VGS Seismic Canada Inc.
TSX VENTURE : VGS

VGS Seismic Canada Inc.

August 29, 2007 19:43 ET

VGS Reports 199% Increase in Revenue Over Same Quarter of Prior Year

CALGARY, ALBERTA--(Marketwire - Aug. 29, 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 June 30, 2007.

VGS had revenues of 1,934,741 for the three month period ended June 30, 2007, an increase of 199% over the comparable quarter from last year. Revenue for the six months ended June 30 is $6,152,355, an increase of 493% over the comparable six month period in the prior year. This dramatic increase in sales is due to the Company having grown its data library and now having more seismic data available for sale.

VGS had a net loss of $1,979,388 ($0.06 per share basic and fully diluted) for the three months ended June 30, 2007. The loss for the period and year to date is a result of amortization expense, a non cash charge that offsets the cost of the Company's seismic data library. Both cash flow from operations and cash EBITDA were positive for the quarter. This loss compares to a net income of $357,399 in the three months ended March 31, 2007. This decrease in net income from the prior quarter was mainly the result of lower revenues in the second quarter, reflecting seasonality as there is typically less oil and gas exploration in the summer months than in the winter. The Company expects most of its revenue to be generated in the first and fourth quarters of the year.

Selected Financial Highlights



Three months ended June 30, Six months ended June 30
--------------------------- -------------------------

2007 2006 2007 2006
$ $ $ $

Data sales revenue 1,796,365 441,726 5,936,781 471,621
Brokerage and other
revenue 138,376 205,113 215,574 566,595
-------------- ------------ ------------ ------------
1,934,741 646,839 6,152,355 1,038,216

Other operating expenses 1,093,901 1,005,171 2,267,988 1,613,803
-------------- ------------ ------------ ------------

EBITDA 840,840 (358,332) 3,884,367 (575,587)

Interest 717,869 249,598 1,411,671 327,439

Amortization and
accretion 2,102,359 373,539 4,094,685 554,893
-------------- ------------ ------------ ------------

Net loss (1,979,388) (981,469) (1,621,989) (1,457,919)

Loss per share
Basic and diluted (0.06) (0.06) (0.05) (0.09)

Cash EBITDA 840,840 (358,332) 3,884,367 (575,587)

Shares outstanding
Weighted average
Basic and diluted 30,979,771 16,461,145 30,979,771 16,141,760
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. Cash EBITDA for the three months ended June 30, 2007 was $840,840 (June 30, 2006 - $(358,332)). Since there were no NMEs or acquisition revenue in the period, this amount is equal to the EBITDA amount for the quarter. Cash flow from operating activities in the period was $885,477. At June 30, 2007, the Company had a working capital deficiency of $9,259,089 (December 31, 2006 - positive working capital of $490,064). The deficiency at June 30 is due in part to deferred revenue of $5,241,423, 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 largely complete by the end of March, and the revenue will not be recognized until the fourth quarter of the year. These projects were financed by short term debt.

Seismic Data Library

At June 30, 2007 VGS has a net data library of 3,608 square kilometres of 3-D seismic data and approximately 4,919 linear kilometres of 2-D seismic data with a total capital cost of $59.9 million.

The Company continues to pursue data creation and purchase opportunities, and as of August 27, 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
June 30, December 31,
2007 2006
$ $
Assets
Current assets
Cash and cash equivalents 16,984 540,834
Accounts receivable 3,065,840 3,276,128
Due from related party - 40,000
GST receivable 190,642 369,663
Prepaid expenses and deposits 78,967 39,115
------------- -------------
Total current assets 3,352,433 4,265,740
Seismic data libraries (net of amortization) 42,966,034 34,258,181
Property and equipment 1,984,828 2,023,088
------------- -------------
48,303,295 40,547,009
------------- -------------
------------- -------------
Liabilities
Current liabilities
Bank indebtedness 87,795 -
Accounts payable and accrued liabilities 4,265,623 2,554,615
Deferred revenue 5,241,423 1,159,592
Short-term financing 3,000,000 -
Current portion of mortgage payable - 7,788
Income taxes payable 16,681 53,681
------------- -------------
Total current liabilities 12,611,522 3,775,676
Convertible debentures 6,679,905 5,869,455
Mortgage payable - 292,441
------------- -------------
Total liabilities 19,291,427 9,937,572
------------- -------------
Shareholders Equity
Share capital 20,276,468 20,276,468
Contributed surplus 44,226 19,806
Warrants 939,647 939,647
Equity portion of convertible debentures 3,618,203 3,618,203
Retained earnings 4,133,324 5,755,313
------------- -------------
Shareholders Equity 29,011,868 30,609,437
------------- -------------
Total Liabilities and shareholder equity 48,303,295 40,547,009
------------- -------------
------------- -------------


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

Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2007 2006 2007 2006
$ $ $ $
Revenue
Data sales 1,796,365 441,726 5,936,781 471,621
Brokerage and other 138,376 205,113 215,574 566,595
-------------- ------------ ------------ ------------
1,934,741 646,839 6,152,355 1,038,216
-------------- ------------ ------------ ------------
Expenses
Amortization 2,002,289 358,646 3,894,547 511,675
Interest 717,869 249,598 1,411,671 327,439
General, administrative
and other costs 1,193,971 1,020,064 2,468,126 1,657,021
-------------- ------------ ------------ ------------
3,914,129 1,628,308 7,774,344 2,496,135
--------------------------- -------------------------
Comprehensive loss for
the period (1,979,388) (981,469) (1,621,989) (1,457,919)
Retained earnings
(deficit) - Start of
period 6,112,712 (715,214) 5,755,313 (238,764)
Retained earnings
(deficit) - End of
period 4,133,324 (1,696,683) 4,133,324 (1,696,683)
--------------------------- -------------------------
--------------------------- -------------------------
Loss per share - Basic
and diluted (0.06) (0.06) (0.05) (0.09)


Statements of Cash Flows
(Unaudited)

Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2007 2006 2007 2006
$ $ $ $

Cash provided by (used in)

Operating activities
Loss and comprehensive
loss for the period (1,979,388) (981,469) (1,621,989) (1,457,919)
Items not affecting cash
Amortization of seismic
database libraries 1,968,309 341,230 3,826,414 459,679
Amortization of property
and equipment 33,980 17,416 68,133 51,996
Accretion of deferred
financing costs 100,070 14,893 200,138 43,218
Stock-based compensation 13,140 329,003 24,420 329,003
Accretion of convertible
debentures 313,542 103,914 610,310 151,754
-----------------------------------------------------

449,653 (175,013) 3,107,426 (422,269)
Net change in non-cash
working capital items
Accounts receivable 1,021,169 (3,518,315) 210,288 (292,378)
Due from related party 40,000 - 40,000 -
GST receivable (123,592) (128,028) 179,021 (1,555,728)
Prepaid expenses and
deposits (2,493) 12,556 (39,852) 943,990
Accounts payable and
accrued liabilities (1,439,743) 7,088,297 1,345,647 10,510,239
Income tax payable (37,000) 7,006 (37,000) -
Deferred revenue 977,483 9,478,608 4,081,831 16,639,935
-----------------------------------------------------

885,477 12,765,111 8,887,361 25,823,789
-----------------------------------------------------
Financing activities
Change in short-term
financing 3,000,000 - 3,000,000 -
Bank indebtedness 87,795 - 87,795 -
Repayment of office
condominium mortgage (298,321) (255,309) (300,229) (257,776)
Issue of common shares - 40,886 - 941,868
Deferred financing costs - (25,081) - (369,387)
Issue of convertible
debentures - - - 5,000,000
-----------------------------------------------------

2,789,474 (239,504) 2,787,566 5,314,705
-----------------------------------------------------
Investing activities
Purchase of property and
equipment - (39,262) (29,873) (397,029)
Additions to seismic data
libraries (2,272,508) (11,695,150) (12,534,267) (35,263,796)
Change in non-cash
working capital (2,052,045) (4,519,258) 365,363 1,319,273
-----------------------------------------------------

(4,324,553) (16,253,670) (12,198,777) (34,341,552)
-----------------------------------------------------

Decrease in cash and cash
equivalents (649,602) (3,728,063) (523,850) (3,203,058)
Cash and cash equivalents
- Beginning of period 666,586 5,653,937 540,834 5,128,932
-----------------------------------------------------

Cash and equivalents
- End of Period 16,984 1,925,874 16,984 1,925,874
-----------------------------------------------------


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 June 30, 2007 was $87,795.

Short Term Financing

On June 15, 2007, the Company received a cash advance of $3,000,000 from the same lender that holds the convertible debentures. An affiliate company of the lender currently holds approximately 16% of the outstanding common voting shares of VGS.

Access to Additional Capital

Prior to year-end, VGS entered into a contract with its current debenture holder granting access to an additional $10 million in convertible debenture financing. The Company has the ability to draw these additional funds until September 17, 2007. Should these funds be borrowed by VGS, $3,000,000 will be used to repay the short term loan discussed above. This lenders affiliate currently holds approximately 16% of the outstanding common voting shares of VGS.

Investing

Purchase of seismic data amounted to $2,272,508 for the three month period, all of which was expended on new data creation. To date this year, the Company has expended $12,534,267 on new and pre-existing seismic data, all of which is currently or will be available for sale by the end of December, 2007. VGS has acquired this data in areas management thinks have good potential to generate strong cash license sales in the future.

Non-GAAP Measures

The terms working capital, 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: working capital is defined as current assets less current liabilities; 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", 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 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 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 expectations and predictions expressed or implied by the forward-looking information is subject to known and unknown risks and uncertainties which could cause actual results to differ materially from VGS's expectations and predictions expressed or implied by the forward-looking information, 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.

Contact Information

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