goodwill	—			107,688			74,324			—			182,012
Deferred income taxes	—			92			165			—			257
TOTAL ASSETS	$	369,256		$	740,342		$	116,991		$	(841,418	)	$	385,171
LIABILITIES AND STOCKHOLDER’S EQUITY
LIABILITIES
Accounts payable and accrued liabilities	$	5,007		$	8,559		$	3,441		$	—		$	17,007
Income taxes payable	—			24			596			—			620
Senior Notes	246,857			—			—			—			246,857
Obligations under capital leases	—			—			1,510			—			1,510
Deferred revenue	—			13,574			2,330			—			15,904
Deferred income taxes	—			—			2,214			—			2,214
TOTAL LIABILITIES	251,864			22,157			10,091			—			284,112
STOCKHOLDER’S EQUITY
Common stock	—			—			—			—			—
Additional paid-in capital	400,582			—			—			—			400,582
Parent investment	—			764,105			156,594			(920,699		)	—
Retained deficit	(283,190		)	(45,920		)	(33,120		)	79,040			(283,190		)
Accumulated other comprehensive loss	—			—			(16,574		)	241			(16,333		)
TOTAL STOCKHOLDER’S EQUITY	117,392			718,185			106,900			(841,418		)	101,059
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	369,256		$	740,342		$	116,991		$	(841,418	)	$	385,171

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

For the Three Months Ended ~~March 31,~~September 30, 2017

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
REVENUE	$	—		$	13,802		$	7,134		$	(341	)	$	20,595		$	—		$	13,148		$	11,405		$	(540	)	$	24,013
EXPENSES:
Depreciation and amortization	—			16,116			6,160			(13		)	22,263			—			14,011			3,703			—			17,714
Cost of sales	—			10			14			(14		)	10			—			244			1			(214		)	31
Selling, general and administrative	123			4,627			1,223			(327		)	5,646			169			3,916			1,290			(326		)	5,049
	123			20,753			7,397			(354		)	27,919			169			18,171			4,994			(540		)	22,794
LOSS FROM OPERATIONS	(123		)	(6,951		)	(263		)	13			(7,324		)
Interest expense, net	(5,874		)	(321		)	(15		)	—			(6,210		)
INCOME (LOSS) FROM OPERATIONS																(169		)	(5,023		)	6,411			—			1,219
Interest income (expense), net																(6,046		)	(142		)	49			—			(6,139		)
Foreign currency exchange losses	—			—			(51		)	—			(51		)	—			(2		)	(1		)	—			(3		)
Loss before income taxes and equity in loss of subsidiaries	(5,997		)	(7,272		)	(329		)	13			(13,585		)
Benefit for income taxes	—			(2		)	(204		)	—			(206		)
Equity in loss of subsidiaries	(7,382		)	(125		)	—			7,507			—
NET LOSS	$	(13,379	)	$	(7,395	)	$	(125	)	$	7,520		$	(13,379	)
Income (loss) before income taxes and equity in income (loss) of subsidiaries																(6,215		)	(5,167		)	6,459			—			(4,923		)
Provision (benefit) for income taxes																—			(5		)	1,426			—			1,421
Equity in income (loss) of subsidiaries																(129		)	5,033			—			(4,904		)	—
NET INCOME (LOSS)																$	(6,344	)	$	(129	)	$	5,033		$	(4,904	)	$	(6,344	)

CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended ~~March 31,~~September 30, 2017

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations		Consolidated Total			Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Consolidating Eliminations			Consolidated Total
Net loss	$	(13,379	)	$	(7,395	)	$	(125	)	$	7,520	$	(13,379	)
Net income (loss)															$	(6,344	)	$	(129	)	$	5,033	$	(4,904	)	$	(6,344	)
Foreign currency translation adjustments	—			—			711			111		822			—			—			4,752		—			4,752
Comprehensive income (loss)	$	(13,379	)	$	(7,395	)	$	586		$	7,631	$	(12,557	)	$	(6,344	)	$	(129	)	$	9,785	$	(4,904	)	$	(1,592	)

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

For the Three Months Ended ~~March 31,~~September 30, 2016

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
REVENUE	$	—		$	10,474		$	1,819		$	(343	)	$	11,950		$	—		$	20,017		$	3,557		$	(319	)	$	23,255
EXPENSES:
Depreciation and amortization	—			8,910			6,204			(13		)	15,101			—			15,071			3,875			(13		)	18,933
Cost of sales	—			15			7			—			22			—			19			1			2			22
Selling, general and administrative	213			4,087			1,987			(328		)	5,959			315			3,799			1,593			(321		)	5,386
	213			13,012			8,198			(341		)	21,082			315			18,889			5,469			(332		)	24,341
LOSS FROM OPERATIONS	(213		)	(2,538		)	(6,379		)	(2		)	(9,132		)
INCOME (LOSS) FROM OPERATIONS																(315		)	1,128			(1,912		)	13			(1,086		)
Interest expense, net	(5,656		)	(607		)	(93		)	—			(6,356		)	(5,732		)	(497		)	(69		)	—			(6,298		)
Foreign currency exchange gains	—			—			173			—			173
Foreign currency exchange losses																—			—			(20		)	—			(20		)
Other income	—			6			—			—			6			—			572			—			—			572
Loss before income taxes and equity in loss of subsidiaries	(5,869		)	(3,139		)	(6,299		)	(2		)	(15,309		)
Benefit for income taxes	—			(27		)	(1,418		)	—			(1,445		)
Equity in loss of subsidiaries	(7,995		)	(4,881		)	—			12,876			—
NET LOSS	$	(13,864	)	$	(7,993	)	$	(4,881	)	$	12,874		$	(13,864	)
Income (loss) before income taxes and equity in income (loss) of subsidiaries																(6,047		)	1,203			(2,001		)	13			(6,832		)
Provision (benefit) for income taxes																—			22			(1,411		)	—			(1,389		)
Equity in income (loss) of subsidiaries																604			(590		)	—			(14		)	—
NET INCOME (LOSS)																$	(5,443	)	$	591		$	(590	)	$	(1	)	$	(5,443	)

CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended ~~March 31,~~September 30, 2016

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations		Consolidated Total			Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
Net loss	$	(13,864	)	$	(7,993	)	$	(4,881	)	$	12,874	$	(13,864	)
Net income (loss)															$	(5,443	)	$	591	$	(590	)	$	(1	)	$	(5,443	)
Foreign currency translation adjustments	—			—			6,661			83		6,744			—			—		(862		)	1			(861		)
Comprehensive income (loss)	$	(13,864	)	$	(7,993	)	$	1,780		$	12,957	$	(7,120	)	$	(5,443	)	$	591	$	(1,452	)	$	—		$	(6,304	)

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2017

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
REVENUE	$	—		$	46,241		$	23,549		$	(1,482	)	$	68,308
EXPENSES:
Depreciation and amortization	—			48,493			13,478			(25		)	61,946
Cost of sales	—			571			7			(504		)	74
Selling, general and administrative	429			12,553			3,696			(978		)	15,700
	429			61,617			17,181			(1,507		)	77,720
INCOME (LOSS) FROM OPERATIONS	(429		)	(15,376		)	6,368			25			(9,412		)
Interest income (expense), net	(17,959		)	(608		)	31			—			(18,536		)
Foreign currency exchange losses	—			—			(88		)	—			(88		)
Other income	—			—			96			—			96
Income (loss) before income taxes and equity in income (loss) of subsidiaries	(18,388		)	(15,984		)	6,407			25			(27,940		)
Provision (benefit) for income taxes	—			(6		)	1,425			—			1,419
Equity in income (loss) of subsidiaries	(10,971		)	4,982			—			5,989			—
NET INCOME (LOSS)	$	(29,359	)	$	(10,996	)	$	4,982		$	6,014		$	(29,359	)

CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended September 30, 2017

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Consolidating Eliminations		Consolidated Total
Net income (loss)	$	(29,359	)	$	(10,996	)	$	4,982	$	6,014	$	(29,359	)
Foreign currency translation adjustments	—			—			8,032		111		8,143
Comprehensive income (loss)	$	(29,359	)	$	(10,996	)	$	13,014	$	6,125	$	(21,216	)

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
REVENUE	$	—		$	49,297		$	11,279		$	(1,031	)	$	59,545
EXPENSES:
Depreciation and amortization	—			44,237			14,640			(38		)	58,839
Cost of sales	—			96			13			(54		)	55
Selling, general and administrative	888			11,256			4,846			(977		)	16,013
	888			55,589			19,499			(1,069		)	74,907
LOSS FROM OPERATIONS	(888		)	(6,292		)	(8,220		)	38			(15,362		)
Interest expense, net	(17,034		)	(1,703		)	(251		)	—			(18,988		)
Foreign currency exchange gains	—			—			143			—			143
Other income	—			581			1			—			582
Loss before income taxes and equity in loss of subsidiaries	(17,922		)	(7,414		)	(8,327		)	38			(33,625		)
Provision (benefit) for income taxes	—			11			(5,094		)	—			(5,083		)
Equity in loss of subsidiaries	(10,620		)	(3,233		)	—			13,853			—
NET LOSS	$	(28,542	)	$	(10,658	)	$	(3,233	)	$	13,891		$	(28,542	)

CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended September 30, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations		Consolidated Total
Net loss	$	(28,542	)	$	(10,658	)	$	(3,233	)	$	13,891	$	(28,542	)
Foreign currency translation adjustments	—			—			5,491			84		5,575
Comprehensive income (loss)	$	(28,542	)	$	(10,658	)	$	2,258		$	13,975	$	(22,967	)

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

For the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2017

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations		Consolidated Total			Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations		Consolidated Total
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	(215	)	$	8,513		$	5,836		$	—	$	14,134		$	(12,325	)	$	32,878		$	23,728		$	—	$	44,281
Cash flows from investing activities:
Cash invested in seismic data	—			(3,747		)	(2,001		)	—		(5,748		)	—			(13,081		)	(7,437		)	—		(20,518		)
Cash paid to acquire property and equipment	—			(98		)	(38		)	—		(136		)	—			(260		)	(102		)	—		(362		)
Cash from sale of property and equipment															—			—			3			—		3
Advances to Seitel Holdings, Inc.	—			(3		)	—			—		(3		)	—			(11		)	—			—		(11		)
Net cash used in investing activities	—			(3,848		)	(2,039		)	—		(5,887		)	—			(13,352		)	(7,536		)	—		(20,888		)
Cash flows from financing activities:
Principal payments on capital lease obligations	—			—			(53		)	—		(53		)	—			—			(178		)	—		(178		)
Intercompany transfers	215			(215		)	—			—		—			12,325			(12,325		)	—			—		—
Net cash provided by (used in) financing activities	215			(215		)	(53		)	—		(53		)	12,325			(12,325		)	(178		)	—		(178		)
Effect of exchange rate changes	—			—			60			—		60			—			—			1,061			—		1,061
Net increase in cash and cash equivalents	—			4,450			3,804			—		8,254			—			7,201			17,075			—		24,276
Cash and cash equivalents at beginning of period	—			47,971			8,026			—		55,997			—			47,971			8,026			—		55,997
Cash and cash equivalents at end of period	$	—		$	52,421		$	11,830		$	—	$	64,251		$	—		$	55,172		$	25,101		$	—	$	80,273

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

For the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2016

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations		Consolidated Total
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	(194	)	$	10,195		$	703		$	(15	)	$	10,689		$	(12,525	)	$	35,409		$	6,247		$	—	$	29,131
Cash flows from investing activities:
Cash invested in seismic data	—			(5,915		)	(486		)	15			(6,386		)	—			(19,141		)	(1,558		)	—		(20,699		)
Cash paid to acquire property and equipment	—			(75		)	—			—			(75		)	—			(173		)	(3		)	—		(176		)
Cash from sale of property and equipment	—			14			—			—			14			—			17			1			—		18
Advances to Seitel Holdings, Inc.	—			(11		)	—			—			(11		)	—			(19		)	—			—		(19		)
Net cash used in investing activities	—			(5,987		)	(486		)	15			(6,458		)	—			(19,316		)	(1,560		)	—		(20,876		)
Cash flows from financing activities:
Principal payments on capital lease obligations	—			—			(48		)	—			(48		)	—			—			(152		)	—		(152		)
Intercompany transfers	194			(194		)	—			—			—			12,525			(12,326		)	(199		)	—		—
Net cash provided by (used in) financing activities	194			(194		)	(48		)	—			(48		)	12,525			(12,326		)	(351		)	—		(152		)
Effect of exchange rate changes	—			—			177			—			177			—			—			96			—		96
Net increase in cash and cash equivalents	—			4,014			346			—			4,360			—			3,767			4,432			—		8,199
Cash and cash equivalents at beginning of period	—			51,192			1,483			—			52,675			—			51,192			1,483			—		52,675
Cash and cash equivalents at end of period	$	—		$	55,206		$	1,829		$	—		$	57,035		$	—		$	54,959		$	5,915		$	—	$	60,874


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

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes to the condensed consolidated financial statements included elsewhere in this document. When we use the terms “we”, “us”, “our” or similar words in this disclosure, we are referring to Seitel, Inc. and its subsidiaries, unless the context otherwise requires.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements contained in this report about our future outlook, prospects, strategies and plans, and about industry conditions, demand for seismic services and the future economic life of our seismic data are forward-looking, among others. All statements that express belief, expectation, estimates or intentions, as well as those that are not statements of historical fact, are forward-looking. The words “believe”, “expect”, “anticipate”, “estimate”, “project”, “propose”, “plan”, “target”, “foresee”, “should”, “intend”, “may”, “will”, “would”, “could”, “potential” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance, but represent our present belief, based on our current expectations and assumptions, with respect to future events and their potential effect on us. While we believe our expectations and assumptions are reasonable, they involve risks and uncertainties beyond our control that could cause the actual results or outcome to differ materially from the expected results or outcome reflected in our forward-looking statements. Such risks and uncertainties include, without limitation, actual customer demand for our seismic data and related services, the timing and extent of changes in commodity prices for natural gas, crude oil and condensate and natural gas liquids, conditions in the capital markets during the periods covered by the forward-looking statements, the effect of economic conditions, our ability to obtain financing on satisfactory terms if internally generated cash flows are insufficient to fund our capital needs, the impact on our financial condition as a result of our debt and our debt service, our ability to obtain and maintain normal terms with our vendors and service providers, our ability to maintain contracts that are critical to our operations, changes in the oil and gas industry or the economy generally and changes in the capital expenditure budgets of our customers, as well as the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”).

The forward-looking statements contained in this report speak only as of the date hereof and readers are cautioned not to place undue reliance or project future results based on such forward-looking statements or present or prior earnings levels. Except as required by applicable law, we disclaim any duty to update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. All forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to herein, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC and in our future periodic reports filed with the SEC.

Overview

General

We are a leading provider of onshore seismic data to the oil and gas industry in North America. We own an extensive library of onshore and offshore seismic data that we have accumulated since our inception in 1982 that we offer for license to exploration and production (“E&P”) companies. Our primary areas of focus are onshore United States and Canada and, to a lesser extent, offshore U.S. Gulf of Mexico. In addition, we began to expand our data library coverage into Mexico in 2015 as a result of the energy reform in Mexico. We believe our data library is one of the largest onshore three-dimensional (“3D”) databases available for licensing in North America and includes leading positions in oil, liquids-rich and natural gas unconventional plays as well as conventional areas.

Our products and services are used by E&P companies in oil and gas exploration and development efforts to increase the probability of drilling success, to better delineate existing oil and gas fields and to augment their reservoir completion and management techniques. In unconventional plays, E&P companies use seismic data as a development tool to better identify efficient drilling plans and maximize production by identifying and understanding a series of critical characteristics of the targeted resource. We generate revenue primarily by licensing data from our data library and from new data creation projects, which are substantially underwritten or paid for by our clients. By participating in underwritten, non-exclusive surveys or purchasing licenses to existing data, E&P companies can obtain access to surveys at reduced costs as compared to acquiring seismic data on a proprietary basis.

~~With~~Crude oil prices have remained at or above $50 per barrel since mid-September 2017 reflecting declining global inventories, increasing expectations for global economic and oil demand growth and geopolitical events. However, crude oil prices stabilizing around $50 per barrel beginning in the fourth quarter of 2016, E&P companies have gained confidence in their cash flow outlook and have begun to increase spending on drilling and completing new wells. We remain ~~cautiously optimistic that this increase in industry activity should~~volatile. As a result, ~~in improvements in seismic spending from our E&P clients in 2017. We do, however,~~we believe that seismic spending will continue to fluctuate quarter to ~~quarter.~~quarter as E&P companies continue to closely evaluate spending levels. We believe our asset-light business model, variable cost structure and streamlined support structure allow us to respond to changes, both positive and negative, in the industry environment.

Principal Factors Affecting Our Business

Our business is dependent upon a variety of factors, many of which are beyond our control. The following are those that we consider to be principal factors affecting our business.

Demand for Seismic Data: Demand for our products and services is cyclical due to the nature of the oil and gas industry. In particular, demand for our seismic data services depends upon exploration, production, development and field management spending by E&P companies and, in the case of new data creation, the willingness of these companies to forgo ownership in the seismic data. Capital expenditures by E&P companies depend upon several factors, including actual and forecasted oil and natural gas commodity prices, prospect availability and the companies’ own short-term and long-term strategic plans. These capital expenditures may also be affected by worldwide economic or industry-wide conditions.

Merger and Acquisition/Joint Venture Activity: Merger and acquisition activity continues to occur within our client base. This activity could have a negative impact on seismic companies that operate in markets with a limited number of participating clients. However, we believe that, over time, this activity could have a positive impact on our business, as it should generate resale licensing revenue, result in increased vitality in the trading of mineral interests and result in the creation of new independent customers through the rationalization of staff within those companies affected by this activity.

Exploiting unconventional plays is a capital intensive endeavor and many technically proficient E&P companies remain subject to capital constraints. These companies find themselves needing to sell their positions to, or create partnerships with, large well-capitalized companies in order to develop their recoverable resource base. ~~These~~Generally, contracts with our customers for the license of data do not permit sharing of the data among partners. As a result, these joint venture partners or new owners will often need to purchase ~~licenses~~a license to our seismic data for their own use.

North America Drilling Activity: The North American land rig count ~~continues to improve~~has improved in 2017 ~~as a result of stabilized oil prices. Since~~since the low of 422 rigs in May ~~2016,~~2016. Year-to-date in 2017, the North American land rig count peaked at 1,153 rigs in August and has ~~more than doubled~~since decreased to ~~936~~1,093 rigs as of ~~April 21,~~October 20, 2017. The rig count is forecast to ~~continue to rise throughout 2017~~remain relatively flat with ~~continued strong directional drilling activity.~~current levels through the end of the year.

Availability of Capital for Our Customers: The continued low oil and gas prices have caused a reduction in cash flows for our customers. Many E&P companies rely on revolving credit to finance their day-to-day operations. These credit facilities have borrowing bases that are tied to the net present value of their reserves. Lower oil prices have decreased the value of those reserves and, as a result, the borrowing bases under such facilities have been ~~reduced although companies are beginning to see some increases in the borrowing bases as a result of oil prices strengthening in the latter part of 2016.~~reduced. Reductions in cash flows resulting from lower commodity prices, along with the reduced availability of credit and increased costs of borrowing, has had, and could continue to have, a material impact on the ability of such companies to obtain funding necessary to purchase our seismic data.

Government Regulation: Our operations and the operations of our third party contractors are subject to a variety of federal, provincial, state, foreign and local laws and regulations, including environmental and health and safety laws. We invest financial and managerial resources to comply with these laws and related permit requirements and require our third party contractors to do the same. Modification of existing laws or regulations and the adoption of new laws or regulations impacting exploration or production activities by oil and gas companies may have a material effect on our business operations.

Key Performance Measures

Management considers, among others, the following performance and financial measures in evaluating and managing our operating performance and financial condition. Some of these measures are not calculated in accordance with United States generally accepted accounting principles, or GAAP. Generally, a non-GAAP measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. These non-GAAP measures are intended to supplement the presentation of our financial results that are prepared in accordance with GAAP and should not be considered substitutes for GAAP financial measures.

Cash Resales: Cash resales represent new contracts for data licenses from our library, including data currently in progress, payable in cash. We believe cash resales are an important measure of our operating performance and are useful in assessing

overall industry and client activity. Cash resales are likely to fluctuate quarter to quarter as they do not require the longer planning and lead times necessary for new data creation.

Cash resales for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016 were as follows (in thousands):

Three Months Ended
March 31,
2017 2016
Cash resales $ 14,021
$ 2,698



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cash resales	$	16,546	$	9,314	$	43,471	$	31,147

Cash EBITDA: Cash EBITDA represents cash generated from licensing data from our seismic library net of recurring cash operating expenses. We believe this measure is helpful in determining the level of cash from operations we have available for debt service and funding of capital expenditures (net of the portion funded or underwritten by our customers). Cash EBITDA includes cash resales plus all other cash revenues other than from data acquisitions, less cost of goods sold and cash selling, general and administrative expenses (excluding severance and other non-routine costs).

The following is a quantitative reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, cash flows from operating activities (in thousands):


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016
Cash EBITDA	$	8,850		$	(1,771	)	$	12,065		$	5,126		$	29,324		$	18,385
Add (subtract) other components not included in cash EBITDA:
Cash acquisition underwriting revenue	6,874			4,951			6,838			7,571			17,984			17,408
Revenue recognition adjustments from contracts payable in cash	(1,076		)	3,756			(74		)	4,538			3,824			6,890
Severance and other non-routine costs	—			(946		)	(40		)	(754		)	(143		)	(1,860		)
Interest expense, net	(6,210		)	(6,356		)	(6,139		)	(6,298		)	(18,536		)	(18,988		)
Amortization of deferred financing costs	310			318			325			294			952			922
Decrease in allowance for doubtful accounts							—			—			—			(21		)
Other cash operating income							—			—			—			3
Current income tax expense	(406		)	—			(2,008		)	(35		)	(2,591		)	(44		)
Changes in operating working capital	5,792			10,737			12,460			13,935			13,467			6,436
Net cash provided by operating activities	$	14,134		$	10,689		$	23,427		$	24,377		$	44,281		$	29,131

Growth of Our Seismic Data Library: We regularly add to our seismic data library through four different methods: (1) recording new data; (2) buying ownership of existing data for cash; (3) obtaining ownership of existing data sets through non-monetary exchanges; and (4) creating new value-added products from existing data within our library. For the period from January 1, 2017 to ~~May 8,~~November 6, 2017, we ~~completed the addition of~~added approximately ~~1,500~~2,000 square miles of seismic data to our library. As of ~~May 8,~~November 6, 2017, we had approximately 200 square miles of seismic data in progress.

Critical Accounting Policies

We operate in one business segment, which consists of seismic data acquisition, seismic data licensing, seismic data processing and seismic reproduction services. There have not been any changes in our critical accounting policies since December 31, 2016.

Results of Operations

Revenue

The following table summarizes the components of our revenue for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016 (in thousands):


	Three Months Ended March 31,					Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016		2017		2016
Acquisition underwriting revenue:
Cash underwriting	$	6,874		$	4,951	$	6,838		$	7,571	$	17,984	$	17,408
Underwriting from non-monetary exchanges	39			1		103			54		229		78
Total acquisition underwriting revenue	6,913			4,952		6,941			7,625		18,213		17,486
Resale licensing revenue:
Cash resales	14,021			2,698		16,546			9,314		43,471		31,147
Non-monetary exchanges	250			222		—			1,618		1,250		1,840
Revenue recognition adjustments	(1,076		)	3,534		(74		)	4,215		3,824		7,685
Total resale licensing revenue	13,195			6,454		16,472			15,147		48,545		40,672
Total seismic revenue	20,108			11,406		23,413			22,772		66,758		58,158
Solutions and other	487			544		600			483		1,550		1,387
Total revenue	$	20,595		$	11,950	$	24,013		$	23,255	$	68,308	$	59,545

Total revenue was ~~$20.6~~$24.0 million in the ~~first~~third quarter of 2017 compared to ~~$12.0~~$23.3 million in the ~~first~~third quarter of 2016. Acquisition underwriting revenue was $6.9 million in the ~~first~~third quarter of 2017 compared to ~~$5.0~~$7.6 million in the ~~first~~third quarter of 2016. New data acquisition activity in the ~~first~~third quarter of 2017 was primarily focused in the Louisiana Cotton Valley, Eagle Ford/Woodbine, and ~~Louisiana Cotton Valley areas in the U.S. and in the Montney area in Canada.~~Permian Basin areas. Total resale licensing revenue was ~~$13.2~~$16.5 million in the ~~first~~third quarter of 2017 compared to ~~$6.5~~$15.1 million in the ~~first~~third quarter of 2016. Cash resales ~~increased from $2.7~~were $16.5 million in the ~~first~~third quarter of ~~2016~~2017 compared to ~~$14.0~~$9.3 million in the ~~first~~third quarter of ~~2017. Crude~~2016. Many E&P companies have increased their capital spending in 2017 as a result of improving crude oil prices ~~have recovered from~~following a reduction in capital spending in 2015 and 2016 due to the ~~lows experienced~~then low and uncertain commodity price environment. Consequently, we saw improvement in ~~the first quarter of 2016, stabilizing around $50 per barrel beginning in the fourth quarter of 2016, and have resulted in increased spending by E&P companies which, in turn, positively impacted~~ demand for our seismic ~~data.~~data in the third quarter of 2017. There were no non-monetary exchanges in the third quarter of 2017; such activity fluctuates quarter to quarter depending upon the data available for trade. Revenue recognition adjustments are non-cash adjustments to revenue and reflect the net amount of (i) revenue deferred as a result of all of the revenue recognition criteria not being met and (ii) the subsequent revenue recognition once the criteria are met. The ~~$4.6~~$4.3 million reduction in revenue recognition adjustments between the ~~first~~third quarters of 2016 and 2017 primarily resulted from a decrease in selections of data from library card contracts, ~~and higher~~partially offset by a decrease in deferrals associated with new licensing contracts.

Total revenue for the first nine months of 2017 was $68.3 million compared to $59.5 million in the first nine months of 2016. Acquisition underwriting revenue was $18.2 million for the first nine months of 2017 compared to $17.5 million in the first nine months of 2016. New data acquisition activity in the first nine months of 2017 was focused in the Eagle Ford/Woodbine, Permian Basin and Louisiana Cotton Valley areas in the U.S. and in the Montney area in Canada. Total resale licensing revenue was $48.5 million in the first nine months of 2017 compared to $40.7 million in the first nine months of 2016. Cash resales for the first nine months of 2017 were $43.5 million compared to $31.1 million in the first nine months of 2016 reflecting an increase in capital spending by our E&P clients as a result of the improved, but still volatile, commodity price environment. Revenue recognition adjustments decreased $3.9 million from the first nine months of 2016 to the first nine months of 2017 primarily due to a decrease in both revenue recognized on previously deferred direct licensing contracts and selections of data from library card contracts, partially offset by fewer new licensing contracts requiring deferral.

At ~~March 31,~~September 30, 2017, we had a deferred revenue balance of $~~18.1~~12.2 million, compared to the December 31, 2016 balance of $15.9 million. The deferred revenue balance was related to (i) deferred revenue on data acquisition projects, (ii) data licensing contracts ~~on which~~where selection of specific data had not yet occurred, (iii) data licensing contracts ~~in which the~~with data products ~~are~~ not yet available and (iv) data licensing contracts ~~on which the~~where any other revenue recognition criteria has not yet been met. The deferred revenue will be recognized as work progresses on the data acquisition contracts, when selection of specific data is made by the customer, upon expiration of the data selection period specified in the data licensing contracts, as the data products become available or as all of the revenue recognition criteria are met.

Depreciation and Amortization

The table below sets forth the components of depreciation and amortization and presents seismic data amortization as a percentage of total seismic revenue for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016 (dollars in thousands):


	Three Months Ended March 31,								Three Months Ended September 30,								Nine Months Ended September 30,
	2017				2016				2017				2016				2017				2016
Amortization of seismic data:
Income forecast	$	10,836	53.9	%	$	4,049	35.5	%	$	8,153	34.8	%	$	7,200	31.6	%	$	28,634	42.9	%	$	23,259	40.0	%
Straight-line	10,770		53.6	%	9,835		86.2	%	9,426		40.3	%	10,510		46.2	%	32,397		48.5	%	31,909		54.9	%
Total amortization of seismic data	21,606		107.5	%	13,884		121.7	%	17,579		75.1	%	17,710		77.8	%	61,031		91.4	%	55,168		94.9	%
Depreciation of property and equipment	137				183				135				182				395				551
Amortization of acquired intangibles	520				1,034				—				1,041				520				3,120
Total	$	22,263			$	15,101			$	17,714			$	18,933			$	61,946			$	58,839

Total seismic data library amortization amounted to ~~$21.6~~$17.6 million in the ~~first~~third quarter of 2017 compared to ~~$13.9~~$17.7 million in the third quarter of 2016 and $61.0 million for the first ~~quarter~~nine months of 2017 compared to $55.2 million for the first nine months of 2016. The amount of seismic data library amortization fluctuates based on the level and location of specific seismic surveys licensed (including licensing resulting from new data acquisition) and selected by our customers during the period as well as the amount of straight-line amortization required under our accounting policy. Income forecast amortization as a percentage of total seismic revenue increased ~~between the first quarters of~~from 2016 ~~and~~to 2017 primarily due to the mix of data being licensed. In ~~both quarters,~~all periods, we had resale revenue recognized from data whose costs were fully amortized. In the ~~first quarter of~~three and nine months ended September 30, 2017, the percentage of resale revenue recognized from data whose costs were fully amortized was ~~35%~~71% and 53%, respectively, as compared to ~~87%~~82% and 61% in the ~~first quarter of~~three and nine months ended September 30, 2016. Straight-line amortization represents the expense required under our accounting policy to ensure the book value of our data is fully amortized within four years of when the data becomes available for licensing. The amount of straight-line amortization varies between periods due to the distribution of revenue among the various seismic surveys.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses were ~~$5.6~~$5.0 million in the ~~first~~third quarter of 2017 compared to ~~$6.0~~$5.4 million in the third quarter of 2016 and $15.7 million in the first ~~quarter~~nine months of 2017 compared to $16.0 million in the first nine months of 2016. SG&A expenses are made up of the following cash and non-cash expenses (in thousands):


	Three Months Ended March 31,					Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017		2016			2017		2016
Cash SG&A expenses	$	5,648		$	5,937	$	5,046	$	5,403		$	15,691	$	15,954
Non-cash compensation expense	(2		)	22		3		(17		)	9		59
Total	$	5,646		$	5,959	$	5,049	$	5,386		$	15,700	$	16,013

The decrease in cash SG&A expenses of $0.4 million from the third quarter of 2016 to the third quarter of 2017 was mainly due to a $0.7 million decrease in severance and other non-routine costs primarily due to termination benefits related to layoffs of personnel that were included in the 2016 third quarter and a $0.4 million decrease in professional fees primarily resulting from legal fees incurred in 2016 associated with client bankruptcies. Partially offsetting these decreases was a $0.6 million increase in incentive compensation related to our annual incentive compensation plan resulting from overall improvement of Cash EBITDA in 2017. In the third quarter of 2016, no expense was recorded for the annual incentive compensation plan due to the uncertainty of achieving the goals set for 2016 as a result of the industry environment.

The decrease in cash SG&A expenses of $0.3 million from the first ~~quarter~~nine months of 2016 to the first ~~quarter~~nine months of 2017 ~~was~~ primarily ~~due~~consisted of a $1.7 million decrease in severance and other non-routine costs primarily associated with the 2016 layoffs which did not occur in 2017 and a $0.5 million decrease in professional fees mainly related to ~~a $0.9 million~~the reduction in ~~non-routine costs~~legal fees associated with client bankruptcies. These decreases in cash SG&A expenses were partially offset by a ~~$0.6~~$1.4 million increase in routine overhead costs. Non-routine costs in the first quarter of 2016 included $0.9 million in termination benefits related to headcount reductions; no such charges were incurred in 2017. The increase in routine overhead costs of $0.6 million was mainly due to an increase in variable compensation, consisting of commissions and annual incentive compensation ~~resulting from the increase in revenue and Cash EBITDA in the first quarter of 2017.~~

~~Non-cash compensation expense was negative in the first quarter 2017 due to the reversal of previously recorded expense associated with stock options that had not vested and were forfeited~~ as a result of an ~~employee’s departure~~increase in ~~2017.~~annual incentive compensation associated with our higher Cash EBITDA results. In 2016, we did not accrue an expense for the annual incentive compensation plan until the fourth quarter of 2016 due to the uncertainty of achieving the goals set for 2016 as a result of the industry environment.

Income Taxes

Income tax ~~benefit~~expense (benefit) was $~~0.2~~1.4 million in the ~~first~~third quarter of 2017 compared to $~~1.4~~(1.4) million in the ~~first~~third quarter of 2016. The income tax ~~benefit~~expense in the ~~first~~third quarter of 2017 was primarily comprised of a $1.8 million expense related to our Canadian ~~operations.~~operations offset slightly by a $0.4 million benefit related to our uncertain tax positions due to the lapse of statute of limitations in the third quarter of 2017. The U.S. federal tax benefit of ~~$4.5~~$3.9 million resulting from our ~~first~~third quarter 2017 U.S. operations was offset by a valuation allowance because it was more likely than not that the deferred tax asset would not be realized. The income tax benefit in the ~~first~~third quarter of 2016 was comprised of a ~~$1.5~~$0.9 million benefit on our uncertain tax positions resulting from the lapse of statute of limitations and final settlement of our outstanding appeals with Canada Revenue Agency and a benefit of $0.5 million related to our Canadian operations. The federal tax benefit of $1.7 million resulting from our third quarter 2016 U.S. operations was offset by a valuation allowance because it was more likely than not that the deferred tax asset would not be realized.

Income tax expense (benefit) was $1.4 million for the nine months ended September 30, 2017 and $(5.1) million for the nine months ended September 30, 2016. The expense for the first nine months of 2017 was mainly the result of the third quarter 2017 activity described above. During the first nine months of 2017, the federal tax benefit of $11.9 million resulting from our U.S. operations was offset by a valuation allowance because it was more likely than not that the deferred tax asset would not be realized. The benefit for the first nine months of 2016 was comprised of a $2.2 million benefit related to our Canadian operations ~~offset slightly by $0.1~~and a $2.9 million ~~of expense~~benefit which primarily related to ~~interest on~~ uncertain tax ~~positions.~~

position settlements, remeasurements and lapse of statute of limitations recorded in the second and third quarters of 2016. The federal tax benefit of $8.8 million resulting from our U.S. operations was offset by a valuation allowance because it was more likely than not that the deferred tax asset would not be realized.

Net Loss

Net loss was $~~13.4~~6.3 million in the ~~first~~third quarter of 2017 compared to $~~13.9~~5.4 million in the ~~first~~third quarter of 2016. The ~~decrease~~increase in the loss between quarters was primarily due to ~~higher revenues,~~an increase in income tax expense partially offset by slightly higher total revenues, an overall decrease in SG&A expenses, and a decrease in amortization expense associated with our seismic data library. Net loss was $29.4 million in the first nine months of 2017 compared to $28.5 million in the first nine months of 2016. The slight increase in loss between the nine-month periods was primarily due to higher amortization of our seismic data library and ~~lower~~an increase in income tax ~~benefit.~~expense, partially offset by higher revenues.

Liquidity and Capital Resources

As of ~~March 31,~~September 30, 2017, we had ~~$64.3~~$80.3 million in consolidated cash, cash equivalents and short-term investments, including ~~$0.5~~$0.8 million of restricted cash. Our Canadian subsidiary regularly holds cash which is used to reinvest in its operations. If we decide at a later date to repatriate those funds to the U.S., we may be required to pay taxes on certain of those funds based on applicable U.S. tax rates net of foreign taxes. Cash held by our Canadian subsidiary fluctuates throughout the year and at ~~March 31,~~September 30, 2017, was ~~$11.8~~$25.1 million.

Our primary sources of liquidity are cash on hand and cash generated from operations.

9½% Senior Unsecured Notes: On March 20, 2013, we issued in a private placement $250.0 million aggregate principal amount of our 9½% Senior Notes. Interest is payable in cash, semi-annually on April 15 and October 15 of each year. The notes mature on April 15, 2019. To the best of our knowledge, we were in compliance with all covenants contained in the indenture governing our 9½% Senior Notes at ~~March 31,~~September 30, 2017.

We may from time to time, as part of various financing and investment strategies, purchase our outstanding indebtedness. These purchases, if any, could have a material positive or negative impact on our liquidity available to repay outstanding debt obligations or on our consolidated results of operations.

Cash Flows from Operating Activities: Cash flows provided by operating activities were ~~$14.1~~$44.3 million and $~~10.7~~29.1 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 and 2016, respectively. Operating cash flows for 2017 increased from 2016 primarily due to higher collections of ~~fourth quarter 2016~~ cash resales in ~~the first quarter of~~ 2017 ~~compared~~due to ~~collections of fourth quarter 2015 cash resales~~increased activity beginning in the ~~first~~fourth quarter of 2016, partially offset by payments of 2016 annual incentive compensation made in 2017 and lower collections of acquisition underwriting revenue as a result of invoice timing.

Cash Flows from Investing Activities: Cash flows used in investing activities were ~~$5.9~~$20.9 million for each of the nine months ended September 30, 2017 and 2016. Cash expenditures for seismic data were $20.5 million and $~~6.5~~20.7 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 and 2016, respectively. ~~Cash expenditures for seismic data were $5.7 million and~~ ~~$6.4 million~~ ~~for the~~ ~~three~~ ~~months ended~~ ~~March 31, 2017~~ ~~and~~ ~~2016, respectively.~~

Cash Flows from Financing Activities: Cash flows used in financing activities were $~~0.1~~0.2 million for each of the ~~three~~nine months ended ~~March 31,~~September 30, 2017 and 2016.

Anticipated Liquidity: Our ability to cover our operating and capital expenses, make required debt service payments on our 9½% Senior Notes, incur additional indebtedness and comply with our various debt covenants will depend primarily on our ability to generate sufficient operating cash flows. Over the next 12 months, we expect to obtain the funds necessary to pay our operating, capital and other expenses, as well as interest on our 9½% Senior Notes and principal and interest on our other indebtedness, from our operating cash flows and cash and cash equivalents on hand. Our ability to satisfy our payment obligations depends substantially on our future operating and financial performance, which necessarily will be affected by, and subject to, industry, market, economic and other factors. To the extent our operating cash flows and cash on hand are not sufficient to cover our anticipated expenditures, we could seek to obtain additional financing. However, there can be no assurance that we would be able to obtain any such financing on satisfactory terms or at all. If necessary, we could choose to further reduce our spending on capital projects and operating expenses to ensure we operate within the cash flow generated from our operations. We will not be able to predict or control many of these factors, such as economic conditions in the markets where we operate and competitive pressures.

Deferred Taxes

As of ~~March 31,~~September 30, 2017, we had a net deferred tax liability of $1.6 million attributable to our Canadian operations. In the United States, we had a federal deferred tax asset of ~~$98.7~~$106.0 million, which was fully offset by a valuation allowance. The recognition of the U.S. federal deferred tax asset will not occur until such time that it is more likely than not that some portion or all of the federal deferred tax asset will be realized. As of ~~March 31,~~September 30, 2017, it was more likely than not that all of the U.S. federal deferred tax asset will not be realized. Additionally, in the U.S., we had a state deferred tax asset of $1.3 million of which $1.2 million was offset by a valuation allowance. The remaining state deferred tax asset was recognized as it is more likely than not that the state deferred tax asset will be realized. Lastly, we had a deferred tax asset of $0.2 million related to our ~~Mexican~~ operations in Mexico that was recognized as of ~~March 31,~~September 30, 2017 as it is more likely than not that the Mexico deferred tax asset will be realized.

Off-Balance Sheet Transactions

Other than operating leases, we do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expense, results of operations, liquidity, capital expenditures or capital resources.

Capital Expenditures

During the ~~three~~nine months ended ~~March 31,~~September 30, 2017, capital expenditures for seismic data and ~~other~~ property and equipment amounted to $~~10.8~~27.5 million on a gross basis and ~~$3.7~~$8.3 million on a net cash basis. Our capital expenditures for the first ~~three~~nine months of 2017 are comprised of the following (in thousands):


	Three Months Ended March 31, 2017			Nine Months Ended September 30, 2017
New data acquisition	$	7,423		$	18,684
Cash purchases and data processing	2,998			7,240
Non-monetary exchanges	250			1,250
Property and equipment	136			362
Total capital expenditures	10,807			27,536
Less: Non-monetary exchanges	(250		)	(1,250		)
Changes in working capital	(4,673		)	(5,406		)
Cash investment per statement of cash flows	$	5,884		$	20,880

Net cash capital expenditures represent total capital expenditures less cash underwriting revenue from our clients and non-cash additions to the seismic data library. We believe this measure is important as it reflects the amount of capital expenditures

funded from our operating cash flow. The following table shows how our net cash capital expenditures (a non-GAAP financial measure) are derived from total capital expenditures, the most directly comparable GAAP financial measure (in thousands):


	Three Months Ended March 31, 2017			Nine Months Ended September 30, 2017
Total capital expenditures	$	10,807		$	27,536
Less: Non-monetary exchanges	(250		)	(1,250		)
Cash underwriting revenue	(6,874		)	(17,984		)
Net cash capital expenditures	$	3,683		$	8,302

As of ~~May 8,~~November 6, 2017, we had capital expenditure commitments related to data acquisition projects of approximately ~~$11.2~~$8.1 million, of which we have obtained approximately ~~$10.3~~$5.7 million of cash underwriting. We expect ~~the majority~~approximately $1.6 million of our ~~$0.9 million~~ committed net cash capital expenditures to be incurred in ~~2017.~~2017 with the remainder being incurred in 2018. See discussion of our sources of liquidity under “Liquidity and Capital Resources” beginning on page 2933 of this Quarterly Report.


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including adverse changes in foreign currency exchange rates. Historically, we have not entered into financial instruments to mitigate these risks. We do not enter into derivative or other financial instruments for speculative or trading purposes.

Hypothetical changes in foreign currency exchange rates chosen for the estimated sensitivity analysis are considered to be reasonable near-term changes generally based on consideration of past fluctuations in foreign currency exchange rates. However, since it is not possible to accurately predict future changes in foreign currency exchange rates, these hypothetical changes may not necessarily be an indicator of probable future fluctuations.

The following information about our market-sensitive financial instruments constitutes a “forward-looking statement.”

Foreign Currency Exchange Rate Risk

Our Canadian subsidiary conducts business in the Canadian dollar and is therefore subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions in currencies other than the U.S. dollar. Currently, we do not have any open forward exchange contracts.

Additionally, certain intercompany balances between our U.S. and Canadian subsidiaries are denominated in U.S. dollars. Since this is not the functional currency of our Canadian subsidiary, the changes in these balances are translated in our Consolidated Statements of Operations. As a result, we are exposed to foreign exchange risk as it relates to these intercompany balances. A sensitivity analysis on the intercompany balance as of ~~March 31,~~September 30, 2017 indicates that if the U.S. dollar strengthened or weakened 4% (determined using an average of the last three years’ historical exchange rates) against the Canadian dollar, the effect upon our Consolidated Statements of Operations would be ~~less than $0.1~~approximately $0.4 million.

We have not had any significant changes in our market risk exposures during the quarter ended ~~March 31,~~September 30, 2017.


Item 4.	CONTROLS AND PROCEDURES

a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and President and our Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), pursuant to Exchange Act Rule 13a-15. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our Chief Executive Officer and President along with our Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of ~~March 31,~~September 30, 2017 were effective at the reasonable assurance level.

b) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

See Part I, Item 1, Note G to Condensed Consolidated Interim Financial Statements, which is incorporated herein by reference.


Item 1A.	RISK FACTORS

For a discussion of our potential risks and uncertainties, see the information under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, as amended, initially filed with the SEC on February 16, 2017, and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. You should be aware that these risk factors and other information may not describe every risk we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition and/or results of operations.


Item 6.	EXHIBITS

Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference.

~~SIGNATURES~~

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




	~~SEITEL, INC.~~

~~Date: May 11, 2017~~		~~/s/ Robert D. Monson~~
		~~Robert D. Monson~~
		~~Chief Executive Officer and President~~
		~~(Duly Authorized Officer and Principal Executive Officer)~~




~~Date: May 11, 2017~~		~~/s/ Marcia H. Kendrick~~
		~~Marcia H. Kendrick~~
		~~Chief Financial Officer~~
		~~(Duly Authorized Officer and Principal Financial Officer)~~

~~EXHIBIT~~

~~INDEX~~




Exhibit No.		~~Title~~Description

3.1		Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25, 2007).
3.2		Bylaws of Seitel, Inc. (incorporated by reference from Exhibit 3.2 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25, 2007).
31.1	*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive ~~Officer.~~Officer.
31.2	*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial ~~Officer.~~Officer.
32.1	**	Section 1350 Certification of Chief Executive ~~Officer.~~Officer.
32.2	**	Section 1350 Certification of Chief Financial ~~Officer.~~Officer.
101.INS	*	XBRL Instance Document.
101.SCH	*	XBRL Taxonomy Extension Schema Document.
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document.



*	Filed herewith.



**	Furnished, not filed.

SIGNATURES

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




	SEITEL, INC.

Date: November 9, 2017		/s/ Robert D. Monson
		Robert D. Monson
		Chief Executive Officer and President
		(Duly Authorized Officer and Principal Executive Officer)




Date: November 9, 2017		/s/ Marcia H. Kendrick
		Marcia H. Kendrick
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)




		Page
PART I.	FINANCIAL INFORMATION
	Item 1. Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Loss (Unaudited)	5
	Condensed Consolidated Statement of Stockholder’s Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Condensed Consolidated Interim Financial Statements (Unaudited)	8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2428
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	3035
	Item 4. Controls and Procedures	3135
PART II.	OTHER INFORMATION
	Item 1. Legal Proceedings	3136
	Item 1A. Risk Factors	3136
	Item 6. Exhibits	3136
	SIGNATURES	3236

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