Divestco Inc. ("Divestco" or the "Company") (TSX VENTURE:DVT) announces its
operating results for the three and six months ended June 30, 2011.
Accounting Policy Changes
On January 1, 2011, Divestco adopted International Financial Reporting Standards
("IFRS") for purposes of financial reporting, using a transition date of January
1, 2010. Accordingly, the Company's interim condensed consolidated financial
statements for the three and six months ended June 30, 2011 and the comparative
information for the three months and six ended June 30, 2010, have been prepared
in accordance with International Accounting Standard 34, "Interim Financial
Reporting", as issued by the International Accounting Standards Board ("IASB").
Previously, the Company prepared its interim and annual consolidated financial
statements in accordance with Canadian generally accepted accounting principles
("previous GAAP"). The adoption of IFRS has not had an impact on the Company's
operations and strategic decisions.
Results for the Three Months Ended June 30, 2011
Divestco realized net income for the second quarter of 2011 of $235,000 ($nil
per share - basic and diluted) compared to net loss of $4.6 million ($0.11 cents
per share - basic and diluted) for the same period in 2010. The increase of $4.8
million (105%) was due to a decrease in finance costs of $356,000 (68%), namely
interest on long-term debt, and a decrease in depreciation and amortization by
$6.3 million (81%) mainly due to the sale of the Company's seismic data assets
in Q3 2010. Offsetting this was an increase in operating expenses by $451,000
(5%) mainly due to double rent and severance costs.
During Q2 2011 and Q2 2010, Divestco generated revenue of $10.6 million. EBITDA
was $1.9 million in Q2 2011, a $0.5 million (19%) decrease from $2.4 million for
the same period in 2010. The Company generated funds from operations of $2.1
million ($0.03 per share - basic and diluted) for the second quarter of 2011,
compared to $2.4 million ($0.06 per share - basic and diluted) for the same
period in 2010.
Results for the Six Months Ended June 30, 2011
Divestco realized a net loss for the first six months of 2011 of $4.1 million
($0.07 per share - basic and diluted) compared to net loss of $8.8 million
($0.21 cents per share - basic and diluted) for the same period in 2010. The net
loss in for the six months ended June 30, 2011 was primarily due to a decrease
in revenue from the sale of the Company's seismic assets in Q3 2010 as well as
double rent commitments and expenses related to the Company's office space. This
was offset by a decrease in depreciation and amortization by $12.1 million (71%)
mainly due to the sale of the Company's seismic data assets in Q3 2010.
During the first six months of 2011, Divestco generated revenue of $19.5
million, a decrease of $3.2 million (14%) from $22.7 million for the same period
in 2010. EBITDA was $1.1 million, a $4.9 million (82%) decrease from $6 million
for the same period in 2010. The Company generated funds from operations of $1.2
million ($0.02 per share - basic and diluted) for the six months ended June 30,
2011, compared to $4.4 million ($0.10 per share - basic and diluted) for the
same period in 2010.
Late in 2010, Divestco commenced rebuilding its seismic data library by
initiating a 71 square kilometer 3D seismic survey which was completed in early
2011. The Company also obtained the trading rights to an existing 3D survey
covering an adjacent area of 66 square kilometers in Q1 2011 through a data
exchange. In Q2 2011, the Company commenced a 3D survey in central Alberta which
is expected to cover an area of approximately 200 square kilometers.
Mr. Stephen Popadynetz, CEO, President and CFO: "We are continuing to
restructure our Company and as we do so, we have had to incur several
non-recurring expenses. In the second quarter of 2011 alone, Divestco incurred
one-time expenses related to double rent and severance of $1.3 million. Despite
these charges, Divestco had a profitable quarter and continues to improve its
cash flow. Our results should improve as more of these non-recurring expenses
are completed and behind us. We feel we are well on track to sustained
profitability and positive earnings and we look forward to delivering better
results as the year progresses for our shareholders."
Non-GAAP Measures
The Company's interim condensed consolidated financial statements have been
prepared in accordance with IFRS. Certain measures in this document do not have
any standardized meaning as prescribed by IFRS and are considered non-GAAP
measures.
Divestco uses EBITDA and operating income as key measures to evaluate the
performance of segments, divisions and the Company, with the closest GAAP
measure being net income. EBITDA and operating income are measures commonly
reported and widely used by investors as indicators of the Company's operating
performance and ability to incur and service debt, and as a valuation metric.
The Company believes EBITDA and operating income assist investors in comparing
the Company's performance on a consistent basis without regard to financing
decisions, and depreciation and amortization, which are non-cash in nature and
can vary significantly depending upon accounting methods or non-operating
factors such as historical cost.
EBITDA and operating income are not calculations based on IFRS and should not be
considered alternatives to net income in measuring the Company's performance;
nor should they be used as exclusive measures of cash flow, because they do not
consider the impact of working capital growth, capital expenditures, debt
principal reductions and other sources and uses of cash, which are disclosed in
the consolidated statement of cash flows. Investors should carefully consider
the specific items included in Divestco's computation of EBITDA and operating
income. While EBITDA and operating income have been disclosed herein to permit a
more complete comparative analysis of the Company's operating performance and
debt servicing ability relative to other companies, investors should be
cautioned that EBITDA and operating income as reported by Divestco may not be
comparable in all instances to EBITDA and operating income as reported by other
companies.
EBITDA is calculated as follows:
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Three Months Ended Six Months Ended
June 30 June 30
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(Thousands) 2011 2010 2011 2010
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Net Income (Loss) $ 235 $ (4,561) $ (4,097) $ (8,772)
Income Tax Expense (Reduction) 16 (1,400) 65 (3,309)
Other Loss (Income) 2 (14) 2 (94)
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Operating Income (Loss) $ 253 $ (5,975) $ (4,030) $(12,175)
Finance costs 167 523 204 1,092
Depreciation and Amortization 1,525 7,858 4,914 17,094
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EBITDA 1,945 2,406 1,088 6,011
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Divestco reports funds from operations because it is a key measure used by
management to evaluate its performance and to assess the ability of the Company
to finance operating activities and capital expenditures. Funds from operations
excludes certain working capital changes and other sources and uses of cash,
which are disclosed in the consolidated statement of cash flows.
Funds from operations is not a calculation based on IFRS and should not be
considered an alternative to the consolidated statement of cash flows. Funds
from operations is a measure that can be used to gauge Divestco's capacity to
generate discretionary cash flow. Investors should be cautioned that funds from
operations as reported by Divestco may not be comparable in all instances to
funds from operations as reported by other companies. While the closest GAAP
measure is cash flows from operating activities, funds from operations is
considered relevant because it provides an indication of how much cash generated
by operations is available before proceeds from divested assets and changes in
certain working capital items.
Funds from operations is calculated as follows:
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Six Months Ended June 30
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(Thousands) 2011 2010
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Cash Flows from Operating Activities $ 2,852 $ 8,839
Changes in Non-Cash Working Capital Balances
Related to Operating Activities (1,744) (5,019)
Changes in Long-term Prepaid Expense - (158)
Interest Paid 141 988
Income Taxes Refunded (51) (290)
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Funds from Operations $ 1,198 $ 4,360
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Financial Highlights
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(Thousands, except per share
amounts) Three Months Ended June 30
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$ %
2011 2010 Change Change
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Revenue $ 10,637 $ 10,647 $ (10) 0%
Operating Expenses 8,692 8,241 451 5%
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EBITDA 1,945 2,406 (461) -19%
Finance Costs 167 523 (356) -68%
Depreciation and Amortization 1,525 7,858 (6,333) -81%
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Operating Income (Loss) 253 (5,975) 6,228 -104%
Other Loss (Income) 2 (14) 16 -114%
Income Tax Expense (Reduction) 16 (1,400) 1,416 -101%
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Net Income (Loss) $ 235 $ (4,561) $ 4,796 -105%
Per Share - Basic and Diluted - (0.11) 0.11 -100%
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Funds from Operations $ 2,067 $ 2,422 $ (355) -15%
Per Share - Basic and Diluted 0.03 0.06 (0.03) -50%
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Shares Outstanding 59,585 41,958 17,627 42%
Weighted Average Shares Outstanding
Basic 59,471 41,958 17,513 42%
Diluted 59,471 41,958 17,513 42%
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(Thousands, except per share
amounts) Six Months Ended June 30
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$ %
2011 2010 Change Change
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Revenue $ 19,452 $ 22,725 $ (3,273) -14%
Operating Expenses 18,364 16,714 1,650 10%
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EBITDA 1,088 6,011 (4,923) -82%
Finance Costs 204 1,092 (888) -81%
Depreciation and Amortization 4,914 17,094 (12,180) -71%
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Operating Income (Loss) (4,030) (12,175) 8,145 -67%
Other Loss (Income) 2 (94) 96 -102%
Income Tax Expense (Reduction) 65 (3,309) 3,374 -102%
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Net Income (Loss) $ (4,097) $ (8,772) $ 4,675 -53%
Per Share - Basic and Diluted (0.07) (0.21) 0.14 -67%
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Funds from Operations $ 1,198 $ 4,360 $ (3,162) -73%
Per Share - Basic and Diluted 0.02 0.10 (0.08) -80%
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Shares Outstanding 59,585 41,958 17,627 42%
Weighted Average Shares Outstanding
Basic 59,408 41,958 17,450 42%
Diluted 59,408 41,958 17,450 42%
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Segment Review Summary
For the three months ended
June 30, 2011 (Thousands)
Software Seismic Corporate
and Data Services Data & Other Total
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Revenue $ 2,361 $ 4,480 $ 3,796 $ - $ 10,637
EBITDA 662 910 3,177 (2,804) 1,945
Finance costs - (1) (1) 169 167
Depreciation and
Amortization 906 272 34 313 1,525
Operating Income (Loss) (244) 639 3,144 (3,286) 253
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For the three months ended
June 30, 2010 (Thousands)
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Corporate
Software Services Data & Other Total
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Revenue $ 2,304 $ 4,336 $ 4,007 $ - $ 10,647
EBITDA 903 493 3,278 (2,268) 2,406
Finance costs - - - 523 523
Depreciation and
Amortization 694 374 6,614 176 7,858
Impairment of goodwill and
intangibles - - - - -
Operating Income (Loss) 209 119 (3,336) (2,967) (5,975)
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For the six months ended
June 30, 2011 (Thousands)
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Corporate
Software Services Data & Other Total
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Revenue $ 4,539 $ 9,606 $ 5,307 $ - $ 19,452
EBITDA 1,433 2,312 3,744 (6,401) 1,088
Finance costs - (1) (3) 208 204
Depreciation and
Amortization 2,037 563 972 1,342 4,914
Operating Income (Loss) (604) 1,750 2,775 (7,951) (4,030)
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For the six months ended
June 30, 2010 (Thousands)
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Corporate
Software Services Data & Other Total
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Revenue $ 4,724 $ 9,829 $ 8,172 $ - $ 22,725
EBITDA 1,829 1,864 6,314 (3,996) 6,011
Finance costs - - - 1,092 1,092
Depreciation and
Amortization 1,428 903 14,291 472 17,094
Operating Income (Loss) 401 961 (7,977) (5,560) (12,175)
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Divestco Inc.
Condensed Consolidated Statement of Financial Position
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June 30, December 31,
As at 2011 2010
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(Thousands - Unaudited)
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Assets
Current Assets
Cash $ 903 $ 3,696
Funds held in trust 16 15
Accounts receivable 12,137 11,759
Prepaid expenses, supplies and deposits 224 237
Income taxes receivable 264 287
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13,544 15,994
Investment in affiliated company 128 100
Participation surveys in progress 2,819 1,253
Property and equipment 5,783 3,026
Intangible assets 14,966 14,611
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$ 37,240 $ 34,984
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Liabilities and Shareholders' Equity
Current Liabilities
Bank indebtedness $ 1,500 $ 2,050
Accounts payable and accrued liabilities 7,724 8,248
Deferred revenue 2,934 2,710
Current loss on sublease loss provision 1,193 1,729
Current portion of long-term debt obligations 1,044 368
Current portion of tenant inducement 141 -
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14,536 15,105
Deferred rent obligations 992 -
Long-term debt obligations 4,297 188
Sublease loss provision 1,402 1,621
Tenant Inducements 1,810 -
Other long-term liabilities 100 -
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23,137 16,914
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Shareholders' Equity
Equity instruments 75,383 75,253
Contributed surplus 5,590 5,590
Deficit (66,870) (62,773)
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14,103 18,070
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$ 37,240 $ 34,984
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Divestco Inc.
Condensed Consolidated Statement of Income (Loss) and Comprehensive Income
(Loss)
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For the For the
three months three six
ended June 30 ended June 30
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(Thousands, Except Per Share Amounts
- Unaudited) 2011 2010 2011 2010
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Revenue $ 10,637 $ 10,647 $ 19,452 $ 22,725
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Operating expenses
Salaries and benefits 5,107 4,843 10,266 9,948
General and administrative 3,585 3,324 8,098 6,646
Stock compensation expense - 74 - 120
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8,692 8,241 18,364 16,714
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Finance costs 167 523 204 1,092
Depreciation and amortization 1,525 7,858 4,914 17,094
Other loss (income) 2 (14) 2 (94)
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Income (loss) before income taxes 251 (5,961) (4,032) (12,081)
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Income taxes
Current (recovery) 16 (48) 65 (79)
Deferred (reduction) - (1,352) - (3,230)
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16 (1,400) 65 (3,309)
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Net income (loss) and comprehensive
income (loss) for the period 235 (4,561) $ (4,097) $ (8,772)
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Net income (loss) per share
Basic and Diluted $ - $ (0.11) $ (0.07) $ (0.21)
Weighted average number of shares
Basic and Diluted 59,471 41,958 59,408 41,958
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Divestco Inc.
Condensed Consolidated Statement of Changes in Equity
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Number of Number of
(Thousands - Shares Share Warrants Equity
Unaudited) Issued Capital Issued Warrants Instruments
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Balance at January 1,
2010 41,958 $ 70,518 - $ - $ 70,518
Net loss and
comprehensive loss
for the period
Transactions with
owners, recorded in
equity
contributions by and
distributions to
owners:
Share-based payment
transactions
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Balance at June 30,
2010 41,958 $ 70,518 - $ - $ 70,518
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Balance at January 1,
2011 58,938 $ 73,445 15,825 $ 1,808 $ 75,253
Net loss and
comprehensive loss
for the period
Transactions with
owners, recorded in
equity
contributions by and
distributions to
owners:
Issue on private
placement 455 48 455 52 100
Share-based payment
transactions 192 31 31
Share issue costs - (1) (1)
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Balance at June 30,
2011 59,585 $ 73,523 16,280 $ 1,860 $ 75,383
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Equity
portion of Retained
(Thousands - Contributed convertible Earnings Total
Unaudited) Surplus debentures (Deficit) Equity
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Balance at January 1,
2010 $ 5,562 $ 56 $ 31,411 $107,547
Net loss and
comprehensive loss
for the period (8,772) (8,772)
Transactions with
owners, recorded in
equity
contributions by and
distributions to
owners:
Share-based payment
transactions 120 120
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Balance at June 30,
2010 $ 5,682 $ 56 $ 22,639 $ 98,895
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Balance at January 1,
2011 $ 5,590 $ - $(62,773) $ 18,070
Net loss and
comprehensive loss
for the period (4,097) (4,097)
Transactions with
owners, recorded in
equity
contributions by and
distributions to
owners:
Issue on private
placement 100
Share-based payment
transactions 31
Share issue costs (1)
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Balance at June 30,
2011 $ 5,590 $ - $(66,870) $ 14,103
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Divestco Inc.
Condensed Consolidated Statement of Cash Flows
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For the six months ended June 30 2011 2010
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(Thousands - Unaudited)
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Cash flows from operating activities
Net loss for the period $ (4,097) $ (8,772)
Items not affecting cash:
Equity investment gain 1 -
Depreciation and amortization 4,914 17,094
Sublease loss (303) -
Amortization of tenant inducements (38) -
Deferred rent obligations 425 -
Income taxes 65 (3,309)
Data exchanges - (1,775)
Gain on sale of property and equipment - (90)
Unrealized foreign exchange loss (4) -
Non-cash employment benefits 31 -
Share based payments - 120
Finance costs 204 1,092
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1,198 4,360
Changes in non-cash working capital balances 1,744 5,019
Changes in long-term prepaid expense - 158
Interest paid (141) (988)
Income taxes refunded 51 290
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2,852 8,839
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Cash flows from (used in) financing activities
Bank indebtedness (550) -
Issue of common shares, net of related
expenses 99 -
Repayment of long-term debt obligations (221) (3,129)
Deferred financing costs (155) -
Proceeds received from long-term debt
obligations (net of committed revolver
repayments) 5,000 (1,020)
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4,173 (4,149)
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Cash flows used in investing activities
Additions to intangible assets (2,482) (2,647)
Decrease (increase) in participation surveys
in progress (1,566) 1,981
Purchase of property and equipment (5,422) (442)
Additions to tenant inducements 3,306 -
Payment made on sublease loss provision (488) -
Investments in affiliates (29) -
Proceeds on sale of property and equipment - 93
Deferred development costs (1,295) (1,425)
Changes in non-cash working capital balances (1,842) (1,940)
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(9,818) (4,380)
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Increase (decrease) in cash (2,793) 310
Cash, beginning of period 3,696 768
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Cash, end of period $ 903 $ 1,078
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Divestco is an exploration services company that provides a comprehensive and
integrated portfolio of data, software, and services to the oil and gas
industry. Through continued commitment to align and bundle products and services
to generate value for customers, Divestco is creating an unparalleled set of
integrated solutions and unique benefits for the marketplace. Divestco's breadth
of data, software and services offers customers the ability to access and
analyze the information required to make business decisions and to optimize
their success in the upstream oil and gas industry. Divestco is headquartered in
Calgary, Alberta, Canada and trades on the TSX Venture Exchange under the symbol
"DVT".
This press release contains forward-looking information related to the Company's
capital expenditures, projected growth, view and outlook towards future oil and
gas prices and market conditions, and demand for its products and services.
Statements that contain words such as "could', "should", "can", "anticipate",
"expect", "believe", "will", "may" and similar expressions and statements
relating to matters that are not historical facts constitute "forward-looking
information" within the meaning applicable by Canadian securities legislation.
Although management of the Company believes that the expectations reflected in
such forward-looking information are reasonable, there can be no assurance that
such expectations will prove to have been correct because, should one or more of
the risks materialize, or should the assumptions underlying forward-looking
statements or forward-looking information prove incorrect, actual results may
vary materially from those described in this press release as intended, planned,
anticipated, believed, estimated or expected. Except where required by law, the
Company does not assume any obligation to update these forward-looking
statements or forward-looking information if conditions or opinions should
change. Readers should not place undue reliance on forward-looking statements or
forward- looking information. All of the forward-looking statements and
forward-looking information of the Company contained in this press release are
expressly qualified, in their entirety, by this cautionary statement.
In particular, this press release contains forward-looking statements pertaining
to the following: the Company's ability to reduce debt, improve liquidity,
correct its working capital deficiency and maintain profitability in the current
economy; availability of external and internal funding for future operations;
relative future competitive position of the Company; nature and timing of
growth; future sales of the Company's seismic data library; oil and natural gas
production levels; planned capital expenditure programs; supply and demand for
oil and natural gas; future demand for products/services; commodity prices;
fluctuations in interest rates; impact of Canadian federal and provincial
governmental regulation on the Company; expected levels of operating costs,
general administrative costs, costs of services and other costs and expenses;
future ability to execute dispositions of assets or businesses; expectations
regarding the Company's ability to raise capital and to add to seismic data
through new seismic shoots and acquisition of existing seismic data; treatment
under tax laws.
These forward-looking statements are based upon assumptions including: that
future prices for crude oil and natural gas, future interest rates and future
availability of debt and equity financing will be at levels and costs that allow
the Company to manage, operate and finance its business and develop its software
products and various oil and gas datasets including its seismic data library,
and meet its future obligations; that the regulatory framework in respect of
royalties, taxes and environmental matters applicable to the Company and its
customers will not become so onerous on both the Company and its customers as to
preclude the Company and its customers from viably managing, operating and
financing its business and the development of its software and data; and that
the Company will continue to be able to identify, attract and employ qualified
staff and obtain the outside expertise as well as specialized and other
equipment it requires to manage, operate and finance its business and develop
its properties.
These forward-looking statements are subject to numerous risks and
uncertainties, certain of which are beyond the Company's control, including:
general economic, market and business condition; volatility in market prices for
crude oil and natural gas; ability of Divestco's clients to explore for, develop
and produce oil and gas; availability of financing and capital; fluctuations in
interest rates; demand for the Company's product and services; weather and
climate conditions; competitive actions by other companies; availability of
skilled labour; failure to obtain regulatory approvals in a timely manner;
adverse conditions in the debt and equity markets; and government actions
including changes in environment and other regulations.
Divestco Inc. (TSXV:DVT)
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