Computer Modelling Group Ltd.
TSX : CMG

Computer Modelling Group Ltd.

August 12, 2009 08:00 ET

Computer Modelling Group Announces First Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2009) - Computer Modelling Group Ltd. ("CMG" or the "Company") (TSX:CMG) is very pleased to announce our first quarter results for the three months ended June 30, 2009.



----------------------------------------------------------------------------
$ thousands, except per share data
For the three months ended June 30, 2009 2008 Change
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Annuity/Maintenance Software Licenses 7,208 5,618 28%
Perpetual Software Licenses 1,976 1,171 69%
Total Revenue 10,235 8,268 24%
Gross Profit 7,882 6,314 25%
Earnings 2,689 2,627 2%
Earnings per share - basic 0.16 0.15 7%
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MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our"), presented as at August 11, 2009, should be read in conjunction with the unaudited consolidated financial statements and related notes of the Company for the three months ended June 30, 2009 and the audited consolidated financial statements and MD&A for the years ended March 31, 2009 and 2008 contained in the 2009 Annual Report for CMG. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), and unless otherwise indicated, all amounts in this report are expressed in Canadian dollars.

FORWARD-LOOKING INFORMATION

Certain information included in this MD&A is forward-looking. Forward-looking information includes statements that are not statements of historical fact and which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as investment objectives and strategy, the development plans and status of the Company's software development projects, the Company's intentions, results of operations, levels of activity, future capital and other expenditures (including the amount, nature and sources of funding thereof), business prospects and opportunities, research and development timetable, and future growth and performance. When used in this MD&A, statements to the effect that the Company or its management "believes", "expects", "expected", "plans", "may", "will", "projects", "anticipates", "estimates", "would", "could", "should", "endeavours", "seeks", "predicts" or "intends" or similar statements, including "potential", "opportunity", "target" or other variations thereof that are not statements of historical fact should be construed as forward-looking information. These statements reflect management's current beliefs with respect to future events and are based on information currently available to the management of the Company. The Company believes that the expectations reflected in such forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.

With respect to forward-looking information contained in this MD&A, we have made assumptions regarding, among other things:

- Future software license sales

- The continued financing by and participation of the Company's partners in the DRMS project and it being completed in a timely manner

- Ability to enter into additional software license agreements

- Ability to continue current research and new product development

- Ability to recruit and retain qualified staff

Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties, only some of which are described herein. Many factors could cause the Company's actual results, performance or achievements, or future events or developments, to differ materially from those expressed or implied by the forward-looking information including, without limitation, the following factors which are described in the MD&A of CMG's 2009 Annual Report under the heading "Business Risks":

- Economic conditions in the oil and gas industry

- Reliance on key clients

- Foreign exchange

- Economic and political risks in countries where the Company currently does or proposes to do business

- Increased competition

- Reliance on employees with specialized skills or knowledge

- Protection of proprietary rights

Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievement may vary materially from those expressed or implied by the forward-looking information contained in this MD&A. These factors should be carefully considered and readers are cautioned not to place undue reliance on forward-looking information, which speaks only as of the date of this MD&A. All subsequent forward-looking information attributable to the Company herein is expressly qualified in its entirety by the cautionary statements contained in or referred to herein. The Company does not undertake any obligation to release publicly any revisions to forward-looking information contained in this MD&A to reflect events or circumstances that occur after the date of this MD&A or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

CORPORATE PROFILE

CMG is a computer software technology and consulting company serving the oil and gas industry. The Company is the leading supplier of advanced processes reservoir modelling software in the world with a blue chip client base of international oil companies and technology centres in approximately 50 countries. CMG has sales and technical support services based in Calgary, Houston, London, Caracas and Dubai. CMG's common shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG".



QUARTERLY PERFORMANCE
---------------------------------------------------------------
Fiscal
Fiscal 2008 Fiscal 2009 2010
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$ thousands,
unless
otherwise
stated Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
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Annuity/
maintenance
licenses 4,042 4,450 5,587(1) 5,618(2) 5,350 6,937(3) 8,042(4) 7,208(5)
Perpetual
licenses 682 1,449 2,230 1,171 2,882 3,383 5,023 1,976
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Software
licenses 4,724 5,899 7,817 6,789 8,232 10,320 13,065 9,184
Consulting
and
contract
research 1,376 1,441 1,181 1,479 1,353 1,340 1,364 1,051
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Revenues 6,100 7,340 8,998 8,268 9,585 11,660 14,429 10,235
Gross Profit 4,458 5,640 7,192 6,314 7,157 9,525 11,789 7,882
Gross
Profit (%) 73 77 80 76 75 82 82 77
Earnings
before
income and
other taxes 2,247 3,291 4,665 3,814 4,414 7,254 8,765 3,991
Income and
other taxes 804 1,180 1,657 1,187 1,446 2,350 2,648 1,302
Earnings for
the quarter 1,443 2,111 3,008 2,627 2,968 4,904 6,117 2,689
Cash dividends
declared and
paid 1,264 1,260 1,684 3,843 2,073 2,422 2,588 6,975
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Per share
amounts -
($/share)
Earnings per
share
- basic 0.09 0.13 0.18 0.15 0.17 0.28 0.35 0.16
Earnings per
share
- diluted 0.09 0.13 0.18 0.15 0.17 0.28 0.35 0.15
Cash dividends
declared per
share 0.075 0.075 0.10 0.225 0.12 0.14 0.15 0.40
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(1) Includes $0.8 million in revenue that pertains to usage of CMG's
products in prior quarters
(2) Includes $0.7 million in revenue that pertains to usage of CMG's
products in prior quarters
(3) Includes $0.7 million in revenue that pertains to usage of CMG's
products in prior quarters
(4) Includes $1.1 million in revenue that pertains to usage of CMG's
products in prior quarters
(5) Includes $0.4 million in revenue that pertains to usage of CMG's
products in prior quarters


REVENUES

CMG's revenues are comprised of software license sales, which provide the majority of the Company's revenues, and consulting and contract research fees. CMG's revenues of $10.2 million for the first quarter of fiscal 2010 increased by 24 percent over the comparative period in fiscal 2009. The increase was due to the growth in both annuity/maintenance and perpetual software license revenues.

Software License Revenues

Software license revenues were $9.2 million in the three months ended June 30, 2009, up 35 percent or $2.4 million from the $6.8 million recorded in the same period last year. The annuity/maintenance component to our software license stream in the three months ended June 30, 2009 amounted to $7.2 million compared to $5.6 million in the comparative quarter last year. It should be noted that during the first quarter of fiscal 2010, CMG completed the negotiation of certain annuity/maintenance contracts and/or fulfilled revenue recognition requirements that included usage of CMG's products in prior quarters. As a result, CMG recognized $0.4 million in revenue in the first quarter of fiscal 2010 (Q1 2009 - $0.7 million) that pertained to usage of CMG's products in prior quarters. While these situations regularly occur, the dollar magnitude of the resolution of the contracts that impacted our first quarters of fiscal 2010 and fiscal 2009 were significant to the quarterly comparatives of our annuity/maintenance revenue stream.

Software license revenues under perpetual sales for the three months ended June 30, 2009 were $2.0 million, up from the $1.2 million recorded in the same period last year. Sales of perpetual software licenses are a significant part of CMG's business but are more variable and unpredictable in nature as the purchase decision and its timing fluctuates with the clients' needs and budgets.

The growth in CMG's software license revenues for the first quarter of fiscal 2010 compared to fiscal 2009 is attributable to the sales of perpetual and annuity/maintenance licenses to new customers and additional licenses and/or additional products sold to existing customers.

At June 30, 2009, CMG has pre-sold $10.5 million (2008 - $8.6 million) of software license revenue, $10.3 million of which relates to its current fiscal year ending March 31, 2010.

Consulting and Contract Research Revenues

CMG recorded consulting and contract research revenues of $1.1 million for the three months ended June 30, 2009, down $0.4 million from the $1.5 million recorded for the same period last year.

CMG performs consulting and contract research activities on an ongoing basis but such activities are not considered to be a core part of our business and are primarily undertaken to increase our knowledge base and hence expand the technological abilities of our simulators in a funded manner combined with servicing our customers' needs. In addition, these activities are undertaken to market the capabilities of our suite of software products with the ultimate objective to increase software license sales. Our experience is that consulting activities are variable in nature as both the timing and dollar magnitude of work are dependent on activities and budgets within client companies.

At June 30, 2009, CMG has recorded approximately $0.4 million of pre-sold revenue relating to consulting and contract research revenues.

EXPENSES

CMG realized a gross profit of $7.9 million (77 percent) in the three months ended June 30, 2009, up $1.6 million from the $6.3 million (76 percent) recorded in the first quarter of fiscal 2009.

CMG's total expenses, excluding depreciation and income and other taxes, amounted to $5.6 million for the first quarter ended June 30, 2009, up $1.2 million from the $4.4 million recorded in the comparable period last year. This increase in total expenses between the two years is primarily due to growth in CMG's staff base, consulting services from third party companies involved in new research initiatives and a reduction in the amount of benefits recorded in respect of the scientific research and experimental development ("SR&ED") investment tax credit program. SR&ED credits for the three months ended June 30, 2009 amounted to $0.3 million compared to $0.4 million recorded in the three months ended June 30, 2008. The main reason for the reduction in SR&ED credits is the inclusion of $0.2 million of SR&ED credits in the first quarter of fiscal 2009 that related to prior years.

As a technology company, CMG's largest area of expenditure is for its people. Approximately $4.4 million or 77 percent of the total expenses in the three months ended June 30, 2009 related to staff costs. This compares to $3.6 million or 82 percent of the total expenses in the comparative period last year. Staffing levels for the first three months of fiscal 2010 grew throughout the Company to support our continued growth. At June 30, 2009, CMG's staff complement was 124 employees, up from 103 employees as at June 30, 2008.

Research and Development

CMG maintains its belief that its strategy of growing long-term value for shareholders can only be achieved through continued investment in research and development. CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes.

During the three months ended June 30, 2009, CMG incurred research and development expenditures of $2.3 million (2008 - $1.7 million), which includes its proportionate share of joint research and development costs on the DRMS project of $0.6 million (2008 - $0.5 million), all of which is expensed to earnings. The increase in research and development costs is a result of the increase in people cost, consulting services from third party companies involved in new research initiatives and a reduction in recorded SR&ED credits. The investment represented 22 percent (2008 - 20 percent) of total revenues.

INTEREST INCOME AND FOREIGN EXCHANGE

Interest income decreased to $0.02 million in the three months ended June 30, 2009 from the $0.18 million recorded last year due to lower prevailing interest rates, despite investing larger cash balances.

CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 75 percent (2008 - 63 percent) of CMG's revenues for the three months ended June 30, 2009 are denominated in US dollars, whereas only approximately 21 percent of CMG's total costs are denominated in US dollars.



-----------------------------------------------------------
Three month
CDN$ to US$ At June 30 trailing average
-----------------------------------------------------------
2007 0.9404 0.9010
2008 0.9817 0.9896
2009 0.8602 0.8689
-----------------------------------------------------------
-----------------------------------------------------------


Given that the significant portion of our business is conducted in US dollars, the strengthening of the Canadian dollar against the US dollar in the first quarter of fiscal 2010 has negatively impacted our financial results in both the valuation of our US dollar net working capital position and current period sales.

CMG recorded a foreign exchange loss of $0.46 million for the three months ended June 30, 2009 compared to $0.06 million loss recorded in the same period of last year.

INCOME AND OTHER TAXES

CMG's effective tax rate for the three months ended June 30, 2009 is reflected as 32.6 percent (2008 - 31.1 percent), whereas the prevailing Canadian statutory tax rate is now 28.75 percent. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of losses in a foreign subsidiary not being recognized.

The benefit recorded in CMG's books on the federal scientific research and experimental development investment tax credit program impacts future income taxes. The investment tax credit earned in the current fiscal year is utilized by CMG to reduce federal income taxes otherwise payable for the current fiscal year and this benefit bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a current future income tax liability and then, in the following fiscal year is transferred to income taxes payable.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

CMG generated $0.9 million from operating activities in the three months ended June 30, 2009, a decrease of $2.2 million from the $3.1 million generated in the comparative period of last year. The decrease is driven by the changes in non-cash working capital which are reflective of the timing of customer purchases, cash receipts of revenues and the timing of CMG's payments of income taxes payable affected mainly by the variation in the amount of tax installment payments made in the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009.

Financing Activities

During the three months ended June 30, 2009, CMG employees and directors exercised options to purchase 178,300 Common Shares, which resulted in cash proceeds of just under $1.0 million.

Effective on the close of business on August 1, 2008, CMG's Common and Non-Voting Shares were split on a two-for-one basis. Accordingly, all comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one split.

In the three months ended June 30, 2009, CMG paid $7.0 million in dividends, representing a quarterly dividend of $0.18 per share and a special dividend of $0.22 per share. On August 11, 2009, CMG announced the payment of a quarterly dividend of $0.18 per share on CMG's Common and Non-Voting Shares. The dividend will be paid on September 15, 2009 to shareholders of record at the close of business on September 4, 2009.

On February 27, 2009, the Company announced a Normal Course Issuer Bid ("NCIB") commencing March 3, 2009 to purchase for cancellation up to 1,114,791 of its Common Shares. No shares have been purchased pursuant to this NCIB through June 30, 2009.

On February 26, 2008, the Company announced a NCIB commencing February 28, 2008 to purchase for cancellation up to 970,000 of its Common Shares. This NCIB ended on February 27, 2009 and a total of 75,120 shares were repurchased at market price for a total cost of $598,564.

Investing Activities

CMG's current needs for capital asset investment relate equally to computer equipment and office infrastructure costs. During the three months ended June 30, 2009, CMG expended $0.3 million on property and equipment additions and has a capital budget of $2.2 million for fiscal 2010, all of which will be funded internally.

Liquidity and Capital Resources

At June 30, 2009, CMG has $29.3 million in cash, no debt and has access to a $1.0 million line of credit with its principal banker.

During the three months ended June 30, 2009, 1,966,999 shares of CMG's public float were traded on the TSX. As at June 30, 2009, CMG's market capitalization based upon its June 30, 2009 closing price of $14.95 was $260.7 million.

COMMITMENTS, OFF BALANCE SHEET ITEMS AND TRANSACTIONS WITH RELATED PARTIES

CMG committed approximately $10.6 million to the five year DRMS research and development project with its industry partners Shell and Petrobras, of which $5.4 million has been incurred from inception to June 30, 2009.

In conjunction with entering into this project, CMG Reservoir Simulation Foundation ("the Foundation"), the sole holder of CMG's Non-Voting Shares, agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50 percent of the Company's estimated share of project costs over the duration of the project. During the three months ended June 30, 2009, CMG has reflected $0.3 million (2008 - $0.25 million) in research grants from the Foundation in revenue with respect to this project. From commencement of the project to June 30, 2009, these research grants aggregate to $2.7 million.

CMG plans to fund its share of the project costs associated with the development of the newest generation reservoir simulation software system from internal cash and funding from the Foundation.

CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold revenues which are reflected as deferred revenue on its balance sheet. Contractual obligations for office leases are not considered to be significant and are estimated as follows: 2010 - $0.4 million; 2011 through 2014 - $0.1 million. CMG is currently in discussions regarding new office leases for its Canadian-based operations as the current leases expire during fiscal 2010.

BUSINESS RISKS AND CRITICAL ACCOUNTING ESTIMATES

These remain unchanged from the factors detailed in CMG's 2009 Annual Report.

CHANGES IN ACCOUNTING POLICIES

Capital Disclosures

Effective April 1, 2008, CMG adopted the recommendations included in the Canadian Institute of Chartered Accountants ("CICA") Handbook, Section 1535, Capital Disclosures. The new standard requires disclosure of qualitative and quantitative information that enables users of financial statements to evaluate the Company's objectives, policies and processes for managing capital. The adoption of this standard did not have a material impact on the Company's financial statements.

Financial Instruments

On April 1, 2008, CMG adopted CICA Handbook Section 3862, Financial Instruments - Disclosures and Section 3863, Financial Instruments - Presentation. Section 3862 requires disclosure about the significance of financial instruments for an entity's financial position, the nature and extent of risks arising from financial instruments to which the entity is exposed and how the entity manages those risks. The standards on the presentation of financial instruments carries forward previous guidance unchanged. Section 3863 enhances financial statement users' understanding of the significance of financial instruments to an entity's financial position, performance and cash flows. Sections 3862 and 3863 replace Section 3861, Financial Instruments - Disclosure and Presentation. The adoption of these standards did not have a material impact on the Company's financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

International Financial Reporting Standards

In February 2008, the Accounting Standards Board ("AcSB") confirmed that all Canadian publicly accountable enterprises will be required to adopt International Financial Reporting Standards ("IFRS") for interim and annual financial reporting purposes for fiscal years beginning on or after January 1, 2011 with comparatives for the prior year. The Company will be required to report financial statements prepared in accordance with IFRS for the fiscal year ending March 31, 2012 with comparatives for fiscal year ending March 31, 2011.

The impact of the adoption of IFRS on the consolidated financial statements of the Company has not yet been determined. The Company is in the process of developing a changeover plan to transition its financial statement reporting under IFRS within the required timeframe.

A project team has been set up to manage this transition and ensure successful implementation. The team consists of senior management personnel with the required experience and knowledge to manage the transition. All project members have attended training and education sessions and will continue to do so throughout the conversion project. The project team will develop recommendations on accounting policies and will periodically report to the audit committee about the status of the changeover plan.

The Company expects its changeover plan to be carried out in the following phases:

Diagnostic Analysis

Preliminary Assessment

- Initial project plan considering resources, timelines and overall project approach

- Identify key areas of differences between GAAP and IFRS

Detailed Assessment

- Identify and evaluate IFRS 1 elective and mandatory exemptions

- Provide detailed assessment of the available accounting policy alternatives

- Provide recommendations on the adoption of accounting policies

Plan and Design

- Evaluate business processes and information requirements

- Develop detailed project plan for the implementation for each specific item

- Develop timelines, resource requirements, status reporting and training programs

- Assess effects on computer systems and internal controls over financial reporting

Implement and Monitor

- Implement processes for required information gathering

- Prepare IFRS compliant financial statements and notes

- Implement and test internal controls over financial reporting and any changes to computer systems

- Provide ongoing training and education

- Monitor reporting requirements on an on-going basis

As part of the changeover plan, the Company will assess the effects of the adoption of the new standards on its information and computer systems, business activities and internal controls over financial reporting.

The Company will continue to monitor any changes to IFRS as issued by the International Accounting Standards Board and the AcSB and will update its quarterly MD&A disclosures to report on the progress of its IFRS changeover plan.

OUTSTANDING SHARE DATA AS AT AUGUST 11, 2009

CMG's authorized share capital has remained unchanged from June 30, 2009 to August 11, 2009 and subsequent to June 30, 2009 the only share capital transactions were for the exercise of 9,200 stock options to acquire Common Shares of the Company. CMG's issued and outstanding shares at August 11, 2009 are 15,175,589 Common Shares and 2,271,429 Non-Voting Shares.

On July 13, 2005, CMG adopted a rolling stock option plan which allows the Company to grant options to its employees and directors to acquire Common Shares of up to 10 percent of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at August 11, 2009, CMG could grant up to 1,744,701 stock options, of which 1,173,424 are currently issued and outstanding.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal controls over financial reporting ("ICFR") as defined under Multilateral Instrument 52-109 of the Canadian Securities Administrators, Certification of Disclosure in Issuers' Annual and Interim Filings. These controls and procedures were reviewed and the effectiveness of their design and operation was evaluated in fiscal 2009 in accordance with the COSO control framework. The evaluation confirmed the effectiveness of the design and operation of DC&P and ICFR at March 31, 2009. During our fiscal year 2010, we continue to monitor and review our controls and procedures.

During the quarter ended June 30, 2009, there have been no significant changes to the Company's ICFR that have materially affected, or are reasonably likely to materially affect, the Company's ICFR.

OUTLOOK

CMG is committed to focusing its resources on the development and enhancement of simulation tools relevant to the challenges facing its diverse customer base. While oil prices have rebounded from their lows earlier this year, natural gas prices remain low and petroleum producers continue to be faced with the economic uncertainty related to the world wide recession.

The Company remains confident that the value that CMG technology provides to its customers is greater than ever and accordingly we continue to be cautiously optimistic that our software license revenue will remain solid.

On behalf of the Board of Directors

Kenneth M. Dedeluk, President and Chief Executive Officer

August 11, 2009



COMPUTER MODELLING GROUP LTD.

Consolidated Balance Sheets

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(unaudited) June 30, 2009 March 31, 2009
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Assets
Current assets:
Cash $ 29,274,350 $ 34,701,292
Accounts receivable 7,984,571 11,352,448
Prepaid expenses 868,469 825,892
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38,127,390 46,879,632
Property and equipment (note 3) 1,230,060 1,112,103
Future income taxes (note 5) 54,098 52,340
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$ 39,411,548 $ 48,044,075
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----------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,783,561 $ 4,951,571
Income taxes payable 92,782 3,438,733
Deferred revenue 10,919,211 11,796,342
Future income taxes (note 5) 46,241 197,272
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14,841,795 20,383,918
Shareholders' equity:
Share capital (note 6) 17,225,593 16,083,799
Contributed surplus (note 6) 1,299,344 1,245,485
Retained earnings 6,044,816 10,330,873
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24,569,753 27,660,157
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$ 39,411,548 $ 48,044,075
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Commitments (note 9)

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.

Consolidated Statements of Earnings and Retained Earnings

----------------------------------------------------------------------------
For the three months ended June 30, (unaudited) 2009 2008
----------------------------------------------------------------------------

Revenue
Software licenses $ 9,184,360 $ 6,788,847
Consulting and contract research 1,050,252 1,478,849
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10,234,612 8,267,696
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Cost of Sales
Marketing expenses 1,838,011 1,518,279
Direct consulting expenses 504,811 434,011
Third-party contract costs 9,308 1,607
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2,352,130 1,953,897
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Gross Profit 7,882,482 6,313,799
General and administrative expenses 1,108,953 893,200
Depreciation and amortization 83,901 70,968
Product research and development costs (note 4) 2,266,527 1,650,356
Foreign exchange loss 455,062 61,201
Interest and other income (22,610) (175,826)
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Earnings before income and other taxes 3,990,649 3,813,900
Income and other taxes (note 5) 1,301,579 1,187,129
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Earnings for the Period 2,689,070 2,626,771
Retained earnings, beginning of period 10,330,873 5,155,818
Dividends paid (6,975,127) (3,844,572)
----------------------------------------------------------------------------
Retained earnings, end of period $ 6,044,816 $ 3,938,017
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----------------------------------------------------------------------------

Earnings Per Share
Basic (note 6(e)) $ 0.16 $ 0.15
Diluted (note 6(e)) $ 0.15 $ 0.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.

Consolidated Statements of Cash Flows

----------------------------------------------------------------------------
For the three months ended June 30, (unaudited) 2009 2008
----------------------------------------------------------------------------
Cash provided by (used for)

Operating
Earnings for the period $ 2,689,070 $ 2,626,771
Items not involving cash:
Depreciation and amortization 170,571 162,833
Future income taxes (note 5) (152,789) (47,400)
Stock-based compensation 242,989 154,632
----------------------------------------------------------------------------
2,949,841 2,896,836
Changes in non-cash working capital:
Accounts receivable 3,367,877 703,781
Accounts payable and accrued liabilities (1,168,010) (157,377)
Income taxes payable (3,345,951) (592,301)
Prepaid expenses (42,577) 77,806
Deferred revenue (877,131) 214,646
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884,049 3,143,391
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Financing
Issue of common shares 952,664 683,915
Dividends paid (6,975,127) (3,844,572)
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(6,022,463) (3,160,657)
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Investing
Property and equipment additions (288,528) (155,961)
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Decrease in cash (5,426,942) (173,227)
Cash, beginning of period 34,701,292 23,479,430
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Cash, end of period $ 29,274,350 $ 23,306,203
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Supplemental disclosure of cash flow information (note 11)

See accompanying notes to consolidated financial statements.



Notes to Consolidated Financial Statements

For the three months ended June 30, 2009 and 2008 and as at March 31, 2009 (unaudited)

Computer Modelling Group Ltd. (the "Company") is a computer software technology and consulting firm engaged in the development and licensing of reservoir simulation software.

1. Significant Accounting Policies:

(a) Basis of Consolidation:

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and include the accounts of the Company and its subsidiaries, all 100 percent owned. All intercompany transactions have been eliminated.

(b) Revenue Recognition:

Revenue consists primarily of software license fees and consulting and contract research fees.

Software license revenue is comprised of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less, and perpetual software licensing, whereby the customer purchases the then current version of the software and has the right to use that version in perpetuity. Software license revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable, and collection of the resulting receivable is probable. In cases where collectibility is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met.

Annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. License fees for perpetual licenses are recognized fully in revenue when all recognition conditions are satisfied.

Consulting and contract research revenues are recorded on a percentage-of-completion basis whereby revenues and costs are recorded in operations based on work completed.

(c) Property and Equipment:

Property and equipment are recorded at cost less accumulated depreciation.

Depreciation is provided using the following annual rates and methods that are expected to amortize the cost of the property and equipment over their estimated useful lives:



Computer equipment 33 1/3% straight-line
Furniture and equipment 20% straight-line
Leasehold improvements Straight-line over the lease term


(d) Product Research and Development Costs:

All costs of product research and development are expensed to operations as incurred as the impact of both technological changes and competition require the Company to continually enhance its products on an annual basis. Product research and development costs are recorded net of the related investment tax credits.

(e) Joint Research and Development Costs:

The Company participates in a joint project engaged in product research and development and accordingly records its proportionate share of costs incurred as product research and development costs.

(f) Foreign Currency:

The Company's subsidiaries are considered to be integrated operations. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date while other consolidated balance sheet items are translated at historic rates.

Revenues and expenses are translated at the rate of exchange in effect on the transaction dates. Realized and unrealized foreign exchange gains and losses are included in operations in the period in which they occur.

(g) Income Taxes:

The Company provides for income taxes using the asset and liability method. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year and future income taxes are recognized for temporary differences between the tax and accounting bases of assets and liabilities and for the benefit of losses available to be carried forward for tax purposes that are more likely than not to be realized. Future income tax assets and liabilities are measured using the substantively enacted tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. Any change to the net future income tax assets and liabilities is included in operations in the period it occurs.

(h) Investment Tax Credits:

The Company receives federal and provincial investment tax credits in Canada on qualified scientific research and development expenditures ("SR&ED"). Investment tax credits are recorded as a deduction against related expenses or capital items provided that the reasonable assurance over collection of the tax credits exists.

(i) Earnings Per Share:

Basic earnings per share is computed by dividing earnings by the weighted average number of Common and Non-Voting Shares outstanding for the period. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted to Common Shares. The treasury stock method is used to determine the dilutive effect of stock options. This method assumes that proceeds received from the exercise of in-the-money stock options are used to repurchase Common Shares at the average market price during the period.

(j) Stock-based Compensation Plan:

The Company has a stock-based compensation plan that is described in note 6(d). The fair value of stock options is expensed over the vesting period along with a credit to contributed surplus. When the stock options are exercised for stock, the recorded amount is transferred from contributed surplus to common share capital.

(k) Financial Instruments:

Financial assets and financial liabilities "held-for-trading" are measured at fair value with changes in those fair values recognized in net earnings. Financial assets "available-for-sale" are measured at fair value, with changes in those fair values recognized in other comprehensive income. Financial assets "held-to-maturity," "loans and receivables" and "other financial liabilities" are measured at amortized cost.

(l)Use of Estimates and Assumptions:

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses for the period. Actual results may differ from such estimates and the differences could be material.

2. Changes in Accounting Policies and Recent Accounting Pronouncements:

(a) Changes in accounting policies:

On April 1, 2008, the Company adopted the following Canadian Institute of Chartered Accountants ("CICA") Handbook Sections:

- "Capital Disclosures", Section 1535. The new standard requires the Company to disclose its objectives, policies and processes for managing its capital structure. Reference is made to note 7.

- "Financial Instruments - Presentation", Section 3863 and "Financial Instruments - Disclosures", Section 3862. These accounting standards replaced "Financial Instruments - Disclosure and Presentation", Section 3861. The disclosures required by Section 3862 provide additional information on the risks associated with our financial instruments and how we manage those risks. The standards on the presentation of financial instruments carries forward previous guidance unchanged. Section 3863 enhances financial statement users' understanding of the significance of financial instruments to an entity's financial position, performance and cash flows. Reference is made to note 8.

(b) Recent accounting pronouncements:

In January 2006, the CICA Accounting Standards Board ("AcSB") adopted a strategic plan for the direction of accounting standards in Canada. As part of that plan, the AcSB confirmed in February 2008 that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP for fiscal years beginning on or after January 1, 2011 for profit-oriented Canadian publicly accountable enterprises. As the Company will be required to report its results in accordance with IFRS for the fiscal year ending March 31, 2012 with comparatives for fiscal year ending March 31, 2011, the Company is assessing the potential impacts of this changeover and developing its plan accordingly.



3. Property and Equipment:

Accumulated Net Book
June 30, 2009 Cost Depreciation Value
----------------------------------------------------------------------------
Computer equipment $ 2,707,344 $ 1,866,691 $ 840,653
Furniture and equipment 707,140 546,461 160,679
Leasehold improvements 1,122,177 893,449 228,728
----------------------------------------------------------------------------
$ 4,536,661 $ 3,306,601 $ 1,230,060
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Accumulated Net Book
March 31, 2009 Cost Depreciation Value
----------------------------------------------------------------------------
Computer equipment $ 2,487,946 $ 1,807,704 $ 680,242
Furniture and equipment 690,742 532,059 158,683
Leasehold improvements 1,122,177 848,999 273,178
----------------------------------------------------------------------------
$ 4,300,865 $ 3,188,762 $ 1,112,103
----------------------------------------------------------------------------
----------------------------------------------------------------------------


4. Product Research and Development Costs:

----------------------------------------------------------------------------
For the three months ended June 30, 2009 2008
----------------------------------------------------------------------------
Product research and development costs $ 2,440,191 $ 1,935,399
Depreciation 86,670 91,865
Scientific research and experimental
development investment tax credits (260,334) (376,908)
----------------------------------------------------------------------------
$ 2,266,527 $ 1,650,356
----------------------------------------------------------------------------
----------------------------------------------------------------------------


5. Income and Other Taxes:

The provision for income and other taxes reported differs from the amount computed by applying the combined Canadian Federal and Provincial statutory rate to the earnings before income and other taxes. The reasons for this difference and the related tax effects are as follows:



----------------------------------------------------------------------------
For the three months ended June 30, 2009 2008
----------------------------------------------------------------------------
Statutory tax rate 28.75% 29.38%
----------------------------------------------------------------------------
Expected income tax $ 1,147,312 $ 1,120,524
Non-deductible costs 75,235 50,377
Change in valuation allowance 85,015 (20,685)
Withholding taxes 82 1,664
Other (6,065) 35,249
----------------------------------------------------------------------------
$ 1,301,579 $ 1,187,129
----------------------------------------------------------------------------

Represented by:
Current income taxes $ 1,454,762 $ 1,173,668
Future income taxes (152,789) (47,400)
Foreign withholding and other taxes (394) 60,861
----------------------------------------------------------------------------
$ 1,301,579 $ 1,187,129
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The components of the Company's net future income tax liability are as
follows:

----------------------------------------------------------------------------
June 30, March 31,
2009 2009
----------------------------------------------------------------------------
Net tax asset (liability) on investment tax
credits $ (46,241) $ 290,465
Property and equipment 54,098 52,340
Benefit of operating losses in a foreign
subsidiary 267,087 195,398
----------------------------------------------------------------------------
$ 274,944 $ 538,203
Valuation allowance (267,087) (683,135)
----------------------------------------------------------------------------
Future income tax asset (liability), net 7,857 (144,932)

Represented by:
Future income tax liability, current $ (46,241) $ (197,272)
Future income tax asset, long-term 54,098 52,340
----------------------------------------------------------------------------
Future income tax asset (liability), net $ 7,857 $ (144,932)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The operating losses in the foreign subsidiary expire over the next three fiscal years.

6. Share Capital:

(a) Authorized:

An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.

Effective August 1, 2008, the Common and Non-Voting Shares were split on a two-for-one basis. Accordingly, the comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one split.

(b) Issued:



----------------------------------------------------------------------------
Common Shares Non Voting Shares
--------------------------------------------------- Contributed
Number Consideration Number Consideration Surplus
----------------------------------------------------------------------------
Balance,
March 31,
2008 12,916,878 $ 13,833,303 3,949,034 $ 253,876 $ 744,405
Issued for
cash on
exercise of
stock
options 468,726 1,739,197
Common
Shares
buy-back (75,120) (83,228)
Converted
into Common
Shares 1,053,088 67,701 (1,053,088) (67,701)
Stock-based
compensation:
Current
period
expense 841,731
Stock
options
exercised 340,651 (340,651)
----------------------------------------------------------------------------
Balance,
March 31,
2009 14,363,572 $ 15,897,624 2,895,946 $ 186,175 $ 1,245,485
Issued for
cash on
exercise of
stock
options 178,300 952,664
Converted
into Common
Shares 624,517 40,149 (624,517) (40,149)
Stock-based
compensation:
Current
period
expense 242,989
Stock
options
exercised 189,130 (189,130)
----------------------------------------------------------------------------
Balance,
June 30,
2009 15,166,389 $ 17,079,567 2,271,429 $ 146,026 $ 1,299,344
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Non-Voting Shares are convertible into an equivalent number of Common Shares at any time at the option of the holder.

Subsequent to June 30, 2009, 9,200 stock options were exercised for cash proceeds of $44,656.

On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "Original Rights Plan"), whereby the Company will issue one right in respect of each share outstanding at the close of business on May 18, 2006 and for each additional share issued by the Company thereafter. The issuance of the rights is not dilutive and will not affect reported earnings per share until the rights separate from the underlying shares and become exercisable or until the exercise of the rights. The Original Rights Plan was approved by the Company's shareholders on July 13, 2006.

On May 21, 2009, the Board of Directors reviewed the Original Rights Plan and determined that it was in the best interest of the Company to continue to have a shareholder rights plan in place. The Company, therefore, adopted a new shareholder rights plan (the "Rights Plan") which is identical in all respects to the Original Rights Plan, with the exception of certain minor amendments which have been made to provide for renewal or approval of the Rights Plan every three years (rather than only one three-year period as was set out in the Original Rights Plan) and to update references to statutory provisions now out of date. The Rights Plan was approved by the Company's shareholders on July 9, 2009.

(c) Common Shares Buy-back:

On February 26, 2008, the Company announced a NCIB commencing February 28, 2008 to purchase for cancellation up to 970,000 of its Common Shares. This NCIB ended on February 27, 2009 and a total of 75,120 shares have been repurchased at market price for a total cost of $598,564.

On February 27, 2009, the Company announced a NCIB commencing March 3, 2009 to purchase for cancellation up to 1,114,791 of its Common Shares. No shares have been purchased pursuant to this NCIB through June 30, 2009.

(d) Stock-based Compensation Plan:

The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 10, 2008, which allows it to grant options to acquire Common Shares of up to 10 percent of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at June 30, 2009, the Company could grant up to 1,743,781 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. These outstanding stock options vest as to 50 percent after the first year anniversary, from date of grant, and then vest as to 25 percent of the total options granted after each of the second and third year anniversary dates.

As a result of the two-for-one stock split, the number of outstanding options was adjusted in accordance with existing plan provisions. All prior period number of options as well as weighted average exercise prices and fair values per option have been retroactively adjusted to reflect the two-for-one stock split.

The following table outlines changes in options:



----------------------------------------------------------------------------
For three months ended For the year ended
June 30, 2009 March 31, 2009
----------------------------------------------------------------------------
Weighted
Average Weighted
Options Exercise Options Average
Granted Price Granted Exercise Price
----------------------------------------------------------------------------
Outstanding at beginning of
period 1,367,424 $ 8.10 1,235,150 $ 4.95

Granted - - 620,000 11.03

Exercised (178,300) 5.34 (468,726) 3.71

Forfeited - - (19,000) 7.38
----------------------------------------------------------------------------
Outstanding at end of
period 1,189,124 $ 8.51 1,367,424 $ 8.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options exercisable at end
of period 193,124 $ 5.58 371,424 $ 5.47
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The range of exercise prices of options outstanding and exercisable at June
30, 2009 is as follows:

Outstanding Exercisable
-----------------------------------------------------------------
Weighted Average Weighted
Remaining Average Weighted
Exercise Contractual Exercise Average
Price Number of Life Price Number of Exercise Price
($/option) Options (Years) ($/option) Options ($/option)
----------------------------------------------------------------------------
3.50 - 5.62 247,874 2.0 3.72 93,874 3.68
5.63 - 6.90 8,000 4.4 6.90 - -
6.91 - 7.40 326,250 3.2 7.39 99,250 7.39
7.41 - 11.26 607,000 4.1 11.09 - -
----------------------------------------------------------------------------
1,189,124 3.4 8.51 193,124 5.58
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The fair value of stock options granted was estimated using the
Black-Scholes option pricing model under the following assumptions:

----------------------------------------------------------------------------
Years ended March 31, 2009 2008 2007
----------------------------------------------------------------------------
Weighted-Average Fair Value
($/option) 0.98 to 2.01 1.15 to 1.77 0.46 to 1.21
Risk-Free Interest Rate (%) 1.5 to 3.1 3.2 to 4.25 4.1
Estimated Hold Period Prior to
Exercise (years) 2 to 5 2 to 5 2 to 5
Volatility in the Price of
Common Shares (%) 31 to 49 30 to 33 29 to 32
Dividends per Common Share
($/share) 0.53 to 0.73 0.30 to 0.40 0.24 to 0.26
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company recognized a total stock-based compensation expense for the
three months ended June 30, 2009 of $242,989 (2008 - $154,632).


(e) Earnings Per Share:

The following table summarizes the earnings and weighted average number of Common and Non-Voting Shares used in calculating basic and diluted earnings per share:



----------------------------------------------------------------------------
For three months ended June 30, 2009
----------------------------------------------------------------------------
Weighted
Average
Shares Earnings
Earnings Outstanding Per Share
----------------------------------------------------------------------------
Basic $ 2,689,070 17,323,848 $ 0.16
Dilutive effect of stock
options 400,662
----------------------------------------------------------------------------
Diluted $ 2,689,070 17,724,510 $ 0.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
For three months ended June 30, 2008
----------------------------------------------------------------------------
Weighted
Average
Shares Earnings
Earnings Outstanding Per Share
----------------------------------------------------------------------------
Basic $ 2,626,771 16,978,722 $ 0.15
Dilutive effect of stock
options 377,878
----------------------------------------------------------------------------
Diluted $ 2,626,771 17,356,600 $ 0.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the three months ended June 30, 2009, $Nil (2008 - $Nil) options were excluded from the computation of the weighted-average number of diluted shares outstanding because their exercise price was greater than the average market price of the common shares during the period.

7. Capital Management:

The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth combined with strategic acquisitions and to maximize the return to its shareholders. The capital structure of the Company consists of cash, credit facilities and shareholders' equity. The Company does not have any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital.

The Company's policy is to pay quarterly dividends based on the Company's overall financial performance and cash flow generation. In addition, since May 2005, the Company declared a special dividend after review of the completion of the immediately prior fiscal year results. Decisions on dividend payments are made on a quarterly basis by the Board of Directors. There can be no assurance as to the amount or payment of such dividends in the future.

Since November 2002, the Company embarked on a series of normal course issuer bids to buy back its shares. The latest normal course issuer bid is effective from March 3, 2009 to March 2, 2010. Reference is made to note 6(c).

The Company makes adjustments to its capital structure in light of general economic conditions and the Company's working capital requirements. In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may pay dividends, buy back shares or undertake other activities as deemed appropriate under the specific circumstances. The Board of Directors reviews and approves any material transactions not in the ordinary course of business.

There were no changes in the Company's approach to capital management during the period.

8. Financial Instruments:

(i) Classification of financial instruments



----------------------------------------------------------------------------
Classification Measurement
----------------------------------------------------------------------------
Cash Held for trading Fair value
Accounts receivable Loans and receivables Amortized cost
Accounts payable and accrued
liabilities Other financial liabilities Amortized cost
----------------------------------------------------------------------------


(ii) Fair values of financial instruments

The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments.

(a) Overview:

The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. The main objectives of the Company's risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to those risks. The principal financial risks to which the Company is exposed are described below:

(b) Credit Risk:

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligation and arises principally from the Company's cash and accounts receivable. The amounts reported in the balance sheet for accounts receivable are net of allowances for bad debts, estimated by the Company's management based on prior experience and their assessment of the current economic environment.

The Company's accounts receivable consist primarily of balances from customers operating in the oil and gas industry, both domestically and internationally as the Company sells its products and services in approximately 50 countries worldwide. Some of these countries have greater economic and political risk than experienced in North America and as a result there may be greater risk associated with sales in those jurisdictions. The Company manages this risk by invoicing for the full license term in advance for the majority of software license sales and by invoicing as frequently as the contract allows for consulting and contract research services on a percentage-of-completion basis. In cases where collectibility is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met. Historically the Company has not experienced any significant losses related to individual customers or groups of customers in any particular geographic area; therefore, no allowance for doubtful accounts has been established at June 30, 2009.

As at June 30, 2009, the Company has a concentration of credit risk with seven domestic and international customers who represent 45 percent of accounts receivable and $753,000 of accounts receivable are over 90 days. The Company assesses the credit worthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Accordingly, the Company views the credit risks on these amounts as normal for the industry.

The Company minimizes the credit risk of cash by depositing only with a reputable financial institution in highly liquid interest-bearing cash accounts.

The maximum credit exposure is represented by the carrying amount of cash and accounts receivable.

(c) Market Risk:

Market risk is the risk that changes in market prices of the Company's foreign exchange rates and interest rates will affect the Company's income or the value of its financial instruments.

The Company operates internationally and primarily prices its products in either the Canadian or US dollar. This gives rise to exposure to market risks from changes in the foreign exchange rates between the Canadian and US dollar. Approximately 75 percent of the Company's revenues for the three months ended June 30, 2009 were denominated in US dollars and at June 30, 2009, the Company had approximately $6.2 million of its working capital denominated in US dollars. The Company currently does not use derivative instruments to hedge its exposure to those risks but as approximately 21 percent of the Company's total costs are also denominated in US dollars they provide a partial economic hedge against the fluctuation in this currency exchange. In addition, the Company manages levels of foreign currency held by converting excess US dollars into Canadian dollars at spot rates.

The Canadian operations are exposed to currency risk on US denominated financial assets and liabilities with fluctuations in the rate recognized as foreign exchange gains or losses in the Consolidated Statement of Earnings. It is estimated that a one cent change in the US dollar would result in a net change of approximately $38,000 on net earnings for the three months ended June 30, 2009. A weaker US dollar with respect to the Canadian dollar will result in a negative impact while the reverse would result from a stronger US dollar.

The Company has significant cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in interest-bearing deposits and/or guaranteed investment certificates issued by its principal banker. The Company is exposed to interest cash flow risk from changes in interest rates on its cash balances. Based on the June 30, 2009 cash balance, each one percent change in the interest rate on the Company's cash balance would change net earnings by approximately $208,000.

(d) Liquidity risk:

Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company manages liquidity risk through the management of its capital structure as outlined in note 7. The Company's growth is financed through a combination of the cash flows from operations and its cash balances on hand. Given the Company's available liquid resources as compared to the timing of the payments of its liabilities, management assesses the Company's liquidity risk to be low. The Company monitors its expenditures by preparing annual budgets which are updated periodically. At June 30, 2009 the Company has significant cash balances in excess of its obligations and a $1 million line of credit (note 10) available for its use.

9. Commitments:

(a) Research Commitments:

On May 1, 2006, the Company entered into a two phased joint research and development agreement (the "DRMS Agreement"). Phase 1 of this project was completed in fiscal 2007 and work is ongoing on Phase 2. It is estimated that the second phase will take five years and that the Company's annual expenditures will approximate $2 million for its portion of the aggregate project costs.

During Phase 2, the DRMS Agreement provides the participants with withdrawal rights upon the payment of a withdrawal fee to the other participants of an amount equal to one year of the withdrawing party's share of budgeted project costs. In addition to the withdrawal fee, the withdrawing party may be liable for (i) 100 percent of resizing costs if the project is scaled back or (ii) a proportionate share of wind down costs should the other participants decide to terminate the project as a result of the withdrawal of the participant.

In conjunction with entering into this project, CMG Reservoir Simulation Foundation (the "Foundation"), the sole holder of the Company's Non-Voting Shares, agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50 percent of the Company's estimated share of costs over the duration of the project. For the three months ended June 30, 2009, the Company has reflected $298,862 (2008 - $253,621) in research grants from the Foundation in revenue with respect to this project. To June 30, 2009 these research grants aggregate to $2,700,659 since commencement of the project.


(b) Lease Commitments:

The Company has operating lease commitments relating to its office premises with the minimum annual lease rental payments over the next five years as follows:



----------------------------------------------------------------------------
($)
----------------------------------------------------------------------------
2010 425,000
2011 98,000
2012 97,000
2013 99,000
2014 100,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


10. Line Of Credit:

The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility and/or letters of credit. As at June 30, 2009, no amount had been drawn on this line of credit.



11. Supplemental Cash Flow Information:

----------------------------------------------------------------------------
For the three months ended June 30, 2009 2008
----------------------------------------------------------------------------
Interest received $ 39,335 $ 125,293
Income taxes paid $ 4,521,713 $ 1,389,062
----------------------------------------------------------------------------
----------------------------------------------------------------------------

12. Segmented Information:

Operating Segments
----------------------------------------------------------------------------
For the three Contract
months ended June Software Research and
30, 2009 Licenses Consulting Corporate Total
----------------------------------------------------------------------------
Revenue $ 9,184,360 $ 358,080 $ 692,172 $ 10,234,612
----------------------------------------------------------------------------
Gross profit 7,395,325 (205,015) 692,172 7,882,482
----------------------------------------------------------------------------
General and
administrative
expenses 1,108,953 1,108,953
Depreciation and
amortization 25,979 23,052 34,870 83,901
Product research
and development
costs 2,266,527 2,266,527
Interest and other
income
and foreign
exchange 432,452 432,452
Income and other
taxes 64 (392) 1,301,907 1,301,579
----------------------------------------------------------------------------
Earnings (loss)
for the period $ 7,369,282 $ (227,675) $ (4,452,537) $ 2,689,070
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Assets $ 6,822,294 $ 1,320,088 $ 31,269,166 $ 39,411,548
----------------------------------------------------------------------------
Capital
Expenditures $ 37,180 $ 108,310 $ 143,038 $ 288,528
----------------------------------------------------------------------------


Operating Segments
----------------------------------------------------------------------------
For the three Contract
months ended June Software Research and
30, 2008 Licenses Consulting Corporate Total
----------------------------------------------------------------------------
Revenue $ 6,788,847 $ 910,643 $ 568,206 $ 8,267,696
----------------------------------------------------------------------------
Gross profit 5,298,677 446,916 568,206 6,313,799
----------------------------------------------------------------------------
General and
administrative
expenses 893,200 893,200
Depreciation and
amortization 18,560 17,249 35,159 70,968
Product research
and development
costs 1,650,356 1,650,356
Interest and other
income
and foreign
exchange (114,625) (114,625)
Income and other
taxes 58,067 1,810 1,127,252 1,187,129
----------------------------------------------------------------------------
Earnings (loss) for
the period $ 5,222,050 $ 427,857 $ (3,023,136) $ 2,626,771
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Assets $ 5,411,172 $ 1,523,347 $ 25,445,829 $ 32,380,348
----------------------------------------------------------------------------
Capital
Expenditures $ 3,910 $ 23,185 $ 128,866 $ 155,961
----------------------------------------------------------------------------

Geographic Segments
----------------------------------------------------------------------------
For the three months ended
June 30, 2009 2008
----------------------------------------------------------------------------
Property and Property and
Revenue Equipment Revenue Equipment
----------------------------------------------------------------------------
Canada $ 2,933,301 $ 999,357 $ 2,956,410 $ 1,169,156
United States 1,871,455 171,242 1,016,731 27,566
Other Foreign 5,429,856 59,461 4,294,555 48,950
----------------------------------------------------------------------------
$ 10,234,612 $ 1,230,060 $ 8,267,696 $ 1,245,672
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In the three months ended June 30, 2009, the Company derived 14 percent (2008 - 12.5 percent) of its revenue from one customer.

Contact Information