Item 1. Financial Statements 

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

 

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

 

 

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

 

 

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

 

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except for share and per share amounts and as otherwise noted)

NOTE 1 — DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of the Business

 

SAExploration Holdings, Inc. and its Subsidiaries (collectively, the “Corporation”) is an internationally-focused oilfield services company offering seismic data acquisition and logistical support services in Alaska, Canada, South America, West Africa and Southeast Asia to its customers in the oil and natural gas industry. In addition to the acquisition of 2D, 3D, time-lapse 4D and multi-component seismic data on land, in transition zones and offshore in depths reaching 3,000 meters, the Corporation offers a full-suite of logistical support and in-field data processing services. The Corporation operates crews around the world that utilize over 27,500 owned land and marine channels of seismic data acquisition equipment and other equipment as needed to complete particular projects. Seismic data is used by its customers, including major integrated oil companies, national oil companies and large international independent oil and gas exploration and production companies, to identify and analyze drilling prospects and maximize successful drilling. The results of the seismic surveys the Corporation conducts belong to its customers and are proprietary in nature; the Corporation does not acquire data for its own account or for future sale or maintain multi-client data libraries.

Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Corporation as of June 30, 2017 , and for the three and six months ended June 30, 2017 and 2016 included herein, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The year-end condensed consolidated balance sheet data was derived from the audited financial statements as of December 31, 2016 . Although the financial statements and related information included herein have been prepared without audit, and certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, the Corporation believes that the note disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Corporation’s audited consolidated financial statements and the notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2016 (the "10-K"). In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Corporation’s financial position, results of operations, and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results expected for the full year or any future period.

Certain amounts in the condensed consolidated balance sheet as of December 31, 2016 , presented herein have been reclassified to conform to the current period presentation. These reclassifications had no effect on financial position, net income, or stockholders' deficit. On July 27, 2016, the Corporation completed a 135 -for-1 reverse stock split, whereby each 135 shares of its common stock were reclassified into one share of common stock. All share and per share amounts for all periods presented have been adjusted to reflect the reverse split as though it had occurred prior to the earliest period presented.

Significant Accounting Policies

There have been no changes to the significant accounting policies of the Corporation from the information provided in Note 4 of the Notes to Consolidated Financial Statements in the Corporation’s 10-K, except as discussed below under Recently Issued Accounting Pronouncements - Share-Based Compensation, Restricted Cash, and Going Concern .

Recently Issued Accounting Pronouncements

Share-Based Compensation

In May 2017, the Financial Accounting Standards Board ("FASB") issued new guidance clarifying when modification accounting should be applied to changes to a share-based compensation award. The new guidance requires that a change to an award is required to be accounted for as a modification unless the following three conditions are met: (1) the fair value of the award does not change; (2) the vesting conditions are not modified; and (3) the classification of the award as an equity or liability award does not change. The new guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Corporation has adopted the guidance effective as of June 30, 2017, prospectively for any awards that are modified on or after

that date. The adoption did not have a material impact on the Corporation's financial position, results of operations, cash flows or disclosures.

Restricted Cash

In November 2016, the FASB issued new guidance intended to reduce the diversity in classification and presentation of restricted cash on the statement of cash flows. The new guidance requires the beginning-of-period and end-of-period totals on the statement of cash flows to include restricted cash and restricted cash equivalents. The new guidance is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. The Corporation has adopted the guidance effective as of March 31, 2017, and retrospectively for all periods presented. As a result of this adoption, our condensed consolidated statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash. See Note 5 for a reconciliation of the totals in the condensed consolidated statement of cash flows and in the condensed consolidated balance sheets.

Leases

In February 2016, the FASB issued new guidance on lease accounting affecting lessees and lessors. Lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. As under current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease for lessees will primarily depend on its classification as a finance or operating lease. For operating leases, lessees will recognize a single total lease expense. For finance leases, lessees will recognize amortization of the right-of-use asset separately from interest on the lease liability. For both types of leases, lessees will recognize a right-of-use asset and a lease liability on its balance sheet. Lessor accounting under the new standard will remain similar to lessor accounting under current GAAP. The new standard contains changes that are intended to align lessor accounting with the lessee accounting model and the revenue recognition standard issued in 2014. For public companies, the new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Corporation is currently evaluating what impact adoption of this guidance will have on its financial position, results of operations, cash flows and disclosures.

Going Concern

In August 2014, the FASB issued new guidance on disclosures of uncertainties about an entity's ability to continue as a going concern. The guidance requires management's evaluation of whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. This assessment must be made in connection with preparing financial statements for each annual and interim reporting period. Management's evaluation should be based on the relevant conditions and events that are known and reasonably knowable at the date the financial statements are issued. If conditions or events raise substantial doubt about the entity's ability to continue as a going concern, but this doubt is alleviated by management's plans, the entity should disclose information that enables the reader to understand what the conditions or events are, management's evaluation of those conditions or events and management's plans that alleviate that substantial doubt. If conditions or events raise substantial doubt and the substantial doubt is not alleviated, the entity must disclose this in the footnotes. The entity must also disclose information that enables the reader to understand what the conditions or events are, management's evaluation of those conditions or events and management's plans that are intended to alleviate that substantial doubt. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. The Corporation has adopted the guidance effective as of January 1, 2017. Adoption of this guidance did not have a material impact on the Corporation's financial position, results of operations, cash flows or disclosures.

Revenue Recognition

In May 2014, the FASB issued new guidance intended to change the criteria for recognition of revenue. The new guidance establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following five steps: (1) identify contracts with customers, (2) identify the performance obligations in the contracts, (3) determine the transaction price, (4) allocate the transaction price to the performance obligation in the contract, and (5) recognize revenue as the entity satisfies performance obligations. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted for annual reporting periods beginning after December 15,

2016, including interim periods within that reporting period.

The Corporation is currently assessing the impact of the standard on its consolidated financial statements and related disclosures. The Corporation continues to evaluate the impact of this guidance, but currently the Corporation expects the adoption of this standard may affect the timing in which the Corporation recognizes certain expenses of its contracts and to require expanded disclosure. There are two methods of transition permitted under the standard: the full retrospective method, in which the standard would be applied retrospectively to each prior reporting period presented; or the modified retrospective method, in which the standard would be applied to all contracts in process as of the date of initial application, with the cumulative effect of applying the standard recognized in beginning retained earnings. The Corporation currently anticipates adopting this standard using the modified retrospective method. The Corporation will adopt this guidance during the first quarter of 2018.

 

NOTE 2 — RESTRUCTURING

The Corporation previously disclosed in its 10-K that it had entered into a comprehensive restructuring support agreement (the “Restructuring Support Agreement”) with holders (the “Supporting Holders”) of approximately 66% of the par value of the Corporation’s 10% senior secured notes due 2019 (the “Senior Secured Notes” and the holders thereof, the “Existing Holders”), in which the Supporting Holders and the Corporation agreed to enter into and implement a proposed comprehensive restructuring of the Corporation’s balance sheet, which included the funding of up to $30 million in new capital (the “Restructuring”) during the quarter ended June 30, 2016.

The following is a summary of the key aspects of the Restructuring:

Exchange of Senior Secured Notes for New Second Lien Notes. The Corporation commenced an offer on June 24, 2016, (“Exchange Offer”) to exchange each $1 of Senior Secured Notes held by the Existing Holders for (i) $0.50 of newly issued 10% Senior Secured Second Lien Notes due 2019 (the “Second Lien Notes”) and (ii) 46.41 shares of newly issued Corporation common stock (giving effect to a 135-for-1 reverse stock split that was effected in connection with closing of the exchange offer, the “Reverse Stock Split”). The Exchange Offer closed on July 27, 2016 (“Closing Date”). A further description of the terms of the Second Lien Notes and revised terms of the Senior Secured Notes is provided in Note 8.

 

Senior Loan Facility. On June 29, 2016, the Supporting Holders and the Corporation entered into a $30 million multi-draw senior secured term loan facility (the "Senior Loan Facility"). All holders of the Senior Secured Notes that participated in the Exchange Offer were also able to participate in the Senior Loan Facility. Borrowings under the Senior Loan Facility bear interest at a rate of 10% per year, payable monthly. The Senior Loan Facility has a maturity date of January 2, 2018, unless terminated earlier. As part of the consideration for providing the Senior Loan Facility, the Corporation issued to the lenders shares equal to 28.2% of the outstanding shares of its common stock as of the Closing Date, after giving effect to the Reverse Stock Split. A further description of the terms of the Senior Loan Facility are provided in Note 7.

Change in Priority of Secured Indebtedness. After the Closing Date, the priority claims of the Corporation’s secured indebtedness are (1) the revolving credit facility, which will be secured by all of the existing collateral on a senior first lien priority basis, (2) the Senior Loan Facility, which will be secured by all of the existing collateral on a junior first lien priority basis, (3) the Second Lien Notes, which will be secured by substantially all of the existing collateral on a second lien priority basis and (4) the Senior Secured Notes, which will be secured by substantially all of the existing collateral on a third lien priority basis.

Reverse Stock Split and Issuance of Common Stock. The Corporation’s stockholders approved a 135-for-1 reverse stock split that was effected on the Closing Date. After the reverse stock split, 9,213,804 shares of common stock, representing 92.69% of the shares outstanding as of the Closing Date, were issued to the lenders under the Senior Loan Facility and to tendering holders of Senior Secured Notes. The effect of the Reverse Stock Split on prior periods’ earnings per share is discussed in Note 5 and the effect on shares of common stock outstanding is discussed in Note 10.

New Board of Directors. As of the Closing Date, the Board of the Corporation (the "Board of Directors") was intended to be comprised of seven directors with the final director appointment made on January 11, 2017. The Board now consists of: one member of senior management, four directors chosen by the Supporting Holders, including one member of senior management, one director chosen by Whitebox Advisors LLC and one director chosen by BlueMountain Capital Management, LLC. Each of Blue Mountain Capital Management, LLC and Whitebox Advisors LLC has the right to choose one director to be nominated by

the Corporation for so long as each of their common stock holdings following the Closing Date exceed 10% of the total shares outstanding.

Senior Management and Share-Based Compensation. The Corporation has entered into new employment agreements with members of its existing senior management. Existing equity grants under the 2013 Long-Term Incentive Plan vested as of the Closing Date for all current participants. Additionally, the Corporation adopted a management Long Term Incentive Plan, which was amended and restated during the second quarter of 2017 as further discussed in Note 11.

Warrants. As of the Closing Date, the Corporation issued warrants to existing holders of its common stock for 4.5% of the outstanding common stock. A further description of the terms of the warrants is provided in Note 10.

NOTE 3 — CREDIT CONCENTRATION

At June 30, 2017 , the Corporation's largest account receivable from one customer was $78.1 million , representing 88% of total consolidated accounts receivable. This customer was relying on monetization of tax credits under a State of Alaska tax credit program (“Tax Credits”), either from proceeds from the State of Alaska or from third party financing sources, to satisfy the accounts receivable. There remains substantial uncertainty regarding the timing of reimbursement from the State of Alaska and the availability of third party financing to the customer, or the Corporation, in order for the Corporation to collect its accounts receivable.

Due to the customer’s inability to monetize the Tax Credits, the Corporation's customer has assigned $89.0 million of Tax Credits to the Corporation so that it can seek to monetize these Tax Credits and apply the resulting cash, as monetization occurs, toward the customer’s repayment of its overdue account receivable. The Corporation has recorded a total reduction of the accounts receivable balance of $3.5 million related to the monetization of Tax Credits during the three and six months ended June 30, 2017 . Based upon the uncertainty regarding the timing to monetize the Tax Credits as of June 30, 2017, the Corporation has classified $44.0 million and $38.0 million as a long term accounts receivable as of June 30, 2017 and December 31, 2016 , respectively. The Corporation reclassified an additional $6.0 million to long term in the three months ended June 30, 2017 due to delays in monetization of Tax Credit certificates related to the legislation discussed below.

As of June 30, 2017, the State of Alaska has completed its audit of approximately $30.2 million of Tax Credit applications. This audit resulted in the Corporation receiving approximately $24.4 million of Tax Credit certificates during 2016 from the State of Alaska. The State of Alaska disallowed approximately $5.8 million of what the Corporation believes should otherwise be eligible expenditures. The Corporation's customer filed an appeal of this decision on October 18, 2016 seeking a reversal of the disallowed amount. As of the date of filing, the State of Alaska completed its audit of an additional $16.1 million of Tax Credit applications which resulted in the Corporation receiving approximately $16.1 million of Tax Credit certificates during July 2017. The Corporation expects additional Tax Credit certificates from the State of Alaska representing approximately $42.7 million to be issued during the remainder of 2017 and the beginning of 2018.

There continues to be significant uncertainty regarding the timely payment by the State of Alaska of its obligations on issued Tax Credit certificates as well as the Corporation's ability to accurately estimate the timeframe for such payments. The Corporation continues to explore options to monetize the Tax Credit certificates, including the option to sell the certificates in the secondary market at a discount to purchasers that are able to apply the certificates to reduce their own Alaskan tax liabilities. There is a risk that any monetization of the Tax Credit certificates, however, will reflect a substantial discount and may be insufficient to fully repay the customer’s outstanding accounts receivable. Should this result, the Corporation may be required to record an impairment to the amount due from our customer. In addition, the Corporation believes the secondary market has been negatively impacted by the uncertainty about future political developments or legislative actions. This has currently delayed the Corporation's ability to monetize its Tax Credit certificates. The Corporation believes recent legislation actions should positively affect the secondary market, however, the Corporation does not control the timing or outcome of the actions in this market. The Corporation is relying on the secondary market to monetize the Tax Credit certificates and if it does not improve, the Corporation may be required to record an impairment to the amount due from its customer. The Corporation also believes that rising oil prices may increase the market for the Tax Credit certificates, but there can be no assurance that prices will increase sufficient to improve the market or when it might occur.

NOTE 4 — EARNINGS PER SHARE

Basic income (loss) per share is computed by dividing net income (loss) attributable to the Corporation by the weighted average number of common shares outstanding during each period. Diluted income (loss) per share is computed by dividing net income (loss) attributable to the Corporation by the sum of the weighted-average number of shares outstanding during each period and the dilutive potential common shares outstanding during the period determined under the treasury stock method. In loss periods, basic net loss and diluted net loss are the same since the effect of potential common shares is anti-dilutive and therefore excluded.

Dilutive potential common shares consist of shares issuable upon (i) the vesting of restricted stock, (ii) the exercise of warrants at average market prices greater than their exercise prices, and (iii) the exercise of stock options at average market prices greater than their exercise prices. Under the treasury stock method, dilutive potential common shares are determined based on the assumed exercise of dilutive restricted stock, stock options and warrants less the number of treasury shares assumed to be purchased from the amount that must be paid to exercise stock options, the amount of compensation expense for future service that has not yet been recognized for restricted stock and stock options, and the amount of tax benefits that will be recorded in additional paid-in capital when the dilutive awards become deductible.

As discussed in Note 10, the Corporation’s Board of Directors authorized a 135-for-1 reverse split of the outstanding common stock effective as of the Closing Date of the Restructuring. As a result, all share and per share amounts for all periods presented have been adjusted to reflect the reverse split as though it had occurred prior to the earliest period presented.

The computation of basic and diluted net income (loss) per share is as follows: 

 

Options to purchase 311,477 shares of common stock have been excluded from the calculation of diluted net income per share in the three and six month periods ended June 30, 2017 , since the option exercise price was higher than the weighted average share price during the period the options were outstanding. Options to purchase 1,790 shares of common stock have been excluded from the calculation of diluted net income per share in the three and six month periods ended June 30, 2016 , since the option exercise price was higher than the weighted average share price during the period the options were outstanding.

Unvested restricted stock units representing 60,533 and 46,513 issuable shares were excluded from the calculation of diluted net income per share in the three month and six month periods ended June 30, 2017 , respectively, since they were anti-dilutive. Unvested restricted stock units totaling 805 shares were excluded from the calculation of diluted net income per share in the three month period ended June 30, 2016 , since they were anti-dilutive.

Warrants to purchase 308,752 shares of common stock have been excluded from the calculation of diluted net income per share in the three and six month periods ended June 30, 2017 , since the warrant exercise price was higher than the weighted average share price during the respective periods.

Restricted cash primarily consists of cash collateral for labor claims, office rental and cash in another country restricted by exchange control regulations. As of June 30, 2017 , the Corporation has approximately $4,581 held by a variable interest entity in West Africa ("SAE Nigeria") of which we are the primary beneficiary and which is restricted by exchange control regulations. For further information on this entity, see Note 13.

During the three months ended June 30, 2017, SAE Nigeria entered into multiple physical trades of the Naira currency (classified as restricted cash) for US dollars at various exchange rates. The US dollars received in the trade are no longer subject to exchange control regulations. As a result of these trades, a foreign exchange loss of $765 was recognized during the three and six months ended June 30, 2017.

 

 

NOTE 6 — REVOLVING CREDIT FACILITY

On November 6, 2014 , SAExploration, Inc. (“Borrower”), the Corporation, and the Corporation’s other domestic subsidiaries and Wells Fargo Bank, National Association (“Lender”) entered into a Credit and Security Agreement. The credit agreement provides for a $20,000 revolving line of credit facility ("Revolving Credit Facility") secured by the Corporation’s and the Corporation's domestic subsidiaries' U.S. assets, including accounts receivable and equipment, subject to certain exclusions and exceptions as set forth in the credit agreement. The borrowing base availability of the Revolving Credit Facility as of June 30, 2017 was limited to $3,021 due to collateral restrictions as detailed below. The proceeds of the Revolving Credit Facility are primarily used to fund the Corporation’s working capital needs for its operations and for general corporate purposes. As of June 30, 2017 and December 31, 2016 , borrowings of $2,867 and $5,844 , respectively, were outstanding under the Revolving Credit Facility.

  

Borrowings made under the Revolving Credit Facility bear interest, payable monthly, at a rate of daily three month LIBOR plus 3% ( 4.30% at June 30, 2017 and 4.00% at December 31, 2016 ). The Revolving Credit Facility has a maturity date of November 6, 2017 , unless terminated earlier. The Corporation may request, and the Lender may grant, an increase to the maximum amount available under the Revolving Credit Facility in minimum increments of $1,000 not to exceed an additional $10,000 in the aggregate, so long as certain conditions as described in the credit agreement are met. The Corporation currently does not meet those conditions.

The credit agreement includes a sub-facility for letters of credit in amounts up to the lesser of the available borrowing base or $10,000 . Letters of credit are subject to Lender approval and a fee which accrues at the annual rate of 3% of the undrawn daily balance of the outstanding letters of credit, payable monthly. An unused line fee of 0.5% per annum of the daily average of the maximum Revolving Credit Facility amount reduced by outstanding borrowings and letters of credit is payable monthly. As of June 30, 2017 and December 31, 2016 , there were no letters of credit outstanding under the sub-facility. For a complete discussion of the terms and security for the Revolving Credit Facility, see Note 6 of Notes to Consolidated Financial Statements included in the Corporation's 10-K.

 

Under the Revolving Credit Facility, borrowings are subject to borrowing base availability and may not exceed 85% of the amount of eligible accounts receivable, as defined, plus the lesser of $20,000 or 85% of the orderly net liquidation value of existing eligible equipment per appraisal and 85% of hard costs of acquired eligible equipment, less the aggregate amount of any reserves established by Lender. As noted above, this process resulted in lowering the Corporation's borrowing base to $3,021 as of June 30, 2017. If borrowings under the Revolving Credit Facility exceed $5,000 , the Corporation is subject to minimum rolling 12 months EBITDA requirements of $20,000 on a consolidated basis and $8,000 on the Corporation’s operations in the State of Alaska (the "EBITDA Requirements"). As of June 30, 2017, the Corporation's borrowings do not exceed $5,000 and therefore it is not subject to the EBITDA Requirements.

 

The credit agreement contains covenants including, but not limited to (i) maintain and deliver to Lender, as required, certain financial reports, records and other items, (ii) subject to certain exceptions under the credit agreement, restrictions on the ability of the Corporation to incur indebtedness, create or incur liens, enter into fundamental changes to corporate structure or to the nature of the business of the Corporation, dispose of assets, permit a change in control, acquire non-permitted investments, enter into affiliate transactions or make distributions, (iii) maintain the minimum EBITDA specified above and (iv) maintain eligible equipment, as defined, located in the State of Alaska with a value of at least 75% of the value of such equipment included in the borrowing base availability plus the value of equipment outside the United States that would be otherwise eligible under the credit agreement. The credit agreement also contains representations, warranties, covenants and other terms and conditions, including relating to the payment of fees to the Lender, which are customary for agreements of this type. The Corporation was in compliance with the credit agreement covenants as of June 30, 2017 . As of June 30, 2017, the Corporation's borrowings do not exceed $5,000 and therefore it is not subject to the EBITDA Requirements.

 

NOTE 7 — SENIOR LOAN FACILITY

On June 29, 2016, the Corporation, as borrower, and each of the Corporation’s domestic subsidiaries, as guarantors (the “Guarantors”), entered into the Senior Loan Facility with the Supporting Holders of the Senior Secured Notes. In addition to the Supporting Holders, one additional holder of the senior secured notes subsequently elected to participate as a lender in the Senior Loan Facility based on their proportionate ownership of the Senior Secured Notes as discussed in Note 14. The Senior Loan Facility provides funding up to a maximum borrowing amount of $30,000 . As of June 30, 2017 and December 31, 2016 , borrowings of $29,995 were outstanding under the Senior Loan Facility.

The Senior Loan Facility is secured by a junior first lien on the Corporation's accounts receivable, which includes the Tax Credits and certificates evidencing the Tax Credits. Those Tax Credits and certificates are also pledged on a senior first lien basis to the Lender under the Revolving Credit Facility.   Any proceeds from monetizing the Tax Credits or Tax Credit certificates automatically reduce the amount the Corporation has borrowed under its revolving line of credit.  The Senior Loan Facility requires that once the Corporation has received $15 million in proceeds from the Tax Credits or Tax Credit certificates, unless waived by the lenders (or individual lenders) under the Senior Loan Facility, mandatory payments of proceeds from the Tax Credits or certificates must be made to reduce the amount outstanding under the Senior Loan Facility.

Borrowings under the Senior Loan Facility bear interest at a rate of 10% per year, payable monthly. The Senior Loan Facility has a maturity date of January 2, 2018, unless terminated earlier.

In August 2017, the Corporation entered into a term sheet to amend and extend a majority of the Senior Loan Facility ("Term Sheet") representing $29,000 of the total principal outstanding. The Term Sheet is subject to finalizing terms and conditions and securing funding for the principal outstanding which was not extended. The Term Sheet, among other things:

As part of the consideration for providing the Senior Loan Facility, 2,803,302 shares of Corporation common stock were issued to the lenders on July 27, 2016, which was recorded at fair value as deferred loan issuance costs in the three-month period ended September 30, 2016.

The Senior Loan Facility is secured by substantially all of the collateral securing the obligations under the Revolving Credit Agreement ,(ii) the Senior Secured Notes and (iii) the Second Lien Notes, including the receivable due to the Corporation discussed in Note 3. This security interest is junior to the security interest in such collateral securing the obligations under the Revolving Credit Facility and senior to the security interests in such collateral securing the obligations under the Second Lien Notes and the Senior Secured Notes.

The Senior Loan Facility contains negative covenants that restrict the Corporation’s and the Guarantors’ ability to incur indebtedness, create or incur liens, enter into fundamental changes to the Corporation’s corporate structure or to the nature of the Corporation’s

business, dispose of assets, permit a change in control to occur, make certain prepayments, other payments and distributions, make certain investments, enter into affiliate transactions or make certain distributions, and requires the Corporation maintain and to deliver certain financial reports, projections, records and other items. The Senior Loan Facility also contains customary representations, warranties, covenants and other terms and conditions, including relating to the payment of fees to the Senior Loan Facility agent and the lenders, and customary events of default. The Corporation is in compliance with the Senior Loan Facility covenants as of June 30, 2017 .

On July 2, 2014 , the Corporation entered into an indenture under which it issued $150,000 of senior secured notes due July 15, 2019 , in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. On June 19, 2015, all outstanding senior secured notes were exchanged for an equal amount of new Senior Secured Notes, which are substantially identical in terms to the existing senior secured notes except that the Senior Secured Notes are registered under the Securities Act of 1933, as amended. In addition, on August 26, 2015, the Corporation entered into an exchange of $10,000 face value of Senior Secured Notes for 2,366,307 shares of the Corporation's common stock. The Senior Secured Notes bear interest at the annual rate of 10% payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2015.

As discussed in Note 2, the Corporation commenced an offer on June 24, 2016 to exchange each $1 of the Senior Secured Notes for (i) $0.50 of newly issued 10% Second Lien Notes due 2019 and (ii) 46.41 shares of newly issued Corporation common stock (giving effect to a 135-for-1 reverse stock split that was effected in connection with closing of the Exchange Offer). On the Closing Date, a total of $138,128 face value of the Senior Secured Notes were exchanged for (i) $76,523 Second Lien Notes, including $7,459 Second Lien Notes representing accrued and unpaid interest and (ii) 6,410,502 shares of Corporation common stock, which was recorded at fair value. The exchange was accounted for as a modification during the three-month period ending September 30, 2016. In connection with the exchange, the Corporation recognized debt restructuring costs of $2,334 during the three and six-month periods ended June 30, 2016.

The Second Lien Notes are substantially similar to the Senior Secured Notes with the following modifications:

The indentures for the Senior Secured Notes and Second Lien Notes contain covenants that include limitations on the Corporation's ability to: (i) transfer or sell assets; (ii) pay dividends, redeem subordinated indebtedness or make other restricted payments; (iii) incur or guarantee additional indebtedness or, with respect to the Corporation's restricted subsidiaries, issue preferred stock; (iv) create or incur liens; (v) incur dividend or other payment restrictions affecting its restricted subsidiaries; (vi) consummate a merger, consolidation or sale of all or substantially all of its or its subsidiaries’ assets; (vii) enter into transactions with affiliates; (viii) engage in business other than its current business and reasonably related extensions thereof; and (ix) take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the notes. The Corporation was in compliance with the indenture covenants as of June 30, 2017 .

For a complete discussion of the terms and security for the Senior Secured Notes and Second Lien Notes, see Note 8 of Notes to Consolidated Financial Statements included in the Corporation's 10-K.

NOTE 9 — INCOME TAXES

The Corporation’s effective tax rate was (2.8)% and 75.7% for the three months ended June 30, 2017 and 2016 , respectively. The decrease in the 2017 effective tax rate is primarily due to several factors including fluctuations in earnings among the various jurisdictions in which the Corporation operates, partially offset by increases in valuation allowances from U.S. losses and foreign tax rate differentials.  The Corporation’s effective tax rate was (32.8)% and 16.3% for the six months ended June 30, 2017 and 2016 , respectively. The increase in the 2017 effective tax rate is primarily due to several factors including fluctuations in earnings among the various jurisdictions in which the Corporation operates, increases in valuation allowances from U.S. losses partially offset by decreases in permanent tax differences. The primary reason the 2017 effective tax rate differs from the 35% Federal statutory corporate rate is increases in valuation allowances from U.S. losses, permanent tax differences and foreign tax rate differentials.

Earnings associated with the investments in the Corporation’s foreign subsidiaries are considered to be indefinitely reinvested outside of the U.S. Therefore, a U.S. provision for income taxes on those earnings or translation adjustments has not been recorded. Determination of any unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration is not practicable due to the inherent complexity of the multi-national tax environment in which the Corporation operates.

The Corporation believes that without positive evidence, it is more likely than not that the benefit from certain net operating loss (“NOL”) carryforwards and foreign tax credits may not be realized. In recognition of this risk, the Corporation has maintained a full valuation allowance for the deferred tax assets relating to these NOL carryforwards and foreign tax credits of certain countries. 

NOTE 10 — STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Corporation is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, rights, and preferences as may be determined from time to time by the Corporation’s Board of Directors. As of June 30, 2017 and December 31, 2016 , there were no shares of preferred stock issued or outstanding.

 

Common Stock

 

The Corporation is authorized to issue 55,000,000 shares of common stock with a par value of $0.0001 per share. On June 15, 2016, the Corporation’s Board of Directors authorized a 135-for-1 reverse split of the outstanding common stock effective as of the Closing Date of the Restructuring. All share and per share amounts for all periods presented have been adjusted to reflect the reverse split as though it had occurred prior to the earliest period presented. As of June 30, 2017 and December 31, 2016 , a total of 9,358,529 shares were issued and outstanding.

 

Warrants

A total of 4,310 warrants with an expiration date of June 24, 2016 and an exercise price of $12.00 per share expired unexercised.

As of June 30, 2017 , 154,376 Series A warrants and 154,376 Series B warrants with an expiration date of July 27, 2021 were outstanding. The Series A warrants and Series B warrants have exercise prices of $10.30 and $12.88 , respectively, and become exercisable 30 days in advance of their expiration date contingent upon the receipt by the Corporation of Tax Credit certificates in a face amount of at least  $25 million  issued by the State of Alaska to the Corporation.

Common Stock Held in Escrow in Connection with Merger

The Corporation was initially formed on February 2, 2011 under the name Trio Merger Corp. as a blank check company in order to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more business entities. On June 24, 2013 (the "Closing"), a wholly-owned subsidiary of the Corporation completed a merger ("Merger") under an Agreement and Plan of Reorganization, as amended ("Merger Agreement") with the entity formerly known as SAExploration Holdings, Inc. (“Former SAE”), at which time the business of Former SAE became the Corporation’s business.

Merger Consideration Escrow

A portion of the merger consideration payable at Closing was allocable to holders of certain derivative securities of Former SAE that were not converted or exchanged prior to the Merger. As of June 30, 2017 , a total of 200 shares of Corporation common stock were held in escrow pending the conversion or exercise of those derivative securities (the “Merger Consideration Escrow”). The escrow agreement provides that CLCH, LLC ("CLCH"), as nominee of the Corporation, will have voting control over all shares of Corporation common stock held in the Merger Consideration Escrow.

Merger Indemnification Escrow

A total of 4,041 shares of Corporation common stock issued to Former SAE stockholders at Closing of the Merger and deposited in escrow were released to the Former SAE stockholders on May 23, 2016.

NOTE 11 — SHARE-BASED COMPENSATION

Share-based compensation expense for stock option and restricted stock unit awards in the three and six months ended June 30, 2017 was $ 636 and $ 1,265 , respectively. Share-based compensation expense for stock option and restricted stock unit awards in the three and six months ended June 30, 2016 was $ 178 and $ 343 , respectively. At June 30, 2017 , there was approximately $ 568 of unrecognized compensation expense for unvested stock option awards with a weighted average vesting period of 1.07 years. At June 30, 2017 , there was approximately $ 1,145 of unrecognized compensation expense for unvested restricted stock unit awards with a weighted average vesting period of 1.07 years. During the three and six months ended June 30, 2017 and 2016, there were no grants of stock options or restricted stock unit awards.

Amended and Restated 2016 Long Term Incentive Plan

On May 8, 2017, the Corporation received written consent from holders of a majority of the Corporation's common stock outstanding approving and adopting the Corporation's Amended and Restated 2016 Long-Term Incentive Plan (the "2016 Amended and Restated Plan"). The 2016 Amended and Restated Plan became effective on May 30, 2017. The 2016 Amended and Restated Plan (i) combines the shares under the 2016 Long Term Incentive Plan and the 2013 Non-Employee Director Plan (the "Original Plans") into a common pool of common stock, (ii) allows the granting of awards for payment of annual bonuses provided for under employment agreements with officers and under its bonus program for employees and (iii) adopts other amendments necessary for granting awards to both employees and non-employee directors. No further shares will be issued under the Original Plans and any remaining shares under the Original Plans are reserved for issuance under the 2016 Amended and Restated Plan. The total number of shares of common stock reserved for issuance under the 2016 Amended and Restated Plan is 1,438,258 less any shares that have been previously issued under the Original Plans. As of June 30, 2017, there were 639,137 restricted shares, restricted stock units and options issued under the original plans issued under the 2016 Amended and Restated Plan.

NOTE 12 — FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Corporation has certain assets and liabilities that are required to be measured and disclosed at fair value in accordance with GAAP. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. When an asset or liability is required to be measured at fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs using a fair value hierarchy as follows: 

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. 

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. Measurement is based on prices or valuation models requiring inputs that are both significant to the fair value measurement and supported by little or no market activity.

The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, borrowings under the Revolving Credit Facility and borrowings under the Senior Loan Facility are a reasonable estimate of their fair values due to their short duration.    

There were no Corporation financial instruments measured at fair value on a recurring basis at June 30, 2017 , December 31, 2016 or June 30, 2016 .

The Corporation's financial instruments not recorded at fair value consist of the Senior Secured Notes and Second Lien Notes. At June 30, 2017 , the carrying value of the Senior Secured Notes and Second Lien Notes was $ 1,839 and $84,689 , respectively. At June 30, 2017 , the estimated fair value of the Senior Secured Notes and Second Lien Notes was $1,242 and $54,997 , respectively. The fair value is determined by a market approach using dealer quoted period-end bond prices. These instruments are classified as Level 2 as valuation inputs for fair value measurements as they are dealer quoted market prices at June 30, 2017 obtained from independent third party sources. However, no assurance can be given that the fair value would be the amount realized in an active market exchange.

The Corporation's non-financial assets include goodwill, property and equipment, and other intangible assets, which are classified as Level 3 assets. These assets are measured at fair value on a nonrecurring basis as part of the Corporation's impairment assessments and as circumstances require. Goodwill is subjected to an annual review for impairment or more frequently as required.

NOTE 13 — VARIABLE INTEREST ENTITIES

 

Effective November 19, 2012 , an agreement was entered into between a subsidiary of the Corporation and Kuukpik Corporation (“Kuukpik”) to form a separate legal entity (“Joint Venture”) for the purpose of performing contracts for the acquisition and development of geophysical and seismic data and for geophysical and seismic services and any and all related work anywhere on the North Slope of Alaska (onshore or offshore) for a period of five years . The Corporation's and Kuukpik’s percentage ownership interests in the Joint Venture are 49.0% and 51.0% , respectively. The sole source of revenue of the Joint Venture is contracts performed by the Corporation. Pre-award costs incurred on potential contracts by Kuukpik and the Corporation are absorbed by each party and not by the Joint Venture. The Joint Venture receives 10% of gross revenues of all North Slope of Alaska contracts performed by the Corporation, which is distributed to Kuukpik and the Corporation based on their relative ownership percentages. Risk of loss on a contract, including credit risk, is the Corporation's sole responsibility. Based on its power to influence the significant business activities of the Joint Venture and its responsibility to absorb contract losses, the Corporation was determined to be the primary beneficiary under GAAP and as such consolidates the Joint Venture. The results of the Joint Venture are combined with the Corporation and all intercompany transactions are eliminated upon consolidation. Amounts reflected for the Joint Venture in the unaudited condensed consolidated financial statements consist of the balances reported under net income attributable to noncontrolling interest for the three and six month periods ended June 30, 2017 and 2016 , and noncontrolling interest on the June 30, 2017 and December 31, 2016 balance sheets.

Effective October 18, 2016, an agreement was entered into between the Corporation and SAExploration Nigeria Limited (“SAE Nigeria”) for the purpose of performing acquisition and development of geophysical and seismic data on a specific project in West Nigeria ("West Nigeria Project"). While the Corporation does not hold an ownership interest in SAE Nigeria, risk of loss on the West Nigeria Project, including credit risk, is the Corporation's sole responsibility. All profits from the West Nigeria Project remain with the Corporation. Based on its power to influence the significant business activities of SAE Nigeria during the completion of the West Nigeria Project, its responsibility to absorb contract losses and the proportion of SAE Nigeria's operations dedicated to the West Nigeria Project at this time, the Corporation was determined to be the primary beneficiary under GAAP and as such consolidates SAE Nigeria for the term of the West Nigeria Project. The results of SAE Nigeria are combined with the Corporation and all intercompany transactions are eliminated upon consolidation. The carrying amounts of assets and liabilities at June 30, 2017, reflected for SAE Nigeria in the unaudited condensed consolidation financial statements was $5,060 . The assets are primarily in restricted cash and the liabilities are primarily in a payable to one of the Corporation's subsidiaries, which is eliminated upon consolidation.

NOTE 14 — RELATED PARTY TRANSACTIONS

Jeff Hastings, the Corporation’s Chief Executive Officer and Chairman of the Board of Directors, owns and controls Speculative Seismic Investments, LLC (“SSI”), which holds 27,000 shares of the Corporation’s common stock. SSI is a lender under the Corporation’s Senior Loan Facility in the principal amount of $543 and exchanged $2,352 of the Corporation’s Senior Secured Notes for $ 1,334 of Second Lien Notes in the Restructuring consummated on July 27, 2016. SSI subsequently sold the $1,334 of Second Lien Notes in November 2016 representing $1,176 of face value and $158 of interest paid in kind for the period outstanding, and is no longer a holder of any Second Lien Notes. Mr. Hastings also controls CLCH, LLC, which holds 24,221 shares of the Corporation’s common stock. Pursuant to a registration rights agreement dated June 24, 2013, CLCH had one right to demand registration of its shares of our common stock that it acquired in the Merger, as well as piggy-back rights on any offering of our common stock or securities exercisable or exchangeable for our common stock. CLCH has exercised its piggy-back registration rights, and all 24,221 of its shares were registered for resale pursuant to a registration statement on Form S-3, Registration No. 333-213386, that became effective in September 2016. The Corporation bore the expense incurred in connection with the registration statement.

NOTE 15 — COMMITMENTS AND CONTINGENCIES

 

The Corporation is involved in various legal proceedings involving contractual and employment relationships, liability claims, and a variety of other matters. The outcome of these legal proceedings and other matters is not expected to have, either individually or in the aggregate, a material adverse effect on the Corporation’s financial position, results of operations, or cash flows.