SAExploration Holdings has restated its annual report for 2018 and selected financial data going back to 2014. As a result, at December 31, 2018, stockholders’ equity swung from equity of $15.4 million, as originally reported, to a deficit of $17.4 million!
Furthermore, the company states that former CEO Jeff Hastings and former CFO Brent Whiteley misappropriated $16.6 million between 2012 and 2019. Not surprisingly, the company stated that the Securities and Exchange Commission and the Department of Justice are conducting parallel investigations.
SAEX is a global provider of seismic data and processing services. It has its head office in west Houston. It currently has a market capitalization of $13 million.
At some point in 2019, the SEC started an investigation in relation to revenue recognition, accounts receivable and tax credits. In August 2019, the Board established a special committee of independent directors to oversee an external investigation with respect to the matter.
Vendor and customer secretly controlled by CEO and CFO
The special committee identified that Global Equipment Solutions, one of the company’s vendors in 2015 and 2016, was actually formed by Brent Whiteley and controlled by Mr Whiteley and/or Mr Hastings. The company paid $12 million to this entity in these two years. $5.9 million of this ended up being a capital contribution to a company called ASV. The company had originally recorded third party revenue from ASV in 2015 and 2016 of $84 million and $57 million respectively.
In the original 10-k filing, nearly all of that revenue from ASV in 2016 was still outstanding as a receivable in 2018. There was also a convoluted explanation about how the customer – ASV wasn’t named in the 2018 financial statements – was going to pay SAEX using monetization of exploration tax credits from the state of Alaska. That got the attention of the SEC. In the restated financials, this receivable was written off and ASV has been consolidated as a variable interest entity.
Consulting firm secretly controlled by CFO
Furthermore, from 2012 to 2019, payments of $4.1 million were made to a company called RVI Consulting. This was secretly controlled by Mr Whiteley. The payments were originally recorded as legal and professional expenses.
The special committee also identified the misappropriation of $0.5 million in 2013 in relation to the reimbursement of the individual tax liability of Mr Hastings.
In total, the amount of funds that the company states was misappropriated was $16.6 million ($12+$4.1+$0.5 million).
The company fired Mr Whiteley in August 2019. It suspended Mr Hastings on the same day and terminated him in November 2019.
The company has spent $6.9 million in legal and professional fees in relation to the SEC investigation in the nine months ended September 30, 2019. For good measure, the Alaskan Department of Revenue is also conducting an investigation into the issuance of tax credits and may impose its own sanctions.
The company has been selling off assets to try and improve its financial situation. In November it sold its assets in Australia for $9 million. In January, 2020 it sold certain seismic data assets for $15 million plus a possible earnout of $5 million.
At September 2019, the company had debt of $119 million and negative equity of $31 million.