VGS Seismic Canada Inc. has announced results of operations for the three and six month periods ended June 30, 2008.
At June 30, 2008 VGS had grown its seismic data library to 5,016 square kilometers of 3D seismic data and 5,013 linear kilometers of 2D seismic data with a total capital cost of $75.0 million.
VGS contracted a small 2D shoot at the end of June 2008, field work was completed and data was delivered to the processor in August 2008.
VGS had a net loss of $2.5 million ($0.08 per share basic and fully diluted), from revenues of $2.1 million compared to a net loss of $2.0 ($0.06 per share basic and fully diluted) from gross revenues of $2.0 million for the three months ended June 30, 2007. The most significant expense contributing to the current period loss was amortization of $2.9 million. The year to date net loss is $4.5 million ($0.14 per share basic and fully diluted) compared to $1.6 million ($0.05) per share basic and fully diluted) for the six months ended June 30, 2007, with the most significant difference being amortization of $9.0 million for the current year to date compared with $3.9 million a year ago. The increased amortization is largely the result of a $3.6 million initial charge representing 35% of the cost of a survey completed in the first quarter.
Data acquisition revenue recognized in the quarter was nil, the same as the comparable quarter last year. VGS did contract a small 2D shoot to commence in Q3 of 2008, and completed a large 3D acquisition project in Q1. Previously, data acquisition revenue was deferred until the data was released from its proprietary period and available for sale to the industry. In late 2007, the Company prospectively adopted a policy of recognizing this revenue on a percentage of completion basis, and taking the initial amortization charge on the data in the month the survey is completed. This policy change resulted in $4.4 million in acquisition revenue being recognized in the first half of 2008, compared to nil acquisition revenue in the first six months of the prior year.
For the quarter ended June 30, 2008, VGS had cash license sales of $2.0 million compared to $1.8 million for Q2, 2007, which management believes to be the result of a better sales environment, although overall for the year to date, cash license sales are down to $2.4 million from $5.9 million a year ago. VGS believes this decrease in sales revenue is attributable weak natural gas prices and a general reduction in gas exploration in areas where VGS owns data in the first quarter. Cash EBITDA was also higher in Q2 2008 than the comparable quarter of 2007 due to both higher sales and lower operating costs, as VGS continued its efforts to reduce operating expenses.
Year to date cash EBITDA is lower due to weak license sales figures in the first quarter. Natural gas prices continue to be relatively high for summer months, and management believes this will lead to a renewed interest in exploration of gas prone areas, particularly North East British Columbia. Brokerage and other income is $29,319 for the quarter compared to $138,376 in the same quarter last year, and year to date brokerage revenue is down 46%. This decrease is due to the fact that there was one large sale comprising the majority of the revenue in the second quarter of 2007, and no similar transaction was completed in Q2 of 2008.
Amortization for the quarter is $2.9 million, compared to $2.0 million for the same quarter ended 2007. This 45% increase is due to an increase to both the size and cost of the database from the prior year.
Despite an increase in the net debt outstanding, interest and accretion on long term debt has decreased 2.6% to $796,640 from $817,939, as a result of the extension of the maturity date giving a longer period over which to accrete the debentures and deferred financing costs, as well as a reduction in the "ticking fee" paid on funds not yet drawn. The decrease in interest and fees on debt for the year to date is 9.8% for the same reasons, and the fact that interest was only payable on the 2008 draws for the last portion of the first quarter.
The total long term debt has increased since December 31, 2007, proceeds of which were used to pay for data purchase and creation opportunities committed to in 2007. Interest on the convertible debenture is 9.5% plus all applicable withholding taxes, payable semi-annually at February 15 and August 15. There is no option of early repayment and the Company cannot force conversion, and the lender can convert at any time up to maturity on February 16, 2010.
General and administrative expenses are $660,144, down 8% from the first quarter of 2008, and 10.9% year to date compared with 2007 as management focused on cost reduction. Sales commissions are lower by 15.4% to $99,596 compared to $117,728 for the same quarter in the prior year. Commission rates vary depending on the source of the referral coming from external brokers or internal sales staff. Year to date sales commissions are down 48%, most significantly due to lack of sales in the first quarter. Professional and consulting fees are 61% lower than Q1 of 2007 and 50.4% lower for the six months ended June 30 due to management focusing on reducing any discretionary spending, and staff having more experience dealing with public reporting requirements.
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