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GENERAL (Policies)

9 Months Ended

Sep. 30, 2020

Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code

On August 27, 2020 (the “Petition Date”), we and certain of our wholly–owned direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions (collectively, the “Petition” and the cases commenced thereby, the “Chapter 11 Cases”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”) to pursue a Chapter 11 plan of reorganization (as amended, the “Plan”). The Chapter 11 Cases have been consolidated for procedural purposes only and are being administered jointly under the caption In re: SAExploration Holdings, Inc., et. al. (Case No. 20–34306).

In connection with the Chapter 11 filing, we entered into a Restructuring Support Agreement (as amended, the “RSA”) with lenders of 100% of the principal amount outstanding under our credit facility, lenders of approximately 82.4% of the principal amount outstanding under our senior loan facility and holders of 100% of our 6.0% Senior Secured Convertible Notes due 2023 (the “2023 Notes”) (such lenders and holders referred to herein as the “Supporting Parties”) and a Backstop Commitment Agreement (as amended, the “BCA”) with the Supporting Parties (the “Backstop Parties”). On November 1, 2020, we entered into an Amendment to the RSA with certain of the Supporting Parties party thereto and an Amendment to the BCA with certain of the Backstop Parties party thereto.

As amended, the RSA contemplates the restructuring (the “Restructuring”) of the Debtors pursuant to the Plan, which contemplates (i) the entry into a new first lien exit facility in an aggregate principal amount of $15.0 million with lenders under our existing credit facility and senior loan facility; (ii) the conversion of the existing credit facility into a new second lien exit facility in an aggregate principal amount of $20.5 million with the existing lenders; (iii) the elimination of $89.0 million of principal plus accrued interest with respect to our existing senior loan facility and 2023 Notes; and (iv) a rights offering (the “Rights Offering”) pursuant to which all eligible holders of loans under our existing credit facility and senior loan facility will be offered the opportunity to purchase loans to be advanced under the new first lien exit facility and shares of new common stock to be issued by reorganized SAEX for an aggregate purchase price of $15.0 million that will represent 95% of the outstanding new common stock to be issued by reorganized SAEX. Pursuant to the BCA, the Rights Offering will be backstopped by certain Backstop Parties who will receive a backstop commitment premium payable in new common stock that will represent 2.5% of the outstanding new common stock to be issued by reorganized SAEX as consideration for backstopping the Rights Offering or, if the BCA is terminated in certain circumstances, payable in the amount of approximately $0.9 million in cash. The new common stock to be issued by reorganized SAEX will be subject to further dilution by new common stock to be issued by reorganized SAEX in connection with a management incentive plan. The Plan also provides that holders of general unsecured claims and holders of our existing common stock and warrants to purchase our existing common stock will not receive any distribution in respect of such claims or common stock and warrants, respectively.

Subject to Bankruptcy Court approval of the Plan and the satisfaction of certain conditions to the Plan and related transactions, we have proposed to consummate the Plan and emerge from Chapter 11 before the end of December 2020. There can be no assurances that the Plan will be approved or confirmed by the Bankruptcy Court by that time, or at all.

As a result of the filing of the Chapter 11 Cases, the principal and interest due under our credit facility, our senior loan facility and our 2023 Notes became immediately due and payable. However, any efforts to enforce such payment obligations with respect to our credit facility, our senior loan facility and our 2023 Notes are automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of such debt instruments will be subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

We expect to continue our operations without interruption during the pendency of the Chapter 11 Cases. For the duration of the Restructuring and after the Chapter 11 Cases, our operations and our ability to develop and execute our business plan are subject to risks and uncertainties associated with the Restructuring and Chapter 11 Cases.

Accounting Standards Codification 852–10, Reorganizations (“ASC 852–10”), applies to entities that have filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. In accordance with ASC 852–10, transactions and events directly associated with the Chapter 11 Cases are required to be distinguished from the ongoing operations of the business. In addition, ASC 852–10 requires changes in the accounting and presentation of liabilities, as well as expenses and income directly associated with the Chapter 11 Cases.

Liabilities Subject to Compromise

Liabilities subject to compromise in our condensed consolidated financial statements include pre–petition liabilities that may be affected by a Chapter 11 plan at the amounts expected to be allowed, even if they may be settled for lesser amounts. If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the Chapter 11 plan, the entire amount of the claim is included in liabilities subject to compromise. Difference between liabilities we have estimated and the claims to be filed will be investigated and resolved in connection with the claims resolution process in the Chapter 11 Cases. We will continue to evaluate these liabilities throughout the Chapter 11 Cases and adjust amounts as necessary. Such adjustments may be material.

The components of “Liabilities subject to compromise” included in our unaudited condensed consolidated balance sheets are as follows:

	September 30, 2020
Long-term debt	$	95,829
Accrued liabilities		3,034
Accounts payable		892
Total	$	99,755

Costs of Reorganization

The Debtors have incurred and will continue to incur significant costs associated with the Chapter 11 Cases. The amount of these costs, which are being expensed as incurred, are expected to significantly affect our results. The following table summarizes the components included in “Reorganization expenses” in our unaudited condensed consolidated statements of operations for the three months and nine months ended September 30:

	2020
Long-term debt discounts and issuance costs	$	11,885
Advisory and professional fees		1,055
Total	$	12,940

Debtor Financial Statements

Unaudited condensed consolidated financial statements of the Debtors are set forth below. All intercompany balances due between Debtor entities have been eliminated in consolidation. Intercompany balances between the Debtors and non–debtor affiliates have not been eliminated in the Debtors’ unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Balance Sheet

	September 30, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	15,308
Restricted cash		31
Accounts receivable, net		3,611
Deferred costs on contracts		105
Prepaid expenses and other current assets		5,113
Total current assets		24,168

Property and equipment, net		27,754
Operating lease right-of-use assets		4,589
Intangible assets, net		3,116
Other assets		237
Accounts receivable from non-debtor affiliates		56,212
Investment in non-debtor affiliate		404
Total assets	$	116,480

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	735
Accrued liabilities		2,308
Income and other taxes payable		1,846
Operating lease liabilities		1,244
Current portion of long-term debt		28,326
Deferred revenue		633
Total current liabilities		35,092

Other long-term liabilities		3,348

Liabilities subject to compromise		99,755

Commitments and contingencies

Stockholders' deficit		(21,715	)
Total liabilities and stockholders' deficit	$	116,480

Unaudited Condensed Consolidated Statement of Operations

	Nine Months Ended September 30,
	2020
Revenue from services	$	96,448
Cost of services		67,691
Depreciation and amortization		8,891
Gross profit		19,866

Operating expenses - selling, general and administrative		22,626

Operating loss		(2,760	)

Other expense, net		(20,398	)

Loss before income taxes and equity in income of non-debtor affiliate		(23,158	)

Income taxes		312

Loss before equity in income of non-debtor affiliate		(23,470	)

Equity in income of non-debtor affiliate		2,504

Net loss	$	(20,966	)

Unaudited Condensed Consolidated Statement of Cash Flows

	Nine Months Ended September 30,
	2020
Cash flows from operating activities:
Net loss	$	(20,966	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		9,248
Equity-based compensation cost		(391	)
Gain on sale of disposal and equipment		(131	)
Amortization of loan issuance costs and debt discounts		2,785
Unrealized loss on foreign currency transactions		148
Noncash reorganization expenses		11,885
Equity in earnings of affiliate		(2,504	)
Distributions from non-debtor affiliate		5,750
Changes in operating assets and liabilities		16,942
Net cash provided by operating activities		22,766

Cash flows from investing activities:
Purchases of property and equipment		(994	)
Proceeds from disposal of property and equipment		362
Investment in non-debtor affiliate		(31	)
Net cash used in investing activities		(663	)

Cash flows from financing activities:
Long-term debt and finance lease repayments		(16,890	)
Long-term debt borrowings		6,801
Intercompany lending		271
Net cash used in financing activities		(9,818	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(91	)
Net change in cash, cash equivalents and restricted cash		12,194
Cash, cash equivalents and restricted cash at the beginning of year		3,145
Cash, cash equivalents and restricted cash at the end of period	$	15,339

Going Concern Uncertainty

Given the uncertainty surrounding the Chapter 11 Cases, there is substantial doubt about our ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements included herein have been prepared on a going concern basis in accordance with generally accepted accounting principles in the United States. The going concern basis assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business. Our unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

Basis of Presentation

Our unaudited condensed consolidated financial statements included herein include our accounts and those of our subsidiaries that are wholly–owned, controlled by us or a variable interest entity (“VIE”) where we are the primary beneficiary, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. We believe that the presentations and disclosures herein are adequate to make the information not misleading. The unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) for a fair presentation of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in Item 8 of our Annual Report on Form 10–K for the year ended December 31, 2019.

All intercompany accounts and transactions have been eliminated in consolidation. In the Notes to Unaudited Condensed Consolidated Financial Statements, all dollar and share amounts in tabulations are in thousands of dollars and shares, respectively, unless otherwise indicated.

Certain amounts in our prior period unaudited condensed consolidated financial statements and related footnote disclosures have been reclassified to conform to the current year presentation. This reclassification had no impact on our financial condition, results of operations or cash flows.

COVID-19 Pandemic and Market Conditions

COVID–19 Pandemic and Market Conditions

Our operations continue to be disrupted due to the circumstances surrounding the COVID–19 pandemic. The closure of non–essential business facilities and restrictions on travel put in place by governments around the world have significantly reduced economic activity.

The oil and natural gas industry has experienced unprecedented price disruptions during 2020, due in part to significantly decreased demand as a result of the COVID–19 pandemic, as activity declined in the face of depressed oil pricing. As customers continue to revise their capital budgets in order to adjust spending levels in response to lower commodity prices, we have experienced a significant decline in demand for our services.

Low oil prices and industry volatility are likely to continue through the near and long-term. As the global outbreak of the COVID–19 pandemic continues to rapidly evolve, management expects it to continue to materially and adversely affect our revenue, financial condition, profitability, and cash flow for an indeterminate period of time.

New Accounting Standards to be Adopted

No new accounting pronouncements issued or effective during the three months ended September 30, 2020 have had or are expected to have a material impact on our unaudited condensed consolidated financial statements.