| RESTATEMENT OF PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS | NOTE 3. RESTATEMENT OF PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS Background of the Restatement As previously disclosed, the Securities and Exchange Commission (the “SEC”) has been conducting an investigation of certain matters, including with respect to revenue recognition, accounts receivable and tax credits. The Department of Justice (the “DOJ”) is conducting a parallel investigation with the SEC. We have been cooperating and will continue to cooperate with the SEC and the DOJ in their investigations. On August 5, 2019, our Board of Directors (the “Board”) established a special committee of independent directors (the “Special Committee”) to oversee an internal investigation with respect to the SEC investigation and any related matters. In turn, the Special Committee engaged its own legal and forensic accounting advisors, in addition to certain consulting services providers. Also in August 2019, the Audit Committee undertook an assessment of the accuracy of our historical financial statements and related disclosures that were contained in previously filed periodic reports. On August 14, 2019, the Audit Committee and the Board concluded that our previously issued consolidated financial statements and financial information relating to each of the fiscal years ended December 31, 2015, 2016, 2017 and 2018 and our condensed consolidated financial statements for the quarters and year–to–date periods ended June 30, 2015 through March 31, 2019 (collectively, the “Non–Reliance Periods”) contained errors, should no longer be relied upon and should be restated, and that other financial information, any earnings releases, investor presentations or other communications related thereto covering the Non–Reliance Periods should also no longer be relied upon. The Audit Committee’s and the Board’s decision to restate our consolidated financial statements for the Non–Reliance Periods arose from our re–evaluation of our relationship with ASV, which had not been consolidated into our financial statements. In August 2019, we determined that ASV is a VIE, that we had a controlling financial interest in ASV, and that we are the primary beneficiary of ASV, which, among other factors, required us to consolidate ASV during the Non-Reliance Periods in accordance with GAAP. The Special Committee’s investigation identified that Global Equipment Solutions LLC (“Global Equipment”), one of our vendors in 2015 and 2016, was formed by Brent Whiteley, our former Chief Financial Officer and General Counsel, and controlled by Mr. Whiteley and/or Jeff Hastings, our former Chief Executive Officer. In 2015 and 2016, we paid an aggregate of approximately $12.0 million to Global Equipment pursuant to the following agreements. In August 2011, we entered into an agreement (the “Transfer Agreement”) with NES, LLC (“NES”), pursuant to which NES retained a transfer fee (the “Transfer Fee”) in connection with the transfer of a customer contract from NES to us. NES is a legal entity that was previously owned and/or controlled by Mr. Hastings that we subsequently acquired in October 2011. The Transfer Fee was assigned to a separate legal entity controlled by Mr. Hastings prior to our acquisition of NES in October 2011 and was subsequently assigned to Global Equipment. The authenticity of the Transfer Agreement and the subsequent assignments of the Transfer Fee have not been confirmed. Furthermore, the foregoing agreements and the obligation to pay the Transfer Fee to NES, Global Equipment and/or Mr. Hastings was not disclosed. The payments made to Global Equipment in satisfaction of the purported Transfer Fee were previously recorded as rental expense in 2015 and 2016. These amounts have now been reclassified in our consolidated statements of operations as misappropriation of funds in 2015 and 2016. Of the approximately $12.0 million paid to Global Equipment, approximately $5.9 million was transferred through entities formed and/or controlled by Mr. Hastings and Mr. Whiteley to ASV as capital contributions in December 2015. This investment in ASV was not disclosed. ASV was formed as a seismic data library company in 2015, and we previously reported revenue from ASV of approximately $57.3 million in 2016 and approximately $83.8 million in 2015. The remaining approximately $6.1 million paid to Global Equipment was transferred to Mr. Hastings and Mr. Whiteley and/or to entities formed and/or controlled by them. These payments were not disclosed. The Special Committee’s investigation also identified the misappropriation of approximately $4.1 million by Mr. Whiteley from 2012 to 2019, which amount has been reclassified in our consolidated statement of operations as a loss from a misappropriation of funds for such periods. A portion of these funds were paid to RVI Consulting, Inc. (“RVI”), a legal entity owned and/or controlled by Mr. Whiteley. The payments made to RVI were not disclosed. The majority of the payments to RVI were previously recorded as legal and professional expenses in the prior periods. The Special Committee’s investigation also identified the misappropriation of approximately $0.5 million by Mr. Hastings during 2013 related to a reimbursement of Mr. Hastings’ individual tax liability, which has been corrected in our consolidated statement of operations during the year ended December 31, 2014 as a reduction to income tax expense. Effects of the Restatement As a result of the determination that ASV is a VIE, in which we have a controlling financial interest and are the primary beneficiary, we are consolidating ASV for all periods beginning in 2015. The consolidation of ASV for the periods prior to January 1, 2017 resulted in a reduction of stockholders’ equity of approximately $52.8 million due to the consolidation and elimination of inter-company transactions. The assets of ASV consist of a seismic data library in Alaska for which we provided the seismic data acquisition services, tax credits received from the State of Alaska under the rebatable oil and gas production tax credit regime and cash on hand. The tax credits were recorded as a reduction in the value of the seismic data library as a reimbursement of the costs incurred to acquire the data library. ASV has no significant liabilities other than its payable to us for the seismic data acquisition services and has approximately $5.9 million in capital contributions as described above. For the years ended December 31, 2018 and 2017, considering the approximately $52.8 million reduction in stockholders equity discussed above, the consolidation of ASV resulted in an increase and a (decrease) in stockholders’ equity of approximately $18.7 million and approximately $(0.1) million, respectively. In 2018, we previously recorded an allowance for doubtful accounts of approximately $19.0 million against our accounts receivable related to ASV. The receivable was eliminated upon consolidation of ASV and the allowance for doubtful accounts was reversed. We have reclassified certain items in our consolidated statement of operations as loss from a misappropriation of funds disclosed above, of which approximately $1.1 million, $0.5 million, $0.4 million, $0.5 million and $0.2 million are related to the misappropriation of funds by Mr. Whiteley in 2018, 2017, 2016, 2015 and 2014, respectively, and approximately $5.2 million and $6.8 million are related to misappropriation of funds as a result of payments made to Global Equipment in 2016 and 2015, respectively. We have also restated our 2014 financials for the misappropriation by Mr. Hastings in 2013 discussed above. In addition, we are restating our consolidated financial statements to correct for unrelated material accounting errors in prior periods, including the following:
•
We failed to record royalty income related to our acquisition of certain assets of Geokinetics, Inc., discussed in Note 4. We acquired a royalty agreement relating to a multiclient seismic data library, which was sold by Geokinetics, Inc. to a third party prior to our acquisition of the Geokinetics assets. The royalty agreement provided for a royalty of 20% of future sales of the multiclient seismic data library for a three–year period, not to exceed $5.0 million in royalty income. To correct this error in the subsequent accounting for the royalty agreement, we have recorded royalty income related to this agreement of approximately $1.6 million in 2018. The royalty income is included in accounts receivable and other income in the accompanying financial statements, which resulted in an increase to our current assets and a decrease to our net loss. We collected this accounts receivable in the third and fourth quarters of 2019.
•
We also identified an error related to the recording of deferred taxes in our Colombia and Bolivia subsidiaries. Based upon our internal review of the decision to record a 100% valuation allowance in 2018 related to these subsidiaries, we determined that the factors leading to the full valuation allowance of the deferred tax assets were present in previous periods and were not appropriately considered. As a result of this error, we have decreased and increased income tax expense by approximately $2.5 million and $0.4 million for the years ended December 31, 2018 and 2017, respectively. Along with restating our consolidated financial statements to correct the errors discussed above, we corrected our weighted average shares outstanding (basic and diluted) to include penny warrants in the computation of loss per common share and we recorded adjustments for certain immaterial accounting errors and reclassifications related to the periods covered in this Form 10–K/A. As part of the restatement, we have also restated our disclosures with respect to related party transactions in “Item 13. Certain Relationships and Related Transactions and Director Independence” of this Form 10–K/A and in Note 21. In connection with the restatement of our consolidated financial statements in this Form 10–K/A, management determined that material weaknesses exist in our internal control over financial reporting and that our disclosure controls and procedures were ineffective during the Non–Reliance Periods. For a description of the material weaknesses identified by management and management’s implemented and planned remediations for those material weaknesses, please see “Item 9A. Controls and Procedures” of this Form 10-K/A. The consolidated financial statements included in this Form 10–K/A have been restated to reflect the adjustments described above. The tables below summarize the effects of the restatement on our (i) consolidated balance sheets at December 31, 2018 and 2017; (ii) consolidated statements of operations for the years ended December 31, 2018 and 2017; (iii) consolidated statement of changes in stockholders’ deficit for the year ended December 31, 2017; and (iv) consolidated statements of cash flows for the years ended December 31, 2018 and 2017. A summary of the effect of the restatement on the consolidated statement of changes to stockholders’ equity for the year ended December 31, 2018 and the consolidated statements of comprehensive loss for the years ended December 31, 2018 and 2017 are not presented because the impact to accumulated deficit and comprehensive loss are reflected below in the consolidated balance sheet summaries and consolidated statements of operations summaries. Additionally, see Note 24 for a summary of the effect of the restatement on our unaudited quarterly periods in 2018 and 2017. In addition to the restatement of the consolidated financial statements, certain information within the following notes to the consolidated financial statements has been restated to reflect the correction of errors discussed above as well as to add disclosure language as appropriate:
•
Note 2. Summary of Significant Accounting Policies;
•
Note 6. Multiclient Seismic Data Library, Net;
•
Note 8. Tax Credits Receivable, Net;
•
Note 9. Long–Term Debt;
•
Note 10. Commitments and Contingencies;
•
Note 13. Variable Interest Entities;
•
Note 14. Revenue from Services;
•
Note 17. Income Taxes;
•
Note 18. Loss per Common Share;
•
Note 20. Other Supplemental Information;
•
Note 21. Related Party Transactions;
•
Note 22. Geographic and Related Information;
•
Note 23. Supplemental Guarantor Information;
•
Note 24. Quarterly Data (Unaudited); and
•
Note 25. Subsequent Events (Unaudited). Summary of Restatement – Consolidated Balance Sheets The effects of the restatement on our consolidated balance sheets are as follows:
December 31, 2018
Previously Reported
Adjustments
Restated
ASSETS
Current assets:
Cash and cash equivalents
$
7,192
$
387
$
7,579
Restricted cash
271
—
271
Accounts receivable, net
24,859
1,604
26,463
Deferred costs on contracts
3,717
29
3,746
Prepaid expenses and other current assets
2,813
30
2,843
Total current assets
38,852
2,050
40,902
Property and equipment, net
35,334
—
35,334
Multiclient seismic data library, net
—
4,733
4,733
Goodwill
1,687
—
1,687
Intangible assets, net
4,066
—
4,066
Long-term accounts receivable, net
52,804
(52,804
)
—
Tax credits receivable, net
—
13,198
13,198
Deferred income taxes
2,015
145
2,160
Other assets
2,715
(2,448
)
267
Total assets
$
137,473
$
(35,126
)
$
102,347
LIABILITIES AND STOCKHOLDERS' EQUTY (DEFICIT)
Current liabilities:
Accounts payable
$
10,103
$
—
$
10,103
Accrued liabilities
10,498
—
10,498
Income and other taxes payable
3,331
—
3,331
Current portion of long-term debt
7,837
—
7,837
Deferred revenue
4,298
59
4,357
Total current liabilities
36,067
59
36,126
Long-term debt
85,653
(2,448
)
83,205
Other long-term liabilities
380
—
380
Commitments and contingencies
Stockholders' equity (deficit):
Common stock
—
—
—
Additional paid-in capital
232,661
—
232,661
Accumulated deficit
(216,612
)
(32,737
)
(249,349
)
Accumulated other comprehensive loss
(3,035
)
—
(3,035
)
Treasury stock
(1,866
)
—
(1,866
)
SAExploration stockholders’ equity (deficit)
11,148
(32,737
)
(21,589
)
Noncontrolling interest
4,225
—
4,225
Total stockholders’ equity (deficit)
15,373
(32,737
)
(17,364
)
Total liabilities and stockholders’ equity (deficit)
$
137,473
$
(35,126
)
$
102,347
December 31, 2017
Previously Reported
Adjustments
Restated
ASSETS
Current assets:
Cash and cash equivalents
$
3,613
$
80
$
3,693
Restricted cash
41
—
41
Accounts receivable, net
6,105
—
6,105
Deferred costs on contracts
1,780
—
1,780
Prepaid expenses and other current assets
6,722
(2,869
)
3,853
Total current assets
18,261
(2,789
)
15,472
Property and equipment, net
32,946
—
32,946
Multiclient seismic data library, net
—
5,829
5,829
Goodwill
1,832
—
1,832
Intangible assets, net
671
—
671
Long-term accounts receivable, net
78,102
(78,102
)
—
Tax credits receivable, net
—
19,089
19,089
Deferred income taxes
4,592
(2,254
)
2,338
Other assets
5,534
(2,448
)
3,086
Total assets
$
141,938
$
(60,675
)
$
81,263
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
4,551
$
2
$
4,553
Accrued liabilities
6,311
—
6,311
Income and other taxes payable
7,887
547
8,434
Current portion of long-term debt
995
—
995
Deferred revenue
1,477
—
1,477
Total current liabilities
21,221
549
21,770
Long-term debt
120,298
(5,352
)
114,946
Other long-term liabilities
608
—
608
Commitments and contingencies
Stockholders' deficit:
Common stock
—
—
—
Additional paid-in capital
133,742
—
133,742
Accumulated deficit
(133,306
)
(55,872
)
(189,178
)
Accumulated other comprehensive loss
(5,082
)
—
(5,082
)
Treasury stock
(113
)
—
(113
)
SAExploration stockholders’ deficit
(4,759
)
(55,872
)
(60,631
)
Noncontrolling interest
4,570
—
4,570
Total stockholders’ deficit
(189
)
(55,872
)
(56,061
)
Total liabilities and stockholders’ deficit
$
141,938
$
(60,675
)
$
81,263
Summary of Restatement – Consolidated Statements of Operations The effects of the restatement on our consolidated statements of operations are as follows:
Year Ended December 31, 2018
Previously Reported
Adjustments
Restated
Revenue from services
$
94,604
$
4,066
$
98,670
Cost of services
86,065
1,536
87,601
Depreciation and amortization
11,111
1,096
12,207
Gross loss
(2,572
)
1,434
(1,138
)
Operating expenses:
Selling, general and administrative expenses
59,933
(18,420
)
41,513
Misappropriation of funds
—
1,080
1,080
Total operating expenses
59,933
(17,340
)
42,593
Operating loss
(62,505
)
18,774
(43,731
)
Other (expense) income, net:
Interest expense, net
(13,858
)
—
(13,858
)
Foreign exchange loss, net
(3,417
)
—
(3,417
)
Other income (expense), net
(491
)
1,817
1,326
Total other expense, net
(17,766
)
1,817
(15,949
)
Loss before income taxes
(80,271
)
20,591
(59,680
)
Income taxes
2,424
(2,544
)
(120
)
Net loss
(82,695
)
23,135
(59,560
)
Less: net income attributable to noncontrolling interest
905
905
Net loss attributable to SAExploration
$
(83,600
)
$
23,135
$
(60,465
)
Basic and diluted loss per common share
$
(102.25
)
$
69.34
$
(32.91
)
Weighted average common shares outstanding (basic and diluted)
1,336
2,112
3,448
Year Ended December 31, 2017
Previously Reported
Adjustments
Restated
Revenue from services
$
127,022
$
—
$
127,022
Cost of services
93,229
—
93,229
Depreciation and amortization
11,725
—
11,725
Gross profit
22,068
—
22,068
Operating expenses:
Selling, general and administrative expenses
25,596
(39
)
25,557
Misappropriation of funds
—
482
482
Total operating expenses
25,596
443
26,039
Operating loss
(3,528
)
(443
)
(3,971
)
Other (expense) income, net:
Interest expense, net
(29,363
)
—
(29,363
)
Foreign exchange loss, net
(1,308
)
—
(1,308
)
Other income (expense), net
(272
)
—
(272
)
Total other expense, net
(30,943
)
—
(30,943
)
Loss before income taxes
(34,471
)
(443
)
(34,914
)
Income taxes
4,313
429
4,742
Net loss
(38,784
)
(872
)
(39,656
)
Less: net income attributable to noncontrolling interest
1,972
—
1,972
Net loss attributable to SAExploration
$
(40,756
)
$
(872
)
$
(41,628
)
Basic and diluted loss per common share
$
(86.90
)
$
(1.86
)
$
(88.76
) Summary of Restatement – Consolidated Statement of Changes in Stockholders’ Deficit The effects of the restatement on our consolidated statement of changes in stockholder’s deficit are as follows:
Year Ended December 31, 2017
Previously Reported
Adjustments
Restated
Balance at December 31, 2016
$
38,061
$
(55,000
)
$
(16,939
)
Net loss
(38,784
)
(872
)
(39,656
)
Other comprehensive loss
(260
)
—
(260
)
Equity-based compensation cost
1,925
—
1,925
Purchase of treasury stock
(113
)
—
(113
)
Distribution to noncontrolling interest
(1,095
)
—
(1,095
)
Loss of control of variable interest entity
77
—
77
Balance at December 31, 2017
$
(189
)
$
(55,872
)
$
(56,061
) Summary of Restatement – Consolidated Statements of Cash Flows The effects of the restatement on our consolidated statements of cash flows are as follows:
Year Ended December 31, 2018
Previously Reported
Adjustments
Restated
Cash flows from operating activities:
Net loss
$
(82,695
)
$
23,135
$
(59,560
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
11,564
1,096
12,660
Tax credits used to offset production taxes
—
1,443
1,443
Reserve for potential tax credits monetization
—
1,700
1,700
Reserve for doubtful accounts
19,522
(18,986
)
536
Equity-based compensation cost
10,131
—
10,131
Loss on disposal of property and equipment
308
(20
)
288
Amortization of loan issuance costs and debt discounts
5,565
—
5,565
Unrealized loss on foreign currency transactions
3,333
—
3,333
Gain on debt extinguishment
(53
)
—
(53
)
Deferred income taxes
2,614
(2,399
)
215
Changes in operating assets and liabilities:
Accounts receivable
(4,846
)
(7,915
)
(12,761
)
Deferred costs on contracts
(2,041
)
(29
)
(2,070
)
Prepaid expenses and other current assets
2,326
(1,458
)
868
Tax credits receivable
—
2,748
2,748
Accounts payable
5,819
(2
)
5,817
Accrued liabilities
4,270
—
4,270
Income and other taxes payable
(4,471
)
(547
)
(5,018
)
Deferred revenue
24
59
83
Other, net
(338
)
—
(338
)
Net cash used in operating activities
(28,968
)
(1,175
)
(30,143
)
Cash flows from investing activities:
Asset purchase
(21,749
)
—
(21,749
)
Purchase of property and equipment
(1,262
)
—
(1,262
)
Proceeds from sale of property and equipment
810
20
830
Net cash used in investing activities
(22,201
)
20
(22,181
)
Cash flows from financing activities:
Long-term debt repayments
(59,207
)
—
(59,207
)
Long-term debt borrowings
123,411
—
123,411
Debt issuance costs
(2,715
)
—
(2,715
)
Stock issuance costs
(3,174
)
1,462
(1,712
)
Purchase of treasury stock
(1,753
)
—
(1,753
)
Distribution to noncontrolling interest
(1,250
)
—
(1,250
)
Net cash provided by financing activities
55,312
1,462
56,774
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(334
)
—
(334
)
Net change in cash, cash equivalents and restricted cash
3,809
307
4,116
Cash, cash equivalents and restricted cash at the beginning of year
3,654
80
3,734
Cash, cash equivalents and restricted cash at the end of year
$
7,463
$
387
$
7,850
Year Ended December 31, 2017
Previously Reported
Adjustments
Restated
Cash flows from operating activities:
Net loss
$
(38,784
)
$
(872
)
$
(39,656
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
12,099
—
12,099
Equity-based compensation cost
1,925
—
1,925
Gain on disposal of property and equipment
(101
)
—
(101
)
Amortization of loan issuance costs and debt discounts
16,602
—
16,602
Payment in kind interest
4,848
—
4,848
Unrealized gain on foreign currency transactions
(543
)
—
(543
)
Deferred income taxes
530
429
959
Changes in operating assets and liabilities:
Accounts receivable
21,766
(3,507
)
18,259
Deferred costs on contracts
6,546
—
6,546
Prepaid expenses and other current assets
(4,420
)
2,909
(1,511
)
Tax credits receivable
—
3,616
3,616
Accounts payable
(4,868
)
2
(4,866
)
Accrued liabilities
(5,933
)
—
(5,933
)
Income and other taxes payable
(7,710
)
222
(7,488
)
Deferred revenue
(6,496
)
—
(6,496
)
Other, net
(14
)
—
(14
)
Net cash used in operating activities
(4,553
)
2,799
(1,754
)
Cash flows from investing activities:
Purchase of property and equipment
(2,670
)
—
(2,670
)
Proceeds from sale of property and equipment
1,910
—
1,910
Net cash used in investing activities
(760
)
—
(760
)
Cash flows from financing activities:
Long-term debt repayments
(35,467
)
1,166
(34,301
)
Long-term debt borrowings
33,401
—
33,401
Debt issuance costs
—
(1,166
)
(1,166
)
Stock issuance costs
—
(2,904
)
(2,904
)
Purchase of treasury stock
(113
)
—
(113
)
Distribution to noncontrolling interest
(1,095
)
—
(1,095
)
Net cash used in financing activities
(3,274
)
(2,904
)
(6,178
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
245
—
245
Net change in cash, cash equivalents and restricted cash
(8,342
)
(105
)
(8,447
)
Cash, cash equivalents and restricted cash at the beginning of year
11,996
185
12,181
Cash, cash equivalents and restricted cash at the end of year
$
3,654
$
80
$
3,734 |
