Pulse Seismic Inc. - Annual Report 2015

ANNUAL REPORT

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45 Independent Auditors’ Report

IBC

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0 10 20 30 40 50 60 70
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8 Financial Highlights

9 President’s Letter

15 Management’s Discussion and Analysis

46 Consolidated Financial Statements

Notes to the Consolidated Financial Statements

Corporate Information

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13 Cash in Bank
Equity
Financing 2
152
Million
Shareholder
137
Free Cash Flow
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The Annual General and Special Meeting of Shareholders of Pulse Seismic Inc. will be held on Wednesday, May 18, 2016 at 3:00 p.m. MDT in the Cardium Room of the Calgary Petroleum Club, located at 319 – 5th Avenue S.W., Calgary, Alberta.

IN OUR FINANCIAL SURVIVABILITY

For the North American energy services sector, survivability became the name-of-the-game in 2015.

Like the rest of the industry, Pulse Seismic Inc. was caught in the downdraft of low commodity prices, and the Company generated significantly lower revenue and profitability year-over-year. But as a pure-play provider of seismic data, Pulse greatly outperformed the overall energy services sector in 2015 and continued to generate positive cash EBITDA and shareholder free cash flow – plus a 71 percent cash margin.

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Common Share
31
Purchases
152
Million
Net
CAPEX 40
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How? Through declining costs, a clean balance sheet and clear-headed capital allocation. Entering the current downturn in late 2014, Pulse was already a low-cost business. Entering 2016, our costs are much lower still. Pulse’s experienced and time-tested management team in 2015 trimmed the workforce, further reduced G&A, repaid all remaining debt, reduced common share buybacks and suspended the dividend.

The year-over-year impact is dramatic: Pulse will require just $6 million in 2016 to cover its cash costs, plus whatever we choose to spend on share buybacks. We are debt-free, with cash in the bank. In difficult times, there is great value in financial survivability.

Pulse’s cash G&A and operating costs have decreased year-overyear. With the discretionary cost of dividends having been suspended and an estimate of $6 million in combined cash costs for 2016, data library sales of over $6 million will generate positive shareholder free cash flow.

2015 ANNUAL REPORT

SEISMIC DATA LIBRARY SALES 2011-2015 ($Millions)

2D Seismic 3D Seismic

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38.4
$184
Million
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145.8
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Total 2D seismic data sales from 2011 – 2015 represented 21 percent of total data library sales.

Pulse’s counter-cyclical addition in January 2016 of a seismic dataset totalling 107,000 net km increased the Company’s 2D coverage by 32 percent , to 447,000 .

2D DATA LIBRARY SALES 2011-2015 BY ERA OF SEISMIC RECORDING (%)

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2
14
10
2000s
1990s
1980s
$38
Million
1970s 31
1960s 43
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2D DATA OWNED BY ERA OF SEISMIC RECORDING (%)

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8 3
17
2000s
25
1990s
1980s 340,000
Kilometres
Y/E 2015
1970s
1960s
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PULSE SEISMIC INC.

IN THE GROWTH OF OUR ASSET

Pulse is a growth company. Our core asset is our digital 2D and 3D seismic data library. Seismic data is integral to oil and gas exploration in the Western Canada Sedimentary Basin.

We increase our revenue-generating capacity by adding highquality datasets in attractive coverage areas. More data increases the chances that when an oil and gas company calls and asks whether we have seismic data coverage in the area they need, our answer is “Yes!”

The seismic data library’s value lies in its ability to make sales over and over and generate high-margin recurring revenue over many years. It’s not about the balance-sheet entry. Pulse’s seismic data library is largely amortized, with a book value of just $48 million at year-end 2015. But its estimated replacement cost is well over $2 billion. In addition, increasing environmental restrictions have made it very difficult to replicate many historical seismic surveys.

The high cost and difficulty of replacement are two reasons our data library is so attractive to oil and natural gas producers: licensing Pulse’s data is far more cost-effective than customers shooting their own new data. It’s far faster and more convenient, too. The data is available almost instantly and the customer can easily widen a given area’s coverage by licensing more of our data.

Seismic data does not deteriorate or expire. Thanks to modern reprocessing and interpretation software, raw data shot up to 50 years ago remains competitive with brand-new data. The data is electronically stored on ultra-modern servers, with security and backup, and the library itself incurs almost zero maintenance and operating costs. It can generate value anytime a customer calls.

The dramatic growth in Pulse’s data library has come about in two main ways:

29 percent of Pulse’s 2015 revenue came from sales of 2D data.

1. Pulse has continually sought opportunities to acquire large datasets that are high in technical quality, offer coverage over active oil and gas drilling areas and are priced attractively.

2. Pulse partners with customers in shooting new 3D seismic surveys. The customers pre-fund the majority of the capital cost and receive a licensed copy of the new survey. Pulse organizes and manages the survey, contributes a portion of the capital cost and retains ownership of the data, making it available for re-licensing to generate recurring revenue.

MAJOR SEISMIC DATA ACQUISITIONS

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ALBERTA ALBERTA ALBERTA
SASKATCHEWA
BRITISH BRITISH BRITISH
COLUMBIA COLUMBIA COLUMBIA
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2006 Foothills 2D Data Acquisition ost $32.5 million cash D km 14,400 otal Value $32.5 million	2010 3D and 2D Data Acquisition Cost $55.5 million cashplus 14.3 million Pulse common shares 2D km 81,997 3D km2 13,461 Total Value $75.5 million January 2 Cost 670,0 2D km 3D km2 Total Value

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3D SEISMIC
DATA ACQUISITIONS
km [2] added
As at January 1
2010 12,913 13,533
2011 26,446 68 ALBERTA
2012 26,514 575
2013 27,089 1,195
2014 28,284
2015 28,284 271
SASKATCHEWAN
10,000 14,000 18,000 22,000 26,000 30,000
Pulse net capital investment in 3D data ($Millions)
2010 $72.9
2011 $3.1
2012 $7.1
2013 $24.0
BRITISH
2014 $0
COLUMBIA
2015 $1.5
0 10 20 30 40 50 60 70 80
With the addition of the January 2016
2D data library purchase, Pulse has
2D Data Library Pre-2010 2D Major Seismic Data Library Acquisitions
increased its 2D coverage by
73 percent since the end of 2009. 3D Data Library Pre-2010 3D Major Seismic Data Library Acquisitions
Pulse’s 3D coverage has increased by
121 percent through a combination Total data librarTotal 2D data y coverage area >7 million surface acres447,000 km
of acquisitions and participation Total 3D data 28,613 km [2]
Estimated replacement value >$2 billion
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2010 $72.9
2011 $3.1
2012 $7.1
2013 $24.0
2014 $0
2015 $1.5
0 10 20 30 40 50 60 70 80
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With the addition of the January 2016 2D data library purchase, Pulse has increased its 2D coverage by 73 percent since the end of 2009. Pulse’s 3D coverage has increased by 121 percent through a combination of acquisitions and participation surveys in that same time period.

5 KEY DATA LIBRARY AREAS

Montney

2D Coverage 97,563 km 3D Coverage 19,957 km[2]

Deep Basin

2D Coverage 57,256 km

3D Coverage 13,490 km[2]

Duvernay

2D Coverage 152,720 km

3D Coverage 12,067 km[2]

Cardium

2D Coverage 57,180 km 3D Coverage 3,879 km[2]

Total 3D Data Library

28,613 km[2]

Total 2D Data Library

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ALBERTA
Fort St. John
Grande Prairie
Edmonton
Calgary
BRITISH COLUMBIA
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447,000 km

In 2015, 52 percent of total seismic data library sales were transaction-based.

SALES BREAKDOWN ($ MILLIONS)

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Traditional Sales Transaction-Based Sales
15.4
2010
14.9
33.1
2011
3.1
19.2
2012
44.9
19.5
2013
7.6
19.1
2014
16.6
10.1
2015
11.1
0 10 20 30 40 50
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IN THE WAY WE GENERATE REVENUE

Pulse offers the second-largest licensable seismic dataset in western Canada. Overall coverage ranges from the Far North to Montana and from northeast and southeast B.C. to Manitoba.

The 3D seismic coverage is concentrated in more recently developed “unconventional” reservoirs such as the Deep Basin, Cardium, Montney, Duvernay and others, which lie in a broad corridor stretching nearly 1,500 km along western Alberta and northeast B.C.

Pulse generates two main categories of data library sale. The first is the “regular” or “traditional” sale, in which oil and gas producing companies make a straightforward purchase of data related to drilling in new areas or new reservoirs. The second occurs as the result of the exchange of assets or companies as the highly competitive energy sector makes deals and additional international companies enter or expand in Western Canada. Sales triggered by such deal-making are known as “transaction-based” sales.

Traditional Sales Reflect Oil and Natural Gas Exploration and Development

It’s technically very difficult and highly uncommon to drill for oil or natural gas without first using 2D and/or 3D seismic to gain an understanding of the geological zones of interest. Companies paying licensing fees to access the enormous amounts of high-quality data in Pulse’s library generate Pulse’s “regular” or “traditional” sales.

Traditional sales tend to rise during periods of vigorous capital investment, high rates of drilling and continuous churn of assets and land positions. They can be especially high when large numbers of junior and intermediate-sized companies are active, as these companies tend not to have large legacy datasets or the capital for expensive proprietary shoots. In 2015, traditional sales fell to a cyclical low along with industry capital investment, drilling and mineral lease acquisitions.

Transaction-Based Sales Reflect Corporate-Level Activity in the Oil and Natural Gas Industry

Transaction-based seismic data library sales have become essential to Pulse’s business, as the graph at left illustrates. Transaction-based sales are a consequence of changing company structures and sizes and the movement of assets between companies. They can reflect the in-flow of new investment capital into western Canada or a re-ordering of corporate priorities as commodity prices, industry conditions or the regulatory and fiscal regime changes. Transactionbased sales can be very large, but are impossible to predict. The three main types of transaction-based sales are explained at right.

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TRANSACTION-BASED SALES HAPPEN IN THREE MAIN WAYS

Partnerships and Joint Ventures

ASSET OWNER: Holds a prospective or proven oil or natural gas property, but needs additional capital or expertise for further development, wants to reduce risk or faces expiring mineral leases and needs outside resources to commence drilling immediately.

NEWCOMER: A partner or joint venturer – often more than one – agrees to participate in the play through partial ownership or other consideration. The group pools the assets, expertise and capital.

WHAT HAPPENS? Under Pulse’s licensing agreements, any new technical or operational participant must purchase a data licence.

BENEFIT TO PULSE: Selling a second licence is very likely.

Corporate Merger/Acquisition

ASSET OWNER: A corporation needs to generate immediate shareholder value and places itself for sale, or is subject to a hostile take-over.

In 2015, 48 percent or $10.1 million of Pulse’s $21.2 million in revenue came from traditional sales of seismic data.

NEWCOMER: Pulse’s seismic data becomes available to the acquiring company at a discount.

WHAT HAPPENS? The event triggers a change-of-control clause in Pulse’s licensing agreement, and the buyer has 30 days to act.

BENEFIT TO PULSE: With a low likelihood of the acquirer having data over this area (especially for a new entrant to Western Canada), Pulse has good prospects to generate transfer fees.

Asset Sale

ASSET OWNER: Holds a prospective or producing oil or natural gas property that it wishes to monetize to reduce risks and/or raise capital for development elsewhere.

NEWCOMER: Purchases the property as a raw or producing asset, or purchases partial mineral rights to particular zones.

WHAT HAPPENS: The new asset owner will need to make arrangements for any seismic data they might need, because seismic licenses do not transfer with the asset.

BENEFIT TO PULSE: The asset sale brings in a potential new purchaser of the licenced data previously held by the asset seller.

2015 ANNUAL REPORT

FINANCIAL HIGHLIGHTS

(thousands of dollars except per share data,	Three months ended	December 31,	Year ended	December 31,
number of shares and kilometres of seismic data)	2015	2014	2015	2014
Revenue
Data library sales	8,759	8,385	21,214	35,743
Participation surveys	–	–	3,220	–
Total revenue	8,759	8,385	24,434	35,743
Amortization of seismic data library	4,979	5,279	22,836	22,507
Impairment loss	937	–	937	–
Net earnings (loss)	658	824	(5,308)	3,478
Per share basic and diluted	0.01	0.01	(0.09)	0.06
Cash provided by operating activities	2,901	13,122	17,094	27,985
Per share basic and diluted	0.05	0.23	0.30	0.47
Cash EBITDA(a)	7,043	6,661	15,121	28,615
Per share basic and diluted(a)	0.13	0.12	0.27	0.49
Shareholder free cash fow(a)	6,971	6,515	14,745	27,858
Per share basic and diluted(a)	0.12	0.11	0.26	0.47
Capital expenditures
Participation surveys	–	36	3,959	36
Seismic data purchases, digitization and related costs	750	183	933	733
Propertyand equipment additions	–	43	14	64
Total capital expenditures	750	262	4,906	833
Weighted average shares outstanding
Basic and diluted	56,041,324	57,865,941	56,628,524	58,957,072
Shares outstandingatperiod-end			55,592,689	57,247,843
Seismic library
2D in kilometres			339,991	339,991
3D in square kilometres			28,555	28,284

FINANCIAL POSITION AND RATIOS

	December 31,	December 31_,_
(thousands of dollars except ratios)	2015	2014
Working capital	4,996	5,296
Working capital ratio	4.44:1	2.79:1
Total assets	54,618	75,482
Long-term debt	–	5,367
TTM cash EBITDA(b)	15,121	28,615
Shareholders’ equity	45,389	58,401
Long-term debt to TTM cash EBITDA ratio	0.00:1	0.19:1
Long-term debt to equity ratio	0.00:1	0.09:1

(a) Non-GAAP financial measure defined in the Management’s Discussion and Analysis.

(b) TTM cash EBITDA is defined as the sum of the trailing 12 months’ cash EBITDA and is used to provide a comparable annualized measure.

PULSE SEISMIC INC.

PRESIDENT’S LETTER

In a year of weak commodity prices, steep reductions in oil and natural gas capital spending and poor financial performance among energy services companies, Pulse delivered positive cash EBITDA and shareholder free cash flow and entered 2016 debt-free. Although the Company’s financial results were significantly lower year-overyear, with seismic data library sales below the previous economic trough in 2009, we made the best of a challenging situation, further reducing costs and paying down debt, and outperformed most of the energy services sector.

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Neal Coleman
President and CEO
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With low commodity prices, a weak industry outlook and no sales visibility, it would be easy to dwell on the negative. We are not doing so. Pulse is firmly positioned to survive an extended downturn: costs are at a record low, we have no capital commitments or debt, and there is no erosion in the pricing of our core product – seismic data. More than that, we are able to act on opportunities for counter-cyclical acquisitions to enlarge our main asset and expand future revenue-generating capacity.

While we are intent on carefully managing the challenges of the present, we also continue to think about the future. That is because Pulse has value: value in our asset, the seismic data library; value to our large number of customers across Western Canada, as well as new entrants to our resource basin; and value to our shareholders. We believe investors are increasingly looking for value, and our intention is to generate value over the long term.

Value in Our Asset

Pulse has approximately 7 million surface acres of 2D and 3D seismic coverage across Western Canada with 3D coverage concentrated on the most active unconventional plays in northwest Alberta and northeast B.C. We offer the premium licensable seismic dataset in Western Canada, and its long-term value rests on these key attributes:

High-quality seismic data does not deteriorate or expire. It remains useful indefinitely. Improvements to seismic processing and interpretation software can, in fact, make vintage data more useful over time;
Seismic data can be relicensed over and over, generating recurring revenue for decades;
Well-situated data in areas with multiple hydrocarbon-bearing zones can allow the same dataset to be used repeatedly by different customers pursuing different zones under the same land area;
Seismic data providers typically do not cover the same areas. This gives each dataset unique value based on its technical quality and geographical coverage, and greatly reduces price competition; and
Pulse’s seismic library is largely amortized, but the total cost to re-acquire the same data through new shoots is estimated at over $2 billion. This creates extremely high barriers to entering this business.

2015 ANNUAL REPORT

Pulse’s Board of Directors and executive management are always thinking about how to make the best use of the Company’s internal capital in furtherance of enhancing long-term shareholder value.

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Pamela Wicks
VP Finance and CFO
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Energy services providers generally suffer pricing pressure and margin erosion during a downturn. Although Pulse’s sales declined in 2015, our data’s pricing did not experience significant pressure. The average price per licensed kilometre actually went up and our margin declined only slightly to 71 percent. Our customers continue to see value in licensed seismic data.

Seismic data’s enduring value creates the foundation for long-term recurring sales. Having more data increases a provider’s future revenue-generating capacity. This is why Pulse continually seeks opportunities to grow its library. Our purchase of a large dataset from Divestco in 2010 generated $74 million or 134 percent of its cash purchase price and nearly 100 percent of its total value of $76 million by year-end 2015, with the $45 million borrowed to fund that acquisition fully repaid. This performance demonstrates the longterm revenue-generating value of Pulse’s primary asset and explains why we conducted a further acquisition in early 2016.

Value in Our Capital Allocation

The main uses of Pulse’s capital are:

Acquiring new datasets;
Funding the Company’s portion of new 3D participation surveys;
Repurchasing common shares;
Repaying debt; and
Paying dividends.

Pulse’s Board of Directors and executive management are always thinking about how to make the best use of the Company’s internal capital in furtherance of enhancing longterm shareholder value. Capital allocation guided last October’s decision to suspend the dividend. We concluded it would be both more prudent and more forward-looking to preserve cash, repay debt and continue buying back shares while preserving our ability to act on counter-cyclical growth opportunities during a period of attractive valuations. Since suspending the dividend, we have renewed the Normal Course Issuer Bid (NCIB), repaid all remaining debt, purchased a large dataset at extremely good valuation without incurring debt, and still have cash in the bank.

In January 2016 we closed the acquisition of 107,000 km of 2D data plus 58 square km of 3D data for $2.15 million in cash plus approximately 670,000 Pulse shares valued at $2.24 each. While the total consideration of $3.65 million makes this seem like a small deal, it increases Pulse’s 2D library by 32 percent for just $34 per km. We are pleased to add so much 2D data at such low cost. Over the past five years, Pulse has averaged $7.7 million per year or nearly $39 million from 2D sales.

PULSE SEISMIC INC.

The NCIB also represents value in capital allocation. Since late 2006 when the NCIB was put in place, Pulse has repurchased 15.6 million shares, including 1.6 million in 2015. Value investors understand that removing this many shares from the market has materially increased Pulse’s financial results and value per share. Share buybacks help to stabilize the share price, generate a better than dollar-for-dollar return and focus Pulse’s following on committed, long-term shareholders. We consider this practise among our best uses of capital, with the further benefit of flexibility to quickly scale back or suspend purchases if we see a higher-return use for our cash.

Value in Our Business Model

The value in Pulse’s business model stems from our low costs, our asset’s continuing value and our business’s built-in optionality. It becomes especially clear during a cyclical trough.

Traditional energy service companies depend on capital-intensive equipment fleets and labour-intensive operations to generate revenue. Navigating downturns becomes very difficult. Pulse’s data library, by contrast, is a digital asset that incurs almost zero maintenance or operating costs. Our ability to generate revenue is independent of capital spending and incremental manpower. Pulse is more like a data company than a traditional energy services company.

During the year we made the difficult decision to reduce our team from 23 to 18 people. Decreasing annualized G&A and operating costs saved approximately $1.2 million versus 2014 spending.

While we want to grow for the long term, we never “grow at any cost” and we avoid acquisitions that fail our criteria for data quality, coverage, industry activity and valuation. Similarly, we only engage in participation surveys when there is solid customer pre-funding and the survey area meets multiple criteria, most important the high likelihood of future re-licensing. We seek areas where multiple factors will encourage and facilitate exploration and development activity by numerous companies. These include multiple geological zones of interest, fragmented and/or overlapping land positions, available gas processing and take-away pipeline infrastructure and a good mix of active companies. Over the past year we have not seen many opportunities for new 3D participation surveys that meet enough of these criteria. We are optimistic that new opportunities will come along and confident that previous investments in 3D data will generate recurring revenue.

The data library and the nature of licensing agreements enables Pulse to generate both traditional and transaction-based sales throughout the cycle (illustrated and explained on pages 6 and 7). In these times, we are becoming even more customer-focused in our business development approach. Instead of lowering our basic pricing, we have been lowering the customer’s barriers to selecting Pulse’s data by demonstrating the value of the specific data to the customer’s individual project. By creating conditions for mutual success, Pulse’s business model can remain a revenue-generating engine even in a downturn.

Value in Our Financial Management and Performance

Entering 2015 we anticipated a weaker year than 2014. Following the first quarter’s sales of only $1.3 million, we made preparations for an extended downturn. The second and third quarters were also weak, followed by a strong fourth quarter that slightly outperformed the fourth quarter of 2014. Fourth quarter revenue largely comprised traditional sales; despite the seemingly ripe M&A environment, bid-ask spreads remained high and the weak deal flow generated few transaction-based sales.

During the year we made the difficult decision to reduce our team from 23 to 18 people. Decreasing annualized G&A and operating costs saved approximately $1.2 million versus 2014 spending. Pulse continued to generate cash EBITDA and we used a portion to repay essentially all of our long-term debt of $5.5 million, reducing interest costs. With the dividend suspension, Pulse’s annualized cash costs declined to only $6 million. That is less than half the level of 2014.

2015 ANNUAL REPORT

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Trevor Meier
VP Sales and Marketing
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In Pulse, investors see a company that has focused on survivability, has the financial flexibility to continue growing, generates free cash flow at remarkably low revenue, and stands to generate shareholder value when its sales pick up again – all with fewer shares outstanding.

The approximately 25 percent decline in the Company’s share price was significantly less than for most energy services and many E&P companies, and our stock ended the year trading at a higher cash EBITDA multiple. We believe the capital markets recognized the benefits of Pulse’s debt repayment, dividend suspension, cost cutting, repurchase of shares and relative financial outperformance. Indeed, one financial analyst wrote that Pulse is the only company he was aware of that suspended its dividend but continues to buy back shares.

Our capital allocation decisions have received strong shareholder support. We believe this reflects a common theme amongst the holders of a large percentage of Pulse’s shares, that some investors continue to seek value in a volatile market. In Pulse, they see a company that has focused on survivability, has the financial flexibility to continue growing, generates free cash flow at remarkably low revenue, and stands to generate shareholder value when its sales pick up again – all with fewer shares outstanding.

Financial highlights from 2015:

Seismic data library sales of $21.2 million, of which 48 percent was traditional sales, an overall decrease of 41 percent from 2014;
Cash EBITDA of $15.1 million, down by 47 percent from $28.6 million in 2014, with cash EBITDA per share decreasing by 45 percent to $0.27 from $0.49 per share basic and diluted;
Shareholder free cash flow of $14.7 million compared to $27.9 million in 2014, with shareholder free cash flow per share down by 45 percent year-over-year to $0.26 from $0.47 per share basic and diluted;
Data library amortization expense of $22.8 million, essentially unchanged from 2014;
Approximately 67 percent of revenue generated from fully amortized data;
Repurchase of 1.6 million common shares, 3 percent of the total outstanding at year-end 2014, at a cost of approximately $4.1 million, averaging $2.50 per share;
Quarterly dividends of $0.02 per share for the first, second and third quarters, totalling $3.4 million paid to shareholders in 2015; and
Repayment of all of Pulse’s long-term debt ($5.5 million at December 31, 2014). At December 31, 2015 Pulse had short-term borrowing of $222,000. At January 15, 2016 the Company was debt-free with a cash balance of $1.4 million.

Value in the Operational Playing Field

Pulse’s better-than-expected fourth quarter included a large component of traditional sales. One large transaction included a transfer fee but the acquiring company also elected to expand its coverage around the acquired assets, enlarging the deal through a traditional sale. Another sale was 100 percent exploration-driven. And several smaller 3D data sales were additions to survey areas the customer already owned.

PULSE SEISMIC INC.

Exploration and development activity continues even in the depths of the downturn, and Pulse’s asset remains a useful tool to active companies. These are mainly larger companies that can afford to take a longer-term view of investment returns while acting opportunistically to add assets at favourable valuations.

Western Canada is often described as a “high-cost basin”, but the unconventional resource revolution has unlocked enormous liquids-rich gas plus some light oil reservoirs that offer among the lowest supply costs and/or best returns in North America. These especially include the Montney, Deep Basin and Duvernay. One major investment bank ranked the Montney and Deep Basin as the number-one and number-two gas plays in North America by “profit-investment ratio”.

According to one research report, in 2014 the Deep Basin delivered the largest production additions in the play’s 35-year history, and significant drilling continued in 2015, with production growing to 4.5 bcf-equivalent per day. Gas production from the Montney has reached 4.8 bcf per day and production additions in 2014 were almost twice as high as in 2013. Another report calculated that the Montney’s best zones have a full-cycle breakeven price of just US$0.50 per mcf, with other Montney areas at $2.25 per mcf and the Deep Basin at $2.50-$2.75 per mcf. Another study concluded that 1.6 bcf per day of new supply can be brought on-stream from these plays at a gas price below $2.25 per mcf.

My point is certainly not that we should expect fast-paced drilling at current prices, only that it would not require much higher gas prices to revive capital investment in Western Canada’s better plays. Companies that were visionary and lucky enough to establish positions in these areas and proved their development models repeatable over multiple wells remain active. The associated activity is concentrated in a small geographical footprint that remains busy with rigs even at a time when Canada’s drilling fleet is less than 25 percent utilized. These areas fall within Pulse’s Alberta-B.C. Multi-Zone Corridor, where the Company offers strong 2D and 3D coverage and generated 40 percent of its 2015 sales.

Value in Our Future Positioning

Pulse’s short-term outlook is even more cautious than one year ago. So far in 2016, mineral lease auctions or “land sales” in Alberta and B.C. are at record lows and drilling rig utilization is abysmal. Our seismic data library sales do not fall under long-term contracts that generate known recurring revenues. Pulse begins each year at zero and needs to work on every sale. Traditional seismic data library sales for the year could be as low as or even lower than in 2015.

We do expect far more mergers and acquisitions to close this year because commodity prices remain low, cash flows of many companies have collapsed, debt ratios have soared and banks may begin forcing the previously high bid-ask spreads to close. Last year, energy sector M&A spending in Western Canada actually declined by 50 percent and the deal count fell from 111 to 60. According to one research report, by mid-January this year there were 49 asset packages covering over 4 million acres and 250,000 boe per day of production. More M&A activity will be highly positive, although it still won’t bring visibility to Pulse’s revenues. Transaction-based sales are unpredictable because of the variables in the transactions themselves, ranging from whether the acquiring company already holds the same data to whether it wishes to drill on the acquired assets.

Within the current global context of volatility and weakness in many sectors and regions, however, I do not believe investors are expecting short-term miracles. Value investors are focused on the longer term – and so is Pulse. With our annual cash costs of approximately $6 million, including essentially zero interest, and no dividend, we will make the most of every revenue dollar and can continue to generate shareholder free cash flow and buy back

With our annual cash costs of approximately $6 million, including essentially zero interest, and no dividend, we will make the most of every revenue dollar and can continue to generate shareholder free cash flow and buy back shares at low revenue. We will weather the storm and, more important for the long term, we have the financial flexibility to grow the seismic data library.

2015 ANNUAL REPORT

We will continue to seek out the next transformational acquisition – including legacy datasets owned by E&P companies seeking to monetize assets – thereby building our database, adding value to our asset and further increasing revenue-generating capacity.

shares at low revenue. We will weather the storm and, more important for the long term, we have the financial flexibility to grow the seismic data library. Pulse’s revised $30 million credit facility is undrawn and has an accordion feature for expansion to $70 million.

Our long-term goal is to become Western Canada’s largest licensable data library. The January acquisition takes us part of the way. The new dataset permanently strengthens Pulse’s revenue-generating capacity, and we are confident it will generate future sales. We will continue to seek out the next transformational acquisition – including legacy datasets owned by E&P companies seeking to monetize assets – thereby building our database, adding value to our asset and further increasing revenue-generating capacity. Growth positions Pulse to benefit when there is even a modest upturn. Our history demonstrates that our revenues can increase significantly with virtually no increase in operating costs, making Pulse a very high-margin business.

What might revive field activity and demand for seismic data? Foundational are supportive government policies, including the political drive to enhance western Canada’s energy export capacity. Major capital projects in Canada have fallen somewhat out of political favour, yet so much of Canada’s economic potential depends on a healthy energy sector. A downturn is, in fact, the most favourable time from the standpoint of labour costs and availability to construct major projects. Bluntly, the energy sector cannot thrive without a fiscal regime, particularly at the provincial level, that encourages investment, growth, drilling, land acquisition – the full cycle of oil and gas exploration and development.

In addition, we will require higher commodity prices. Higher natural gas prices would be especially helpful because Western Canada’s energy sector is more responsive to changes in the gas price, a gas-related upturn tends to involve junior and intermediate companies that need seismic, and gas exploration requires a greater land area, which requires more seismic coverage. Higher gas prices would trigger private equity-funded activity, renewed interest by foreign companies, experienced local management teams launching or expanding companies, and established producers ramping up activity.

While we expect traditional sales of seismic data to remain low during this downturn, as we have seen in recent years, transaction-based sales can significantly improve our results at any time. As we wait for changes in the fundamentals which will create a more supportive business environment, we are positioned to continue to generate value for shareholders.

==> picture [83 x 50] intentionally omitted <==

Neal Coleman

President and Chief Executive Officer March 18, 2016

PULSE SEISMIC INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2015

The.following.Management’s.Discussion.and.Analysis.(MD&A).of.the.financial.condition.and.results.of.operations. of.Pulse.Seismic.Inc..(“Pulse”.or.“the.Company”).for.the.year.ended.December.31,.2015.has.been.prepared.taking. into.consideration.information.available.to.March.2,.2016.and.is.supplemental.to.the.audited.consolidated.financial. statements.and.related.notes.for.the.year.ended.December.31,.2015..Throughout.this.MD&A.reference.will.be.made. in.the.text.and.tables.to.“2015”,.which.refers.to.the.year.ended.December.31,.2015,.and.to.“2014”,.which.refers.to. the.year.ended.December.31,.2014.

The.consolidated.financial.statements.were.prepared.in.accordance.with.International.Financial.Reporting.Standards. (IFRS). with. comparative. figures. for. the. prior. year.. The. consolidated. financial. statements. and. the. MD&A. were. reviewed.by.Pulse’s.Audit.Committee.and.approved.by.Pulse’s.Board.of.Directors..All.financial.information.is.reported. in.Canadian.dollars..This.MD&A.discusses.matters.which.Pulse’s.management.considers.material..Management. determines.whether.information.is.material.based.on.whether.it.believes.a.reasonable.investor’s.decision.whether. or.not.to.buy,.sell.or.hold.shares.in.the.Company.would.likely.be.influenced.or.changed.if.the.information.were. omitted.or.misstated..Readers.should.also.read.the.cautionary.statement.in.“Forward-Looking.Information”.

Overview ............................................................................................ 16 Key.Performance.Indicators...................................................... 17 Corporate.Highlights ..................................................................... 18 Seismic.Industry.Cycles.and.Seasonality............................. 19 Outlook ................................................................................................ 19 Discussion.of.Operating.Results .............................................. 20 Review.of.Financial.Position........................................................ 24 Financial.Summary.of.Quarterly.Results.............................. 27 Selected.Annual.Financial.Information.................................. 28 Transaction-based.vs..Traditional.Sales:.. Six-Year.History................................................................................ 29 Contractual.Obligations ............................................................... 30

Liquidity,.Capital.Resources.and.. Capital.Requirements ................................................................... 30 Non-Capital.Resources.................................................................. 34 Non-GAAP.Financial.Measures.and.Reconciliations........ 34 Financial.Instruments ................................................................... 36 New.IFRS.Standards ...................................................................... 37 Critical.Accounting.Estimates .................................................. 38 Disclosure.Controls.and.Procedures.(DC&P).. and.Internal.Controls.Over.Financial.Reporting.(ICFR).. 39 Risk.Factors......................................................................................... 40 Additional.Information ................................................................. 43 Forward-Looking.Information................................................... 43

MANAGEMENT’S DISCUSSION & ANALYSIS

OVERVIEW

ABOUT PULSE

Pulse.is.a.market.leader.in.the.acquisition,.marketing.and.licensing.of.two-dimensional.(2D).and.three-dimensional.(3D). seismic.data.for.the.energy.sector.in.Western.Canada..Seismic.data.is.used.by.oil.and.natural.gas.exploration.and.development. companies.to.identify.portions.of.geological.formations.that.have.the.potential.to.hold.hydrocarbons..Seismic.data.is.used. in.conjunction.with.well.logging.data,.well.core.comparisons,.geological.mapping.and.surface.outcrops.to.create.a.detailed. map.of.the.Earth’s.subsurface.at.various.depths.

Pulse.owns.the.second-largest.licensable.seismic.data.library.in.Canada,.currently.consisting.of.approximately.28,600.net. square.kilometres.of.3D.seismic.and.447,000.net.kilometres.of.2D.seismic..The.library.extensively.covers.the.Western. Canada.Sedimentary.Basin.(WCSB),.where.most.of.Canada’s.oil.and.natural.gas.exploration.and.development.occur.

Pulse.calculates.net.kilometres.of.2D.data.and.net.square.kilometres.of.3D.data.by.multiplying.the.number.of.kilometres.of. seismic.data.in.each.2D.line.and.the.number.of.square.kilometres.of.seismic.data.in.each.individual.3D.seismic.dataset.by. Pulse’s.percentage.of.ownership.in.each.

SEISMIC DATA

Seismic.data.is.an.essential.part.of.the.oil.and.natural.gas.exploration.and.development.process..Companies.engaged.in.oil. and.natural.gas.exploration.and.development.use.seismic.data.to.assist.in.exploring.for.and.developing.new.reserves.and. in.establishing.the.extent.of.existing.reserves..In.acquiring.seismic.data,.an.acoustical.energy.wave.is.transferred.from.an. energy.source.at.or.near.the.surface.of.the.Earth.to.the.subsurface..These.seismic.waves.reflect.off.the.various.geological. beds.or.strata.in.the.Earth’s.subsurface..Sophisticated.sensors.and.recording.instruments.at.the.surface.collect.the.reflected. waves.and.convert.them.to.digital.form..The.data.is.subsequently.processed.and.an.image.of.the.subsurface.formations.is. created,.providing.explorationists.with.valuable.data.on.the.potential.of.a.particular.area.to.yield.oil.or.natural.gas.reserves,. and.assisting.in.the.selection.of.drilling.locations.

2D Seismic

2D.seismic.data.is.measured.in.linear.kilometres.and.after.processing.provides.a.sectional.illustration.of.geological.formations. directly.below.the.line.on.which.the.data.was.acquired..2D.seismic.can.extend.over.a.distance.spanning.many.kilometres.. Intersecting.2D.lines.can.enable.explorers.to.map.large.pools.of.oil.and.natural.gas,.but.without.the.precision.required.for. smaller.or.more.complex.targets..Exploration.companies.typically.use.2D.seismic.to.get.a.sense.of.the.regional.geology.of. an.area.they.think.is.prospective.for.oil.and.natural.gas..2D.seismic.data.continues.to.be.used.to.generate.regional.leads.and. prospects.in.oil.and.natural.gas.exploration.areas.

3D Seismic

3D.seismic.data.is.measured.in.square.kilometres.and.after.processing.provides.map-like.overhead.views.as.well.as.threedimensional.visualizations.of.the.subsurface.geology..3D.seismic.data.is.shot.in.grids,.generating.a.three-dimensional.image. of.the.subsurface..3D.seismic.data.enables.a.more.precise.definition.of.geologically.complex.targets,.and.facilitates.precise. placement.of.oil.and.natural.gas.wells..3D.seismic.is.generally.used.to.zero-in.on.a.discrete.area.of.geological.interest.initially. identified.with.2D.seismic..3D.seismic.data.is.particularly.important.for.horizontal.drilling,.unconventional.plays.(such.as. shale.gas.and.tight.sands).and.complex.conventional.drilling..Typical.3D.seismic.surveys.cover.an.area.anywhere.from.a.few. square.kilometres.to.several.hundred.square.kilometres.

PULSE SEISMIC INC.

MISSION AND STRATEGY

Pulse.is.a.pure-play.seismic.data.library.company.focused.on.the.acquisition,.marketing.and.licensing.of.seismic.data.to. the.western.Canadian.oil.and.gas.sector..The.Company’s.business.model.is.designed.to.generate.a.growing.stream.of.cash. flow.by.repeatedly.licensing.the.data.in.its.seismic.data.library.to.oil.and.natural.gas.companies..Pulse’s.strategy.is.to.pursue. growth.opportunities.that.meet.its.financial.and.technical.criteria.while.maintaining.a.low.cost.structure.

Current.seismic.processing.and.visualization.software.allows.historical.2D.and.3D.data.to.be.reprocessed.and.reinterpreted,. thereby.maintaining.the.technical.usefulness.and.marketability.of.historical.data.and,.through.repeated.licensing.sales,. generating.recurring.revenue..The.Company.is.continuously.seeking.and.evaluating.opportunities.to.expand.its.data.library. by.acquiring.high-quality.2D.and.3D.datasets.that.cover.some.of.western.Canada’s.most.prospective.current.exploration. regions,.are.complementary.to.its.current.library,.and.are.available.at.favourable.valuations..This.is.accomplished.in.two. ways..Pulse.purchases.proprietary.rights.to.complementary.2D.and.3D.seismic.datasets.when.the.opportunity.arises,.and. it.partners.with.customers.on.surveys.for.new.3D.seismic.data..Participating.customers.are.provided.with.a.licensed.copy. while.Pulse.retains.proprietary.rights.to.the.seismic.data.acquired..Pulse.uses.Company.personnel.to.market.and.manage. participation.surveys,.and.subcontracts.field.acquisition.activities.to.third.parties.

ECONOMIC ENVIRONMENT AND SEISMIC INDUSTRY

Pulse.has.been.successful.throughout.prior.commodity.price.cycles,.due.to.its.low.cost.structure.and.ability.to.generate. a.high.level.of.shareholder.free.cash.flow,.a.non-GAAP.measure.that.the.Company.considers.important.in.evaluating.its. financial.performance.

Pulse’s. success. depends. on. its. ability. to. provide. seismic. coverage. over. the. geographical. areas. associated. with. certain. geological.development.areas.or.“play.types”.that.the.exploration.and.development.sector.focuses.on.in.a.given.period.. Activity.in.various.play.areas.is.driven.by.commodity.prices,.geological.understanding.and.the.economic.application.of. available.technologies..Pulse.works.continuously.to.enlarge.its.coverage.over.play.areas.in.which.numerous.producers.are. active.for.sustained.periods.

The.oil.and.natural.gas.exploration.and.development.industry.continues.to.shift.towards.natural.gas.reservoirs.that.are.high. in.natural.gas.liquids.and.crude.oil,.in.unconventional.shale.and.less-permeable.or.tight.formations.that.were.not.economic. or.technically.possible.to.develop.in.the.past..2D.and.3D.seismic.data.are.important.tools.for.these.plays..2D.seismic.data. is.used.to.map.the.regional.faults.in.shale.gas.prospects.and.3D.seismic.data.is.used.to.map.the.exact.contours.of.variable. reservoirs,.as.well.as.small-scale.fractures.in.shale.formations,.to.plan.accurate.paths.for.horizontal.wells.

Pulse’s.business.results.depend.to.a.large.extent.on.the.level.of.capital.spending.on.exploration.activities.by.oil.and.natural. gas.companies..A.sustained.increase.or.decrease.in.the.price.of.natural.gas.or.crude.oil,.therefore,.which.could.have.a. material.impact.on.exploration.activities,.could.also.materially.affect.the.Company’s.revenue,.financial.position,.results.of. operations,.cash.EBITDA.and.shareholder.free.cash.flow..The.relationship.is.not.direct,.however,.and.the.Company.has. generated.high.revenue.in.periods.of.weak.oil.and.natural.gas.prices.and.vice-versa.

KEY.PERFORMANCE.INDICATORS

The. key. performance. indicators. used. by. Pulse’s. management. to. analyze. business. results. are. seismic. revenue,. in. total. and.broken.down.between.data.library.sales.and.participation.survey.revenue,.net.earnings,.cash.provided.by.operating. activities,.cash.EBITDA,.shareholder.free.cash.flow,.and.the.long-term.debt.to.trailing.twelve-month.(TTM).cash.EBITDA. ratio..The.definitions.of.cash.EBITDA.and.shareholder.free.cash.flow.are.provided.in.“Non-GAAP.Financial.Measures.and. Reconciliations”..The.calculation.of.TTM.cash.EBITDA.and.long-term.debt.to.TTM.cash.EBITDA.ratio.are.provided.in.“Liquidity,. Capital.Resources.and.Capital.Requirements”.

MANAGEMENT’S DISCUSSION & ANALYSIS

Results.for.the.key.performance.indicators.for.the.three.months.and.year.ended.December.31,.2015,.with.comparative. figures.for.2014,.are.set.out.in.the.following.table

	Three months ended	Three months ended	December 31,		Year ended December 31,	Year ended December 31,
(thousands of dollars except
per share data and ratios)	2015	2014	Variance	2015	2014	Variance
Data library sales	8,759	8,385	374	21,214	35,743	(14,529)
Participation survey revenue	-	-	-	3,220	-	3,220
Total seismic revenue	8,759	8,385	374	24,434	35,743	(11,309)
Net earnings (loss)	658	824	(166)	(5,308)	3,478	(8,786)
Per share basic and diluted	0.01	0.01	0.00	(0.09)	0.06	(0.15)
Cash provided by operating activities	2,901	13,122	(10,221)	17,094	27,985	(10,891)
Per share basic and diluted	0.05	0.23	(0.18)	0.30	0.47	(0.17)
Cash EBITDA	7,043	6,661	382	15,121	28,615	(13,494)
Per share basic and diluted	0.13	0.12	0.01	0.27	0.49	(0.22)
Shareholder free cash fow	6,971	6,515	456	14,745	27,858	(13,113)
Per share basic and diluted	0.12	0.11	0.01	0.26	0.47	(0.21)
Long-term debt to TTM cash EBITDA ratio				0.00:1	0.19:1	(0.19):1

The.significant.reduction.in.data.library.sales.for.the.year.ended.December.31,.2015.is.the.main.factor.contributing.to.the. decline.in.nearly.all.of.the.Company’s.key.performance.metrics.from.the.prior.year’s.periods..The.Company.experienced.low. data.library.sales.in.2015.due.to.drastic.cutbacks.in.the.energy-producing.sector’s.capital.spending..Both.transaction-based. sales.and.traditional.sales.were.lower.in.2015.than.in.2014..See.“Transaction-based.vs..Traditional.Sales:.Six.year.history”.

The.improvement.in.the.long-term.debt.to.TTM.cash.EBITDA.ratio.from.0.19:1.at.the.end.of.2014.to.zero.at.year-end.2015. was.a.result.of.Pulse.repaying.all.remaining.long-term.debt.during.2015..Cash.EBITDA.decreased.to.$15.1.million.in.2015.from. $28.6.million.in.2014.

The.Company.added.136.square.kilometres.of.new.high-quality.3D.seismic.data.to.the.library.through.the.completion.of.the. Peco.South.3D.survey.in.west.central.Alberta,.which.commenced.in.January.2015.and.was.completed.in.March.2015..The. Company.recognized.100.percent.of.the.survey.revenue.and.the.initial.amortization.expense.related.to.this.survey.in.the. first.quarter.of.2015..

CORPORATE.HIGHLIGHTS

On.December.16,.2015.the.Company.announced.the.annual.renewal.of.its.normal.course.issuer.bid.(NCIB).to.purchase.up. to.3,509,326.common.shares.over.the.following.year..During.2015,.the.Company.purchased.1,625,400.(2014.–.2,101,277). common.shares.under.the.program.at.a.weighted.average.price.of.$2.50.per.share.(2014.–$3.01),.including.commissions,.for. a.total.cost.of.approximately.$4.1.million.(2014.–.$6.3.million)..In.total,.since.initiating.the.NCIB.program.in.November.2006,. the.Company.has.purchased.approximately.15.6.million.common.shares.at.a.total.cost.of.$39.4.million,.while.also.issuing 14.3.million.shares.to.acquire.a.significant.database.in.2010..Management.believes.that.its.common.shares.may.from.time.

PULSE SEISMIC INC.

to.time.be.undervalued.and.that.such.purchases.are.in.the.interests.of.the.Company.and.its.shareholders..The.NCIB.is.an. integral.part.of.Pulse’s.capital.allocation.strategy.

On.January.18,.2016.the.Company.announced.that.it.had.extended.its.revolving.credit.facility.for.an.additional.year.with. a.syndicate.of.Canadian.banks..The.Company.elected.to.reduce.the.facility’s.available.borrowing.amount.to.$30.0.million. from.$50.0.million..Up.to.$5.0.million.of.the.revolving.facility.remains.available.as.an.operating.line.of.credit..The.three-year. revolving.credit.facility’s.maturity.date.was.extended.to.February.13,.2019..The.accordion.feature.allowing.the.Company.to. increase.the.facility.was.increased.from.$20.0.million.to.$40.0.million.leaving.the.total.credit.available.at.$70.0.million.

On.January.26,.2016.the.Company.completed.the.acquisition.of.approximately.107,000.net.kilometres.of.2D.seismic.data.and. 58.net.square.kilometres.of.3D.seismic.data,.increasing.Pulse’s.2D.seismic.data.library.by.31.5.percent.from.approximately. 340,000.net.kilometres.to.approximately.447,000.net.kilometres..The.acquisition.includes.data.spread.throughout.the. Western.Canada.Sedimentary.Basin.and.is.complementary.to.Pulse’s.existing.data..The.purchase.price.of.$3.65.million.was. funded.through.the.issuance.of.669,643.common.shares.plus.$2.15.million.in.cash.

In.2015,.Pulse.paid.three.quarterly.dividends.of.$0.02.per.common.share,.totalling.$3.4.million.for.the.year..

With. lower. period-over-period. seismic. data. library. sales. associated. with. challenging. market. conditions. and. the. strong. possibility. of. an. extended. downturn,. in. November. 2015. the. Company. suspended. the. regular. quarterly. dividend. of $0.02.per.share.

SEISMIC.INDUSTRY.CYCLES.AND.SEASONALITY

Revenue.fluctuations.are.a.normal.part.of.the.seismic.data.library.business.and.data.library.sales.can.vary.significantly.from. quarter.to.quarter..Fourth-quarter.data.library.sales.have.frequently.been.stronger.than.in.other.quarters,.with.seismic.data. sales.being.triggered.as.oil.and.natural.gas.companies.finalize.capital.expenditures.near.year-end..Third-quarter.data.library. sales.are.often.lower.than.in.other.quarters.due.to.slower.business.conditions.during.the.summer.months..Data.library.sales. can,.however,.occur.at.any.time.during.any.quarter..This.is.due.to.the.nearly.continual.changes.in.general.oil.and.natural. gas.industry.conditions,.increased.demand.for.seismic.data.covering.a.specific.area.or.play,.timing.of.public.offerings.of. petroleum.and.natural.gas.rights.(land.sales),.as.well.as.corporate.merger-and-acquisition,.joint.venture.and.asset.disposition. activity.by.Pulse’s.clients.

Participation.survey.revenue.also.varies.significantly.from.quarter.to.quarter..The.majority.of.new.3D.seismic.data.is.typically. acquired.under.frozen.ground.conditions.from.November.to.March..Summer.seismic.programs.can.only.be.completed.in. certain.areas.that.have.drier.ground.conditions.and.can.be.easily.accessed.without.environmental.harm..In.addition,.the.size. and.pre-funding.levels.of.individual.participation.surveys.can.vary.significantly.

OUTLOOK

Pulse’s.short-term.outlook.is.more.cautious.than.one.year.ago..The.Company’s.first.quarter.seismic.data.library.sales.are. likely.to.be.weaker.than.last.year’s.very.low.level,.and.traditional.sales.for.the.year.could.well.be.lower.than.in.2015.

So.far.in.2016,.oil.and.natural.gas.prices.remain.weaker.than.one.year.ago.and.mineral.lease.auctions.or.“land.sales”.in. Alberta.and.B.C..are.at.record.lows..The.Canadian.Association.of.Oilwell.Drilling.Contractors.forecasts.that.rig.utilization.in. 2016.will.average.only.22.percent,.with.an.average.of.only.159.out.of.western.Canada’s.industry.fleet.of.well.over.700.rigs. deployed..In.late.January,.the.Petroleum.Services.Association.of.Canada.lowered.its.2016.drilling.forecast.to.4,900.wells,. compared.to.5,300.wells.in.2015.and.11,500.wells.in.2014..All.of.this.is.suggestive.of.low.traditional.seismic.data.sales.

Prospects.have,.however,.improved.for.a.faster.pace.of.merger.and.acquisition.activity..With.commodity.prices.remaining. low.and.cash.flows.among.E&P.companies.widely.expected.to.decline.or.become.negative,.causing.debt.ratios.to.increase. sharply,.banks.are.expected.to.strongly.encourage.their.borrowers.to.narrow.bid-ask.spreads.and.close.transactions.to. create.larger,.more.viable.companies..Following.a.year.of.surprisingly.low.M&A.spending.and.weak.deal-flow,.one.research. report.stated.that.by.mid-January.2016.there.were.49.asset.packages.being.marketed,.covering.over.4.million.acres.and. 250,000.boe.per.day.of.production..

MANAGEMENT’S DISCUSSION & ANALYSIS

More.M&A.activity.will.create.favourable.conditions.for.additional.transaction-based.sales..The.unpredictability.of.transactionbased.sales,.however,.means.that.Pulse.will.continue.to.lack.visibility.as.to.its.2016.revenues..Corporate.transactions.are.a. necessary.but.not.sufficient.condition.to.generate.seismic.data.relicensing.fees;.generating.transaction-based.sales.depends. on.the.nature.of.the.underlying.corporate.transaction.and.on.the.acquisitor’s.plans.for.the.assets.in.question..Please.see. “Transaction-based.vs..Traditional.Sales:.Six-Year.History“.for.a.full.explanation.of.transaction-based.sale.types.and.how they.occur..

With.its.annual.cash.costs.of.approximately.$6.0.million,.low.financing.costs.and.no.dividend,.Pulse.can.continue.to.generate. cash.EBITDA.and.shareholder.free.cash.flow.at.low.revenue.while.buying.back.additional.shares.and.maintaining.the.financial. flexibility.to.grow.its.seismic.data.library..Pulse’s.revised.$30.0.million.credit.facility.is.undrawn.as.of.this.date.and.includes.an. accordion.feature.for.expansion.to.$70.0.million.

Pulse’s.long-term.goal.is.to.become.Western.Canada’s.largest.licensable.data.library..The.Company’s.history.demonstrates. that.its.revenues.could.accelerate.at.any.time,.and.can.double.or.triple.with.virtually.no.increase.in.costs,.making.Pulse.a. high-margin.business.under.even.modestly.positive.industry.conditions.

DISCUSSION.OF.OPERATING.RESULTS

SUMMARY FOR THE YEAR ENDED DECEMBER 31, 2015

Earnings (Loss) Before Income Taxes

Pulse.generated.a.loss.before.income.taxes.of.$6.3.million.(($0.11).per.share.basic.and.diluted).compared.to.earnings.before. income.taxes.of.$4.6.million.($0.08.per.share.basic.and.diluted).for.2014..The.decrease.was.mainly.attributable.to.the. $11.3.million.decrease.in.total.seismic.revenue.and.the.recognition.of.an.impairment.loss.of.$937,000,.offset.somewhat.by. decreases.in.both.operating.and.financing.expenses.and.lower.deferred.income.taxes.

Revenue

Total.seismic.revenue,.including.data.library.sales.and.participation.survey.revenue,.was.$24.4.million.for.2015.compared.to. $35.7.million.for.2014..

Data Library Sales

Data.library.sales.are.conducted.under.various.types.of.sale.contracts..These.are.classified.as.data.library.sales,.library.cards. (discount.agreement,.paid.on.predetermined.payment.terms.with.periods.of.up.to.one.year.to.select.data),.commitment. cards.(discount.agreement,.paid.when.data.is.selected.and.delivered.within.a.one-year.period).and.review.and.possession. agreements.(client.is.provided.with.data.to.review.and.selects.a.portion.of.this.data.to.license,.with.the.agreement.having.set. payment.terms)..Pulse.plans.to.continue.providing.customers.with.a.variety.of.contract.options.in.order.to.maximize.data. library.sales.in.the.future..The.unearned.portion.of.a.contract’s.value.is.deferred.until.Pulse’s.revenue.recognition.criteria.are. met,.with.data.library.sales.revenue.being.recognized.upon.delivery.of.seismic.data.to.the.customer.

Data.library.sales.consist.of.traditional.sales.and.transaction-based.sales..There.are.three.main.types.of.transaction-based. sale:.partnership.or.joint.venture.sales,.corporate.merger.or.acquisition.sales,.and.asset.disposition-related.sales..For.further. information.on.transaction-based.sales,.see.“Transaction-based.vs..Traditional.Sales:.Six-Year.History”.below..

For.2015,.seismic.data.library.sales.were.$21.2.million.compared.to.$35.7.million.in.2014..The.Company.experienced.decreases. in.both.transaction-based.and.traditional.sales.

In.2015,.96.percent.of.seismic.data.library.sales.were.generated.internally.by.Pulse’s.sales.staff.compared.to.95.percent.in. 2014..Large.seismic.data.sales.and.relicensing.(change.of.control).fees.are.negotiated.by.the.Company’s.internal.sales.and. marketing.department.as.opposed.to.the.external.brokerage.community.

PULSE SEISMIC INC.

Geographical Sales Breakdown

The.Company’s.customers.are.generally.focusing.on.liquids-rich.natural.gas.and.oil.pools.found.primarily.in.a.broad.corridor. running.from.northwest.of.Calgary,.Alberta,.along.the.Foothills.of.the.Rocky.Mountains.to.the.British.Columbia.border,.as. compared.to.“dry”.natural.gas.more.often.found.in.British.Columbia.and.on.Alberta’s.eastern.prairies..The.pricing.of.natural. gas.liquids.(such.as.propane,.butane.and.condensate).is.linked.to.crude.oil,.improving.the.economics.of.developing.liquidsrich.gas.targets.over.“dry”.gas..Natural.gas.has.suffered.from.very.low.pricing.for.many.years..

2D/3D Sales Breakdown

As.3D.seismic.licence.contracts.are.generally.larger.than.2D.seismic.licence.contracts,.the.percentage.of.seismic.data.library. sales.generated.from.2D.and.3D.data.sales.fluctuates.significantly.depending.on.the.number.of.3D.seismic.sale.contracts. signed.during.a.given.period.

GEOGRAPHICAL SALES BREAKDOWN (%) SALES BREAKDOWN 2D/3D (%) FOR THE YEARS ENDED DECEMBER 31 FOR THE YEARS ENDED DECEMBER 31 2015 2014 2D 3D

GEOGRAPHICAL SALES BREAKDOWN (%) FOR THE YEARS ENDED DECEMBER 31

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100 100
71 90
80 83 80
77
60 60
40 40
29
20 20
12 13 11 10
4
Alberta British Columbia Other 2015 2014
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Participation Survey Revenue

The.Company.partners.with.customers.on.participation.surveys;.the.data.becomes.the.Company’s.property,.including.the. right.to.re-license.the.data..Participating.customers.are.provided.a.licensed.copy.

Participation.survey.revenue.is.recognized.in.the.financial.statements.in.proportion.to.the.project’s.stage.of.completion.. This.is.assessed.using.the.proportion.of.the.total.estimated.contract.cost.that.has.been.incurred.for.work.performed.to.the. period-end.

In.2015.the.Company.completed.field.operations.for.a.3D.participation.survey,.which.generated.revenues.of.$3.2.million. which.were.recognized.in.the.first.quarter.of.2015..In.2014.no.participation.surveys.were.conducted.

Amortization of Seismic Data Library

Seismic.data.library.amortization.expense.was.$22.8.million.for.2015.compared.to.$22.5.million.in.2014..The.year-over-year. increase.in.seismic.data.library.amortization.expense.is.due.to.the.initial.50.percent.amortization.of.$2.0.million.recorded. by.the.Company.upon.completion.of.the.3D.participation.survey.during.the.first.quarter.of.2015.offset.by.a.decrease.in.the. amortization.of.datasets.fully.amortized..As.stated,.there.were.no.surveys.completed.in.2014.

Amortization.of.seismic.data.library.is.described.further.under.“Critical.Accounting.Estimates”.

MANAGEMENT’S DISCUSSION & ANALYSIS

Impairment Loss

At.December.31,.2015,.the.Company.assessed.its.cash.generating.units.(CGUs).included.in.its.data.library.for.indicators.of. impairment,.as.required.under.IFRS,.and.concluded.there.were.such.indicators..The.principal.indicator.was.the.ongoing.weakness. of.commodity.prices.along.with.uncertainty.over.the.timing.of.any.improvement..That.indicator.triggered.an.impairment.test.. As.a.result,.the.Company.completed.an.impairment.test..For.the.purpose.of.impairment.testing,.the.recoverable.amounts. of.the.Company’s.CGUs.is.the.greater.of.its.value.in.use.and.its.fair.value.less.costs.to.sell...The.recoverable.amounts.of.the. CGU’s.were.determined.based.on.a.value.in.use.calculation..The.Company.used.the.following.assumptions.to.calculate.the. recoverable.amount.of.each.CGU:

/ The.estimated.future.cash.flows.for.the.next.five.years.net.of.variable.and.fixed.costs;
/ The.residual.value.of.each.CGU.estimated.to.be.20.percent.of.the.original.cost.for.purchased.data.and.10.percent.of.the. original.cost.for.data.shot.in.a.participation.survey;
/ A.pre-tax.discount.rate.of.9.1.percent.to.calculate.the.net.present.value.of.future.cash.flows,.which.is.the.weighted.average. cost.of.capital.calculated.at.December.31,.2015;.and
/ A.combined.federal-provincial.income.tax.rate.of.27.percent.

Based.on.these.assumptions.and.the.Company’s.calculations,.an.impairment.loss.of.$937,000.was.recognized.in.the.fourth. quarter.of.2015..The.impairment.specifically.related.to.two.CGUs,.Altares.3D.($323,000).and.Simon.East.3D.($614,000),.and. was.the.result.of.less.activity.in.the.areas.due.to.commodity.prices.and.capital.budgets..The.total.remaining.net.book.value.of. Altares.3D.and.Simon.East.3D.was.$826,000.at.December.31,.2015.

At.December.31,.2014,.no.indicators.of.impairment.were.identified.and.accordingly,.an.impairment.test.was.not.required.

Salaries, Internal Commissions and Benefits (SCB)

SCB.includes.salaries,.related.benefits,.incentive.compensation.and.internal.commissions..For.2015,.SCB.was.$4.0.million,. compared.to.$4.8.million.in.2014.

The.factors.contributing.to.the.decrease.in.SCB.are.lower.internal.selling.commissions.and.incentive.plan.expenses.due.to. lower.data.library.sales,.as.well.as.reduced.salaries.and.benefits.as.the.number.of.employees.has.decreased.year-over-year.

Other Selling, General and Administrative Costs (SG&A)

SG&A.includes.external.commissions,.occupancy.costs,.office.and.general.costs,.information.technology.expenses,.mapping,. data.storage.expenses,.directors’.fees.and.corporate.costs,.consulting.fees.and.professional.fees.

For.2015,.SG&A.was.$2.3.million.compared.to.$2.7.million.in.2014..

The.reduction.was.across.the.board.in.most.areas,.with.external.sales.commissions,.professional.fees,.travel.and.equipment. leasing. costs. realizing. some. of. the. biggest. savings.. All. discretionary. spending. has. been. analyzed. and. cost-reduction. strategies.have.been.implemented.where.appropriate.

Net Financing Costs

Net.financing.costs.for.2015.decreased.considerably.to.$494,000.from.$875,000.in.2014..This.was.due.to.the.significant. reduction.in.long-term.debt..The.Company.repaid.$5.5.million.in.2015.and.the.balance.was.nil.as.of.December.31,.2015.

Income Taxes

The.deferred.income.tax.reduction.for.2015.was.$1.0.million,.reflecting.an.effective.tax.rate.of.16.2.percent,.compared.to.a. deferred.income.tax.expense.of.$1.1.million.and.an.effective.tax.rate.of.24.5.percent.for.2014.

The.federal-provincial.corporate.income.tax.rate.for.2015.was.26.percent.compared.to.25.percent.for.2014..The.effective.tax. rate.in.2015.was.lower.than.the.enacted.income.tax.rate,.as.a.result.of.the.change.in.valuation.allowances.related.to.future. resource.deductions.and.the.change.in.provincial.tax.rate..At.December.31,.2015,.the.Company.had.$8.0.million.in.non-capital. loss.carry-forwards.available.to.use.in.future.years.

On.June.15,.2015.the.Government.of.Alberta.announced.that.the.general.corporate.income.tax.rate.would.increase.from. 10.percent.to.12.percent.effective.July.1,.2015..The.impact.of.this.rate.change.was.recognized.in.the.second.quarter.of.2015.

PULSE SEISMIC INC.

SUMMARY FOR THE THREE MONTHS ENDED DECEMBER 31, 2015

Earnings (Loss) Before Income Taxes

For. the. three. months. ended. December. 31,. 2015,. the. Company. generated. earnings. before. income. taxes. of. $902,000 ($0.02.per.share.basic.and.diluted).compared.to.$1.1.million.($0.02.per.share.basic.and.diluted).for.the.comparable.period of.2014.

Revenue

Total.revenue,.which.includes.data.library.sales.and.participation.survey.revenue.(nil.participation.revenue.for.both.2015.and. 2014),.for.the.three.months.ended.December.31,.2015.was.$8.8.million.compared.to.$8.4.million.for.the.three.months.ended. December.31,.2014.

Data Library Sales

Data.library.sales.for.the.quarter.ended.December.31,.2015.were.$8.8.million.compared.to.$8.4.million.for.the.three.months. ended.December.31,.2014.

Geographical Sales Breakdown

The.Company’s.customers.are.generally.focusing.on.liquids-rich.natural.gas.and.oil.pools.found.primarily.in.a.broad.corridor. running.from.northwest.of.Calgary,.Alberta,.along.the.Foothills.of.the.Rocky.Mountains.to.the.British.Columbia.border,.as. compared.to.“dry”.natural.gas.more.often.found.in.British.Columbia.and.on.Alberta’s.eastern.prairies..In.the.fourth.quarter. of.2015,.84.percent.of.the.data.library.sales.were.from.data.located.in.Alberta.

2D/3D Sales Breakdown

As.3D.seismic.sale.contracts.are.generally.larger.than.2D.seismic.sale.contracts,.the.percentage.of.seismic.data.library. revenues.generated.from.2D.and.3D.seismic.data.fluctuates.significantly.depending.on.the.number.of.3D.seismic.sale. contracts.signed.during.a.given.period.

GEOGRAPHICAL SALES BREAKDOWN (%) SALES BREAKDOWN 2D/3D (%) FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED DECEMBER 31 DECEMBER 31 2015 2014 2D 3D

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100 100
67 88
80 84 81 80
60 60
40 40
33
20 20
14 13 12
2 6
Alberta British Columbia Other 2015 2014
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Participation Survey Revenue

No.participation.surveys.were.conducted.during.the.fourth.quarter.of.2015.and.2014..One.participation.survey.contract.was. signed.in.the.fourth.quarter.of.2014,.with.survey.planning.and.permitting.conducted.during.the.fourth.quarter.of.2014.and. field.operations.completed.in.the.first.quarter.of.2015.

MANAGEMENT’S DISCUSSION & ANALYSIS

Amortization of Seismic Data Library

For.the.three.months.ended.December.31,.2015,.seismic.data.library.amortization.expense.was.$5.0.million.compared.to. $5.3.million.in.the.comparable.period.of.2014..The.slight.decrease.is.due.to.data.acquired.in.previous.years.becoming fully.amortized.

Amortization.of.the.seismic.data.library.is.described.further.under.“Critical.Accounting.Estimates”.

Impairment Loss

As.discussed.above,.the.Company.recognized.an.impairment.loss.of.$937,000.in.the.fourth.quarter.of.2015..No.impairment. loss.was.recognized.in.the.same.period.of.2014.

Salaries, Internal Commissions and Benefits (SCB)

SCB.for.the.three.months.ended.December.31,.2015.was.$1.3.million.compared.to.$1.1.million.in.the.comparable.period.of. 2014..The.increase.is.attributable.to.severance.payments.made.during.the.fourth.quarter.of.2015.

Other Selling, General and Administrative Costs (SG&A)

SG&A.for.the.three.months.ended.December.31,.2015.was.$536,000.compared.to.$641,000.for.the.three.months.ended. December.31,.2014..The.decrease.was.mostly.due.to.lower.external.commissions.as.a.result.of.a.lower.value.of.data.sold.by. external.brokers.and.operating.expense.reductions.in.most.other.areas.

Net Financing Costs

For.the.three.months.ended.December.31,.2015,.net.financing.costs.decreased.to.$101,000.from.$175,000.for.the.same. period.in.2014..Net.financing.costs.decreased.due.to.the.elimination.of.the.long-term.debt.

Income Taxes

The.income.tax.expense.for.the.three.months.ended.December.31,.2015.was.$244,000,.reflecting.an.effective.tax.rate.of 27.1.percent,.compared.to.income.tax.expense.of.$266,000.and.an.effective.tax.rate.of.24.4.percent.for.the.comparable.2014. period..The.effective.rate.in.2015.was.higher.than.the.enacted.rate.of.26.percent.due.to.the.impact.from.the.change.in.the. provincial.tax.rate.

REVIEW.OF.FINANCIAL.POSITION

AS AT DECEMBER 31, 2015

Seismic Data Library and Participation Surveys in Progress

The.Company’s.business.model.includes.growing.its.seismic.data.library..Pulse.acquires.seismic.data.to.add.to.its.library. through. two. main. methods.. The. Company. purchases. proprietary. rights. to. complementary. seismic. datasets. when. the. opportunity.arises,.and.it.also.conducts.participation.surveys..Pulse.partners.with.customers.on.participation.surveys.from. which.the.seismic.data.collected.is.added.to.Pulse’s.data.library.to.generate.future.licensing.revenue..Pulse.retains.full. ownership.of.the.data,.and.participating.customers.are.provided.with.a.licensed.copy.

The.Company.completed.the.seismic.data.digitization.project.during.the.first.quarter.of.2015..Pulse.had.been.auditing.the. seismic.data.remaining.on.magnetic.and.analog.tape.storage.and.converted.it.to.digital.electronic.format..

Pulse.conducted.one.participation.survey.during.the.2014-2015.winter.season.and.added.136.square.kilometres.of.highquality. 3D. data. to. its. data. library. in. the. first. quarter.. Pulse. conducted. no. participation. surveys. during. the. 2013-2014 winter.season..

The.Company.continues.to.evaluate.new.opportunities.to.partner.with.customers.on.potential.future.participation.surveys.

On.October.16,.2015.the.Company.acquired,.from.an.oil.and.gas.company,.146.square.kilometres.of.high-quality.3D.data. located.in.west.central.Alberta.

PULSE SEISMIC INC.

On.January.26,.2016.the.Company.closed.an.acquisition.and.added.approximately.107,000.net.kilometres.of.2D.seismic.data. and.58.net.square.kilometres.of.3D.seismic.data,.increasing.Pulse’s.2D.seismic.data.library.by.31.5.percent.from.approximately. 340,000.net.kilometres.to.approximately.447,000.net.kilometres..

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2D OWNERSHIP (%) 3D OWNERSHIP (%)
Alberta British Columbia Other Alberta British Columbia Other
77 2 68
11
12
30
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Other Long-Term Payable

Included. in. the. other. long-term. payable. is. the. long-term. portion. of. the. cash-settled. liability. related. to. the. long-term incentive.plan.

Share Capital Summary

The.Company’s.authorized.share.capital.consists.of.an.unlimited.number.of.common.shares.and.an.unlimited.number.of. preferred.shares,.issuable.in.series.

The.following.table.provides.details.of.the.Company’s.outstanding.share.capital:

	Three months ended	December 31,	Year ended	December 31,
	2015	2014	2015	2014
Weighted average shares outstanding:
Basic and diluted	56,041,324	57,865,941	56,628,524	58,957,072
Shares outstanding at period-end			55,592,689	57,247,843
Shares outstanding at March 2, 2016			55,553,589

Diluted Earnings per Share Reconciliation

The.Company.does.not.have.any.dilutive.securities.

Long-term Incentive Plan (LTIP)

In.2012.the.Company’s.Board.of.Directors.approved.a.new.LTIP.for.employees,.officers.and.directors.designed.to.align.the. Company’s.long-term.incentive.compensation.with.its.performance.and.to.increase.levels.of.stock.ownership..Participants. are.granted.restricted.share.units.(RSUs).and.performance.share.units.(PSUs)..LTIP.awards.are.at.the.discretion.of.the.Board. of.Directors.

RSUs.and.PSUs.have.accompanying.dividend-equivalent.rights.and,.therefore,.additional.RSUs.and.PSUs.are.issued.to.reflect. dividends.declared.on.the.common.shares..The.plan’s.trustee.will.purchase.common.shares.on.the.open.market.for.the. after-tax.number.of.RSUs.and.PSUs.vested.with.funds.provided.by.the.Company.

On.March.31,.2015.one-third.of.the.LTIP.awards.which.were.eligible.to.vest.were.RSUs.and.two-thirds.were.PSUs..Based. on.the.Company’s.performance.in.2014.and.the.predetermined.performance.measures,.4.percent.or.10,910.of.the.eligible. PSUs.vested..RSUs.vest.automatically.based.upon.time.and,.consequently,.all.of.the.eligible.RSUs.vested.automatically.on March.31,.2015.

MANAGEMENT’S DISCUSSION & ANALYSIS

To.satisfy.its.obligation,.in.April.2015.the.Company.provided.$350,000.to.the.plan’s.trustee.to.purchase.common.shares.on. the.open.market.for.the.total.after-tax.number.of.cash-.and.equity-settled.RSUs.and.PSUs.that.vested.on.March.31,.2015..The. related.payroll.taxes.of.$211,000.were.paid.in.May.2015.to.settle.the.fully.accrued.cash-settled.portion.of.the.share-based. payment.liabilities.

At.December.31,.2015.there.were.344,729.RSUs.and.498,746.PSUs.outstanding..At.March.2,.2016,.total.RSUs.and.PSUs. outstanding. remain. unchanged.. On. March. 31,. 2016,. 121,713. RSUs. will. vest. automatically. and,. based. on. the. Company’s. performance.in.2015.and.the.predetermined.performance.measures,.none.of.the.PSUs.will.vest..In.April.2016,.the.Company. will.settle.its.obligation.to.deliver.the.common.shares.by.providing.funds.to.the.independent.LTIP.trustee.to.purchase.the. shares.on.the.open.market.

Retained Earnings (Deficit)

On.December.31,.2015.the.Company.had.a.deficit.of.$33.3.million,.compared.to.$22.8.million.at.December.31,.2014..Contributing. to.the.deficit.is.the.net.loss.for.the.year.of.$5.3.million,.the.payment.of.$3.4.million.in.dividends.and.the.reduction.of. $1.8.million.to.retained.earnings.due.to.the.required.accounting.treatment.of.the.Company.purchasing.and.cancelling.its. common.shares..The.adjustment.relates.to.the.difference.between.the.price.paid.by.the.Company.for.the.shares.purchased. and.cancelled.under.the.NCIB.and.the.average.historical.cost.of.the.Company’s.shares..The.average.historical.cost.of.the. shares.purchased.and.cancelled.was.recorded.as.a.reduction.to.share.capital.

Dividends

On. March. 3,. 2015,. the. Company. declared. a. quarterly. dividend. of. $0.02. per. common. share.. The. dividend. was. paid. on April.10,.2015.to.shareholders.of.record.at.the.close.of.business.on.March.27,.2015.

On. May. 6,. 2015,. the. Company. declared. a. quarterly. dividend. of. $0.02. per. common. share.. The. dividend. was. paid. on June.19,.2015.to.shareholders.of.record.at.the.close.of.business.on.June.5,.2015.

On. July. 29,. 2015,. the. Company. declared. a. quarterly. dividend. of. $0.02. per. common. share.. The. dividend. was. paid. on. September.18,.2015.to.shareholders.of.record.at.the.close.of.business.on.September.4,.2015.

Pulse. confirms. that. all. dividends. paid. to. shareholders. in. 2015. are. designated. as. “eligible. dividends”. entitling. Canadian. resident.individuals.to.a.higher.gross-up.and.dividend.tax.credit..For.non-resident.shareholders,.Pulse’s.dividends.are.subject. to.Canadian.withholding.tax.

With. lower. period-over-period. seismic. data. library. sales. and. the. strong. possibility. of. an. extended. downturn,. in November.2015.Pulse’s.Board.of.Directors.deemed.it.financially.prudent.and.in.the.long-term.interests.of.shareholders.to. suspend.the.Company’s.quarterly.dividend.of.$0.02.per.share..Suspension.of.the.dividend.will.help.the.Company.maintain.a. strong.financial.position.and.be.positioned.for.future.potential.opportunities.

Deferred Tax Liability

The.net.deferred.income.tax.liability.was.$7.7.million.at.December.31,.2015.compared.to.$8.6.million.at.December.31,.2014.. The.decrease.in.the.deferred.income.tax.liability.is.mainly.due.to.the.current.year.losses.which.is.offset.by.the.impact.of.the. changes.in.the.provincial.tax.rate..

The.deferred.income.tax.liability.consists.mainly.of.taxable.temporary.differences.between.the.tax.base.of.the.seismic.data. library.and.the.carrying.amount.on.the.statement.of.financial.position,.offset.by.non-capital.tax.losses.carried.forward.

The.Company.is.aware.that.the.Canada.Revenue.Agency.(CRA).may.revise.the.way.it.assesses.the.income.tax.amortization. of.certain.seismic.data.library.costs...No.policy.document.has.been.issued.by.the.CRA.and,.therefore,.the.Company.is.not. able.to.estimate.the.impact.this.change.will.have.on.its.income.tax.calculations,.carry-forward.balances.or.consolidated financial.statements.

PULSE SEISMIC INC.

FINANCIAL.SUMMARY.OF.QUARTERLY.RESULTS

			2015				2014
(thousands of dollars, except per share data)	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Data library sales	8,759	4,678	6,461	1,316	8,385	14,531	7,321	5,506
Participation survey revenue	–	–	–	3,220	–	–	–	–
Total revenue	8,759	4,678	6,461	4,536	8,385	14,531	7,321	5,506
Amortization of seismic data library	4,979	5,262	5,303,	7,292	5,279	5,554	5,842	5,832
Impairment loss	937	–	–	–	–	–	–	–
Net earnings (loss)	658	(1,579)	(1,040)	(3,347)	824	5,086	(612)	(1,820)
Per share — basic and diluted	0.01	(0.03)	(0.02)	(0.06)	0.01	0.09	(0.01)	(0.03)

The. revenue. streams. generated. by. Pulse’s. operations. are. data. library. sales. and. customer. pre-funding. of. participation. surveys..Data.library.sales.consist.of.traditional.sales.and.transaction-based.sales,.as.described.below.under.“Transactionbased.vs..Traditional.Sales:.Six-Year.History”..

In.addition.to.the.revenue.fluctuations.described.in.“Seismic.Industry.Cycles.and.Seasonality”,.during.the.first,.second.and. third.quarters.of.2014.as.well.as.the.second.and.third.quarters.of.2015,.transaction-based.sales.contributed.to.data.library. sales.to.varying.degrees..Very.little.transaction-based.sales.revenue.was.generated.in.the.other.three.quarters.included.in. the.above.table..

Pulse. recognizes. its. participation. survey. revenue. using. the. percentage-of-completion. method.. Under. this. method,. participation.survey.revenue.is.recognized.proportionately.with.the.degree.of.each.project’s.completion..With.the.amended. standard.IFRS.15,.Revenue.from.Contracts.with.Customers,.participation.survey.revenue.can.only.be.recognized.in.the. financial.statements.when.the.survey.is.complete.in.all.respects,.meaning.the.risks.and.rewards.of.the.final.product.have. been.passed.on.to.the.customer..Pulse.will.therefore.have.to.adjust.its.revenue.recognition.policy.accordingly.

Seismic.data.library.amortization.is.greater.in.quarters.when.participation.surveys.are.completed,.as.each.participation. survey.is.amortized.at.50.percent.immediately.upon.delivery.of.data.to.the.participant,.with.the.remainder.amortized. equally.over.seven.years..There.is.a.lag.between.the.progressive.recognition.of.participation.survey.revenue.and.initial. amortization.upon.survey.completion..As.amortization.is.a.non-cash.expense,.the.Company.continued.to.generate.cash. EBITDA.and.shareholder.free.cash.flow.in.each.quarter..

During.the.past.eight.fiscal.quarters,.the.fluctuations.in.net.earnings.or.loss.have.largely.been.a.function.of.revenue,.data. library.amortization.and.impairment.loss..Increases.in.data.library.sales.have.a.highly.positive.impact.on.earnings,.as.the. operating.costs.associated.with.licensing.seismic.data.from.the.library.fluctuate.little.from.period.to.period.

All.financial.data.included.in.the.above.table.is.presented.in.Canadian.dollars,.the.Company’s.functional.currency,.and.was. prepared.using.the.latest.IFRS.

MANAGEMENT’S DISCUSSION & ANALYSIS

SELECTED.ANNUAL.FINANCIAL.INFORMATION

	Year	ended December 31,	ended December 31,
(thousands of dollars, except per share data)	2015	2014	2013
Data library sales	21,214	35,743	27,079
Participation surveys	3,220	–	13,429
Total revenue	24,434	35,743	40,508
Net earnings (loss)	(5,308)	3,478	(18,834)
Per share — basic and diluted	(0.09)	0.06	(0.31)
Total assets	54,618	75,482	98,017
Long-term debt	–	5,367	21,850
Total non-current fnancial liabilities	7,775	14,118	29,661
Cash dividends per common share	0.06(1)	0.08(2)	0.08(2)

(1) Represents three quarterly dividends of $0.02 per common share.

(2) Represents four quarterly dividends of $0.02 per common share.

Total.revenue.consists.of.seismic.data.library.sales.and.participation.survey.revenue..Seismic.data.library.sales.in.2013.were. lower.due.to.lower.customer.demand.and.fewer.transaction-based.sales.and.even.lower.in.2015.due.to.drastic.cutbacks.in. the.energy-producing.sector’s.capital.spending..

The.Company.had.net.earnings.in.2014,.compared.to.a.net.loss.in.2015.and.2013,.due.primarily.to.higher.data.library. sales.during.2014..In.addition,.in.2013.the.Company.recorded.high.levels.of.non-cash.seismic.amortization.expense.upon. completion.of.the.2012-2013.seismic.surveys.

See.also.“Seismic.Industry.Cycles.and.Seasonality”.

Total.assets.decreased.significantly.from.2013.to.2015.due.to.the.amortization.of.the.seismic.data.library.during.the.years. and.the.impairment.loss.recorded.in.2015.

In. the. first. three. quarters. of. 2015. and. all. four. quarters. of. 2014. and. 2013,. the. Company. paid. a. quarterly. dividend. of $0.02.per.share.

All.financial.data.included.in.the.table.above.is.presented.in.Canadian.dollars,.which.is.the.Company’s.functional.currency,. and.was.prepared.in.accordance.with.IFRS.

PULSE SEISMIC INC.

TRANSACTION-BASED.VS..TRADITIONAL.SALES:.SIX-YEAR.HISTORY

SALES BREAKDOWN (thousands of dollars)

Traditional Sales Transaction-based Sales

==> picture [356 x 175] intentionally omitted <==

----- Start of picture text -----

70,000
44,877
60,000
50,000
40,000
3,072 16,629
30,000 33,121
14,878
7,605
20,000 11,095
19,163 19,473 19,114
15,386
10,000
10,119
2010 2011 2012 2013 2014 2015
----- End of picture text -----

There.are.three.main.types.of.transaction-based.sales..The.first.is.the.partnership.or.joint.venture,.in.which.an.oil.and.gas. asset.holder.elects.to.pool.their.expertise,.capital.and/or.assets.with.one.or.more.new.participants.to.explore.or.develop. a.play..Under.the.Company’s.current.standard.form.licensing.agreements,.any.new.technical.or.operational.participant. that.wishes.to.view.or.interpret.the.seismic.data.must.purchase.a.data.licence.from.Pulse,.generally.at.a.discount.(usually. pre-defined.in.the.initial.licensing.agreement)..Purely.financial.partners.that.do.not.wish.to.view.or.interpret.the.seismic. information.are.exempt.

The.second.kind.of.transaction-based.sale.is.a.corporate.merger.or.acquisition..In.this.case,.the.seismic.data.is.transferred.to. the.new.organization..Under.the.Company’s.current.standard.form.licensing.agreements,.the.buyer.has.30.days.to.determine. whether.they.would.like.to.pay.a.change-of-control.fee.to.keep.the.data.or.return.the.data.to.Pulse.

The.third.is.the.sale.of.an.oil.and.gas.asset.or.group.of.assets.(as.well.as.partial.mineral.rights.to.particular.zones.below.the. asset-owner’s.lands)..Under.the.Company’s.current.standard.form.licensing.agreements,.the.licence.is.not.transferable.upon. an.asset.sale..In.this.case,.no.rights.to.the.seismic.data.transfer.to.the.buyer,.and.there.are.no.terms.of.payment.in.the.licence. agreement..Should.the.buyer.be.interested.in.Pulse’s.seismic.data,.they.must.license.the.data.from.Pulse.at.the.regular.price.. Following.this.type.of.transaction,.considerable.time.may.pass.until.a.data.licensing.sale.occurs.because.the.new.asset.owner. may.defer.development.of.the.particular.asset..In.addition,.the.new.asset.owner.may.be.interested.in.only.portions.of.the. original.dataset..The.attraction.of.Pulse’s.library.remains.the.far.lower.cost.of.licensing.the.data.than.shooting.new.seismic. over.the.same.area.

The.precise.terms.of.individual.licence.agreements.(including.those.historically.used.by.Pulse.and.its.predecessors.and.those. assumed.by.Pulse.on.data.acquisitions).can.vary.greatly..Change-of-control.fees.and.joint.venture.copy.fees.may.not.always. be.payable,.and.licence.agreements.may.not.always.be.non-assignable.

MANAGEMENT’S DISCUSSION & ANALYSIS

CONTRACTUAL.OBLIGATIONS

Pulse’s.known.contractual.obligations.at.December.31,.2015.included.a.long-term.syndicated.debt.facility.led.by.Toronto. Dominion.Bank,.operating.leases.for.certain.office.equipment.and.office.space,.and.minimum.payments.under.seismic.data. services.contracts..The.following.table.reflects.the.Company’s.anticipated.payment.of.contractual.obligations.(assuming.that. the.syndicated.revolving.credit.facility.is.not.renewed.in.February.2019):

			Payments due by period
Contractual Obligations
(thousands of dollars)	Total	Less than 1 year	1 – 3 Years	4 – 5 Years	After 5 Years
Long-term debt	–	–	–	–	–
Interest on long-term debt	–	–	–	–	–
Operating line of credit	222	222	–	–	–
Operating leases	758	520	238	–	–
Seismic data services contracts	270	120	150	–	–
Accounts payable and accrued liabilities	885	809	76	–	–
Total contractual obligations	2,135	1,671	464	–	–

Obligations. in. the. category. of. seismic. data. services. contracts. include. geophysical. services. such. as. reprocessing. and data.storage.

The.Company.is.subject.to.financial.covenants.relating.to.the.long-term.debt..Failure.to.meet.their.terms.could.constitute.an. event.of.default.as.defined.in.the.debt.agreement,.possibly.triggering.a.demand.for.accelerated.repayment..Having.no.longterm.debt.and.immaterial.short-term.borrowing.and.interest.costs,.the.Company.was.in.compliance.with.all.of.the.financial. covenants.at.December.31,.2015..See.“Liquidity,.Capital.Resources.and.Capital.Requirements”.for.further.information.

In. addition,. as. part. of. the. acquisition. of. the. Foothills. 2D. dataset. in. November. 2006,. Pulse. agreed. to. pay. additional. consideration.if.future.seismic.data.sales.from.the.acquired.assets.exceeded.$10.0.million.per.year,.up.to.a.maximum.of. $3.75.million..Sales.from.the.Foothills.2D.dataset.have.not.exceeded.$10.0.million.in.any.year.since.acquisition..No.amounts. were.included.for.this.obligation.in.the.table.above.because.they.cannot.be.predicted.

LIQUIDITY,.CAPITAL.RESOURCES.AND.CAPITAL.REQUIREMENTS

At.December.31,.2015.Pulse.had.working.capital.of.$5.0.million.and.a.working.capital.ratio.of.4.44:1..There.is.no.current. portion.of.long-term.debt.under.the.current.credit.facility..Given.the.flexibility.of.drawing.and.paying.down.debt,.without. penalty,.on.the.revolving.credit.facility.described.below,.and.in.order.to.reduce.net.financing.costs,.the.Company.maintains.a. minimum.cash.balance.as.required.for.operations.

The. Company. utilized. cash. on. hand. and. cash. provided. by. operating. activities. during. 2015. for. the. following. major cash.outlays:

/ Investing.activities.of.$4.9.million,.consisting.mostly.of.additions.to.the.seismic.data.library;
/ Purchase.and.cancellation.of.1,625,400.common.shares.through.its.NCIB,.for.a.total.of.$4.1.million.(at.an.average.price.of. $2.50.per.common.share.including.commissions);
/ Dividend.payments.of.$3.4.million;.and
/ .Debt.repayment.of.$5.5.million.

PULSE SEISMIC INC.

On.February.15,.2013,.the.Company.executed.a.$50.0.million.three-year.extendible.revolving.credit.facility.with.a.syndicate. of.two.banks..

On.an.annual.basis,.the.Company.has.the.option.to.extend.the.maturity.for.one.additional.year.with.the.lenders’.approval.. On.January.18,.2016,.the.Company.extended.the.maturity.date.to.February.13,.2019..

At.its.own.discretion,.the.Company.also.reduced.the.facility’s.available.borrowing.amount.to.$30.0.million.from.$50.0.million.. Up.to.$5.0.million.of.the.revolving.facility.remains.available.as.an.operating.line.of.credit..

Highlights of the credit facility:

/ Four-tier.margin.structure.based.on.the.Company’s.total.debt.to.adjusted.EBITDA.ratio.as.described.below;
/ Accordion.feature.allowing.the.Company.to.increase.the.facility’s.size.up.to.an.additional.$40.0.million,.subject.to.the. lenders’.consent;
/ No.regularly.scheduled.principal.payments,.with.voluntary.prepayments.permitted.in.whole.or.part.at.any.time,.without. premium.or.penalty;.and
/ Three-year. term,. with. an. extension. of. up. to. one. year. available. on. February. 15. of. every. year. with. the. approval. of the. lenders.. If. the. extension. is. not. granted,. any. outstanding. amounts. will. be. payable. on. the. then-current. applicable. maturity.date.

At.December.31,.2015.the.Company.had.a.balance.of.$222,000.(nil.as.at.March.2,.2016).on.the.operating.line.of.credit.and. $49.8.million.($30.million.as.at.March.2,.2016).available.for.future.draws.

The.credit.facility.is.secured.by.a.charge.on.all.of.the.assets.of.the.Company.and.its.material.subsidiaries..The.credit.facility. also.includes.the.following.two.financial.covenants:

/ Total.debt.to.adjusted.EBITDA.not.to.exceed.a.ratio.of.2.50:1..Total.debt.is.equal.to.the.sum.of,.without.limitation,.debts. and.liabilities.for.borrowed.money.(including.the.negative.mark-to-market.exposure.of.hedging.obligations),.bankers’. acceptances,.letters.of.credit,.and.letters.of.guarantee,.capital.leases.and.contingent.guarantees.
Adjusted.EBITDA.is.to.be.calculated.on.a.trailing.twelve-month.basis.and.is.defined.as.earnings.or.loss.before.interest,. income.taxes,.depreciation.and.amortization,.plus.extraordinary.losses,.non-cash.losses.and.expense.charges,.and.any. other.unusual.or.non-recurring.cash.charges,.expenses.or.losses.consented.to.by.the.lenders,.less.participation.survey. revenue,. extraordinary. gains. and. non-cash. gains. and. income.. Adjusted. EBITDA. is. to. be. adjusted. for. acquisitions. or. dispositions.to.reflect.such.acquisition.or.disposition.as.if.it.occurred.on.the.first.day.of.such.calculation.period..
/ .Interest.coverage.ratio.is.to.be.at.least.3:1.at.all.times..The.interest.coverage.ratio.is.equal.to.adjusted.EBITDA.divided.by. interest.expense.

MANAGEMENT’S DISCUSSION & ANALYSIS

.The.covenants.at.December.31,.2015.were.calculated.as.follows.(financial.figures.are.stated.in.thousands.of.dollars):

TOTAL DEBT TO ADJUSTED EBITDA RATIO:

(thousands of dollars, except ratios)

Total debt	222
Divided by:
Adjusted EBITDA	15,121
Total debt to adjusted EBITDA ratio (not to exceed 2.50:1)	0.01:1
Total debt was calculated as follows:
Long-term debt	–
Add: operating line of credit	222
Add: deferred fnancingcharges	–
Total debt	222
Adjusted EBITDA was calculated as follows:
Cash EBITDA for the twelve months ended December 31, 2015	$15,121
Adjustment for acquisitions or dispositions	–
Adjusted EBITDA	$15,121

INTEREST COVERAGE RATIO (ICR)

(thousands of dollars, except ratios)

Adjusted EBITDA	15,121
Divided by:
Interest expense	297
Interest coverage ratio (to be at least 3:1)	51:1
Interest expense was calculated as follows:
Interest paid for the twelve months ended December 31, 2015	297
Adjustments	–
Interest expense	297

The.Company.was.in.compliance.with.the.credit.facility’s.covenants.at.December.31,.2015.

At.December.31,.2015,.the.floating.interest.rate.on.the.syndicated.revolving.credit.facility.was.3.20.percent,.which.is.based. on.a.combination.of.the.bankers’.acceptance.rate.and.an.applicable.margin.tied.to.the.Company’s.total.debt.to.adjusted. EBITDA.ratio..The.Company.pays.a.standby.fee.based.on.the.daily.undrawn.balance.of.the.credit.facility.and.its.total.debt.to. adjusted.EBITDA.ratio..The.interest.and.standby.fee.rates.are.adjusted.two.business.days.after.the.covenant’s.calculation.for. the.previous.fiscal.quarter.is.received.and.approved.by.the.lenders..On.December.31,.2015.the.applicable.margin.and.standby. fee.were.set.at.the.lowest.rates.available.under.the.facility.

PULSE SEISMIC INC.

The.applicable.margin.and.standby.fee.rate.are.determined.as.follows:

TOTAL DEBT TO ADJUSTED EBITDA RATIO

	Applicable Margin for	Applicable Margin
	Canadian Prime	for Bankers’
	Rate Loans	Acceptances	Standby Fee Rate
Less than or equal to 1:1	0.50%	1.75%	0.35000%
Greater than 1:1 but less than or equal to 1.5:1	0.75%	2.00%	0.45000%
Greater than 1.5:1 but less than or equal to 2:1	1.00%	2.25%	0.50625%
Greater than 2:1 but less than or equal to 2.5:1	1.50%	2.75%	0.61875%

Toronto.Stock.Exchange.(TSX).rules.determine.the.number.of.shares.the.Company.is.permitted.to.purchase.through.its. NCIB..From.December.13,.2014.to.December.14,.2015,.the.maximum.number.was.4,282,902.common.shares,.representing. 10.percent.of.the.public.float.of.42,829,022.common.shares.as.at.December.13,.2014..From.January.1,.2015.to.December. 31,.2015,.the.Company.purchased.1,625,400.common.shares.under.the.NCIB..Purchases.were.made.on.the.open.market. through.the.TSX.or.alternative.trading.platforms.at.the.market.price.of.such.shares..All.shares.purchased.under.the.NCIB. were.cancelled.

On.December.21,.2015,.the.Company.announced.the.renewal.of.its.NCIB..The.Company.may.purchase,.for.cancellation,.up. to.a.maximum.of.3,509,326.common.shares,.equal.to.10.percent.of.the.public.float.of.35,093,268.common.shares.as.at. December.15,.2015..The.Company.is.limited.under.the.NCIB.to.purchasing.up.to.5,134.common.shares.in.any.one.day,.subject. to.the.block.purchase.exemption.under.TSX.rules..The.NCIB.will.continue.until.December.20,.2016..Purchases.will.be.made.on. the.open.market.through.the.TSX.or.alternative.trading.platforms.at.the.market.price.of.such.shares..All.shares.purchased. under.the.NCIB.will.be.cancelled.

Funding. for. Pulse’s. future. capital. expenditures. will. generally. depend. on. the. level. of. future. data. library. sales.. Pulse’s. management.believes.that.the.Company’s.capital.resources.will.be.sufficient.to.finance.future.operations.and.carry.out. the.necessary.capital.expenditures.through.2016..The.Company.anticipates.that.future.capital.expenditures.will.be.financed. through.customer.pre-funding,.cash.on.hand,.available.credit.facilities,.and.funds.from.operations..The.Company.has.a.$30.0. million.revolving.credit.facility.for.future.draws.in.2016,.and.an.accordion.feature.allowing.Pulse.to.increase.the.facility’s.size. by.up.to.$40.0.million,.subject.to.the.lenders’.consent..If.deemed.appropriate.by.management.and.the.Board.of.Directors,. Pulse.can.also.issue.common.or.preferred.shares.

Pulse.requires.flexibility.in.managing.its.capital.structure.to.take.advantage.of.opportunities.in.raising.additional.capital.where. opportunities.for.seismic.data.acquisitions.or.participation.surveys.arise..Historically,.the.Company.has.used.a.combination. of.debt.and.equity.to.finance.various.growth.initiatives,.and.it.continues.to.rely.on.key.internal.measures.such.as.the.longterm.debt.to.TTM.cash.EBITDA.ratio.and.long-term.debt.to.equity.ratio,.to.structure.and.forecast.its.capital.requirements.. Long-term.debt.is.defined.as.long-term.debt,.excluding.deferred.financing.costs..Pulse’s.management.considers.the.current. capital.structure.appropriate.

The.long-term.debt.to.cash.EBITDA.ratio.for.the.years.ended.December.31,.2015.and.2014.is.calculated.using.the.long-term. debt.at.year-end,.divided.by.TTM.cash.EBITDA:.

LONG-TERM DEBT TO TTM CASH EBITDA RATIO

	As at December 31,	As at December 31,
(thousands of dollars, except ratios)	2015	2014
Long-term debt	–	5,500
Divided by: TTM cash EBITDA	15,121	28,615
Long-term debt to TTM cash EBITDA ratio	0.00:1	0.19:1

MANAGEMENT’S DISCUSSION & ANALYSIS

The.decrease.in.the.long-term.debt.to.TTM.cash.EBITDA.ratio.was.attributable.to.the.decrease.in.the.long-term.debt.following. repayments.made.during.the.year.and.a.balance.of.nil.as.of.December.31,.2015.

Pulse.uses.debt.strategically,.to.acquire.high-quality.seismic.datasets.that.meet.economic.and.technical.criteria.

The.long-term.debt.to.equity.ratio.is.calculated.using.the.long-term.debt.balance.divided.by.total.equity..At.December.31,.2015. and.2014.the.long-term.debt-to-equity.ratios.were.as.follows:

	December 31,	December 31,
(thousands of dollars, except ratios)	2015	2014
Long-term debt	–	5,500
Divided by: equity	45,389	58,401
Long-term debt to equity ratio	0.00:1	0.09:1

Repayment.of.the.long-term.debt.balance.during.the.year.resulted.in.the.change.to.the.long-term.debt.to.equity.ratio.year. over.year.

Long-term.debt.was.calculated.as.follows:

Long-termdebtwascalculatedasfollows:
	As at December 31,	As at December 31,
(thousands of dollars)	2015	2014
Long-term debt per fnancial position	–	5,367
Add: deferred fnancingcosts	–	133
Long-term debt	–	5,500

This.discussion.on.liquidity,.capital.resources.and.capital.requirements.contains.forward-looking.information;.users.of.this. information.are.cautioned.that.actual.results.may.vary.and.are.encouraged.to.review.the.discussions.of.risk.factors.and. forward-looking.statements.below.

NON-CAPITAL.RESOURCES

The.Company’s.main.non-capital.resource.is.its.key.management.and.staff..The.Company.has.an.experienced.team.with. extensive.knowledge.about.the.seismic.industry..Pulse’s.management.understands.industry.cycles.and.how.to.manage.the. business.in.the.downturn.and.recovery.phases..Pulse.has.built.strong.operations,.sales,.financial.and.information.technology. departments..Key.management.and.staff.are.eligible.to.participate.in.the.short-term.and.long-term.incentive.plans,.which. are.tied.to.the.Company’s.shareholder.free.cash.flow.per.share.

NON-GAAP.FINANCIAL.MEASURES.AND.RECONCILIATIONS

This. MD&A. and. the. Company’s. continuous. disclosure. documents. provide. discussion. and. analysis. of. cash. EBITDA. and. shareholder.free.cash.flow..IFRS.do.not.include.standard.definitions.for.these.measures.and,.therefore,.they.may.not.be. comparable.to.similar.measures.used.and.disclosed.by.other.companies..As.IFRS.have.been.incorporated.into.Canadian. GAAP,. these. non-IFRS. measures. are. also. non-GAAP. measures.. The. Company. has. included. these. non-GAAP. financial. measures.because.management,.investors,.analysts.and.others.use.them.to.evaluate.the.Company’s.financial.performance.

Cash.EBITDA.and.shareholder.free.cash.flow.are.not.calculations.based.on.IFRS.and.should.not.be.considered.in.isolation. or.as.a.substitute.for.IFRS.performance.measures,.nor.should.they.be.used.as.an.exclusive.measure.of.cash.flow,.because. they.do.not.consider.working.capital.changes,.capital.expenditures,.long-term.debt.repayments.and.other.sources.and.uses. of.cash.which.are.disclosed.in.the.consolidated.audited.and.interim.statements.of.cash.flows.

PULSE SEISMIC INC.

CASH EBITDA AND SHAREHOLDER FREE CASH FLOW

Cash.EBITDA.represents.the.capital.available.to.invest.in.growing.the.Company’s.2D.and.3D.seismic.data.library,.to.pay. interest.and.principal.on.its.long-term.debt,.to.purchase.its.common.shares,.to.pay.taxes.and.to.pay.dividends.if.applicable.

Cash.EBITDA.is.calculated.as.earnings.or.loss.from.operations.before.interest,.taxes,.depreciation.and.amortization.less. participation.survey.revenue,.plus.non-cash.and.non-recurring.expenses..Cash.EBITDA.excludes.participation.survey.revenue. as.this.revenue.is.directly.used.to.fund.specific.participation.surveys.and.is.unavailable.for.discretionary.expenditures..The. Company.believes.cash.EBITDA.helps.investors.compare.Pulse’s.results.on.a.consistent.basis.without.regard.to.participation. survey. revenue. and.non-cash.items,. such. as.depreciation.and. amortization,. which. can. vary. significantly. depending. on. accounting.methods.or.non-operating.factors.such.as.historical.cost.

Shareholder.free.cash.flow.further.refines.the.calculation.of.capital.available.to.invest.in.growing.the.Company’s.2D.and. 3D.seismic.data.library,.to.repay.debt,.to.purchase.its.common.shares.and.to.pay.dividends.if.applicable,.by.deducting. non-discretionary.expenditures.from.cash.EBITDA..Non-discretionary.expenditures.are.defined.as.debt.financing.costs.(net. of.deferred.financing.expenses.amortized.in.the.current.period).and.current.tax.provisions.

A.reconciliation.of.net.earnings.(loss).to.EBITDA,.cash.EBITDA.and.shareholder.free.cash.flow.follows:

	Three months	ended	Year ended	Year ended
	December	31,	December 31,
(thousands of dollars, except per share data)	2015	2014	2015	2014
Net earnings (loss)	658	824	(5,308)	3,478
Add:
Amortization of seismic data library	4,979	5,279	22,836	22,507
Impairment loss	937	–	937	–
Net fnancing costs	101	175	494	875
Income tax expense (reduction)	497	266	(773)	1,128
Depreciation	46	62	185	248
EBITDA	6,965	6,606	18,118	28,236
Deduct:
Participation survey revenue	–	–	(3,220)	–
Add:
Non-cash expenses	78	55	223	379
Non-recurring expenses	–	–	–	–
Cash EBITDA	7,043	6,661	15,121	28,615
Deduct:
Net fnancing costs	(101)	(175)	(494)	(875)
Current income tax expense	–	–	–	–
Add:
Non-cash deferred fnancing charges	29	29	118	118
Current income tax reduction	–	–	–	–
Shareholder free cash fow (SFCF)	6,971	6,515	14,745	27,858
Cash EBITDA per share (basic and diluted)	0.13	0.12	0.27	0.49
Shareholder free cash fow (SFCF) per share (basic and diluted)	0.12	0.11	0.26	0.47

MANAGEMENT’S DISCUSSION & ANALYSIS

CASH EBITDA AND SFCF FOR THE YEARS ENDED DECEMBER 31 ($ millions)

2015 2014

CASH EBITDA AND SFCF PER SHARE (BASIC AND DILUTED) FOR THE YEARS ENDED DECEMBER 31 ($)

2015 2014

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30
28.6 27.9
25
20
15
15.1 14.7
10
5
Cash EBITDA SFCF
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0.5
.49
.47
0.4
0.3
.27 .26
0.2
0.1
Cash EBITDA per Share SFCF per Share
----- End of picture text -----

FINANCIAL.INSTRUMENTS

A.financial.instrument.is.any.contract.that.gives.rise.to.a.financial.asset.of.one.entity.and.a.financial.liability.or.equity.instrument. of.another.entity..Financial.instruments.are.recognized.on.the.statement.of.financial.position.when.the.Company.becomes. a.party.to.the.instrument’s.contractual.obligations..The.Company’s.financial.assets.include.cash.and.cash.equivalents,.trade. and.other.receivables..Its.financial.liabilities.mainly.comprise.accounts.payable.and.long-term.debt.

FAIR VALUE

The.fair.values.of.cash.and.cash.equivalents,.accounts.receivable.and.accounts.payable.approximate.their.carrying.amount. largely.due.to.the.short-term.maturities.of.these.instruments..The.fair.value.of.the.long-term.debt.approximates.the.carrying. value.because.interest.charges.under.the.bank.loan.are.based.on.current.Canadian.bankers’.acceptance.rates.and.margins.

CREDIT RISK

Credit.risk.is.the.risk.of.financial.loss.to.the.Company.if.a.customer.or.counterparty.to.a.financial.instrument.fails.to.meet.its. contractual.obligations,.and.arises.principally.from.the.Company’s.accounts.receivable.

The.Company.is.exposed.to.customer.credit.risk.in.connection.with.data.sales.and.participation.surveys.with.its.customers.. The.Company’s.exposure.to.credit.risk.is.influenced.mainly.by.the.individual.characteristics.of.each.customer..The.makeup. of.the.Company’s.customer.base,.including.the.default.risk.of.the.industry.in.which.customers.operate,.has.an.influence.on. credit.risk..As.the.Company.operates.exclusively.in.the.oil.and.natural.gas.industry,.essentially.all.of.its.trade.receivables. relate.to.customers.from.this.industry.

The.effective.monitoring.and.control.of.credit.risk.is.a.core.competency.of.the.Company..Each.new.customer.is.analyzed. individually. for. creditworthiness. before. payment. and. delivery. terms. and. conditions. are. offered.. The. Company’s. review. includes.credit.reference.checks.and.credit.limits.for.all.customers.as.well.as.other.monitoring.activities..Accounts.receivable. aging. is. reviewed. regularly.. Certain. customers. have. signed. agreements. with. the. Company. that. provide. for. extended payment.terms.

PULSE SEISMIC INC.

The.Company’s.credit.risk.increases.on.these.types.of.arrangements.due.to.the.length.of.time.before.payments.are.received.. The.risk.is.mitigated.by.attempting.to.limit.these.types.of.arrangements.to.major.oil.and.natural.gas.companies.which.have. long.operating.histories.and.adequate.resources.to.fulfill.their.commitments.

The.Company.has.been.doing.business.with.the.majority.of.its.customers.for.many.years,.with.insignificant.credit.losses.to. date..The.Company.does.not.require.collateral.in.respect.of.trade.receivables.

The.Company’s.customers.are.in.the.oil.and.natural.gas.industry,.with.the.majority.located.in.Alberta..At.December.31,.2015,. 68.percent.of.total.accounts.receivable.were.due.from.two.customers..These.amounts.were.collected.subsequent.to.yearend,.with.the.exception.of.$262,500.due.from.one.customer.with.extended.payment.terms.

The.Company.recorded.no.bad.debt.expense.in.2015..At.December.31,.2015,.none.of.the.Company’s.accounts.receivable.were. more.than.60.days.past.due.

Cash.and.cash.equivalents.are.held.with.a.large,.well-known.Canadian.chartered.bank..The.carrying.amount.of.financial. assets.represents.the.maximum.credit.exposure..The.Company.considers.the.risk.on.cash.and.cash.equivalents.to.be.limited.

INTEREST RATE RISK

Interest.rate.risk.is.the.risk.that.changes.in.interest.rates.will.affect.the.Company’s.income.or.the.value.of.its.holdings. of.financial.instruments..The.Company’s.interest.rate.risk.exposure.is.mainly.related.to.long-term.debt..The.Company.is. exposed.to.interest.rate.fluctuations.on.the.cost.of.its.variable-rate.debt..An.increase.of.100.basis.points.in.the.lender’s.baserate.would.have.decreased.earnings.before.income.taxes.by.approximately.$33,000.for.the.year.ended.December.31,.2015.. The.Company.did.not.have.any.fixed-rate.interest-bearing.obligations.at.December.31,.2015.

LIQUIDITY RISK

Liquidity.risk.is.the.risk.that.the.Company.will.encounter.difficulty.in.meeting.the.obligations.associated.with.its.financial. liabilities.that.are.settled.in.cash.or.other.financial.assets,.i.e.,.repaying.its.debt.and.paying.its.suppliers..The.Company’s. approach.to.managing.liquidity.is.to.ensure,.as.far.as.possible,.that.it.will.always.have.sufficient.liquidity.to.meet.its.liabilities. when.due,.under.normal.and.stressed.conditions,.without.incurring.unacceptable.losses.or.risking.damage.to.its.reputation.. Beyond.effective.working.capital.and.cash.management,.the.Company.has.a.revolving-term.credit.facility,.which.offers. flexibility.in.drawing.and.paying.down.debt,.without.penalty,.of.which.$49.8.million.remained.available.at.December.31,.2015. ($30.million.as.at.March.2,.2016).for.future.draws,.as.described.in.“Liquidity,.Capital.Resources.and.Capital.Requirements”.

The.Company.regularly.monitors.cash.flow..In.addition,.it.monitors.funding.options.available.in.the.capital.markets,.as.well.as. trends.in.the.availability.and.costs.of.such.funding,.with.a.view.to.maintaining.financial.flexibility.and.limiting.repayment.risks.. The.Company.does.not.believe.that.it.will.encounter.difficulty.in.meeting.its.obligations.associated.with.financial.liabilities.

COMMODITY PRICE RISK

The.Company.is.not.directly.exposed.to.commodity.price.risk.as.it.does.not.have.any.contracts.directly.based.on.commodity. prices..A.change.in.commodity.prices,.specifically.oil.and.natural.gas.prices,.could.have.a.material.impact.on.the.Company’s. customers’.cash.flows.and.could.therefore.affect.seismic.data.library.sales.and.participation.surveys..Commodity.prices. are.affected.by.many.factors,.including.supply.and.demand..The.Company.has.not.entered.into.any.commodity.price.risk. contracts..Given.that.this.is.an.indirect.influence,.the.financial.impact.on.the.Company.of.changing.oil.and.natural.gas.prices. is.not.reasonably.determinable.

NEW.IFRS.STANDARDS

A.number.of.new.standards,.amendments.and.interpretations.have.been.issued.by.the.International.Accounting.Standards. Board.but.are.not.yet.effective.for.the.year.ended.December.31,.2015..They.were.not.applied.in.preparing.the.consolidated. financial.statements..None.is.expected.to.have.a.significant.effect.on.the.consolidated.financial.statements,.except.for:

MANAGEMENT’S DISCUSSION & ANALYSIS

/ IFRS.15,. Revenue from Contracts with Customers ,.which.provides.guidance.on.revenue.recognition.and.relevant.disclosures.. The.standard.provides.a.single,.principles-based.five-step.model.to.be.applied.to.all.contracts.with.customers..IFRS.15.was. issued.in.May.2014.and.applies.to.annual.reporting.periods.beginning.on.or.after.January.1,.2018,.with.early.adoption. permitted..The.new.standard.will.enhance.revenue.disclosure.
.After.review,.Pulse’s.management.concluded.that.IFRS.15.would.affect.the.Company’s.policy.for.recognizing.participation. survey.revenue..Pulse.currently.recognizes.revenue.on.participation.surveys.based.on.percentage.of.completion..With.the. amended.standard,.participation.survey.revenue.can.only.be.recognized.in.the.financial.statements.when.the.survey.is. complete.in.all.respects,.meaning.the.risks.and.rewards.of.the.final.product.have.been.passed.on.to.the.customer..Pulse. will.therefore.have.to.adjust.its.revenue.recognition.policy.accordingly.and.may.choose.to.adopt.the.standard.before. January.2018..With.this.adjustment,.the.lag.between.the.progressive.recognition.of.participation.survey.revenue.and.initial. amortization.upon.survey.completion.will.disappear.
/ .IFRS.16,. Leases ..IFRS.16.was.issued.in.January.2016,.significantly.revising.the.way.in.which.companies.account.for.leases.by. requiring.almost.all.leases.to.be.included.on.the.balance.sheet.of.lessees..The.standard.provides.a.single.lessee.accounting. model,.requiring.lessees.to.recognize.assets.and.liabilities.for.all.leases.unless.the.lease.term.is.12.months.or.less.or. the.underlying.asset.has.a.low.value..IFRS.16.is.effective.for.annual.periods.beginning.on.or.after.January.1,.2019,.with. early.adoption.permitted.for.companies.that.also.apply.IFRS.15,. Revenue from Contracts with Customers ..The.Company. continues.to.evaluate.the.potential.impact.of.IFRS.16.on.the.financial.statements.and,.therefore,.the.impact.is.not.known. at.this.time.

CRITICAL.ACCOUNTING.ESTIMATES

The.preparation.of.financial.statements.in.conformity.with.IFRS.requires.management.to.make.estimates.and.assumptions.. Management’s.estimates.and.assumptions.affect.the.reported.amounts.of.assets.and.liabilities.and.disclosure.of.contingent. assets.and.liabilities.at.the.date.of.the.financial.statements,.as.well.as.the.reported.amounts.of.revenues.and.expenses. during.the.reporting.period..Actual.results.could.differ.from.those.estimates..The.Company’s.critical.accounting.estimates. are.described.below.and.are.discussed.annually.with.the.Audit.Committee.of.the.Company’s.Board.of.Directors.

SEISMIC DATA LIBRARY

Amortization.of.the.seismic.data.library,.the.Company’s.largest.asset,.with.a.net.book.value.of.$47.6.million.at.December.31,. 2015.(December.31,.2014.–.$66.5.million),.is.conducted.by.reference.to.the.estimated.timing.of.the.economic.return.of.the. seismic.library..Amortization.of.seismic.library.data.is.based.on.management’s.estimates.of.expected.future.sales,.expected. useful. lives,. market. developments. and. experience.. These. estimates. may. change. due. to. changes. in. market. conditions,. potential.prospects,.exploration.licence.periods,.exploration.and.development.in.certain.areas,.government.regulations.and. general.economic.conditions..Because.of.the.inherent.difficulty.in.estimating.market.developments.and.future.sales,.the. amortization.rates.might.not.accurately.reflect.the.systematic.allocation.of.the.seismic.data.library.over.its.useful.life.

Additions.to.the.seismic.library.arise.in.two.ways:.(i).participation.surveys,.and.(ii).the.purchase.of.existing.seismic.data..Costs. associated.with.participation.surveys.completed.during.the.year.are.amortized.at.50.percent.immediately.on.the.delivery. of.the.data.to.the.participants,.with.the.balance.amortized.on.a.straight-line.basis.over.the.seven-year.period.commencing. at. the. end. of. the. period. of. exclusivity,. if. any.. The. costs. of. purchased. data. are. amortized. on. a. straight-line. basis. over seven.years.

The.assumptions.behind.the.50.percent.immediate.amortization.on.delivery.are.the.following..The.Company’s.historical. average.and.target.survey.prefunding.percentage.is.70.percent.of.the.cost.of.the.seismic.data.shoot..Also,.based.on.historical. numbers,.within.seven.years.the.Company.usually.recovers.70.percent.of.the.total.cost.of.the.survey.by.selling.the.data. acquired.by.the.survey..After.seven.years.the.data.sales.are.generally.expected.to.decline.

PULSE SEISMIC INC.

Based.on.these.numbers,.the.total.return.on.investment.(ROI).for.a.participation.survey.historically.is.140.percent.of.cost.. The.70.percent.prefunding.divided.by.the.expected.ROI.of.140.percent.equals.50.percent..This.50.percent.initial.amortization. represents.that.approximately.50.percent.of.the.expected.return.has.been.realized.with.the.initial.licensing.of.the.data. during.the.shoot.

The.costs.of.purchased.data.are.amortized.on.a.straight-line.basis.over.seven.years..

The.carrying.amounts.of.the.seismic.data.library.are.reviewed.at.each.reporting.date.by.management.to.determine.whether. there.is.any.indication.of.impairment..If.so,.the.asset’s.recoverable.amount.is.estimated.and.impairment.recorded,.if.any..The. Company.uses.judgement.in.determining.its.cash-generating.units.for.purposes.of.impairment.testing..The.determination.of. these.cash-generating.units.was.based.on.management’s.judgements.in.regards.to.the.smallest.identifiable.group.of.seismic. data.that.generates.cash.inflows.largely.independent.of.the.cash.inflows.from.other.data..Estimating.future.cash.flows.and. residual.values.for.purposes.of.impairment.testing.requires.management.to.make.judgments.regarding.long-term.forecasts. of.future.revenues.and.costs.and.future.residual.values.related.to.the.seismic.data.library..These.forecasts.are.uncertain. as.they.require.assumptions.about.demand.for.seismic.data.and.future.market.conditions..Significant.and.unanticipated. changes.in.these.assumptions.could.require.a.provision.for.impairment.in.a.future.period.

As.discussed.above,.the.Company.recognized.an.impairment.loss.of.$937,000.in.the.fourth.quarter.of.2015..No.impairment. loss.was.recognized.in.the.same.period.of.2014.

Estimates.of.useful.lives.and.the.pattern.of.expected.future.economic.benefits.are.based.on.historical.experience.and. internal.business.plans..Expected.future.economic.benefits.are.determined.based.on.historical.revenue.patterns..Future. deviations.from.the.Company’s.historical.returns.could.materially.affect.the.current.amortization.methodology.

PERFORMANCE SHARE UNITS

In. determining. the. amount. of. share-based. compensation. related. to. PSUs,. management. makes. estimates. about. future. results.and.vesting.criteria..It.is.reasonably.possible.that.future.outcomes.could.be.different.from.the.estimates.and.could. require.a.material.adjustment.to.the.share-based.compensation.expense.recorded.in.future.periods..The.impact.of.any. change.in.the.number.of.PSUs.expected.to.vest.is.recognized.in.the.period.the.estimate.is.revised.

DEFERRED TAX ASSETS

Significant.management.judgement.is.required.to.determine.the.amount.of.deferred.tax.assets.that.can.be.recognized,. based.on.the.likely.timing.and.level.of.future.taxable.income..The.estimates.of.projected.future.taxable.income.are.based.on. a.variety.of.factors.and.assumptions,.many.of.which.are.subjective.and.beyond.the.Company’s.control..Accordingly,.these. estimates.could.differ.significantly.from.year.to.year,.and.the.Company.might.end.up.realizing.more.or.less.of.the.deferred. tax.assets.than.recognized.in.the.consolidated.financial.statements.

DISCLOSURE.CONTROLS.AND.PROCEDURES.(DC&P).AND.INTERNAL.CONTROLS. OVER.FINANCIAL.REPORTING.(ICFR)

DC&P

Management.has.evaluated.the.effectiveness.of.its.DC&P.(as.defined.in.National.Instrument.52-109),.under.the.supervision. of.its.CEO.and.CFO,.at.December.31,.2015..Based.on.this.evaluation,.the.CEO.and.CFO.have.concluded.that.the.DC&P.were. effective.at.December.31,.2015.

ICFR

Management.under.the.supervision.of.its.CEO.and.CFO.evaluated.the.effectiveness.of.ICFR.(as.defined.in.National.Instrument. 52-109).at.December.31,.2015,.in.accordance.with.Internal.Control.–.Integrated.Framework,.issued.by.the.Committee.of. Sponsoring.Organizations.of.the.Treadway.Commission.(COSO).and.the.Control.Objectives.for.Information.and.Related.

MANAGEMENT’S DISCUSSION & ANALYSIS

Technology.Framework.(COBIT)..Based.on.this.evaluation,.Pulse’s.CEO.and.CFO.have.concluded.that.the.ICFR.were.effective. at.December.31,.2015.

No.changes.were.made.to.ICFR.during.the.period.beginning.on.October.1,.2015.and.ending.on.December.31,.2015.that.have. materially.affected,.or.are.reasonably.likely.to.materially.affect,.Pulse’s.ICFR.

In.May.2013,.the.COSO.released.an.updated.Internal.Control.–.Integrated.Framework.which.it.required.companies.to.use.for. officers’.certificates.filed.after.December.15,.2014..Pulse.early-adopted.the.new.framework.in.2013,.without.any.significant. impact.to.the.internal.controls.testing.or.documentation.

RISK.FACTORS

OIL AND NATURAL GAS PRICES

Pulse’s.customers.are.oil.and.natural.gas.exploration.and.development.companies..Oil.and.natural.gas.prices.are.volatile. and.directly.affect.the.capital.budgets,.drilling.activity,.and.access.to.capital.and.credit.by.Pulse’s.customers,.which.in.turn. directly.affect.the.demand.by.such.customers.for.seismic.data..In.response.to.the.collapse.of.oil.prices,.Pulse’s.customers. have.dramatically.slashed.their.2016.capital.budgets.

SEISMIC INDUSTRY CYCLES AND SEASONALITY

Revenue.fluctuations.are.a.normal.part.of.the.seismic.data.library.business,.and.data.library.sales.can.vary.significantly.from. quarter.to.quarter..Data.library.sales.can.occur.at.any.time.during.any.quarter..This.is.due.to.the.nearly.continual.changes.in. general.oil.and.natural.gas.industry.conditions,.increased.demand.for.seismic.data.covering.a.specific.area.or.play,.timing.of. public.offerings.of.petroleum.and.natural.gas.rights.(land.sales),.as.well.as.merger-and-acquisition,.joint.venture.and.asset. disposition.activity.by.Pulse’s.clients.

Participation.survey.revenue.also.varies.significantly.from.quarter.to.quarter..The.majority.of.new.3D.seismic.data.is.acquired. under.frozen.ground.from.November.to.March..Summer.seismic.programs.can.only.be.completed.in.certain.areas.that.have. drier.ground.conditions.and.can.be.easily.accessed.without.environmental.harm..In.addition,.the.size.and.pre-funding.levels. of.individual.participation.surveys.can.vary.significantly.

DEMAND FOR SEISMIC DATA AND PARTICIPATION SURVEYS

Pulse’s.ability.to.generate.revenue,.cash.EBITDA,.shareholder.free.cash.flow.and.earnings.and.to.grow.its.seismic.data.library. depends.on.the.demand.for.seismic.data.and.participation.surveys.from.its.oil.and.natural.gas.customers.over.geological. plays.and.areas.that.such.customers.focus.on.in.a.given.period..Activity.in.such.plays.and.areas.depends.on.commodity. prices,.customers’.budgets,.geological.understanding.and.advances.in.drilling.technology,.all.of.which.are.beyond.Pulse’s. control..The.Company.endeavours.to.grow.its.high-quality.proprietary.data.library,.to.expand.and.maintain.its.customer.base,. and.to.provide.good.customer.service.with.short.delivery.time.and.broad.data.coverage.in.prospective.locations.

PRICING OF DATA LIBRARY LICENCE SALES

Pulse’s.ability.to.generate.revenue,.cash.EBITDA,.shareholder.free.cash.flow.and.earnings.and.to.grow.its.data.library.depends. on.its.ability.to.market.data.library.licences.and.on.the.pricing.of.these.licences..Pulse.prices.its.data.competitively.while. endeavouring.to.maintain.the.integrity.of.the.database.

RELICENSING (CHANGE-OF-CONTROL) FEES AND PARTNER COPY SALES

Data.library.licences.are.generally.not.transferable..Under.Pulse’s.current.standard-form.licence.agreement,.upon.a.change. of.control.of.the.licensee.in.a.merger.or.acquisition.transaction,.a.change-of-control.fee.is.generally.payable..Under.Pulse’s. current.standard-form.licence.agreement,.a.licensee.generally.may.not.give.the.licensed.data.to.a.joint.interest.partner.in. the.oil.and.natural.gas.lands..If.the.joint.interest.partner.wishes.to.view.or.interpret.the.seismic.data,.it.must.purchase.an. additional.copy.directly.from.Pulse.

PULSE SEISMIC INC.

The.precise.terms.of.individual.licence.agreements.(including.those.historically.used.by.Pulse.and.its.predecessors.and.those. assumed.by.Pulse.on.data.acquisitions).can.vary.greatly..Relicensing.(change-of-control).fees.may.not.always.be.payable.and. joint.interest.partners.may.not.always.wish.to.or.have.to.purchase.an.additional.licensed.copy.

In.addition,.merger-and-acquisition.and.joint.venture.activity.in.the.oil.and.gas.industry.is.unpredictable.

PRE-FUNDING OF PARTICIPATION SURVEYS AND SUBSEQUENT DATA LIBRARY LICENCE SALES

Pulse’s.rate.of.pre-funding.for.participation.surveys.varies,.with.the.actual.target.percentage.funding.of.each.particular. survey.determined.by.Pulse.ahead.of.time.depending.on.Pulse’s.risk.analysis.of.such.survey.and.competitive.conditions.in. the.area..Factors.affecting.these.individual.survey.program.targets.include:.circumstances.where.Pulse.believes.that.there.is. a.high.probability.of.additional.participants.joining.the.survey.before.completion.or.additional.licence.sales.after.completion. of.the.survey,.or.where.a.survey.is.located.in.a.strategic.location,.or.where.competitive.conditions.require.a.lower.level of.pre-funding.

Pulse’s.ability.to.generate.revenue,.cash.EBITDA,.shareholder.free.cash.flow.and.earnings.and.to.grow.the.data.library. depends.on.its.ability.to.obtain.targeted.levels.of.pre-funding.for.participation.surveys,.and.to.make.subsequent.seismic.data. library.sales.from.such.surveys.

COMPLETION OF PARTICIPATION SURVEYS

Pulse.obtains.presales.of.licences.for.participation.surveys.based.on.its.budgeted.costs.and.program.schedule..Pulse’s.ability. to.generate.revenues,.cash.EBITDA,.shareholder.free.cash.flow.and.earnings.depends.on.its.ability.to.complete.committed. participation.surveys.on.time.and.within.budget..Cost.overruns.are.generally.absorbed.by.Pulse.and.effectively.reduce.the. percentage.of.pre-funding..The.Company.endeavours.to.manage.this.risk.through.the.use.of.a.dedicated.survey.project. team.with.extensive.experience.

ENVIRONMENTAL, HEALTH AND SAFETY RISKS

Pulse’s.field.operations.for.participation.surveys.are.subject.to.laws.and.regulations.relating.to.environmental.protection.and. occupational.health.and.safety..A.breach.of.these.laws.and.regulations.could.result.in.material.fines.and.civil.lawsuits,.as.well. as.reputational.damage..Pulse.endeavours.to.reduce.this.risk.by.employing.seasoned.specialists.who.provide.comprehensive. training,.field.supervision.and.monitoring,.and.by.working.with.a.network.of.trusted.sub-contractors.who.operate.to.high. standards..In.March.2015,.Pulse.received.the.renewal.of.its.three-year.Certificate.of.Recognition.(COR).issued.by.Enform. and.the.Government.of.Alberta,.with.a.score.of.96.percent,.higher.than.in.its.initial.2009.certification.and.in.its.September. 2012.re-certification..The.COR.program.recognizes.employers.in.the.Alberta.oil.and.natural.gas.industry.having.a.health.and. safety.management.system.that.meets.provincial.standards.

EFFECT OF SEASONALITY AND WEATHER CONDITIONS ON PARTICIPATION SURVEYS

Seismic.surveys.are.often.completed.in.the.winter.season.when.frozen.ground.permits.the.movement.and.operation.of. heavy.equipment.in.the.northern.areas.of.Alberta.and.British.Columbia..If.an.unseasonably.late.or.warm.winter.delays.or. prevents.sufficient.freezing,.or.if.an.early.spring.results.in.an.early.thaw,.Pulse.may.not.be.able.to.complete.its.winter.seismic. survey.programs.on.time.and.within.budget.

Seismic.surveys.may.also.be.completed.in.the.summer.months.under.drier.conditions..If.there.is.unseasonably.cold.or.wet. weather,.Pulse.may.not.be.able.to.complete.its.summer.seismic.survey.programs.on.time.and.within.budget.

Pulse.endeavors.to.manage.this.risk.by.scheduling.sufficient.time.for.each.participation.survey.to.allow.flexibility.to.complete. the.survey.on.time.and.within.budget.

MANAGEMENT’S DISCUSSION & ANALYSIS

LAWS AND REGULATIONS

Pulse’s.oil.and.natural.gas.customers.are.subject.to.federal.and.provincial.laws.and.regulations,.including.those.pertaining. to.taxation,.royalty.rates,.environmental.protection.and.safety..Compliance.with.these.laws.and.regulations,.and.changes. in.these.laws.and.regulations,.may.affect.oil.and.natural.gas.exploration.and.development.activities.and.the.demand.for. seismic.data.licenses.and.participation.surveys.by.such.customers.

Pulse’s.field.operations.for.participation.surveys.are.subject.to.federal.and.provincial.laws.and.regulations,.including.laws. and.regulations.relating.to.safety.and.environmental.protection..Pulse.and.its.contractors.are.required.to.invest.financial. and.managerial.resources.to.comply.with.such.laws.and.related.permit.requirements.in.their.operations..Although.such. expenditures.historically.have.not.been.material.to.Pulse,.such.laws.and.regulations.are.subject.to.change.and,.accordingly,. it.is.impossible.for.the.Company.to.predict.the.cost.or.impact.of.such.laws.and.regulations.on.its.future.operations.

COMPETITION

The.western.Canadian.geophysical.services.industry.in.which.Pulse.operates.is.highly.competitive.and.price-.sensitive..Pulse. competes.with.companies.which.may.have.greater.financial.resources,.and.certain.of.which.are.large.international.geophysical. services.companies.that.offer.a.wider.array.of.geophysical.services.to.their.clients.than.Pulse..Pulse.also.competes.with.other. companies.that.acquire,.market.and.license.seismic.data,.that.maintain.their.own.seismic.data.libraries,.and.that.compete. against.Pulse.in.shooting.participation.surveys.and.licensing.seismic.data.to.their.customers..Pulse.also.competes.against. oil.and.natural.gas.companies.that.may.choose.to.license.their.own.proprietary.seismic.data.to.customers..To.mitigate.this. risk,.Pulse’s.management.continuously.evaluates.its.marketing.plan.and.marketing.efforts..In.addition,.the.Company.owns. high-quality.data.with.extensive.coverage.in.the.WCSB..In.general,.there.is.little.overlap.between.3D.databases,.due.to.the. high.costs.of.overshooting.existing.3D.seismic.surveys,.and.there.is.little.direct.competition.between.specific.3D.datasets.. Seismic.data.library.companies.and.individual.oil.and.gas.companies.may,.however,.elect.to.overshoot.an.existing.3D.dataset. if.it.is.not.of.the.desired.quality.or.specifications.

DEPENDENCE ON QUALIFIED SEISMIC CONTRACTORS

Pulse.depends.on.qualified.seismic.acquisition.contractors.to.complete.its.seismic.surveys.on.time.and.within.budget..Pulse. endeavors.to.enter.into.master.service.agreements.and.to.establish.relationships.with.its.key.contractors.

KEY MANAGEMENT, OPERATIONS AND MARKETING PERSONNEL

Pulse.depends.on.certain.key.management,.operations.and.marketing.personnel.for.the.success.of.its.seismic.acquisition,. marketing. and. licensing. business.. Pulse. endeavors. to. obtain. written. employment. agreements. with. such. personnel. containing. confidentiality. and. non-competition. provisions. where. appropriate.. Personnel. risk. is. further. mitigated. by. providing.compensation.packages.designed.to.support.Pulse’s.business.philosophy.and.which.are.both.market-driven.and. performance-based..This.includes.short-.and.long-term.incentive.programs.which.are.directly.tied.to.shareholder.free.cash. flow.per.share,.which.the.Board.of.Directors.believes.is.the.key.financial.metric.for.the.long-term.increase.in.the.value.of. Pulse..Pulse.also.has.a.succession.plan.to.provide.adequate.training.and.education.to.its.future.leaders,.which.is.reviewed. annually.by.the.Board.of.Directors.

LOSS OF SEISMIC DATA

Pulse’s.largest.asset.and.source.of.revenue.is.the.seismic.data.library..The.safety.and.security.of.the.data.library.asset.is. imperative.to.the.Company’s.success..The.physical.data.is.stored.in.a.secure.location.managed.by.a.data.storage.company. All.physical.data.has.been.digitized.and.back-up.digital.copies.are.kept.in.separate.secure.locations.

PULSE SEISMIC INC.

CYBERSECURITY THREATS

Pulse.faces.cybersecurity.threats.to.gain.unauthorized.access.to.its.confidential.seismic.data.bases.and.systems..Cybersecurity. attacks.are.becoming.more.sophisticated.and.could.lead.to.unauthorized.access.and.release.of.confidential.seismic.data.and. disruption.in.operating.systems.

PROTECTION OF INTELLECTUAL PROPERTY

Pulse.relies.on.a.combination.of.licence.agreements,.copyright.and.other.intellectual.property.rights.to.protect.its.ownership. rights.and.copyright.in.its.seismic.data..Despite.Pulse’s.efforts.to.enforce.its.licence.agreements.and.copyright,.there.is. a.risk.that.unauthorized.parties.might.improperly.obtain,.copy.or.use.Pulse’s.seismic.data.without.Pulse’s.knowledge.or. permission..The.cost.of.litigation.necessary.to.enforce.Pulse’s.ownership.rights.and.copyright.could.be.prohibitive.

NEW PRODUCTS

Seismic. data. is. used. by. oil. and. natural. gas. exploration. and. development. companies. to. identify. portions. of. geological. formations.that.have.the.potential.to.hold.hydrocarbons..There.are.currently.no.other.products.that.compete.directly.against. seismic.data.for.such.purposes..Should.a.new.product.or.method.be.introduced.that.was.technically.and/or.economically. comparable.or.superior.to.seismic.data,.Pulse’s.data.library.sales.and/or.the.pricing.thereof.could.be.adversely.affected.

ADDITIONAL.INFORMATION

You.may.find.additional.information.relating.to.Pulse,.including.the.Company’s.Annual.Information.Form,.on.SEDAR.at www.sedar.com.

FORWARD-LOOKING.INFORMATION

This. document. contains. information. that. constitutes. “forward-looking. information”. or. “forward-looking. statements”. (collectively,.“forward-looking.information”).within.the.meaning.of.applicable.securities.legislation.

The.Outlook.and.the.Liquidity,.Capital.Resources.and.Capital.Requirements.sections.contain.forward-looking.information. which.includes,.among.other.things,.statements.regarding:

/ Pulse’s.short-term.outlook.is.more.cautious.than.one.year.ago;
/ The.Company’s.first.quarter.seismic.data.library.sales.are.likely.to.be.weaker.than.last.year’s.very.low.level,.and.traditional. sales.for.the.year.could.well.be.lower.than.in.2015;
/ More.M&A.activity.will.create.favorable.conditions.for.additional.transaction-based.sales;
/ The.unpredictability.of.transaction-based.sales.means.that.Pulse.will.continue.to.lack.visibility.as.to.its.2016.revenues;
/ Pulse’s.long-term.goal.is.to.become.Western.Canada’s.largest.licensable.data.library;
/ Pulse’s.management.believes.that.the.Company’s.capital.resources.will.be.sufficient.to.finance.future.operations.and.carry. out.the.necessary.capital.expenditures.through.2016;
/ Pulse’s.capital.allocation.strategy;
/ Pulse’s.dividend.policy;
/ Oil.and.natural.gas.prices;
/ Oil.and.natural.gas.drilling.activity.and.land.sales.activity;
/ Oil.and.natural.gas.company.capital.budgets;
/ Future.demand.for.seismic.data;

MANAGEMENT’S DISCUSSION & ANALYSIS

/ Future.seismic.data.sales;
/ Future.demand.for.participation.surveys;
/ Pulse’s.business.and.growth.strategy;.and
/ Other.expectations,.beliefs,.plans,.goals,.objectives,.assumptions,.information.and.statements.about.possible.future.events,. conditions,.results.and.performance.

Sources.for.the.forecasts.and.the.material.assumptions.underlying.this.forward-looking.information.are,.where.applicable,. noted.in.the.relevant.sections.of.this.MD&A.

Undue. reliance. should. not. be. placed. on. forward-looking. information.. Forward-looking. information. is. based. on. current. expectations,.estimates.and.projections.that.involve.a.number.of.risks.and.uncertainties,.which.could.cause.actual.results. to.vary.and.in.some.instances.to.differ.materially.from.those.anticipated.in.the.forward-looking.information..Pulse.does.not. publish.specific.financial.goals.or.otherwise.provide.guidance,.due.to.the.inherently.poor.visibility.of.seismic.revenue..

The.material.risk.factors.include,.without.limitation:

/ Oil.and.natural.gas.prices;
/ Seismic.industry.cycles.and.seasonality;
/ The.demand.for.seismic.data.and.participation.surveys;
/ The.pricing.of.data.library.licensing.sales;
/ Relicensing.(change-of-control).fees,.partner.copy.sales.and.asset.disposition-related.sales;
/ The.level.of.pre-funding.of.participation.surveys,.and.the.Company’s.ability.to.make.subsequent.data.library.sales.from. such.participation.surveys;
/ The.Company’s.ability.to.complete.participation.surveys.on.time.and.within.budget;
/ Environmental,.health.and.safety.risks;
/ The.effect.of.seasonality.and.weather.conditions.on.participation.surveys;
/ Federal.and.provincial.government.laws.and.regulations,.including.those.pertaining.to.taxation,.royalty.rates,.environmental. protection.and.safety;
/ Competition;
/ Dependence.on.qualified.seismic.field.contractors;
/ Dependence.on.key.management,.operations.and.marketing.personnel;
/ The.loss.of.seismic.data;.
/ Cybersecurity.threats;.
/ Protection.of.intellectual.property.rights;.and
/ The.introduction.of.new.products..

The.foregoing.list.is.not.exhaustive..Additional.information.on.these.risks.and.other.factors.which.could.affect.the.Company’s. operations.and.financial.results.is.included.under.“Risk.Factors”..Forward-looking.information.is.based.on.the.assumptions,. expectations,.estimates.and.opinions.of.the.Company’s.management.at.the.time.the.information.is.presented.

PULSE SEISMIC INC.

INDEPENDENT AUDITORS’ REPORT

TO.THE.SHAREHOLDERS.OF.PULSE.SEISMIC.INC.

We.have.audited.the.accompanying.consolidated.financial.statements.of.Pulse.Seismic.Inc.,.which.comprise.the.consolidated. statements.of.financial.position.as.at.December.31,.2015.and.2014,.the.consolidated.statements.of.comprehensive.income. (loss),.changes.in.equity.and.cash.flows.for.the.years.then.ended,.and.notes,.comprising.a.summary.of.significant.accounting. policies.and.other.explanatory.information..

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management.is.responsible.for.the.preparation.and.fair.presentation.of.these.consolidated.financial.statements.in.accordance. with.International.Financial.Reporting.Standards.and.for.such.internal.control.as.management.determines.is.necessary.to. enable.the.preparation.of.consolidated.financial.statements.that.are.free.from.material.misstatement,.whether.due.to.fraud. or.error..

AUDITORS’ RESPONSIBILITY

Our.responsibility.is.to.express.an.opinion.on.these.consolidated.financial.statements.based.on.our.audits..We.conducted. our.audits.in.accordance.with.Canadian.generally.accepted.auditing.standards..Those.standards.require.that.we.comply. with.ethical.requirements.and.plan.and.perform.the.audit.to.obtain.reasonable.assurance.about.whether.the.consolidated. financial.statements.are.free.from.material.misstatement.

An.audit.involves.performing.procedures.to.obtain.audit.evidence.about.the.amounts.and.disclosures.in.the.consolidated. financial.statements..The.procedures.selected.depend.on.our.judgment,.including.the.assessment.of.the.risks.of.material. misstatement.of.the.consolidated.financial.statements,.whether.due.to.fraud.or.error..In.making.those.risk.assessments,.we. consider.internal.control.relevant.to.the.entity’s.preparation.and.fair.presentation.of.the.consolidated.financial.statements.in. order.to.design.audit.procedures.that.are.appropriate.in.the.circumstances,.but.not.for.the.purpose.of.expressing.an.opinion. on.the.effectiveness.of.the.entity’s.internal.control..An.audit.also.includes.evaluating.the.appropriateness.of.accounting. policies. used. and. the. reasonableness. of. accounting. estimates. made. by. management,. as. well. as. evaluating. the. overall. presentation.of.the.consolidated.financial.statements.

We.believe.that.the.audit.evidence.we.have.obtained.in.our.audits.is.sufficient.and.appropriate.to.provide.a.basis.for.our. audit.opinion.

OPINION

In.our.opinion,.the.consolidated.financial.statements.present.fairly,.in.all.material.respects,.the.consolidated.financial.position. of.Pulse.Seismic.Inc..as.at.December.31,.2015.and.2014.and.its.consolidated.financial.performance.and.its.consolidated.cash. flows.for.the.years.then.ended.in.accordance.with.International.Financial.Reporting.Standards..

==> picture [111 x 32] intentionally omitted <==

Chartered.Professional.Accountants

March.2,.2016

Calgary,.Canada

AUDITORS’.REPORT

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(thousands of Canadian dollars)		December 31,	December 31,
As at	Note	2015	2014
Assets
Cash and cash equivalents		–	901
Trade and other receivables	5	6,158	7,083
Prepaid expenses		292	275
Total current assets		6,450	8,259
Participation surveys in progress	6	–	36
Seismic data library	7	47,623	66,468
Property and equipment		489	663
Other		56	56
Total non–current assets		48,168	67,223
Total assets		54,618	75,482
Liabilities and Shareholders’ Equity
Operating line of credit	8	222	–
Accounts payable and accrued liabilities		809	1,772
Deferred revenue		423	1,191
Total current liabilities		1,454	2,963
Long–term debt	8	–	5,367
Deferred income tax liabilities	9	7,699	8,574
Other long–term payable		76	177
Total non–current liabilities		7,775	14,118
Total liabilities		9,229	17,081
Shareholders’ Equity
Share capital	10	76,504	78,782
Contributed surplus		2,184	2,399
Defcit		(33,299)	(22,780)
Total shareholders’ equity		45,389	58,401
Total liabilities and shareholders’ equity		54,618	75,482

See accompanying notes to consolidated financial statements.

On behalf of the Board:

==> picture [66 x 34] intentionally omitted <==

Robert Robotti Chair of the Board

==> picture [95 x 24] intentionally omitted <==

Daphne Corbett Audit Committee Chair

PULSE SEISMIC INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(thousands of Canadian dollars, except per share data)
For the years ended December 31	Note	2015	2014
Revenue
Data library sales		21,214	35,743
Participation surveys		3,220	–
Total revenue		24,434	35,743
Operating expenses
Amortization of seismic data library	7	22,836	22,507
Impairment loss	7	937	–
Salaries, internal commissions and benefts	13	3,989	4,772
Other selling, general and administrative costs	14	2,327	2,735
Depreciation		185	248
Total operating expenses		30,274	30,262
Results from operating activities		(5,840)	5,481
Financing costs
Financing expenses		495	889
Interest income		(1)	(14)
Net fnancing costs		494	875
Earnings (loss) before income taxes		(6,334)	4,606
Current income tax		–	–
Deferred income tax (reduction)	9	(1,026)	1,128
Income tax expense (reduction)		(1,026)	1,128
Net earnings (loss) and comprehensive income (loss)		(5,308)	3,478
Net earnings (loss) per share, basic and diluted	12	(0.09)	0.06

See accompanying notes to consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

		Number of
(thousands of Canadian dollars,		shares issued	Share	Contributed		Total
except number of shares)	Note	(repurchased)	capital	surplus	Defcit	equity
Balance at January 1, 2014		59,349,120	81,673	2,399	(18,110)	65,962
Net earnings for the year		–	–	–	3,478	3,478
Share-based compensation		–	–	377	–	377
Settlement of vested long-term
incentive plan award		–	–	(397)	–	(397)
Tax effect of equity-settled
share-based compensation		–	–	20	–	20
Normal course issuer bid		(2,101,277)	(2,891)	–	(3,436)	(6,327)
Dividendspaid	10	–	–	–	(4,712)	(4,712)
Balance at December 31, 2014		57,247,843	78,782	2,399	(22,780)	58,401

		Number of
		shares issued	Share	Contributed		Total
	Note	(repurchased)	capital	surplus	Defcit	equity
Balance at January 1, 2015		57,247,843	78,782	2,399	(22,780)	58,401
Net loss for the year		–	–	–	(5,308)	(5,308)
Share-based compensation		–	–	220	–	220
Settlement of vested long-term
incentive plan award		–	–	(325)	–	(325)
Tax effect of equity-settled
share-based compensation		–	–	(151)	–	(151)
Normal course issuer bid		(1,625,400)	(2,237)	–	(1,831)	(4,068)
Shares cancelled and related dividends		(29,754)	(41)	41	28	28
Dividendspaid	10	–	–	–	(3,408)	(3,408)
Balance at December 31, 2015		55,592,689	76,504	2,184	(33,299)	45,389

See accompanying notes to consolidated financial statements.

PULSE SEISMIC INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands of Canadian dollars)
For the years ended December 31	Note	2015	2014
Cash fows provided by (used in):
Operating:
Net earnings (loss) and comprehensive income (loss)		(5,308)	3,478
Adjustment for:
Amortization of seismic data library		22,836	22,507
Impairment loss		937	–
Depreciation		185	248
Loss on disposition of capital assets		3	2
Income tax expense (reduction)		(1,026)	1,128
Equity-settled share-based compensation		220	377
Net fnancing costs		494	875
Interest paid		(297)	(625)
Interest received		1	14
Income tax received		–	3,576
		18,045	31,580
Net change in non-cash working capital	15	(951)	(3,595)
Cash provided by operating activities		17,094	27,985
Financing:
Normal course issuer bid		(4,068)	(6,327)
Shares purchased for equity-settled share-based compensation		(325)	(393)
Repayment of long-term debt		(5,500)	(16,600)
Dividends paid		(3,408)	(4,712)
Dividend recovery from share cancellation		28	–
Cash used in fnancing activities		(13,273)	(28,032)
Investing:
Additions to seismic data library through participation surveys		(3,959)	(36)
Seismic data purchases, digitization and related cost		(933)	(733)
Additions to property and equipment		(14)	(64)
Net change in non-cash working capital		(38)	36
Cash used in investing activities		(4,944)	(797)
Decrease in cash and cash equivalents		(1,123)	(844)
Cash and cash equivalents, beginning of year		901	1,745
Cash and cash equivalents (operating line of credit), end of year		(222)	901

See accompanying notes to consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information as at December 31, 2015 and 2014 and for the years ended December 2015 and 2014.

(Tabular.amounts.in.thousands.of.Canadian.dollars,.except.per.share.data,.numbers.of.shares.and.other.exceptions.as.indicated)

1 | REPORTING ENTITY

Pulse.Seismic.Inc..(the.Company).was.incorporated.under.the.Canada.Business.Corporations.Act.and.is.a.publicly-listed. company.on.the.Toronto.Stock.Exchange.(TSX).trading.under.the.symbol.PSD.and.on.the.OTCQX.International.trading.under. the.symbol.PLSDF..The.Company’s.registered.office.is.in.Calgary,.Alberta..The.Company.is.a.provider.of.seismic.data.to.the. energy.sector.in.western.Canada.

2 | BASIS OF PREPARATION

A) STATEMENT OF COMPLIANCE

The.consolidated.financial.statements.were.prepared.in.accordance.with.International.Financial.Reporting.Standards.(IFRS).

The.consolidated.financial.statements.were.prepared.by.the.Company’s.management.and.were.approved.by.the.Board.of. Directors.on.March.2,.2016..

B) BASIS OF PRESENTATION

The.consolidated.financial.statements.include.the.accounts.of.the.Company’s.wholly-owned.subsidiaries..

C) BASIS OF MEASUREMENT

The.consolidated.financial.statements.were.prepared.on.the.historical.cost.basis..

D) FUNCTIONAL AND PRESENTATION CURRENCY

The.consolidated.financial.statements.are.presented.in.Canadian.dollars,.which.is.the.Company’s.functional.currency..All. financial. information. presented. in. Canadian. dollars. has. been. rounded. to. the. nearest. thousand,. except. per. share. data,. number.of.shares.and.other.exceptions.as.indicated..

E) BASIS OF CONSOLIDATION

i) Joint operations
.Certain. of. the. Company’s. seismic. data. library. assets. are. jointly. owned. with. others.. The. consolidated. financial. statements.include.the.Company’s.share.in.the.joint.assets,.joint.liabilities,.expenses.incurred.and.income.earned. from.the.joint.operations.
ii) Transactions eliminated on consolidation
.Intra-group. balances. and. transactions,. and. any. unrealized. income. and. expenses. arising. from. intra-group. transactions,.are.eliminated.in.preparing.the.consolidated.financial.statements.

F) USE OF ESTIMATES AND JUDGEMENTS

Preparing.the.consolidated.financial.statements.in.accordance.with.IFRS.required.management.to.make.estimates.and. judgements.that.affected.the.reported.amounts.of.assets.and.liabilities,.the.disclosure.of.contingent.assets.and.liabilities. at.the.date.of.the.consolidated.financial.statements,.and.the.amounts.of.revenue.and.expenses.attributed.to.the.reporting. period..Actual.results.could.differ.from.those.estimates.

PULSE SEISMIC INC.

Management.discussed.the.Company’s.critical.accounting.principles.and.estimates.and.the.application.of.such.principles. and.estimates.with.the.Audit.Committee.of.the.Board.of.Directors..Estimates.and.underlying.assumptions.are.reviewed.at.a. minimum.annually,.as.required.by.IFRS..Changes.to.accounting.estimates.are.recognized.in.the.year.in.which.the.estimates. are.revised.and.in.any.future.years.affected..

The. following. note. provides. information. about. critical. judgements. in. applying. accounting. policies. that. have. the. most. significant.effect.on.the.amounts.recognized.in.the.consolidated.financial.statements:

/ Note.3(g).–.The.Company.uses.judgement.in.determining.its.cash-generating.units.(CGUs).for.purposes.of.impairment. testing..The.determination.was.based.on.management’s.judgement.in.regards.to.the.smallest.identifiable.group.of.seismic. data.that.generates.cash.flows.largely.independent.of.the.cash.inflows.from.other.data..Changes.in.the.determination.of. CGUs.could.have.a.significant.impact.on.the.carrying.value.of.the.assets.and.could.result.in.additional.impairment.charges. or.reversal.of.impairment.in.future.periods..

The.following.notes.provide.information.about.assumptions.and.estimation.uncertainties.that.pose.a.significant.risk.of.a. material.adjustment.within.the.next.financial.year:

/ Note.3(a).(ii).–.Participation.survey.revenue.is.recognized.in.the.financial.statements.in.proportion.to.the.stage.of.project. completion..Participation.survey.revenue.is.recognized.when.the.total.contract.revenue,.total.contract.costs,.contract.costs. to.completion.and.the.stage.of.completion.at.the.balance.sheet.date.can.be.measured.reliably,.requiring.management.to. make.judgments.regarding.the.total.contract.costs,.contract.costs.to.completion.and.stage.of.completion..These.estimates. are.subject.to.uncertainty.as.they.require.assumptions.about.field.conditions.and.are.reviewed.by.management.on.a. monthly.basis..There.was.one.participation.survey.completed.in.2015.and.none.in.2014.
/ .Note.3(e).–.Amortization.of.seismic.data.library.is.based.on.management’s.estimates.of.expected.future.sales,.expected. useful.lives,.market.developments.and.experience..These.estimates.may.change.due.to.changes.in.market.conditions,. potential.prospects,.exploration.licence.periods,.exploration.and.development.in.certain.areas,.government.regulations. and.general.economic.conditions..Because.of.the.inherent.difficulty.in.estimating.market.developments.and.future.sales,. the.amortization.rates.might.not.accurately.reflect.the.useful.life.of.the.data.library..The.amortization.rates.are.adjusted. if.it.is.determined.that.estimated.useful.lives.have.changed.
/ Note.3(g).–.Impairment.tests,.if.required,.involve.the.estimation.of.future.cash.flows,.requiring.management.to.make. judgments.regarding.long-term.forecasts.of.future.revenues.and.costs.related.to.the.seismic.data.library.and.residual. values..These.forecasts.are.subject.to.uncertainty.as.they.require.assumptions.about.demand.for.seismic.data.and.future. market.conditions..Significant.changes.in.these.assumptions.could.require.a.provision.for.impairment.in.a.future.period..
/ .Note.3(h).–Deferred.tax.assets.are.recognized.for.all.unused.tax.losses.to.the.extent.that.it.is.probable.that.taxable.profit. will.be.available.against.which.the.losses.can.be.utilized..Significant.management.judgment.is.required.to.determine.the. amount.of.deferred.tax.assets.that.can.be.recognized,.based.upon.the.likely.timing.and.level.of.future.taxable.profits.. The.estimates.of.projected.future.taxable.profits.are.based.on.a.variety.of.factors.and.assumptions,.many.of.which.are. subjective.and.are.outside.of.the.Company’s.control..Accordingly,.these.estimates.could.differ.significantly.from.year. to.year,.and.the.Company.might.end.up.realizing.more.or.less.of.the.deferred.tax.assets.than.it.has.recognized.in.the. consolidated.financial.statements.
.The.Company.is.aware.that.the.Canada.Revenue.Agency.(CRA).may.revise.the.way.it.assesses.the.income.tax.amortization. of.certain.seismic.data.library.costs..No.policy.document.has.been.issued.by.the.CRA.and,.therefore,.the.Company.is.not. able.to.estimate.the.impact.this.change.will.have.on.its.income.tax.calculations,.carry-forward.balances.or.consolidated. financial.statements.
/ Note.3(k).–.The.number.of.Performance.Share.Units.(PSUs).expected.to.vest.is.based.on.management’s.estimates.of. expected.future.results.and.vesting.criteria.in.subsequent.years..These.forecasts.are.uncertain.as.they.require.assumptions. about.future.market.conditions,.revenues,.expenses.and.vesting.criteria..Significant.changes.in.the.assumptions.could. require.an.adjustment.to.the.amount.of.share-based.compensation.recognized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

G) NEW IFRS PRONOUNCEMENTS THAT APPLY TO THE COMPANY

A.number.of.new.standards,.amendments.to.standards.and.interpretations.have.been.issued.by.the.IASB.and.are.not.yet. effective.for.the.year.ended.December.31,.2015..The.new.standards,.amendments.to.standards.and.interpretations.have.not. been.applied.in.preparing.these.consolidated.financial.statements..None.of.these.are.expected.to.have.a.significant.effect.on. the.consolidated.financial.statements,.except.for:

/ .IFRS.15,. Revenue from Contracts with Customers ,.which.provides.guidance.on.revenue.recognition.and.relevant.disclosures.. The.standard.provides.a.single,.principles-based.five-step.model.to.be.applied.to.all.contracts.with.customers..IFRS.15.was. issued.in.May.2014.and.applies.to.annual.reporting.periods.beginning.on.or.after.January.1,.2018,.with.early.adoption. permitted..The.new.standard.enhances.revenue.disclosure..
.After.review,.Pulse’s.management.concluded.that.IFRS.15.would.affect.the.Company’s.policy.for.recognizing.participation. survey.revenue..Pulse.currently.recognizes.revenue.on.participation.surveys.based.on.percentage.of.completion..With.the. amended.standard,.participation.survey.revenue.can.only.be.recognized.in.the.financial.statements.when.the.survey.is. complete.in.all.respects,.meaning.the.risks.and.rewards.of.the.final.product.have.been.passed.on.to.the.customer..Pulse. will.therefore.have.to.adjust.its.revenue.recognition.policy.accordingly.and.may.choose.to.adopt.the.standard.before. January.2018..With.this.adjustment,.the.lag.between.the.progressive.recognition.of.participation.survey.revenue.and.initial. amortization.upon.survey.completion.will.disappear.
/ .IFRS.16,. Leases ..IFRS.16.was.issued.in.January.2016,.significantly.revising.the.way.in.which.companies.account.for.leases.by. requiring.almost.all.leases.to.be.included.on.the.balance.sheet.of.lessees..The.standard.provides.a.single.lessee.accounting. model,.requiring.lessees.to.recognize.assets.and.liabilities.for.all.leases.unless.the.lease.term.is.12.months.or.less.or. the.underlying.asset.has.a.low.value..IFRS.16.is.effective.for.annual.periods.beginning.on.or.after.January.1,.2019,.with. early.adoption.permitted.for.companies.that.also.apply.IFRS.15,. Revenue from Contracts with Customers. .The.Company. continues.to.evaluate.the.potential.impact.of.IFRS.16.on.the.financial.statements.and,.therefore,.the.impact.is.unknown.

3 | SIGNIFICANT ACCOUNTING POLICIES

The. accounting. policies. set. out. below. have. been. applied. consistently. to. all. periods. presented. in. these. consolidated financial.statements.

A) REVENUE RECOGNITION

Revenue.is.measured.at.the.fair.value.of.the.consideration.received.or.receivable,.net.of.discounts.and.volume.rebates..

i) Data library sales
.Revenue.is.recognized.when.the.customer.executes.a.valid.licence.agreement,.transfer.of.seismic.data.to.the. customer.occurs.and.collection.is.reasonably.assured..If.it.is.probable.that.discounts.will.be.granted.and.the.amount. can.be.measured.reliably,.then.the.discount.is.recognized.as.a.reduction.of.revenue.as.the.sales.are.recognized.. The.Company.defers.the.unearned.portion.of.the.contract.value.for.which.the.revenue.recognition.requirements. have.not.been.met..Deferred.revenue.consists.of.the.difference.between.the.total.contract.value.and.the.amount. of.seismic.data.delivered..
ii) Participation surveys

.The.Company.participates.with.customers.in.3D.seismic.participation.surveys.from.which.the.Company.retains. proprietary.rights.to.the.collected.data,.and.from.which.participating.customers.receive.a.non-transferable.licensed. copy..Customers.typically.can.direct.or.influence.the.project.specifications.and.access.data.as.it.is.being.acquired..

PULSE SEISMIC INC.

.Participation. survey. revenue. is. recognized. in. the. financial. statements. in. proportion. to. the. project’s. stage. of. completion.and.when.the.total.contract.revenue,.total.contract.costs,.contract.costs.to.completion.and.stage.of. completion.at.the.date.of.the.statement.of.financial.position.can.be.measured.reliably..The.stage.of.completion.is. assessed.by.calculating.the.cost.incurred.for.work.performed.to.the.date.of.the.statement.of.financial.position.as. a.percentage.of.the.estimated.total.contract.cost..The.amount.of.revenue.recognized.is.equal.to.the.total.contract. revenue.multiplied.by.the.percentage.of.completion..Deferred.revenue.consists.of.the.difference.between.the.total. value.billed.and.the.amount.of.revenue.recognized..

B) FINANCIAL INSTRUMENTS

Financial.assets.of.the.Company.include.cash.and.cash.equivalents.and.trade.receivables..Financial.liabilities.of.the.Company. mainly.comprise.trade.payables.and.long-term.debt..

Financial.instruments.are.recognized.on.the.consolidated.statement.of.financial.position.when.the.Company.becomes.a. party.to.the.instrument’s.contractual.obligations..All.financial.instruments.are.initially.recognized.at.fair.value..Measurement. in.subsequent.periods.depends.on.the.instrument’s.classification..

Cash. and. cash. equivalents. and. trade. receivables. are. designated. as. loans. and. receivables.. Accounts. payable. and. longterm.debt.are.designated.as.other.financial.liabilities..Loans.and.receivables.and.other.financial.liabilities,.including.related. transaction.costs,.are.measured.initially.at.fair.value.and.subsequently.at.amortized.cost.using.the.effective.interest.rate. method,.less.any.allowance.for.impairment..

A.provision.for.impairment.of.loans.and.receivables.is.established.when.there.is.objective.evidence.that.the.Company. will.not.be.able.to.collect.all.amounts.due.according.to.the.receivable’s.original.terms..The.amount.of.the.provision.is.the. difference.between.the.asset’s.carrying.amount.and.the.present.value.of.estimated.future.cash.flows,.discounted.at.the. original.effective.interest.rate..The.carrying.amount.of.the.asset.is.reduced.through.the.use.of.an.allowance.account.and. the.amount.of.the.loss.is.recognized.in.the.income.statement..When.a.receivable.is.uncollectible,.it.is.written.off.against.the. allowance.account..Subsequent.recoveries.of.amounts.previously.written.off.are.credited.to.earnings.or.loss..

The.fair.value.of.accounts.receivable.is.estimated.as.the.present.value.of.future.cash.flows,.discounted.at.the.market.rate. of.interest.at.the.reporting.date..Fair.value.of.financial.liabilities,.which.is.determined.for.disclosure.purposes,.is.calculated. based.on.the.present.value.of.future.principal.and.interest.cash.flows,.discounted.at.the.market.rate.of.interest.at.the. reporting.date..

C) CASH AND CASH EQUIVALENTS

Short-term.investments.with.an.original.maturity.of.three.months.or.less,.net.of.the.operating.line.of.credit,.are.considered. to.be.cash.equivalents..

D) PARTICIPATION SURVEYS IN PROGRESS

Participation. surveys. in. progress. include. all. expenditures. related. directly. to. specific. projects. and. an. allocation. of variable.overheads.

Accrued.participation.survey.revenue.represents.the.gross.unbilled.amount.expected.to.be.collected.from.customers.for. participation.survey.work.performed.to.date.and.is.measured.at.the.value.of.the.contract.recognized.to.date,.based.on.the. percentage.of.completion,.less.progress.billings..If.payments.received.from.customers.exceed.the.related.income.recognized,. then.the.difference.is.presented.as.deferred.revenue.on.the.consolidated.statement.of.financial.position..

Preliminary.costs.during.the.research.phase.of.participation.surveys.are.recognized.in.earnings.as.incurred..Development. expenditures.related.to.participation.surveys.are.capitalized.only.once.the.survey.project.is.deemed.technically.feasible,. which.usually.occurs.when.the.participation.survey.contract.is.signed..The.expenditures.capitalized.include.the.cost.of. materials,.subcontractor.fees.and.labour.costs.that.are.directly.attributable.to.the.survey.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

E) SEISMIC DATA LIBRARY

The.seismic.data.library.has.a.finite.useful.life.and.is.measured.at.cost.less.accumulated.amortization.and.impairment.losses.. Additions.to.the.seismic.data.library.arise.in.two.distinct.ways:.(i).participation.surveys.and.(ii).the.purchase.of.existing.data.. Costs.directly.incurred.in.acquiring,.processing.and.otherwise.completing.seismic.surveys.are.capitalized.to.the.seismic data.library..

Subsequent.expenditures.on.data.library.assets,.such.as.reprocessing,.are.capitalized.only.when.the.expenditure.increases. the.asset’s.future.economic.benefits..All.other.expenditures.are.recognized.in.earnings.as.incurred..

Amortization.is.calculated.over.the.cost.of.the.asset.less.its.residual.value..Costs.associated.with.participation.surveys. are.amortized.at.50.percent.immediately.on.the.delivery.of.the.data.to.the.participants,.with.the.balance.amortized.on.a. straight-line.basis.over.the.seven-year.period.commencing.at.the.end.of.the.period.of.exclusivity.(three.to.six.months.from. data.delivery),.if.there.is.one..

The.cost.of.purchased.data.are.amortized.on.a.straight.line.bases.over.seven.years.

Amortization.is.based.on.management’s.estimates.of.expected.future.sales,.expected.useful.lives,.market.developments. and. experience.. These. estimates. may. change. due. to. changes. in. market. conditions,. potential. prospects,. exploration. licence.duration,.exploration.and.development.in.certain.areas,.government.regulations.and.general.economic.conditions.. Amortization.methods,.useful.lives.and.residual.values.are.reviewed.at.each.financial.year-end.and.adjusted.if.appropriate.

F) PROPERTY AND EQUIPMENT

Property. and. equipment. are. recorded. at. cost. less. accumulated. depreciation. and. impairment. losses.. Cost. includes. expenditures.that.are.directly.attributable.to.the.acquisition.of.the.asset..

Depreciation.is.calculated.over.the.depreciable.amount,.which.is.the.cost.of.an.asset.less.its.residual.value..Depreciation.is. recognized.in.earnings.over.the.estimated.useful.life.of.each.significant.component.of.an.item.of.property.and.equipment.. The.half-year.rule.is.applied.to.the.first.year.of.acquisition..

Depreciation.is.provided.using.the.following.methods:

Depreciationisprovidedusingthefollowingmethods:
	Declining	Straight
	Balance	Line
Computer hardware and software	30%
Offce equipment	20%
Leasehold improvements		Balance of lease

G) IMPAIRMENT OF LONG-LIVED ASSETS

The.carrying.amounts.of.the.seismic.data.library,.property.and.equipment,.and.intangible.assets.are.reviewed.at.each. reporting.date.by.management.to.determine.whether.there.is.any.indication.of.impairment..If.so,.the.asset’s.recoverable. amount.is.estimated.and.impairment.recorded,.if.any..

PULSE SEISMIC INC.

Factors.considered.important.by.the.Company.that.could.trigger.an.impairment.assessment.include:

/ Significant.underperformance.relative.to.expected.operating.results.based.on.historical.and/or.projected.data;
/ Significant.changes.in.the.manner.of.the.use.of.the.asset.or.the.strategy.of.the.overall.business;.and
/ Significant.negative.industry.or.economic.trends..

The.recoverable.amount.of.tangible.and.intangible.assets.is.the.greater.of.value.in.use.and.fair.value.less.costs.to.sell..In. assessing.value.in.use,.the.estimated.future.cash.flows.are.discounted.to.their.present.value.using.a.pre-tax.discount.rate. that.reflects.current.market.assessment.of.the.time.value.of.money.and.the.risks.specific.to.the.asset..For.the.purpose.of. impairment.testing,.assets.are.classified.in.the.smallest.grouping.that.generates.cash.inflows.from.continuing.use.that.are. largely.independent.of.the.cash.inflows.of.other.assets.or.groups.(the.CGU).

An.impairment.loss.is.recognized.if.the.carrying.amount.of.an.asset.or.its.CGU.exceeds.its.estimated.recoverable.amount.. Impairment.losses.are.recognized.in.earnings.or.loss..Impairment.losses.recognized.in.respect.of.a.CGU.are.allocated.to.the. carrying.amount.of.the.assets.in.the.unit.on.a.pro-rata.basis..

Impairment.losses.for.assets.recognized.in.prior.periods.are.assessed.at.each.reporting.date.for.any.indications.that.the. loss.has.decreased..An.impairment.loss.is.reversed.if.there.has.been.a.change.in.the.estimates.used.to.determine.the. recoverable.amount.and.only.to.the.extent.that.the.assets’.carrying.value.does.not.exceed.the.carrying.amount.that.would. be.determined,.net.of.amortization.or.depreciation,.if.no.impairment.loss.had.been.recognized.

H) INCOME TAXES

Income. tax. expense. comprises. current. and. deferred. tax.. Income. tax. expense. is. recognized. in. earnings. or. loss. except. to. the. extent. that. it. relates. to. items. recognized. directly. in. equity,. in. which. case. it. is. recognized. in. equity. or. in. other comprehensive.income..

Current.tax.is.the.expected.tax.payable.or.receivable.on.the.taxable.income.or.loss.for.the.year,.using.tax.rates.enacted.or. substantively.enacted.at.the.reporting.date,.and.any.adjustment.to.taxes.payable.in.respect.of.previous.years.

Deferred.tax.is.recognized.in.respect.of.temporary.differences.between.the.carrying.amounts.of.assets.and.liabilities.for. financial.reporting.purposes.and.the.amounts.used.for.taxation.purposes..Deferred.tax.is.measured.at.the.tax.rates.expected. to.be.applied.to.the.temporary.differences.when.they.are.reversed,.based.on.the.laws.enacted.or.substantively.enacted.by. the.reporting.date..Deferred.tax.assets.and.liabilities.are.offset.if.there.is.a.legally.enforceable.right.to.offset.current.tax. liabilities.and.assets,.and.they.relate.to.income.taxes.levied.by.the.same.tax.authority.on.the.same.taxable.entity,.or.on. different.tax.entities,.but.they.intend.to.settle.current.tax.liabilities.and.assets.on.a.net.basis.or.their.tax.assets.and.liabilities. will.be.realized.simultaneously..

Deferred.tax.is.not.recognized.for.the.following.differences:.

/ The.initial.recognition.of.assets.or.liabilities.in.a.transaction.that.is.not.a.business.combination.and.that.affects.neither. accounting.nor.taxable.income.or.loss;.and.
/ Differences.relating.to.investments.in.subsidiaries.and.jointly.controlled.entities.to.the.extent.that.it.is.probable.they.will. not.be.reversed.in.the.foreseeable.future..

A.deferred.tax.asset.is.recognized.to.the.extent.that.it.is.probable.that.future.taxable.income.will.be.available.against.which. deductible.temporary.differences.can.be.utilized..Deferred.tax.assets.are.reviewed.at.each.reporting.date.and.are.reduced. to.the.extent.that.it.is.no.longer.probable.the.related.tax.benefit.will.be.realized..

I) PER SHARE AMOUNTS

Basic.per.share.amounts.are.calculated.using.the.weighted.average.number.of.shares.outstanding.during.the.period..

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

J) SHARE CAPITAL

Common.shares.are.classified.as.equity..When.shares.are.sold,.the.consideration.received,.including.directly.attributable. costs,.net.of.any.tax.effect,.is.recognized.as.a.change.in.share.capital..The.Company.purchases.shares.for.cancellation.under. its.normal.course.issuer.bid..The.cost.of.purchasing.shares.for.cancellation.is.first.charged.to.share.capital.to.the.extent.of. the.average.carrying.value.of.the.common.shares.purchased.and.the.excess.is.charged.to.retained.earnings..No.gain.or.loss. is.recognized.in.the.consolidated.statements.of.comprehensive.income.(loss).on.the.purchase,.sale,.issuance.or.cancellation. of.the.Company’s.own.equity.instruments.

K) SHARE-BASED PAYMENTS

In.2012,.the.Company.implemented.a.new.long-term.incentive.plan.(LTIP).under.which.participants.are.granted.restricted. share.units.(RSUs).and.performance.share.units.(PSUs)..LTIP.award.amounts.are.at.the.discretion.of.the.Board.of.Directors.. RSUs.and.PSUs.have.accompanying.dividend-equivalent.rights.and,.therefore,.additional.RSUs.and.PSUs.are.issued.to.reflect. dividends.declared.on.the.common.shares..The.plan’s.trustee.will.purchase.common.shares.on.the.open.market.for.the. after-tax.number.of.RSUs.and.PSUs.vested.with.funds.provided.by.the.Company..The.RSUs.and.PSUs.are.treated.as.equitysettled.share-based.payments.and.the.related.payroll.taxes.are.treated.as.cash-settled.share-based.payments.

The.compensation.expense.is.recognized.over.the.vesting.period..For.equity-settled.share-based.payments,.the.compensation. expense.is.based.on.the.number.of.RSUs.and.PSUs.expected.to.vest.and.the.market.value.of.a.common.share.of.the. Company.on.the.grant.date,.with.a.corresponding.increase.to.contributed.surplus..For.cash-settled.share-based.payments,. the.compensation.expense.is.measured.initially.at.the.fair.market.value.of.the.Company’s.shares.at.the.grant.date.and. subsequently.adjusted.for.the.additional.shares.granted.based.on.the.reinvestment.of.notional.dividends.and.the.market. value.of.the.shares.at.the.end.of.each.reporting.period,.with.a.corresponding.increase.to.liabilities.

L) EMPLOYEE BENEFITS

Short-term.employee.benefit.obligations.are.calculated.on.an.undiscounted.basis.and.are.expensed.as.the.related.services. are.provided..

A.liability.is.recognized.for.the.amount.expected.to.be.paid.under.short-term.cash.bonus.or.profit-sharing.plans.if.the. Company.has.a.current.legal.or.constructive.obligation.to.pay.this.amount.as.a.result.of.past.service.provided.by.the. employee.and.the.obligation.can.be.estimated.reliably.

M) LEASES

The.determination.of.whether.an.arrangement.is.or.contains.a.lease.is.based.on.the.substance.of.the.arrangement.and. requires.an.assessment.of.whether.its.fulfillment.depends.on.the.use.of.a.specific.asset.or.assets.and.the.arrangement. conveys.a.right.to.use.the.asset..

Payments.made.under.operating.leases.are.recognized.in.earnings.or.loss.on.a.straight-line.basis.over.the.lease.term..

N) NET FINANCING COSTS

Financing.expenses.consist.of.interest.expense.on.long-term.debt.and.amortization.of.the.deferred.financing.costs..All. borrowing.costs.are.recognized.in.earnings.or.loss.using.the.effective.interest.rate.method..Interest.income.was.earned.from. term.deposits.

PULSE SEISMIC INC.

4 | SEISMIC INDUSTRY CYCLES AND SEASONALITY

5 | TRADE AND OTHER RECEIVABLES

|5|
TRADE AND OTHER RECEIVABLES|||
|---|---|---|
|As at December 31,|2015|2014|
|Data library trade receivables|6,155|7,080|
|Other|3|3|
||6,158|7,083|

No.bad.debt.expense.was.recorded.in.2015.or.2014..

6 | PARTICIPATION SURVEYS IN PROGRESS

|6|
PARTICIPATION SURVEYS IN PROGRESS|||
|---|---|---|
||2015|2014|
|Opening balance, January 1|36|–|
|Costs incurred|3,959|36|
|Transferred to seismic data library|(3,995)|–|
|Closing balance, December 31|–|36|

No.participation.survey.was.in.progress.at.December.31,.2015..At.December.31,.2014,.the.Peco.South.3D.survey.was.in. progress.and.was.delivered.during.the.first.quarter.of.2015.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7 | SEISMIC DATA LIBRARY

|7|
SEISMIC DATA LIBRARY|||
|---|---|---|
||2015|2014|
|Cost|||
|Opening balance, January 1|434,527|433,794|
|Acquisitions through purchases and related cost|933|733|
|Transferred from participation surveys in progress|3,995|–|
|Closing balance, December 31|439,455|434,527|
|Accumulated amortization|||
|Opening balance, January 1|368,059|345,552|
|Amortization for the year|22,836|22,507|
|Impairment loss for the year|937|–|
|Closing balance, December 31|391,832|368,059|
|Carrying amount, December 31|47,623|66,468|

At.December.31,.2015,.the.Company.assessed.its.CGUs.included.in.its.seismic.data.library.for.indicators.of.impairment,. as.required.under.IFRS,.and.concluded.there.were.such.indicators..The.principal.indicator.was.the.ongoing.weakness.of. commodity.prices.along.with.uncertainty.over.the.timing.of.any.improvement..That.indicator.triggered.an.impairment.test.. As.a.result,.the.Company.completed.an.impairment.test..For.the.purpose.of.impairment.testing,.the.recoverable.amounts. of.the.Company’s.CGUs.is.the.greater.of.its.value.in.use.and.its.fair.value.less.costs.to.sell...The.recoverable.amounts.of.the. CGU’s.were.determined.based.on.a.value.in.use.calculation..The.Company.used.the.following.assumptions.to.calculate.the. recoverable.amount.of.each.CGU:

/ The.estimated.future.cash.flows.for.the.next.five.years.net.of.variable.and.fixed.costs;
/ The.residual.value.of.each.CGU.estimated.to.be.20.percent.of.the.original.cost.for.purchased.data.and.10.percent..of.the. original.cost.for.data.shot.in.a.participation.survey;
/ A.pre-tax.discount.rate.of.9.1.percent.to.calculate.the.net.present.value.of.future.cash.flows,.which.is.the.weighted.average. cost.of.capital.calculated.at.December.31,.2015;.and.
/ A.combined.federal-provincial.income.tax.rate.of.27.percent.

Based.on.these.assumptions.and.the.Company’s.calculations,.an.impairment.loss.of.$937,000.was.recognized.in.the.fourth. quarter.of.2015..The.impairment.specifically.related.to.two.CGUs,.Altares.3D.($323,000).and.Simon.East.3D.($614,000),.and. was.the.result.of.less.activity.in.the.areas.due.to.commodity.prices.and.capital.budgets..The.total.remaining.net.book.value. of.Altares.3D.and.Simon.East.3D.was.$826,000.at.December.31,.2015.

At.December.31,.2014,.no.indicators.of.impairment.were.identified.and.accordingly,.an.impairment.test.was.not.required..

Subsequent.to.the.end.of.the.year,.on.January.26,.2016,.the.Company.acquired.approximately.107,000.net.kilometres.of.2D. seismic.data.and.58.net.square.kilometres.of.3D.seismic.data,.increasing.Pulse’s.2D.seismic.data.library.by.31.5.percent.to. approximately.447,000.net.kilometres..The.acquisition.includes.data.spread.throughout.the.Western.Canada.Sedimentary. Basin.and.is.complementary.to.the.Company’s.existing.data..The.purchase.price.of.$3.65.million.was.funded.through.the. issuance.of.669,643.common.shares,.plus.$2.15.million.in.cash.

PULSE SEISMIC INC.

|8|
LONG-TERM DEBT|||
|---|---|---|
|As at December 31,|2015|2014|
|Secured revolving bank term loan|–|5,500|
|Less deferred fnancing costs|–|133|
|Long-term debt, net of deferred fnancing costs|–|5,367|

On.February.15,.2013.the.Company.announced.it.had.executed.a.new.$50.0.million.three-year.extendible.revolving.credit. facility.with.a.syndicate.of.banks..There.are.no.scheduled.principal.payments..Voluntary.prepayments.are.permitted.in.whole. or.part.at.any.time.without.premium.or.penalty..

On. January. 18,. 2016. the. Company. elected. to. reduce. the. facility’s. available. borrowing. amount. to. $30.0. million. from $50.0.million..Up.to.$5.0.million.of.the.revolving.facility.is.available.as.an.operating.line.of.credit..As.at.December.31,.2015,. $222,000.(December.31,.2014.–.Nil).was.drawn.on.the.operating.line.of.credit,.and.long.term-debt.was.nil.(December.31,. 2014.-.$5.4.million)..The.credit.facility.with.a.syndicate.of.banks.includes.an.accordion.feature.which.allows.an.increase.in.the. facility’s.size.up.to.$70.0.million.with.the.lenders’.consent..The.accordion.incurs.no.renewal.or.standby.fees..At.the.same.time,. the.Company.negotiated.a.one.year.extension.and.the.current.maturity.date.is.now.February.13,.2019..On.an.annual.basis,. the.Company.has.the.option.to.extend.the.maturity.date.for.one.additional.year.with.the.lenders’.approval.

Interest.on.the.syndicated.revolving.bank.loan.is.calculated.based.on.the.lender’s.prime.rate,.bankers’.acceptance.rate. or.LIBOR,.plus.an.applicable.margin.based.on.the.covenant.ratio.of.total.debt.to.adjusted.earnings.before.interest,.tax,. depreciation.and.amortization.(adjusted.EBITDA)..At.December.31,.2015.the.applicable.interest.rate.on.the.long-term.debt. was.3.2.percent.(December.31,.2014.–.3.5.percent)..

The.Company.pays.a.standby.fee.based.on.the.daily.undrawn.balance.of.the.credit.facility.and.an.applicable.margin.based. on.the.covenant.ratio.of.total.debt.to.adjusted.EBITDA..

The.covenants.include.two.financial.ratio.tests..The.first.is.that.the.total.debt.to.adjusted.EBITDA.must.not.exceed.a.ratio. of.2.50:1..The.ratio.was.0.01:1.at.December.31,.2015..The.second.financial.covenant.is.that.the.interest.coverage.ratio.must. be.at.least.3:1.at.all.times..The.ratio.was.51:1.at.December.31,.2015..The.Company.was.in.compliance.with.all.covenants.at December.31,.2015.

The.credit.facility.is.secured.by.a.charge.on.all.of.the.assets.of.the.Company.and.its.material.subsidiaries.

9 | DEFERRED TAX ASSETS AND LIABILITIES

|9|
DEFERRED TAX ASSETS AND LIABILITIES|||
|---|---|---|
|A) UNRECOGNIZED DEFERRED TAX ASSETS|||
|As at December 31 ,|2015|2014|
|Foreign exploration and development expense|347|355|
|Capital losses|413|383|
||760|738|

Deferred.tax.assets.for.these.items.have.not.been.recognized.because.utilization.against.future.taxable.profits.is.not.probable..

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B) RECOGNIZED DEFERRED TAX ASSETS AND LIABILITIES

Deferred.tax.assets.and.liabilities.are.attributable.to.the.following:

As at December 31,	2015	2014
Deferred income tax assets:
Resource expenditures	199	194
Non-capital tax losses carried forward	2,060	1,747
Share issuance and fnancing cost	36	27
Long-term incentive plan	120	341
Deferred income tax asset	2,415	2,309
Deferred income tax liability:
Seismic data library and participation surveys	10,114	10,883
Deferred income tax liability	10,114	10,883
Net deferred income tax liabilities	7,699	8,574

At.December.31,.2015,.the.Company.had.non-capital.tax.losses.of.$8.0.million.available.to.reduce.future.years’.income.for. tax.purposes..These.losses.expire.between.2033.and.2035..

C) MOVEMENT IN TEMPORARY DIFFERENCES DURING THE YEAR

	Deferred tax			Deferred tax
	liabilities (assets)			liabilities (assets)
	January 1,	Recognized	Recognized	December 31,
	2014	in income	in equity	2014
Resource expenditures	(212)	18	-	(194)
Non-capital losses	(1,549)	(198)	–	(1,747)
Share issuance and fnancing costs	(22)	(5)	–	(27)
Long-term incentive plan	(393)	72	(20)	(341)
Seismic data library	9,642	1,241	–	10,883
	7,466	1,128	(20)	8,574
	Deferred tax			Deferred tax
	liabilities (assets)			liabilities (assets)
	January 1,	Recognized	Recognized	December 31,
	2015	in income	in equity	2015
Resource expenditures	(194)	(5)	-	(199)
Non-capital losses	(1,747)	(313)	–	(2,060)
Share issuance and fnancing costs	(27)	(9)	–	(36)
Long-term incentive plan	(341)	70	151	(120)
Seismic data library	10,883	(769)	–	10,114
	8,574	(1,026)	151	7,699

PULSE SEISMIC INC.

D) RECONCILIATION OF EFFECTIVE TAX RATE

Income.tax.expense.differs.from.the.amount.that.would.be.computed.by.applying.the.basic.combined.federal.and.provincial. statutory.income.tax.rate.to.earnings.before.income.taxes..The.reasons.for.the.differences.are.as.follows:

For the years ended December 31,	2015	2014
Earnings (loss) before income tax	(6,334)	4,606
Combined federal and provincial income tax rate	26%	25%
Expected income tax expense (reduction)	(1,647)	1,152
Effects of differences:
Non-deductible expenses	13	14
Adjustment in respect of prior years	1	–
Change in valuation allowance	(35)	(38)
Effect of change in provincial tax rate pools	642	–
Actual income tax expense (reduction)	(1,026)	1,128

On. June. 15,. 2015. the. government. of. Alberta. announced. that. the. general. corporate. income. tax. rate. would. increase from. 10. percent. to. 12. percent. effective. July. 1,. 2015.. The. impact. of. this. rate. change. has. been. recognized. in. the. 2015 financial.statements.

The.deferred.tax.related.to.the.equity-settled.share-based.compensation.is.recognized.directly.in.equity,.as.the.estimated. future.tax.deduction.exceeds.the.cumulative.remuneration.expense..

10 | EQUITY

A) SHARE CAPITAL

The.Company’s.authorized.share.capital.consists.of.an.unlimited.number.of.common.and.an.unlimited.number.of.preferred. shares,.issuable.in.series..The.shares.have.no.stated.par.value..No.preferred.shares.have.been.issued..All.common.shares.are. entitled.to.receive.dividends.as.declared.and.are.entitled.to.one.vote.per.share.at.meetings.of.the.Company.

On.December.16,.2015,.the.Company.announced.the.renewal.of.its.normal.course.issuer.bid.(NCIB)..The.Company.may. purchase,.for.cancellation,.up.to.a.maximum.of.3,509,326.common.shares,.equal.to.approximately.10.percent.of.the.public. float.of.35,093,268.common.shares.as.at.December.15,.2015..The.Company.is.also.limited.under.the.NCIB.to.purchasing.up. to.5,134.common.shares.in.any.one.day,.subject.to.the.block.purchase.exemption.under.the.TSX.rules..The.NCIB.will.continue. until.December.20,.2016..Purchases.will.be.made.on.the.open.market.through.the.TSX.or.alternative.platforms.at.the.market. price.of.such.shares..All.shares.purchased.under.the.NCIB.will.be.cancelled.

During.the.year.ended.December.31,.2015.the.Company.purchased,.for.cancellation.1,625,400,.(2014.–.2,101,277).common. shares.pursuant.to.its.NCIB.at.a.weighted.average.price.of.$2.50.(2014.–.$3.01).per.share,.including.brokerage.fees,.for.a.total. cost.of.$4.1.million.(2014.–.$6.3.million)..The.total.cost.paid,.including.fees,.was.first.charged.to.share.capital.to.the.extent.of. the.average.carrying.value.of.the.common.shares.purchased.and.the.excess.of.$1.8.million.(2014.–.$3.4.million).was.charged. to.the.deficit.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The.purchase.price.of.the.$3.65.million.acquisition.discussed.in.Note.7.has.been.partially.funded.through.the.issuance.of. 669,643.Pulse.common.shares.valued.at.approximately.$2.24.per.share,.based.on.the.10-day.volume-weighted.average. price.of.the.shares.on.the.Toronto.Stock.Exchange.at.close.of.trading.on.January.21,.2016.

B) DIVIDENDS

Dividends.paid.in.2015.were.$0.06.per.share.(2014.–.$0.08).and.totalled.$3.4.million.(2014.–.$4.7.million).

On.November.4,.2015,.with.lower.period-over-period.seismic.data.library.sales.and.the.strong.possibility.of.an.extended. downturn,.Pulse’s.Board.of.Directors.deemed.it.financially.prudent.and.in.the.long-term.interests.of.shareholders.to.suspend. the.Company’s.quarterly.dividend.of.$0.02.per.share..

11 | SHARE-BASED PAYMENTS

In.2012,.the.Company’s.Board.of.Directors.approved.a.new.long-term.incentive.plan.for.employees,.officers.and.directors. designed. to. align. the. Company’s. long-term. incentive. compensation. with. its. performance. and. to. increase. individual share.ownership..

The.LTIP.awards.consist.of.RSUs.and.PSUs,.with.Directors.being.granted.RSUs.only..Upon.vesting,.each.RSU.and.PSU.entitles. the.holder.to.one.common.share.of.the.Company..RSUs.and.PSUs.have.accompanying.dividend-equivalent.rights.and,. therefore,.additional.RSUs.and.PSUs.are.issued.to.reflect.dividends.declared.on.the.common.shares.

On.March.31,.2015.one-third.of.the.awards.which.were.eligible.to.vest.were.RSUs.and.two-thirds.were.PSUs..Based.on. the.Company’s.performance.in.2014.and.the.predetermined.performance.measures,.4.percent.or.10,910.of.the.eligible. PSUs.vested..RSUs.vest.automatically.based.upon.time.and,.consequently,.all.of.the.eligible.RSUs.vested.automatically.on March.31,.2015.

To.satisfy.its.obligation,.in.April.2015.the.Company.provided.$350,000.to.the.plan’s.trustee.to.purchase.common.shares. on.the.open.market.for.the.total.after-tax.number.of.cash-.and.equity-settled.RSUs.that.vested.on.March.31,.2015..The. related.payroll.taxes.of.$211,000.were.paid.in.May.2015.to.settle.fully.the.accrued.cash-settled.portion.of.the.share-based payment.liabilities.

In.determining.the.amount.of.equity-settled.share-based.compensation.related.to.PSUs,.management.makes.estimates. about.future.results.and.vesting.criteria..It.is.reasonably.possible.that,.based.on.current.knowledge,.future.outcomes.could. differ.from.the.estimates.and.require.a.material.adjustment.to.the.share-based.compensation.expense.recorded.in.future. periods..The.impact.of.any.change.in.the.number.of.PSUs.expected.to.vest.is.recognized.in.the.period.the.estimate.is.revised.

During.the.year.ended.December.31,.2015,.the.Company.recognized.$238,000.(2014.–.$358,000).in.compensation.expense. related.to.the.LTIP.in.salaries,.internal.commissions.and.benefits.on.the.statement.of.comprehensive.income.(loss)..The. equity-settled.portion.was.$220,000.(2014.–.$377,000).

At.December.31,.2015.the.obligation.related.to.the.cash-settled.portion.of.the.LTIP.was.$174,000.(December.31,.2014.–. $372,000).with.$98,000.(December.31,.2014.–.$195,000).included.in.accounts.payable.and.accrued.liabilities.and.$76,000. (December.31,.2014.–.$177,000).included.in.other.long-term.liabilities..

PULSE SEISMIC INC.

The.following.summarizes.activity.in.the.Company’s.LTIP.during.the.years.ended.December.31,.2015.and.2014:

RSUs	2015	2014
Outstanding, January 1	427,359	505,221
Granted	133,520	137,657
Dividend-equivalent share units	8,930	11,348
Settled	(175,060)	(180,640)
Cancelled or forfeited	(50,020)	(46,227)
Outstanding, December 31	344,729	427,359
PSUs	2015	2014
Outstanding, January 1	658,896	791,156
Granted	201,950	194,500
Dividend-equivalent share units	13,584	17,615
Settled	(10,910)	(1,565)
Cancelled or forfeited	(364,774)	(342,810)
Outstanding, December 31	498,746	658,896

On. March. 31,. 2016,. 121,713. RSUs. will. vest. automatically. and,. based. on. the. Company’s. performance. in. 2015. and. the. predetermined.performance.measures,.none.of.the.PSUs.will.vest..In.April.2016,.the.Company.will.settle.its.obligation.to. deliver.the.common.shares.by.providing.funds.to.the.independent.LTIP.trustee.to.purchase.the.shares.on.the.open.market.

12 | EARNINGS PER SHARE

A) BASIC EARNINGS PER SHARE

The.calculation.of.basic.earnings.per.share.at.December.31,.2015.was.based.on.the.loss.attributable.to.common.shareholders. of.$5.3.million.for.the.year.ended.December.31,.2015.(2014.–.earnings.of.$3.5.million).and.a.weighted.average.number.of. common.shares.of.56,628,524.(2014.–.58,957,072),.calculated.as.follows:

	2015	2014
Common shares outstanding, January 1	57,247,843	59,349,120
Effect of shares issued, purchased and cancelled	(619,319)	(392,048)
Weighted average number of common shares for the year ended December 31	56,628,524	58,957,072

B) DILUTED EARNINGS PER SHARE:

The.Company.does.not.have.any.dilutive.securities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13 | SALARIES, INTERNAL COMMISSIONS AND BENEFITS

|13|
SALARIES, INTERNAL COMMISSION|S AND BENEFITS|||
|---|---|---|---|
|For the years ended December 31,|Note|2015|2014|
|Salaries and benefts||3,321|3,241|
|Internal commissions||259|462|
|Registered retirement savings plan contributions||131|137|
|Short-term incentives||40|574|
|Long-term incentives|11|238|358|
|Total salaries, internal commissions and benefts||3,989|4,772|

14 | OTHER SELLING, GENERAL AND ADMINISTRATIVE COSTS

|14|
OTHER SELLING, GENERAL AND ADMINISTRATI|VE COSTS||
|---|---|---|
|For the years ended December 31,|2015|2014|
|External commissions|35|81|
|Occupancy cost|645|673|
|Offce and general cost|421|587|
|Information technology|356|394|
|Mapping and data storage|145|187|
|Directors’ fees and corporate costs|450|556|
|Consulting fees|46|49|
|Professional fees|229|208|
|Total other selling, general and administrative costs|2,327|2,735|

15 | NET CHANGE IN NON-CASH OPERATING WORKING CAPITAL

|15|
NET CHANGE IN NON-CASH OPERATING WORK|ING CAPITAL||
|---|---|---|
|For the years ended December 31,|2015|2014|
|Trade and other receivables|925|(3,867)|
|Prepaid expenses|(17)|58|
|Accounts payable and accrued liabilities|(963)|524|
|Deferred revenue|(768)|45|
|Other long-term payable|(101)|(168)|
|Others|(27)|(187)|
|Net change in non-cash operating working capital|(951)|(3,595)|

PULSE SEISMIC INC.

16 | FINANCIAL INSTRUMENTS

The.Company’s.risk.management.policy.objectives.include.the.long-term.management.of.the.Company’s.business.activities. and,.wherever.possible,.mitigation.of.the.associated.business.risks..The.Company.has.exposure.to.the.following.risks.from. its.use.of.financial.instruments:

/ Credit.risk;
/ Liquidity.risk;.and
/ Market.risk.

A) RISK MANAGEMENT

The. Board. of. Directors. has. overall. responsibility. for. the. establishment. and. oversight. of. the. Company’s. risk management.framework..

The.Company’s.risk.management.policies.are.established.to.identify.and.analyze.the.risks.faced.by.the.Company,.to.set. appropriate.risk.limits.and.controls,.and.to.monitor.risks.and.adherence.to.limits..The.Company,.through.its.training.and. management.standards.and.procedures,.aims.to.develop.a.disciplined.and.constructive.control.environment.in.which.all. employees.understand.their.roles.and.obligations..

The.Audit.Committee.oversees.how.management.monitors.compliance.with.the.Company’s.risk.management.policies.and. procedures,.and.reviews.the.adequacy.of.the.risk.management.framework.in.relation.to.the.risks.faced.by.the.Company.. Reviews. of. risk. management. controls. and. procedures. are. performed,. the. results. of. which. are. reported. to. the. Board of.Directors..

B) CREDIT RISK

The. Company. is. exposed. to. credit. risk. in. connection. with. data. sales. and. participation. surveys. with. its. customers.. The. Company’s.exposure.to.credit.risk.is.influenced.mainly.by.each.customer’s.individual.characteristics..The.nature.of.the. Company’s.customer.base,.including.the.default.risk.of.the.industry.in.which.customers.operate,.has.an.influence.on.credit. risk..As.the.Company.operates.to.a.large.extent.in.the.oil.and.natural.gas.industry,.nearly.all.of.the.trade.receivables.relate. to.customers.from.this.industry..

The.effective.monitoring.and.control.of.credit.risk.is.a.core.competency.of.the.Company..Each.new.customer.is.analyzed. individually.for.creditworthiness,.including.credit.reference.checks,.before.payment.and.delivery.terms.and.conditions.such. as.credit.limits.are.offered..Customer.accounts.are.monitored.and.accounts.receivable.aging.is.regularly.reviewed..Certain. customers.have.signed.agreements.with.the.Company.that.provide.for.extended.payment.terms..The.Company’s.credit. risk.increases.in.these.arrangements.due.to.their.longer.time-frame..The.risk.is.mitigated.by.attempting.to.limit.these. arrangements.to.major.oil.and.natural.gas.companies.which.have.long.operating.histories.and.adequate.resources.to.fulfill. their.commitments.

The.majority.of.the.Company’s.customers.have.been.doing.business.with.the.Company.for.many.years,.and.minimal.losses. have.occurred.in.the.past..The.Company.does.not.require.customers.to.provide.collateral..

Exposure to credit risk

The.carrying.amount.of.financial.assets.represents.the.maximum.credit.exposure..The.maximum.exposure.to.credit.risk. at.the.reporting.date.was.the.value.of.accounts.receivable.of.$6.2.million..The.Company.has.a.significant.concentration.of. customers.in.the.oil.and.natural.gas.industry,.with.the.majority.located.in.Alberta..At.December.31,.2015,.68.percent.of.total. accounts.receivable.were.due.from.two.customers..For.the.year.ended.December.31,.2015,.approximately.50.percent.of.the. Company’s.data.library.sales.were.attributable.to.three.customers..

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The.aging.of.trade.receivables.at.the.reporting.date.was:


	Gross	Impairment	Gross	Impairment
Current	6,158	–	5,427	–
Past due 31-60 days	–	–	1,636	–
Past due 61-90 days	–	–	–	–
More than 90 days	–	–	20	–
Total	6,158	–	7,083	–

As.at.the.reporting.date,.the.Company.believes.that.all.accounts.are.collectible,.based.on.historical.payment.behaviour.and. extensive.analysis.of.customers’.underlying.credit.ratings..

C) LIQUIDITY RISK

Liquidity.risk.is.the.risk.that.the.Company.will.encounter.difficulty.in.meeting.the.obligations.associated.with.its.financial. liabilities.that.are.settled.in.cash.or.another.financial.asset..The.Company’s.approach.to.managing.liquidity.is.to.ensure,.as.far. as.possible,.that.it.will.always.have.sufficient.liquidity.to.meet.its.liabilities.when.due,.under.normal.and.stressed.conditions,. without.incurring.unacceptable.losses.or.risking.damage.to.its.reputation..

The.Company.regularly.monitors.its.cash.flow.and.funding.options.available.in.the.capital.markets,.as.well.as.trends.in.the. availability.and.costs.of.such.funding,.with.a.view.to.maintaining.financial.flexibility.and.limiting.repayment.risks..The.Company. does.not.believe.that.it.will.encounter.difficulty.in.meeting.its.financial.obligations..Consolidated.cash.flow.information,. including.a.projection.for.the.remainder.of.the.year.where.applicable,.is.presented.to.the.Audit.Committee.quarterly,.which. aids.in.planning.to.ensure.that.the.Company.has.sufficient.cash.to.meet.expected.operational.expenses,.including.the. servicing.of.financial.obligations..

Beyond.effective.net.working.capital.and.cash.management,.at.December.31,.2015.the.Company.had.$49.8.million.available. for.future.draws.on.its.revolving.credit.facility,.and.a.further.$20.0.million.was.also.available.subject.to.the.banking.syndicate’s. approval.to.activate.an.accordion.feature..As.described.in.note.8,.on.January.18,.2016,.the.Company.elected.to.reduce.the. facility’s.available.borrowing.amount.to.$30.0.million.from.$50.0.million..As.at.March.2,.2016,.the.Company.had.$30.0.million. available.for.future.draws.on.its.revolving.credit.facility,.and.a.further.$40.0.million.was.also.available.subject.to.the.banking. syndicate’s.approval.to.activate.an.accordion.feature.

The.following.are.the.contractual.maturities.of.financial.liabilities.at.December.31,.2015,.assuming.the.new.credit.facility.is. not.renewed.in.February.2019:

					2019
	Carrying amounts	2016	2017	2018	and after
Operating line of credit	222	222	–	–	–
Accounts payable	809	809	–	–	–
Long-term payable	76	–	76	–	–
Total	1,107	1,031	76	–	–

PULSE SEISMIC INC.

D) MARKET RISK

Market.risk.is.the.risk.that.changes.in.market.prices.will.affect.the.Company’s.income.or.the.value.of.its.holdings.of.financial. instruments..The.objective.of.market.risk.management.is.to.manage.and.control.market.risk.exposures.within.acceptable. parameters,.while.optimizing.the.return..

i) Commodity price risk

.The.Company.is.not.directly.exposed.to.commodity.price.risk.as.it.does.not.have.any.contracts.that.are.directly.based.on. commodity.prices..A.change.in.commodity.prices,.specifically.oil.and.natural.gas.prices,.could.have.a.material.impact.on. the.Company’s.customers’.cash.flows.and.could.therefore.affect.the.level.of.seismic.data.library.sales.and.participation. surveys..Commodity.prices.are.affected.by.many.factors,.including.supply.and.demand..The.Company.has.not.entered. into.any.commodity.price.risk.contracts..Given.that.this.is.an.indirect.influence,.the.financial.impact.on.the.Company.of. changing.oil.and.natural.gas.prices.is.not.reasonably.determinable..

ii) Interest rate risk

.The.Company’s.interest.rate.risk.exposure.is.mainly.related.to.long-term.debt..The.Company.is.exposed.to.interest.rate. cash-flow.risk.on.its.floating-rate.long-term.debt.as.described.in.note.8..Changes.in.market.interest.rates.will.cause. fluctuations.in.future.interest.payments..

The.Company.earns.minimal.interest.income.on.its.cash.balances..

.A.change.of.100.basis.points.in.interest.rates.for.the.year.ended.December.31,.2015.would.have.increased.or.decreased. earnings.by.$33,000.(2014.–.$160,000),.assuming.all.other.variables.remained.constant..

E) FAIR VALUES

The.fair.values.of.cash.and.cash.equivalents,.accounts.receivable.and.accounts.payable.approximate.their.carrying.amount. largely.due.to.the.short-term.maturities.of.these.instruments..The.fair.value.of.the.long-term.debt.approximates.the.carrying. value.because.interest.charges.under.the.bank.loans.are.based.on.current.Canadian.bankers’.acceptance.rates.

17 | CAPITAL MANAGEMENT

The.Company.considers.its.capital.structure.to.include.shareholders’.equity.and.long-term.debt.

As at December 31,	2015	2014
Shareholders’ equity	45,389	58,401
Long-term debt (before deferred fnancing costs)	–	5,500
Total capitalization	45,389	63,901

The.Company’s.primary.objective.when.managing.capital.is.to.preserve.its.ability.to.execute.its.long-term.growth.plan.of. significantly.increasing.the.size.of.the.seismic.data.library,.so.that.it.can.maximize.revenue.and,.ultimately,.shareholder.value.. Sales.generated.from.the.seismic.data.library.provide.the.Company.with.high.levels.of.cash,.and.its.most.significant.expense. is.non-cash.amortization..Due.to.this,.the.Company.is.able.to.repay.long-term.debt.and.continue.to.fund.data.library.growth..

The.Company.requires.flexibility.in.managing.the.capital.structure.so.that.it.can.take.advantage.of.opportunities.to.raise. additional.capital.as.opportunities.for.data.acquisitions.or.participation.surveys.arise..The.Company.uses.a.combination.of. debt.and.equity.and.relies.on.key.internal.measures.such.as.the.long-term.debt.to.TTM.cash.EBITDA.ratio.and.the.long-term. debt.to.equity.ratio.to.forecast.and.structure.its.capital.requirements..From.time.to.time.the.Company.purchases.its.own. shares.on.the.market.through.its.NCIB,.the.timing.of.which.depends.on.market.prices.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash.EBITDA.is.defined.by.the.Company.as.earnings.before.interest,.taxes,.depreciation.and.amortization.less.participation. survey.revenue,.plus.non-cash.and.non-recurring.general.and.administrative.expenses..Cash.EBITDA.is.a.measure.that. does.not.have.any.standardized.meaning.prescribed.by.IFRS.or.Canadian.generally.accepted.accounting.principles.and.is. therefore.unlikely.to.be.comparable.to.similar.measures.presented.by.other.issuers..

The.long-term.debt.to.TTM.cash.EBITDA.ratio.is.calculated.as.long-term.debt.at.the.end.of.the.period,.divided.by.12-month. trailing.cash.EBITDA..This.measure.is.substantially.the.same.as.the.total.debt.to.adjusted.EBITDA.ratio.covenant.in.the. Company’s.credit.facility,.with.the.exception.that.the.covenant.calculation.under.the.credit.facility.allows.for.the.addition. of.normalized.cash.flow.from.acquisitions.for.the.months.during.the.trailing.12.months.that.the.Company.didn’t.own.the. acquired.data.

The.long-term.debt.to.TTM.cash.EBITDA.ratio.is.calculated.as.follows:.

For the years ended December 31,	2015	2014
Long-term debt (before deferred fnancing cost) at year-end	–	5,500
Divided by:
Net earnings (loss)	(5,308)	3,478
Less:
Participation survey revenue	(3,220)	–
Plus:
Net fnancing costs	494	875
Income tax	(1,026)	1,128
Depreciation	185	248
Amortization of seismic data library	22,836	22,507
Impairment loss	937	–
Equity-settled share-based compensation	220	377
Loss on disposition of capital assets	3	2
TTM Cash EBITDA	15,121	28,615
Long-term debt to TTM cash EBITDA ratio	0.00:1	0.19:1

As.the.balance.of.the.long-term.debt.was.nil.at.December.31,.2015,.the.long-term.debt.to.TTM.cash.EBITDA.ratio.was.0.00:1. at.December.31,.2015.

The.long-term.debt.to.equity.ratio.is.calculated.using.the.long-term.debt.balance,.excluding.of.debt.financing.costs,.divided. by.total.equity,.as.follows:

As at December 31,	2015	2014
Long-term debt (before deferred fnancing costs)	–	5,500
Divide by: total equity	45,389	58,401
Long-term debt to equity ratio	0.00:1	0.09:1

PULSE SEISMIC INC.

As. the. balance. of. the. long-term. debt. was. nil. at. December. 31,. 2015,. the. long-term. debt. to. equity. ratio. was. 0.00:1. at December.31,.2015.

As.discussed.in.note.8,.the.Company.is.subject.to.debt.covenants.on.its.long-term.debt.as.of.December.31,.2015..The. Company.was.in.compliance.with.all.covenants.at.December.31,.2015.

The.Company.is.subject.to.maximum.limits.on.the.number.of.shares.it.may.purchase.through.its.NCIB.

There.were.no.changes.in.the.Company’s.approach.to.capital.management.during.the.year..

18 | OPERATING LEASES AND OTHER COMMITMENTS

The.Company.leases.office.space.and.office.equipment.under.operating.leases..The.office.space.lease.expires.in.May.2017,. with.a.renewal.option..

During.the.year.ended.December.31,.2015,.$640,000.(2014.–.$666,000).was.recognized.in.selling,.general.and.administrative. expenses.in.respect.of.operating.leases..

The. following. table. represents. expected. operating. lease. payments. and. minimum. payments. under. seismic. data services.contracts:.

	2016	2017	2018	2019	2020
					and after
Operating leases	520	226	12	–	–
Seismic data services	120	120	30	–	–
Total	640	346	42	–	–

19 | RELATED-PARTY TRANSACTIONS

The.Company.has.a.related-party.relationship.with.its.Board.of.Directors.and.with.key.management.personnel..

A) KEY MANAGEMENT PERSONNEL COMPENSATION

In.addition.to.their.salaries,.the.executive.officers.participate.in.the.Company’s.short.term.incentive.cash-bonus.plan.and. LTIP.(refer.to.note.11)..

Key.management.personnel.compensation.comprised:

For the years ended December 31,	2015	2014
Fixed salary	994	988
Termination benefts	357	–
Short-term employee benefts	77	76
Short-term incentive plan	20	375
LTIP	74	126
	1,522	1,565

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B) TRANSACTIONS WITH DIRECTORS

Directors.also.participate.in.the.Company’s.LTIP.(refer.to.note.11).

The.remuneration.of.the.Directors.is.as.follows:

For the years ended December 31,	2015	2014
Directors’ fees	239	225
LTIP	93	101
	332	326

PULSE SEISMIC INC.

CORPORATE INFORMATION

Pulse is a market leader in the

acquisition, marketing and licensing of 2D and 3D seismic data to the western Canadian energy sector. Pulse owns the second-largest licensable seismic data library in Canada, currently consisting of approximately 28,600 net square kilometres of 3D seismic and 447,000 net kilometres of 2D seismic. The library extensively covers the Western Canada Sedimentary Basin where most of Canada’s oil and natural gas exploration and development occur.

OFFICERS

Neal Coleman President and CEO

Pamela Wicks Vice President Finance and CFO

Trevor Meier Vice President Sales and Marketing

Norman Hall Corporate Secretary

BOARD OF DIRECTORS

Robert Robotti[(1) (2) (3)] Chair

Karen El-Tawil[(1) (2) (3)] Director Peter Burnham[(2) (3) (4)] Director

Daphne Corbett[(1) (3) (4)] Director

Brent Gale[(4) (5)] Director Clark Zentner[(2) (3)] Director

(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance and Nominating Committee
(4) Member of the Environment, Health and Safety Committee
(5) Non-independent Director

BANKERS

The Toronto-Dominion Bank Calgary, Alberta

Alberta Treasury Branches Calgary, Alberta

REGISTRAR AND TRANSFER AGENT Computershare Trust Company of Canada Calgary, Alberta

SOLICITORS Gowling Lafleur Henderson LLP Calgary, Alberta

AUDITORS

KPMG LLP Calgary, Alberta

STOCK EXCHANGE LISTING

TSX: PSD OTCQX: PLSDF

HEAD OFFICE

Suite 2400, 639-5th Avenue S.W. Calgary, Alberta T2P 0M9 Telephone: 403-237-5559 Toll Free: 1-877-460-5559 Facsimile: 403-531-0688 E-mail: [email protected]

www.pulseseismic.com

Suite 2400, 639-5th Avenue S.W. Calgary, Alberta T2P 0M9

403-237-5559 www.pulseseismic.com

AI assistant

Pulse Seismic Inc. — Annual Report 2015

42873_rns_2016-03-30_e72129dd-38f2-4245-a15f-397597e3a9d4.pdf

Contents

IN OUR FINANCIAL SURVIVABILITY

IN THE GROWTH OF OUR ASSET

MAJOR SEISMIC DATA ACQUISITIONS

5 KEY DATA LIBRARY AREAS

Montney

Deep Basin

Duvernay

Cardium

447,000 km

SALES BREAKDOWN ($ MILLIONS)

IN THE WAY WE GENERATE REVENUE

Traditional Sales Reflect Oil and Natural Gas Exploration and Development

Transaction-Based Sales Reflect Corporate-Level Activity in the Oil and Natural Gas Industry

TRANSACTION-BASED SALES HAPPEN IN THREE MAIN WAYS

~~Partnerships and Joint Ventures~~

~~Corporate Merger/Acquisition~~

~~Asset Sale~~

FINANCIAL POSITION AND RATIOS

Value in Our Asset

Value in Our Capital Allocation

Value in Our Business Model

Value in Our Financial Management and Performance

Financial highlights from 2015:

Value in the Operational Playing Field

Value in Our Future Positioning

YEAR ENDED DECEMBER 31, 2015

OVERVIEW

ABOUT PULSE

SEISMIC DATA

2D Seismic

3D Seismic

MISSION AND STRATEGY

ECONOMIC ENVIRONMENT AND SEISMIC INDUSTRY

KEY.PERFORMANCE.INDICATORS

CORPORATE.HIGHLIGHTS

SEISMIC.INDUSTRY.CYCLES.AND.SEASONALITY

OUTLOOK

DISCUSSION.OF.OPERATING.RESULTS

SUMMARY FOR THE YEAR ENDED DECEMBER 31, 2015

Earnings (Loss) Before Income Taxes

Revenue

Data Library Sales

Geographical Sales Breakdown

2D/3D Sales Breakdown

Participation Survey Revenue

Amortization of Seismic Data Library

Impairment Loss

Salaries, Internal Commissions and Benefits (SCB)

Other Selling, General and Administrative Costs (SG&A)

Net Financing Costs

Income Taxes

SUMMARY FOR THE THREE MONTHS ENDED DECEMBER 31, 2015

Earnings (Loss) Before Income Taxes

Revenue

Data Library Sales

Geographical Sales Breakdown

2D/3D Sales Breakdown

Participation Survey Revenue

Amortization of Seismic Data Library

Impairment Loss

Salaries, Internal Commissions and Benefits (SCB)

Other Selling, General and Administrative Costs (SG&A)

Net Financing Costs

Income Taxes

REVIEW.OF.FINANCIAL.POSITION

AS AT DECEMBER 31, 2015

Seismic Data Library and Participation Surveys in Progress

Other Long-Term Payable

Share Capital Summary

Diluted Earnings per Share Reconciliation

Long-term Incentive Plan (LTIP)

Retained Earnings (Deficit)

Dividends

Deferred Tax Liability

FINANCIAL.SUMMARY.OF.QUARTERLY.RESULTS

SELECTED.ANNUAL.FINANCIAL.INFORMATION

Pulse Seismic Inc. Annual Report 2015

Partnerships and Joint Ventures

Corporate Merger/Acquisition

Asset Sale