NOTE 2. RESTATEMENT OF PREVIOUSLY REPORTED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As previously disclosed, the SEC has been conducting an investigation of certain matters, including with respect to revenue recognition, accounts receivable and tax credits. The Department of Justice (the “DOJ”) is conducting a parallel investigation with the SEC. We have been cooperating and will continue to cooperate with the SEC and the DOJ in their investigations.

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 Alaskan Seismic Ventures, LLC (“ASV”), which had not been consolidated into our financial statements. In August 2019, we determined that ASV is a variable interest entity (“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 arrangements 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 statement of operations as loss from 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 the Company 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.

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 as of December 31, 2018 resulted in a reduction of stockholders’ equity of approximately $34.0 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. As of June 30, 2019, considering the approximately $34.0 million reduction in stockholders equity discussed above, the consolidation of ASV resulted in a decrease in stockholders’ equity of approximately $0.2 million.

We have reclassified certain items in our consolidated statement of operations as loss from a misappropriation of funds disclosed above, of which approximately $121 thousand, $273 thousand, $128 thousand and $361 thousand, respectively, are related to the misappropriation of funds by Mr. Whiteley in the three and six months ended June 30, 3019 and 2018, respectively.

In addition, we are restating our consolidated financial statements to correct for unrelated material accounting errors in prior periods, including the following:

Along with restating our unaudited condensed 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–Q.

In connection with the restatement of our condensed consolidated financial statements in this Form 10–Q, 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 and as of June 30, 2019. For a description of the material weaknesses identified by management and management’s implemented and planned remediations for those material weaknesses, please see “Item 4. Controls and Procedures” of this Form 10-Q.

The tables below summarize the effects of the restatement on our (i) unaudited condensed consolidated balance sheet at December 31, 2018; (ii) unaudited condensed consolidated statements of operations for the three months and six months ended June 30, 2018; and (iii) unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2018. A summary of the effect of the restatement on the unaudited condensed consolidated statements of changes to stockholders’ deficit for the six months ended June 30, 2018 and the unaudited condensed consolidated statement of comprehensive income (loss) for the three months and six months ended June 30, 2018 are not presented because the impact to accumulated deficit and comprehensive income (loss) are reflected below in the unaudited condensed consolidated balance sheet summaries and unaudited condensed consolidated statements of operations summaries.

The effects of the restatement on our unaudited condensed consolidated balance sheet 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' EQUITY (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 and finance leases		7,837			—			7,837
Deferred revenue		4,298			59			4,357
Total current liabilities		36,067			59			36,126

Long-term debt and finance leases		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, at cost		(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

Summary of Restatement – Unaudited Condensed Consolidated Statements of Operations

The effects of the restatement on our unaudited condensed consolidated statements of operations are as follows:

	Three Months Ended June 30, 2018
	Previously Reported			Adjustments			Restated
Revenue from services	$	16,883		$	—		$	16,883
Cost of services		19,710			—			19,710
Depreciation and amortization		2,295			—			2,295
Gross loss		(5,122	)		—			(5,122	)

Operating expenses:
Selling, general and administrative expenses		25,763			(17,397	)		8,366
Misappropriation of funds		—			128			128
Total operating expenses		25,763			(17,269	)		8,494

Operating loss		(30,885	)		17,269			(13,616	)

Other (expense) income, net:
Interest expense, net		(2,346	)		—			(2,346	)
Foreign exchange gain (loss), net		(2,005	)		—			(2,005	)
Other income, net		9			83			92
Total other expense, net		(4,342	)		83			(4,259	)

Loss before income taxes		(35,227	)		17,352			(17,875	)

Income taxes		(1,881	)		1,847			(34	)

Net loss		(33,346	)		15,505			(17,841	)

Less: net income attributable to noncontrolling interest		59			—			59

Net loss attributable to SAExploration	$	(33,405	)	$	15,505		$	(17,900	)

Loss per common share (basic and diluted)	$	(44.90	)	$	35.18		$	(9.72	)

Weighted average common shares outstanding (basic and diluted)		749			1,116			1,865

	Six Months Ended June 30, 2018
	Previously Reported			Adjustments			Restated
Revenue from services	$	54,006		$	—		$	54,006
Cost of services		45,715			—			45,715
Depreciation and amortization		4,716			—			4,716
Gross profit (loss)		3,575			—			3,575

Operating expenses:
Selling, general and administrative expenses		32,140			(18,088	)		14,052
Misappropriation of funds		—			361			361
Total operating expenses		32,140			(17,727	)		14,413

Operating loss		(28,565	)		17,727			(10,838	)

Other (expense) income, net:
Interest expense, net		(5,487	)		—			(5,487	)
Foreign exchange gain (loss), net		(2,179	)		—			(2,179	)
Other income, net		154			83			237
Total other expense, net		(7,512	)		83			(7,429	)

Loss before income taxes		(36,077	)		17,810			(18,267	)

Income taxes		(1,257	)		1,222			(35	)

Net loss		(34,820	)		16,588			(18,232	)

Less: net income attributable to noncontrolling interest		894			—			894

Net loss attributable to SAExploration	$	(35,714	)	$	16,588		$	(19,126	)

Loss per common share (basic and diluted)	$	(128.90	)	$	82.64		$	(46.26	)

Weighted average common shares outstanding (basic and diluted)		643			790			1,433

Summary of Restatement – Unaudited Condensed Consolidated Statement of Cash Flows

The effects of the restatement on our unaudited condensed consolidated statement of cash flows are as follows:

	Six Months Ended June 30, 2018
	Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net loss	$	(34,820	)	$	16,588		$	(18,232	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,868			—			4,868
Tax credits used to offset production taxes		—			—			—
Reserve for potential tax credits monetization		—			1,700			1,700
Reserve for doubtful accounts		19,120			(18,985	)		135
Equity-based compensation cost		2,641			—			2,641
Gain on disposal of property and equipment		(185	)		—			(185	)
Amortization of loan issuance costs and debt discounts		1,901			—			1,901
Gain on debt extinguishment		(53	)		—			(53	)
Unrealized loss on foreign currency transactions		2,131			—			2,131
Deferred taxes		—			62			62
Changes in operating assets and liabilities		(5,674	)		143			(5,531	)
Net cash used in operating activities		(10,071	)		(492	)		(10,563	)

Cash flows from investing activities:
Purchase of property and equipment		(703	)		—			(703	)
Proceeds from sale of property and equipment		193			—			193
Net cash used in investing activities		(510	)		—			(510	)

Cash flows from financing activities:
Long-term debt and finance lease repayments		(995	)		—			(995	)
Long-term debt borrowings		15,000			—			15,000
Stock issuance costs		(2,179	)		467			(1,712	)
Purchase of treasury stock		(175	)		—			(175	)
Net cash provided by financing activities		11,651			467			12,118

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(183	)		—			(183	)
Net change in cash, cash equivalents and restricted cash		887			(25	)		862
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 period	$	4,541		$	55		$	4,596