Divestco Inc. ("Divestco" or the "Company") (TSX VENTURE:DVT) is pleased to
announce its operating results for the three months ended March 31, 2014.
Divestco had a net loss of $0.7 million for the first quarter of 2013 ($0.01 per
share - basic and diluted) compared to a net income of $2.1 million ($0.03 per
share - basic and diluted) for the same period in 2013. The Company generated
revenue of $6.7 million compared to $11.6 million in Q1 2013, a decrease of $4.9
million (42%). Revenue in the Software and Data segment decreased by $0.3
million (14%) due to our disposition of support data to Canadian Western Data
Inc. (a partially owned subsidiary of Divestco) in Q2 2013. Revenue in the
Seismic Data segment decreased by $4.3 million (69%) due to a drop in seismic
participation revenue. Revenue in the Services segment decreased by $0.3 million
(10%) with geomatics, processing and land management services all experiencing
weaker demand as compared to Q1 2013.
Operating expenses decreased by $1.1 million (16%) to $5.6 million in Q1 2014
from $6.7 million in Q1 2013. Salaries and wages were down $0.6 million (13%)
due to lower headcount and profit-share accrual. G&A expenses were down $0.4
million (19%) as occupancy costs decreased due to a surrendered office floor
space in June 2013. Depreciation and amortization decreased by $0.9 million
(33%) mainly due to lower depreciation on seismic data as the Company acquired a
greater amount of data in Q1 2013 as compared to Q1 2014, and lower amortization
of deferred development costs as certain projects were fully amortized in prior
periods.
EBITDA was $1.3 million in Q1 2014, a $3.7 million (74%) decrease from $5
million for the same period in 2013. The Company generated funds from operations
of $1.1 million ($0.02 per share - basic and diluted) for the first quarter of
2014, compared to $5.2 million ($0.08 per share - basic and diluted) for the
same period in 2013, a decrease of $4.1 million (79%) primarily due to a lower
seismic participation revenue in Q1 2014.
Working Capital
As at March 31, 2014, Divestco had a working capital deficit of $3.8 million
(excluding deferred revenue of $2.7 million), compared to working capital
deficit of $2.3 million (excluding deferred revenue of $2.8 million) as at
December 31, 2013. The increase in working capital deficit from the end of 2013
was primarily due an unpredictably slow quarter and a weather related cost
overrun in our Alder East seismic program which was completed in Q1 2014. In
addition, the industry continued to experience lower than anticipated first
quarter activity levels with respect to exploration having a negative impact on
the Company's services divisions; geomatics, processing and land services.
Operations Update
Operationally, all divisions of Divestco are running at high efficiency and are
now focusing on growing top line revenue. Investment into sales & marketing and
related support functions will augment this focus. The company remains
optimistic about near future opportunities as the industry continues to work
back towards pre-recession activity levels.
The Company's 2014 industry outlook for geoscience related opportunities is
mixed. While domestic seismic activity remains relatively flat as compared to
2013, the Company is seeing increased opportunity levels in software & data and
internationally. Domestic opportunities in the Software & Data Segment will
largely be driven by software releases that are more aligned with customer needs
and industry trends. Greater project activity from customers operating outside
of North America is also expected in the Seismic Processing and Geomatics
Divisions as a result of the international efforts over the past year.
Mr. Stephen Popadynetz, CEO commented: "The first quarter started off
substantially slower than expected due to continued cash flow conservation by
our clients and due to significant weather related issues. Much of the expected
activity was either delayed or cancelled and many projects we had hoped to
complete in Q1 only commenced in the second quarter. While gas prices rebounded
for a brief period, they quickly returned to levels that many clients still find
uneconomic. This resulted in a very slow start for our services segment and a
rather flat first quarter for our software group. The seismic division did not
commence any new shoots in Q1 but our existing database remains very active with
several negotiations underway. The processing division struggled in Western
Canada but our international backlog is increasing and currently sits at over 3
times the entire amount we completed in 2013. Our software group released
several new versions of our flagship products and adoption and industry interest
is at an all-time high. We believe that we have successfully delivered the right
products to our marketplace and look forward to increased revenues in this
segment as a result. As we continue to look forward in 2014, Divestco has
greatly improved virtually every aspect of the Company and remains well
positioned to capitalize on any new growth in our marketplace."
Non-GAAP Measures
The Company's condensed consolidated interim financial statements have been
prepared in accordance with IAS 34, "Interim Financial Reporting". Certain
measures in this document do not have any standardized meaning as prescribed by
IFRS and are considered non-GAAP measures. While these measures may not be
comparable to similar measures presented by other issuers, they are described
and presented in this MD&A to provide shareholders and potential investors with
additional information regarding the Company's results, liquidity, and its
ability to generate funds to finance its operations.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
Divestco uses EBITDA as a key measure to evaluate the performance of its
segments and divisions, as well as the Company overall, with the closest IFRS
measure being net income or net loss. EBITDA is a measure commonly reported and
widely used by investors as an indicator of the Company's operating performance
and ability to incur and service debt, and as a valuation metric. The Company
believes EBITDA assists 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 is not a calculation based on IFRS and should not be considered an
alternative to net income or loss in measuring the Company's performance. As
well, EBITDA should not be used as an exclusive measure of cash flow, because it
does 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 statements of cash flows. While EBITDA has 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 as reported by Divestco may not be
comparable in all instances to EBITDA as reported by other companies. Investors
should also carefully consider the specific items included in Divestco's
computation of EBITDA.
The following is a reconciliation of EBITDA with net income (loss):
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Three months ended March 31
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(Thousands) 2014 2013
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Net Income (Loss) $ (715) $ 2,084
Income Tax Expense (Reduction) (31) -
Finance Costs 259 270
Depreciation and Amortization 1,757 2,613
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EBITDA $ 1,270 $ 4,967
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Working capital
Working Capital is calculated as current assets minus current liabilities
(excluding deferred revenue). Working capital provides a measure that can be
used to gauge Divestco's ability to meet its current obligations.
Additional GAAP Measure
Funds from operations
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 and investing activities. Funds from operations exclude
certain working capital changes and other sources and uses of cash, which are
disclosed in the consolidated statements of cash flows.
Funds from operations is not a calculation based on IFRS and should not be
considered an alternative to the consolidated statements 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 IFRS
measure is cash 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.
The following reconciles funds from operations with cash from operating activities:
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Three months ended March 31
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(Thousands) 2014 2013
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Net Cash from Operating Activities $ 4,223 $ 3,988
Changes in non-cash Working Capital Balances
Related to Operating Activities (3,064) 980
Interest Paid 216 243
Income Taxes Refunded (251) -
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Funds from Operations $ 1,124 $ 5,211
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Financial Highlights
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Financial Results (Thousands, Except Per Share Amounts)
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Three months ended March 31
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2014 2013 $ Change % Change
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Revenue $ 6,712 $ 11,618 $ (4,906) -42%
Operating Expenses 5,625 6,655 (1,030) -15%
Other Income (183) (4) (179) N/A
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EBITDA 1,270 4,967 (3,697) -74%
Finance Costs 259 270 (11) -4%
Depreciation and
Amortization 1,757 2,613 (856) -33%
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Income (Loss) before Income
Taxes (746) 2,084 (2,830) N/A
Income Tax Reduction (31) - (31) N/A
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Net Income (Loss) $ (715) $ 2,084 $ (2,799) N/A
Per Share - Basic and
Diluted (0.01) 0.03 (0.04) N/A
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Funds from Operations $ 1,124 $ 5,211 $ (4,087) -78%
Per Share - Basic and
Diluted 0.02 0.08 (0.06) -75%
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Class A Shares Outstanding 67,085 66,865 N/A N/A
Weighted Average Shares
Outstanding
Diluted 67,055 66,811 N/A N/A
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Financial Position (Thousands) Balance as at
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Mar 31 Dec 31 Dec 31
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2014 2013 2012
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Total Assets $ 38,389 $ 40,721 $ 41,945
Working Capital Deficit (1) (3,816) (2,295) (7,483)
Long-Term Financial Liabilities (2) 9,158 9,357 7,622
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1. Excludes the current portion of deferred revenue of $2.7 million
(December 31, 2013: $2.8 million; December 31, 2011: $2.4 million).
2. Includes long-term debt obligations (both current and long-term
portions), sublease loss provision (both current and long-term portions)
and deferred rent obligations.
Segment Review Summary
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Three months ended March 31, 2014 (Thousands)
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Corporate
Software Services Data & Other Total
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Revenue $ 1,915 $ 2,855 $ 1,942 $ - $ 6,712
EBITDA 532 235 1,257 (754) 1,270
Finance costs 73 36 150 - 259
Depreciation and
amortization 468 151 1,033 105 1,757
Income (loss) before
income taxes (9) 48 74 (859) (746)
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Three months ended March 31, 2013 (Thousands)
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Corporate
Software Services Data & Other Total
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Revenue $ 2,232 $ 3,183 $ 6,203 $ - $ 11,618
EBITDA 617 262 5,401 (1,313) 4,967
Finance costs 84 42 144 - 270
Depreciation and
amortization 702 155 1,638 118 2,613
Income (loss) before
income taxes (169) 65 3,619 (1,431) 2,084
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Divestco Inc.
Condensed Consolidated Interim Statements of Financial Position
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At Mar 31 At Dec 31
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(Thousands - Unaudited) 2014 2013
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Assets
Current Assets
Cash $ 564 $ 417
Accounts receivable 6,384 9,136
Prepaid expenses, supplies and deposits 317 300
Income taxes receivable 326 502
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Total current assets 7,591 10,355
Equity-accounted investees 311 133
Participation surveys in progress 5,199 4,733
Property and equipment 2,827 2,869
Intangible assets 22,461 22,631
Total assets $ 38,389 $ 40,721
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Liabilities and Shareholders' Equity
Current Liabilities
Bank indebtedness $ 2,591 $ 2,996
Accounts payable and accrued liabilities 5,954 6,935
Deferred revenue 2,715 2,756
Current loss on sublease loss provision 336 336
Current portion of long-term debt
obligations 2,454 2,311
Current portion of tenant inducement 72 72
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Total current liabilities 14,122 15,406
Deferred rent obligations 469 451
Long-term debt obligations 5,315 5,591
Sublease loss provision 584 668
Tenant Inducements 732 750
Total liabilities 21,222 22,866
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Shareholders' Equity
Share capital 7,270 7,266
Contributed surplus 8,012 7,989
Retained earnings 1,885 2,600
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Total shareholders' equity 17,167 17,855
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Total liabilities and shareholders' equity $ 38,389 $ 40,721
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Divestco Inc.
Condensed Consolidated Interim Statements of Income (Loss) and
Comprehensive Income (Loss)
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Three months ended March 31
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(Thousands, Except Per Share Amounts -
Unaudited) 2014 2013
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Revenue $ 6,712 $ 11,618
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Operating expenses
Salaries and benefits 3,770 4,331
General and administrative 1,832 2,275
Depreciation and amortization 1,757 2,613
Other income (183) (4)
Share-based payments 23 49
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Total operating expenses 7,199 9,264
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Finance costs 259 270
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Income (loss) before income taxes (746) 2,084
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Income taxes
Current (31) -
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Net income (loss) and comprehensive income
(loss) for the year $ (715) $ 2,084
Net income (loss) per share
Basic and Diluted $ (0.01) $ 0.03
Weighted average number of shares
Basic and Diluted 67,055 66,811
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Divestco Inc.
Condensed Consolidated Interim Statements of Changes in Equity
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Number
of
Shares Share Contributed Retained Total
(Thousands - Unaudited) Issued Capital Surplus Earnings Equity
----------------------------------------------------------------------------
Balance as at January 1,
2013 66,758 $ 7,216 $ 7,829 $ 1,273 $ 16,318
- - - -
Net income and
comprehensive income for
the period - - - 2,084 2,084
Transactions with owners,
recorded in equity
contributions by and
distributions to owners:
Issuance of Class A
common shares as
service awards 107 19 - - 19
Share-based payment
transactions 49 49
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Balance as at March 31,
2013 66,865 $ 7,235 $ 7,878 $ 3,357 $ 18,470
Balance as at January 1,
2014 67,050 $ 7,266 $ 7,989 $ 2,600 $ 17,855
Net loss and
comprehensive loss for
the year (715) (715)
Transactions with owners,
recorded in equity
contributions by and
distributions to owners:
Issuance of Class A
common shares as
service awards 35 4 4
Share-based payment
transactions 23 23
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Balance as at March 31,
2014 67,085 $ 7,270 $ 8,012 $ 1,885 $ 17,167
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Divestco Inc.
Condensed Consolidated Interim Statements of Cash Flows
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Three months ended March 31
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(Thousands - Unaudited) 2014 2013
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Cash from operating activities
Net income (loss) for the period $ (715) $ 2,084
Items not affecting cash:
Equity investment income (171) (2)
Depreciation and amortization 1,757 2,613
Amortization of tenant inducements (18) (30)
Deferred rent obligations 18 210
Income taxes (31) -
Unrealized foreign exchange loss (2) (2)
Non-cash employment benefits 4 19
Share-based payments 23 49
Finance costs 259 270
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Funds from operations 1,124 5,211
Changes in non-cash working capital balances 3,064 (980)
Interest paid (216) (243)
Income taxes received 251 -
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Net cash from operating activities 4,223 3,988
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Cash from (used in) financing activities
Bank indebtedness (405) -
Repayment of long-term debt obligations (291) (299)
Net cash from (used in) financing activities (696) (299)
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Cash from (used in) investing activities
Additions to intangible assets (1,156) (3,563)
Decrease (increase) in participation surveys
in progress (466) 3,508
Purchase of property and equipment (12) (55)
Payments towards sublease loss provision (89) (89)
Deferred development costs (306) (590)
Changes in non-cash working capital balances (1,351) (3,268)
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Net cash from (used in) investing activities (3,380) (4,057)
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Increase (decrease) in cash 147 (368)
Cash, beginning of period 417 1,320
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Cash, end of period $ 564 $ 952
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About the Company
Divestco provides innovative geoscience solutions to Energy and Service
companies worldwide. Our customers predominantly operate in geology, geophysics,
land and engineering and we work with our clients to ensure they have the right
solutions, at the right time, to help them make more informed decisions.
Commitment, innovation, accountability and agility form the cornerstone of our
values and enable us to consistently provide reliable solutions and exceptional,
personalized service in all of the core areas in which we operate. Divestco
provides Software & Data, Seismic Processing, Geomatics Services, Seismic Data &
Brokerage, and Land Services. Divestco is headquartered in Calgary and trades on
the TSX Venture Exchange under the symbol "DVT".
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term
is defined in the policies of the TSX Venture Exchange) accepts responsibility
for the adequacy or accuracy of this news release.
This press release contains forward-looking information related to the Company's
capital expenditures, projected growth, view and outlook with respect to 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.
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. 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.
In particular, this press release contains forward-looking statements pertaining
to the following: Company's ability to keep debt and liquidity at acceptable
levels, improve/maintain its working capital position 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; 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; impact of Canadian federal and
provincial governmental regulation on the Company; expected levels of operating
costs, finance costs and other costs and expenses; future ability to execute
acquisitions and 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; and new accounting pronouncements.
These forward-looking statements are based upon assumptions including: 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; 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 conditions; 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 regulation.
FOR FURTHER INFORMATION PLEASE CONTACT:
Divestco Inc.
Mr. Stephen Popadynetz
CEO, President and CFO
587-952-8152
Divestco Inc.
Mr. Danny Chiarastella
Vice President, Finance
587-952-8027
www.divestco.com
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