VGS Seismic Canada Inc.
TSX VENTURE : VGS

VGS Seismic Canada Inc.

November 26, 2007 20:45 ET

VGS Announces Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2007) - VGS Seismic Canada Inc. ("VGS" or "the Company") (TSX VENTURE:VGS) is pleased to announce the results of operations for the three month period ended September 30, 2007.

VGS had revenues of $798,892 for the three month period ended September 30, 2007, a decrease of 28% over the comparable quarter from last year. Revenue for the nine months ended September 30, 2007 is $6,951,247, an increase of 223% over the comparable nine month period in the prior year. This increase in year to date revenue is due to the Company having grown its data library and now having more seismic data available for sale.

VGS had a loss of $3,360,198 ($0.11 per share basic and fully diluted) for the three months ended September 30, 2007. This compares to a loss of $146,864 in the three months ended September 30, 2006. This decrease in net income from the third quarter of the prior year quarter was largely as a result increased amortization, interest and general and administrative expenses, in addition to lower sales. There is a seasonal trend of lower oil and gas exploration in the summer months, and therefore the Company generally expects the quarter ending September 30th to generate less sales than the other three quarters. Management expects most of the Company's revenue to be generated in the first and fourth quarters of the year.



Statements of Operations and Retained Earnings

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
$ $ $ $
Data sales revenue 781,447 983,501 6,718,228 1,455,122
Brokerage and other revenue 17,445 131,560 233,019 698,155
------------------------------------------------
798,892 1,115,061 6,951,247 2,153,277

Other operating expenses 1,025,713 658,578 3,293,701 2,272,381

EBITDA (226,821) 456,483 3,657,546 (119,104)

Interest 765,727 268,333 2,177,398 595,772

Amortization and accretion 2,109,041 335,014 6,203,726 889,907
Income Taxes 258,609 - 258,609 -

Loss (3,360,198) (146,864) (4,982,187) (1,604,783)
Loss per share
Basic and diluted (0.11) (0.01) (0.16) (0.10)

Cash EBITDA (226,821) 456,483 3,657,546 (119,104)

Shares outstanding
Weighted average
Basic and diluted 30,979,771 16,658,053 30,979,771 16,127,436
Total outstanding
Basic 30,979,771 16,658,053 30,979,771 16,658,053


Operating Cash Flow

VGS measures cash EBITDA as EBITDA less data acquisition and non-monetary exchange (NME) revenue. EBITDA for the three months ended September 30, 2007 was $(226,821) (September 30, 2006 - $456,483). Since there were no NMEs or acquisition revenue in the period, this amount equals EBITDA for the quarter. Cash used for operating activities in the three months ended September 30, 2007 was $(423,575), and cash generated by operating activities year to date was $8,463,786. At September 30, 2007, the Company had a working capital deficiency of $10,339,810 (December 31, 2006 - positive working capital of $490,064). The deficiency at September 30 is due in part to deferred revenue of $5,226,739, which will not be an actual cash outflow. The reason for the overall decrease in working capital is the four seismic acquisition projects in which the Company participated were complete by the end of the quarter, but the revenue will not be recognized until the fourth quarter of the year. The remainder of the working capital deficiency will be settled by an additional draw on the available convertible debt, or positive cash flow from sales in the fourth quarter.

Seismic Data Library

At September 30, 2007 VGS has a net data library of 3,606 square kilometres of 3-D seismic data and approximately 4,727 linear kilometres of 2-D seismic data with a total capital cost of $60 million.

The Company continues to pursue data creation and purchase opportunities, and as of September 30, 2007 has commenced or contracted to commence four projects that will add 182 square kilometres of 3-D seismic data to the library at a total estimated cost of $7.7 million. VGS will pay $2.5 million of these costs and their clients will pay $5.2 million. The projects are located in British Columbia and Alberta.



Balance Sheets
(Unaudited)
As at As at
September 30, December 31,
2007 2006
$ $
Current assets
Cash and cash equivalents 9,509 540,834
Accounts receivable 1,960,683 3,276,128
Due from related party - 40,000
GST receivable 201,233 369,663
Prepaid expenses and deposits 60,908 39,115
------------ ------------
2,232,333 4,265,740

Seismic data libraries 41,166,158 34,258,181

Property and equipment 1,955,759 2,023,088
------------ ------------

45,354,250 40,547,009
------------ ------------
------------ ------------

Liabilities
Current liabilities
Bank indebtedness 1,047,407 -
Accounts payable and accrued liabilities 3,193,894 2,554,615
Deferred revenue 5,226,739 1,159,592
Short-term financing 3,000,000 -
Current portion of mortgage payable - 7,788
Income taxes payable 104,103 53,681
------------ ------------
12,572,143 3,775,676

Convertible debentures 7,111,312 5,869,455

Mortgage payable - 292,441
------------ ------------
19,683,455 9,937,572

Shareholders' Equity

Share capital 20,276,468 20,276,468

Contributed surplus 208,814 19,806

Warrants 794,184 939,647

Equity portion of convertible debentures 3,618,203 3,618,203

Retained earnings 773,126 5,755,313
------------ ------------
25,670,795 30,609,437
45,354,250 40,547,009
------------ ------------
------------ ------------


Statements of Operations, Comprehensive loss, and Retained Earnings
(Deficit)
(Unaudited)


Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2007 2006 2007 2006
$ $ $ $
Revenue
Data sales 781,447 983,501 6,718,228 1,455,122
Brokerage and other 17,445 131,560 233,019 698,155
----------------------- -----------------------
798,892 1,115,061 6,951,247 2,153,277
----------------------- -----------------------
Expenses
Amortization 2,008,970 314,037 5,903,517 825,712
Interest on short-term debt 81,794 - 107,766 -
Interest on long-term debt 683,933 268,333 2,069,632 595,772
Accretion of deferred
financing costs 100,071 20,977 300,209 64,195
General and administrative 648,306 287,375 2,100,981 1,207,226
Sales commissions 125,222 318,605 474,489 536,956
Consulting and professional
fees 194,723 42,823 598,291 136,580
Stock-based compensation 19,125 - 43,545 329,003
Advertising and promotion 38,337 9,775 76,395 62,616
----------------------- -----------------------
3,900,481 1,261,925 11,674,825 3,758,060
----------------------- -----------------------

Loss before income taxes (3,101,589) (146,864) (4,723,578) (1,604,783)
----------------------- -----------------------
Income taxes
Current 258,609 - 258,609 -

Loss and comprehensive loss
for the period (3,360,198) (146,864) (4,982,187) (1,604,783)

Retained earnings (deficit)
- Beginning of period 4,133,324 (1,696,683) 5,755,313 (238,764)
----------------------- -----------------------
Retained earnings (deficit)
- End of period 773,126 (1,843,547) 773,126 (1,843,547)
----------------------- -----------------------
Loss per share
Basic and diluted (0.11) (0.01) (0.16) (0.10)


Statements of Cash Flows
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2007 2006 2007 2006
$ $ $ $

Cash provided by (used in)

Operating activities
Loss and comprehensive loss
for the period (3,360,198) (146,864) (4,982,187) (1,604,783)
Items not affecting cash
Amortization of seismic
database libraries 1,975,994 296,002 5,802,408 755,681
Amortization of property
and equipment 32,976 18,035 101,109 70,031
Accretion of deferred
financing costs 100,071 20,977 300,209 64,195
Stock-based compensation 19,125 - 43,545 329,003
Accretion of convertible
debentures 331,338 941,647 151,754
----------------------- ------------------------
(900,694) 188,150 2,206,731 (234,119)
Net change in non-cash
working capital items
Accounts receivable 1,105,154 751,691 1,315,444 459,313
Due from related party - - 40,000 -
GST receivable (10,590) 716,380 168,430 (839,348)
Prepaid expenses and
deposits 18,059 (131,750) (21,793) 812,240
Accounts payable and
accrued liabilities (708,243) (5,703,656) 637,404 4,806,582
Income tax payable 87,422 - 50,422 -
Deferred revenue (14,683) 695,070 4,067,147 17,335,005
----------------------- ------------------------

(423,575) (3,484,115) 8,463,785 22,339,674
----------------------- ------------------------
Financing activities
Repayment of office
condominium mortgage - - (300,229) (257,776)
Issue of common shares - 2,598,305 - 3,540,173
Deferred financing costs - (623,832) - (993,219)
Loan from VGS Capital - 11,366,000 - 11,366,000
Short term financing - - 3,000,000 -
Bank indebtedness 959,612 - 1,047,407 -
Issue of convertible
debentures - 2,462,659 - 7,462,659
----------------------- ------------------------

959,612 15,803,132 3,747,178 21,117,837
----------------------- ------------------------
Investing activities
Purchase of property and
equipment (3,905) (12,325) (33,780) (409,354)
Additions to seismic data
libraries (176,119) (10,653,624)(12,710,385)(45,917,420)
Change in non-cash working
capital (363,488) 1,877 1,319,273
----------------------- ------------------------

(543,512) (10,665,949)(12,742,288)(45,007,501)
----------------------- ------------------------
(Decrease) increase in cash
and cash equivalents (7,475) 1,653,068 (531,325) (1,549,990)

Cash and cash equivalents
- Beginning of period 16,984 1,925,874 540,834 5,128,932
----------------------- ------------------------
Cash and cash equivalents
- End of period 9,509 3,578,942 9,509 3,578,942
----------------------- ------------------------
----------------------- ------------------------
Cash paid for
Interest 646,936 291,861 1,456,766 467,545
Taxes paid 171,187 - 208,187 -


Operating Line of Credit

VGS has access to a line of credit secured by office condominiums owned by the Company. This facility bears interest at a floating rate of prime plus 1.5% and is for a maximum amount of $1,495,000. The amount outstanding on this line of credit at September 30, 2007 was $1,047,407.

Access to Additional Capital

VGS has access to an additional $10 million in convertible debt financing. The Company has the right to request these additional funds until December 14, 2007. Should any of these funds be borrowed by VGS prior to repayment of the $3,000,000 short term financing advanced, then under the current agreement, the first proceeds of the draw will be used to repay the $3,000,000 plus interest.

Subsequent to September 30, 2007, the Company has agreed to an amended credit facility with the convertible debenture holder and is pursuing acceptance of this amended credit facility by regulatory authorities and shareholder approval. Under the amended credit facility VGS has increased its borrowing capacity from $20.0 million to $21.5 million and has extended the maturity of the credit facility by one year to February 16, 2010. In addition, the revised financing provides, among other items, that the $10.0 million in escrow will be used to fully repay the note that is convertible at $1.50 per share and $11.5 million will be available for draw down by way of new convertible notes. The availability of such funds will be extended from the original date of August 16, 2007 to September 30, 2008. The new convertible notes will bear interest at 9.5% per annum as per the existing convertible notes and will be convertible at the option of the lender at a price equal to the volume weighted average price of the Class A shares for the twenty business days immediately preceding each drawdown date, plus a conversion premium of 25%. The bridge loan will now mature on the earlier of the volume weighted average market price of the Class A shares for the immediately preceding twenty business days being $0.40 (or greater) per share or December 31, 2007.

Non-GAAP Measures

The terms EBITDA, and cash EBITDA are not measures that have any standardized meaning prescribed by Canadian GAAP and are considered non-GAAP measures. Therefore, these measures may not be comparable to similar measures presented by other issuers. Accordingly, these measures have been described and presented in this press release to provide shareholders and potential investors with additional information regarding the Company's financial position, results, liquidity, and its ability to generate future cash flows.

These non-GAAP measures are calculated as follows: EBITDA is used to describe earnings before any deduction for interest, taxes, depreciation, amortization and accretion; and cash EBITDA is defined as EBITDA less data acquisition revenue and non-monetary exchange (NME) revenue. NME revenue is generated when license to data owned by the company is granted in exchange for delivery of title to data owned by the customer, and no cash changes hands.

Cash EBITDA is an important metric for VGS because in some periods, there can be large portions of acquisitions and NME revenue, which are non-cash. Cash EBITDA is a more accurate measure of cash license sales against cash operating costs.

Forward-Looking Information

Certain information contained in this Press Release, including information and statements which may contain words such as "could", "plans", "should", "anticipates", "expects", "believes", "will", "forecasts", "budget" and similar expressions and statements relating to matters that are not historical facts are forward-looking information including, but not limited to, information related to: future data sales, revenue, cashflow, expenditures, drilling activity levels, oil and gas prices and demand, expansion and other development trends of the oil and gas industry; business strategy, expansion and growth of VGS's business and operations, including VGS's market share and other such matters. This forward-looking information is based on certain material factors, assumptions and analyses made by VGS in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances.

However, whether actual results, performance or achievements will conform with VGS's conclusions, forecasts, projections, expectations and predictions expressed or implied by the forward-looking information in this Press Release is subject to known and unknown risks and uncertainties which could cause actual results to differ materially from VGS's conclusions, forecasts, projections, expectations and predictions expressed or implied by the forward-looking information in this Press Release, including: fluctuations in the price and demand for oil and gas; fluctuations in the level of oil and gas exploration and development activities; fluctuations in the demand for VGS's services; the ability of VGS to raise capital and to meet its debt service requirements; the ability of VGS's clients to raise capital for seismic data and surveys; the existence of competitors; technological changes and developments in the oil and gas industry; the effects of weather conditions on operations and facilities; the seasonal impact on conducting seismic surveys; the ability of VGS to participate financially in large seismic surveys due to increases in costs of conducting such seismic surveys; the ability of VGS to protect its proprietary rights to the seismic data; the existence of operating risks inherent in VGS's services; the lack of availability of qualified personnel or management; VGS's dependence on qualified seismic acquisition contractors to conduct seismic surveys; general economic, market or business conditions, including stock market volatility; changes in laws or regulations, including taxation and environmental regulations; other unforeseen conditions which could impact the use of services supplied by VGS and those risks and uncertainties described in VGS's continuous disclosure filings, including those referred to in the Corporation's Management's Discussion and Analysis for the most recently completed financial year end, which may be found on SEDAR at www.sedar.com. If any of the above risks or uncertainties materialize, or if the material factors, assumptions and analyses applied by VGS are incorrect, actual results may vary materially from those expected in the forward looking information in this Press Release.

Consequently, all of the forward-looking information contained in this Press Release is qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by VGS, as expressed or implied by the forward-looking information, will be realized or, even if substantially realized, that actual results or developments will have the expected consequences to, or effects on, VGS or its business operations. Except as required by law, VGS assumes no obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise. Readers should not place undue reliance on forward-looking information.

Contact Information

  • VGS Seismic Canada Inc.
    Scott Milroy
    Chief Financial Officer
    (403) 263-6050