VGS Seismic Canada Inc.
TSX VENTURE : VGS

VGS Seismic Canada Inc.

April 15, 2008 11:18 ET

VGS Seismic Canada Inc. Announces 2007 Financial Results

CALGARY, ALBERTA--(Marketwire - April 15, 2008) - VGS Seismic Canada Inc. ("VGS" or "the Company") (TSX VENTURE:VGS) is pleased to announce that in its first full year of operation as a public company it has generated $8.1 million ($0.26 per share) in Cash EBITDA, compared to $548,443 ($0.02 per share fully diluted) for the six months ended December 31, 2006.

VGS had net income of $548,766 ($0.02 per share basic and fully diluted) from gross revenues of $19.4 million, compared to the six months ended December 31, 2006 where VGS generated net income of $7.5 million ($0.40 per share basic and $0.24 per share fully diluted) from gross revenues of $23.9 million. The reason for the comparatively lower revenue and net earnings in 2007 is that, in the fourth quarter of 2006, the Company recognized $20.8 million in data acquisition revenue as a result of two large surveys being released from their proprietary usage period.

License sales were $12.3 million in cash for 2007, compared to $2.85 million for the six months ended December 31, 2006. The growth in sales is due to the increase in data VGS has available for sale in 2007, and the fact that the data is located in areas where demand was strong.

Data acquisition revenue earned in 2007 was $6.8 million compared to $20.8 million in 2006. This reduction was due to fewer attractive large scale data creation opportunities, which in management's consideration, may have been a result of lower natural gas prices. Acquisition revenue was generated through the completion of four 3-D surveys and one survey that was in progress at 2007 year-end. New 3-D data was added to the library in Northeast British Columbia, the Peace River Arch, Southeast Alberta and Saskatchewan. The total cost of new data created for the year was $10.4 million, of which $6.8 million, or 66%, was paid for by oil and gas company clients.



Selected Financial Information

Year ended Six months ended
December 31, 2007 December 31, 2006
$ $

Data acquisition revenue 6,831,652 20,835,183
License sales revenue 12,306,806 2,852,778
Brokerage and other revenue 252,062 189,583
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19,390,520 23,877,544
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Non-recurring reverse takeover costs - 833,927
Other operating expenses 4,482,983 1,659,991
--------------------------------------
4,482,983 2,493,918
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EBITDA (Non-GAAP measure) 14,907,537 21,383,626
--------------------------------------

Interest 1,683,065 527,946
Accretion 1,690,811 667,123
Amortization 10,724,249 12,682,880
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14,098,125 13,877,949
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Earnings before income taxes 809,412 7,505,677
Current income tax expense 260,646 53,681
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Net Income 548,766 7,451,996
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Earnings per share
Basic $0.02 $0.40
Diluted $0.02 $0.24

Cash EBITDA (Non-GAAP measure) 8,075,885 548,443
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Cash EBITDA per share
Basic $0.26 $0.03
Diluted $0.26 $0.02


For the year ended December 31, 2007, the Company changed its policy with respect to recognition of seismic data acquisition revenue by adopting the percentage of completion method. Previously, revenue from the creation of new seismic data was deferred when the payments were received from the client partner and then recognized as revenue when the proprietary period expired. New data is amortized at a rate of 35% of the total survey cost when a completed dataset is returned from the data processor, while the remaining amount is amortized on a straight-line basis over five years.

Corporate Review

Founded in 2005, and becoming publicly traded in December 2006, VGS is in the business of creating and growing a seismic data library, and licensing that data to oil and natural gas companies for cash. The Company grows its library by creating new seismic data or purchasing existing data which it then actively markets to oil and gas exploration companies. With its head office based in Calgary, Alberta, VGS owns a significant and growing portfolio of seismic data concentrated in British Columbia, Southern Alberta and Eastern Saskatchewan. As of April 9, 2008, VGS owned 5,016 square kilometres of recent vintage or newly created 3-D seismic data, and 5,013 linear kilometres of 2-D seismic data. The Company focuses solely on building and marketing its seismic data library through data creation, data purchase and data trade. VGS owns 100 per cent of the 3-D data it has created. As part of its purchase and trade contracts, VGS focuses on limiting revenue share obligations, and in all instances has a goal of owning pure title to data with zero revenue share obligations.

While VGS is pleased with the growth of its seismic data library to date, when measured in kilometres, VGS is still one of the smaller data library companies in the Western Canadian Sedimentary Basin. It is management's opinion that both the quality of the data in terms of the area it covers and the vintage are as important as the volume of data in the library. The Company has a management team with a successful track record of identifying and executing opportunities to partner with exploration companies to create new 3-D seismic data. VGS expects new surveys will generate more licensing revenue than surveys that have previously been on the market. While VGS will purchase pre-existing datasets if management assesses they possess good value, the Company's focus is to seek out and attempt to capitalize on new data creation opportunities, keeping the library newer and more attractive to its customers.

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 readers 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 defined as earnings before any deduction for net interest,
taxes, depreciation and amortization; and
- Cash EBITDA is defined as EBITDA less data acquisition revenue and
non-monetary exchange revenue.


Balance Sheets

As at December 31, 2007 2006
$ $
Assets

Current assets
Cash and cash equivalents 8,946 540,834
Accounts receivable 6,568,093 3,276,128
Due from related party - 40,000
GST receivable - 369,663
Prepaid expenses and deposits 64,094 39,115
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6,641,133 4,265,740

Seismic data libraries 39,145,800 34,258,181

Property and equipment 1,927,507 2,023,088
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47,714,440 40,547,009
--------------------------------------
--------------------------------------

Liabilities

Current liabilities
Bank indebtedness 1,024,218 -
Accounts payable and accrued liabilities 5,249,524 2,554,615
GST payable 367,006 -
Deferred revenue 2,230,303 1,159,592
Current portion of mortgage payable - 7,788
Income taxes payable 62,250 53,681
--------------------------------------

8,933,301 3,775,676

Convertible debentures 7,560,266 5,869,455

Mortgage payable - 292,441
--------------------------------------
16,493,567 9,937,572
--------------------------------------
Shareholders' Equity

Share capital 20,276,468 20,276,468
Contributed surplus 330,035 19,806
Warrants 692,088 939,647
Equity portion of convertible debentures 3,618,203 3,618,203
Retained earnings 6,304,079 5,755,313
--------------------------------------
31,220,873 30,609,437
--------------------------------------

47,714,440 40,547,009
--------------------------------------
--------------------------------------


Statements of Operations, Income and Retained Earnings

Six Months
Year ended ended December
December 31, 2007 31, 2006
$ $
Revenue 19,390,520 23,877,544
--------------------------------------

Operating expenses
Sales commissions 813,462 537,790
Consulting and professional fees 794,497 394,810
General and administrative 2,812,354 697,188
Stock-based compensation 62,670 30,203
Reverse take-over costs - 833,927
--------------------------------------
4,482,983 2,493,918
--------------------------------------

14,907,537 21,383,626
Amortization 10,724,249 12,682,880
--------------------------------------
4,183,288 8,700,746

Interest
Long-term debt 1,492,562 527,946
Accretion of convertible debentures 1,290,532 594,680
Accretion of deferred financing costs 400,279 72,443
Other 190,503 -
--------------------------------------
3,378,876 1,195,069
--------------------------------------
Income before income taxes 809,412 7,505,677
Income taxes 260,646 53,681
--------------------------------------
Net income and comprehensive income
for the period 548,766 7,451,996
Retained earnings (deficit),
beginning of period 5,755,313 (1,696,683)
--------------------------------------
Retained earnings, end of period 6,304,079 5,755,313
--------------------------------------
--------------------------------------
Earnings per share
Basic 0.02 0.40
Diluted 0.02 0.24


Statements of Cash Flows

Six months
Year ended ended December
December 31, 2007 31, 2006
$ $

Cash provided by (used in)

Operating activities
Net income for the period 548,766 7,451,996
Items not affecting cash
Amortization of seismic database
libraries 10,591,089 12,636,313
Amortization of property and equipment 133,160 46,567
Accretion of deferred financing costs 400,279 72,443
Stock-based compensation 62,670 30,203
Accretion of convertible debentures 1,290,532 594,680
Common shares issued for services - 76,960
--------------------------------------
13,026,496 20,909,162
Net change in non-cash working capital
items
Accounts receivable (3,291,965) 1,881,690
GST recoverable and payable 736,669 988,410
Prepaid expenses and deposits (24,979) 51,195
Accounts payable and accrued
liabilities 1,671,387 (12,923,656)
Deferred revenue 1,070,711 (20,690,193)
Income taxes payable 8,569 53,681
--------------------------------------
13,196,888 (9,729,711)
--------------------------------------

Financing activities
Bank operating loan 1,024,218 (2,048)
Due from related party 40,000 (40,000)
Repayment of office condominium
mortgage (300,229) (1,088)
Proceeds from office condominium
mortgage - 301,317
Deferred financing costs - (255,490)
Issue of convertible debentures - 5,000,000
Issue of common shares - 12,288,125
--------------------------------------
763,989 17,290,816
--------------------------------------

Investing activities
Additions to seismic data libraries (15,478,708) (8,695,290)
Purchase of property and equipment (37,577) (1,235,346)
Non-cash working capital changes 1,023,520 984,491
--------------------------------------
(14,492,765) (8,946,145)
--------------------------------------

Decrease in cash and cash equivalents (531,888) (1,385,040)

Cash and cash equivalents,
beginning of period 540,834 1,925,874
--------------------------------------

Cash and cash equivalents,
end of period 8,946 540,834
--------------------------------------
--------------------------------------


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", "projects", "estimates", "potential" 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: seismic surveys, data sales, revenue, cash-flow, seismic annuity streams, 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 ability of VGS to secure participants to conduct seismic 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 Management's Discussion and Analysis of VGS 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.

Based in Calgary, Alberta, VGS Seismic Canada Inc. identifies, creates and markets digital seismic data for licensing to oil and natural gas exploration companies. To date, the Corporation's growing data library is concentrated in British Columbia, Southern Alberta and Eastern Saskatchewan. VGS shares trade on the TSX Venture Exchange under the symbol VGS.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

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