Computer Modelling Group Ltd.
TSX : CMG

Computer Modelling Group Ltd.

August 04, 2005 08:00 ET

Computer Modelling Group Announces First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 4, 2005) - Computer Modelling Group Ltd. (TSX:CMG) ("CMG") is pleased to announce its first quarter results for its 2006 fiscal year.

Message to our Shareholders

Computer Modelling Group Ltd. is pleased to announce its first quarter results for its 2006 fiscal year. CMG reported revenues of $3.4 million for the three months ended June 30, 2005, gross profit of $2.3 million and earnings of $0.6 million ($0.07 per share). These results compare to revenues of $3.3 million, gross profit of $2.1 million, and earnings of $0.6 million ($0.08 per share) for the corresponding period in fiscal 2005.

Management's Discussion and Analysis

The following interim management's discussion and analysis ("MD&A"), presented as at August 3, 2005, should be read in conjunction with the unaudited consolidated interim financial statements for the three months ended June 30, 2005 and the audited consolidated financial statements and MD&A for the year ended March 31, 2005 contained in the 2005 annual report for Computer Modelling Group Ltd. ("CMG" or the "Company"). The reader should be aware that historical results are not necessarily indicative of future performance. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com.

Cash flow from operations, which is determined before changes in non-cash working capital, is used by us as a measure of performance. Cash flow from operations does not have a standardized meaning prescribed by Canadian Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable with the calculation of similar measures for other companies. Cash flow from operations as presented is not intended to represent operating profits for the period nor should it be viewed as an alternative to cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Cash flow from operations per share is calculated using the same share bases which are used in the determination of earnings per share.

The financial data contained herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), and unless otherwise indicated, all comments in this report are expressed in Canadian dollars.

Forward Looking Statements

Certain statements in the Management's Discussion and Analysis for CMG may constitute forward-looking statements, which can generally be identified as such because of the context of the statements including words such as the Company believes, anticipates, expects, plans, estimates or words of a similar nature. The forward-looking statements are based on current expectations and are subject to known and unknown risks and uncertainties, certain of which are beyond CMG's control, including: the impact of general economic conditions in the oil and gas industry, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange and country risk in areas in which the Company currently does, or proposes to do, business. CMG's actual results, performance or achievement could differ materially from those expressed in, or implied by these forward looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward looking statements will transpire or occur, or if any of them do so, what benefits CMG will derive therefrom.

Revenues

Software Licenses

Software license revenues were $2.6 million in the three months ended June 30, 2005, up 16 percent or $0.3 million from the $2.3 million recorded in the same period last year. Revenues for annuity/maintenance software licenses in the first quarter of fiscal 2006 amounted to $2.3 million compared to $1.9 million in the same period last year. Software license revenues under perpetual sales for both the three months ended June 30, 2005 and 2004 were $0.3 million. The 16 percent growth in CMG's software license sales from the same period a year ago is attributable to both sales to new customers and additional sales to existing customers.



Quarterly Performance Table

------------------------------------------------------------------------
$Thousands, Fiscal
unless Fiscal 2004 Fiscal 2005 2006
otherwise stated Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
------------------------------------------------------------------------
Annuity/
maintenance
licenses 1,485 1,682 1,777 1,921 1,905 1,997 2,223 2,315
Perpetual
licenses 507 1,341 700 340 441 1,248 1,433 298
------------------------------------------------------------------------
Software
licenses 1,992 3,023 2,477 2,261 2,346 3,245 3,656 2,613
Consulting
and contract
research 579 916 671 1,075 802 740 1,039 821
------------------------------------------------------------------------
Revenues 2,571 3,939 3,148 3,336 3,148 3,985 4,695 3,434
Gross Profit 1,741 2,992 2,161 2,095 1,903 2,932 3,547 2,259
Gross Profit % 68 76 69 63 60 74 76 66
Earnings before
income and
other taxes 710 1,729 1,206 987 562 1,512 2,142 1,033
Current income
and other tax
(expense) 1 (52) (307) (392) (199) (488) (637) (638)
Future income
tax benefit
(expense) (224) (492) (147) 38 (16) (16) (19) 170
Earnings 487 1,185 752 633 347 1,008 1,486 565
Cash flow from
operations 776 1,751 632 863 574 1,234 1,651 523
Cash dividends
declared and
paid - - 310 311 311 309 310 1,967
------------------------------------------------------------------------
Per share
amounts - $
Earnings per
share - basic 0.07 0.16 0.10 0.08 0.04 0.13 0.19 .07
Earnings per
share - diluted 0.06 0.15 0.10 0.08 0.04 0.13 0.19 .07
Cash flow from
operations per
share - basic 0.10 0.24 0.08 0.11 0.07 0.16 0.21 .07
Cash dividends
declared per
share - - 0.04 0.04 0.04 0.04 0.04 .25
Book value per
share, at
quarter end 1.24 1.39 1.43 1.47 1.44 1.54 1.70 1.52
------------------------------------------------------------------------
------------------------------------------------------------------------


Consulting and Contract Research Revenues

CMG recorded consulting and contract research revenues of $0.8 million for the three months ended June 30, 2005 compared to $1.1 million a year ago. These revenues are variable in nature and fluctuate with customer needs and timing requirements. The earnings contribution from this segment was $0.3 million for the first three months of fiscal 2006 compared to $0.5 million in the same period last year as CMG has increased its internal staff to augment its support services.

Expenses

CMG's gross profit margin for the three months ended June 30, 2005 was 66 percent and CMG realized a gross profit of $2.3 million, up $0.2 million from the $2.1 million recorded in the same period last year.

As a technology service company, CMG's largest area of expenditure is for its people. Approximately 76 percent (2004 - 77 percent) of CMG's costs expended on marketing, direct consulting, general and administrative, and product research and development for the three months ended June 30, 2005 related to staff costs.

CMG's total expenses, excluding depreciation and income and other taxes amounted to $2.5 million, up $0.1 million from the $2.4 million expended last year. The increase in expenses between the two reporting periods is primarily due to a combination of higher staff costs as a result of both staff additions and a larger stock-based compensation expense in the three months ended June 30, 2005. This increase was offset by lower third-party contract costs between the two periods. These costs were lower both as a result of less activity in the current quarter and more of the projects were staffed by CMG's own staff.

Income and other taxes

CMG's effective tax rate for the three months ended June 30, 2005 is reflected as 45.3 percent (2004 - 35.9 percent), whereas the prevailing Canadian statutory tax rate is 33.6 percent. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the current period valuation allowance on losses in foreign jurisdictions.

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 utilized 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 it is transferred to income taxes payable.

Liquidity and Capital Resources

CMG generated $0.5 million ($0.07 per share) of cash flow from operations in the three months ended June 30, 2005, compared to $0.9 million ($0.11 per share) in the same period last year. A significant factor to the reduction in cash flow from operations between the two reporting periods results from the movement in future income taxes due to both the timing between fiscal years of recording the benefit of prior years' investment tax credits and their inclusion in current income taxes payable.

The Company's investment at June 30, 2005 of $3.8 million in its accounts receivable and the recognition of a deferred revenue position of $5.0 million compared to balances of $3.0 million and $4.2 million respectively at June 30, 2004 are due to the increased demand for CMG's products.

During the three months ended June 30, 2005, CMG paid $1.97 million in dividends, which represented a quarterly dividend of $0.05 per share and a special dividend of $0.20 per share to all shareholders of record on June 6, 2005. On August 3, 2005, CMG announced a cash dividend of $0.05 Canadian per share on CMG's Common and Non-Voting Shares. The dividend will be paid on September 15, 2005 to shareholders of record at the close of business on September 1, 2005.

During the quarter ended June 30, 2005, CMG's employees and directors exercised options to purchase 113,425 Common Shares, which resulted in $0.14 million in cash proceeds. During the three months ended June 30, 2005, CMG expended $0.1 million of its $0.9 million capital budget for its fiscal year ending March 31, 2006.

CMG has generated positive cash flow for over five years and as at June 30, 2005 CMG's liquidity as measured by working capital is $11.3 million. At June 30, 2005, CMG has $14.2 million in cash, no debt and has access to a $1.0 million line of credit with its principal banker, of which US $64,800 has been drawn on for performance bonds.

CMG has very little in the way of ongoing material contractual obligations other than for pre-sold revenues which are reflected as deferred revenue on its balance sheet. Contractual obligations for office premises are not considered to be significant and are estimated to be as follows: 2006 - $0.4 million; 2007 - $0.5 million; 2008 - $0.5 million; 2009 - $0.4 million and 2010 - $0.3 million.

CMG is listed on the TSX Stock Exchange and during the three months ended June 30, 2005, 1,409,030 shares of CMG's public float were traded. CMG's share prices ranged from $5.00 to $7.08 per share and last traded on June 30, 2005 at $6.24 for a June 30, 2005 market capitalization of $49.1 million.

Outstanding Share Data as at August 3, 2005

CMG's authorized share capital has remained unchanged from March 31, 2005 to August 3, 2005 and subsequent to June 30, 2005 the only share capital transaction was for the exercise of 6,000 stock options to acquire Common Shares of the Company. CMG's issued and outstanding shares at August 3, 2005 are 5,014,681 Common Shares and 2,859,775 Non-Voting Shares.

At CMG's Annual and Special Meeting of Shareholders held on July 13, 2005, the shareholders voted in favor of amending the Company's stock option plan to a rolling plan. The rolling plan limits the total number of stock options that could be granted to 10 percent of the aggregate number of Common Shares and Non-Voting Shares outstanding at the time of granting stock options. At August 3, 2005, CMG has issued 516,825 stock options to purchase Common Shares to its employees and directors and CMG could grant a further 270,620 options to purchase Common Shares pursuant to CMG's Amended and Restated Stock Option Plan.

Critical Accounting Estimates and Business Risks

These remain unchanged from the factors detailed in CMG's 2005 Annual Report.

Outlook

As was identified in our 2005 Annual Report, CMG's investment strategy to produce stronger revenues for the future is through the expansion of existing operations with the planned addition of eight staff members in the marketing, consulting and product research and development areas in fiscal 2006. Four of these positions were filled in the three months ended June 30, 2005.

We are pleased with our first quarter performance and we continue to believe that increased demand for reservoir simulation exists. Compared to our competitors, the robustness of CMG's product lines, combined with ease of use and attractive financial alternative will provide continuing opportunities for sales growth.



Kenneth M. Dedeluk
President and Chief Executive Officer
August 3, 2005


COMPUTER MODELLING GROUP LTD.
Consolidated Balance Sheets

June 30, 2005 March 31, 2005
(unaudited) (audited)
------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents (note 2) $14,172,259 $ 14,360,282
Accounts receivable 3,768,537 4,926,368
Prepaid expenses 395,866 400,189
------------------------------------------------------------------------
18,336,662 19,686,839
Property and equipment (note 3) 519,337 467,121
Future income taxes (note 5) 94,698 94,989
------------------------------------------------------------------------
$18,950,697 $ 20,248,949
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 1,189,526 $ 1,538,093
Income taxes payable 722,504 894,020
Deferred revenue 5,037,480 4,444,664
Future income taxes (note 5) 20,273 190,879
------------------------------------------------------------------------
6,969,783 7,067,656
Shareholders' equity:
Share capital (note 6) 11,122,233 10,920,777
Retained earnings 858,681 2,260,516
------------------------------------------------------------------------
11,980,914 13,181,293
------------------------------------------------------------------------
$18,950,697 $ 20,248,949
------------------------------------------------------------------------
------------------------------------------------------------------------

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)

2005 2004
------------------------------------------------------------------------

Revenue
Software licenses $ 2,612,739 $ 2,261,409
Consulting and contract research 821,061 1,075,196
------------------------------------------------------------------------
3,433,800 3,336,605
------------------------------------------------------------------------

Cost of Sales
Marketing expenses 791,921 763,190
Direct consulting expenses 229,781 176,215
Third-party contract costs 153,260 301,861
------------------------------------------------------------------------
1,174,962 1,241,266
------------------------------------------------------------------------

Gross Profit 2,258,838 2,095,339

General and administrative expenses 526,420 413,930
Depreciation and amortization 24,425 32,271
Product research and development
costs (note 4) 857,191 768,413
Foreign exchange gain (97,822) (51,004)
Interest and other income (84,627) (55,251)
------------------------------------------------------------------------
Earnings before income and other taxes 1,033,251 986,980
Income and other taxes (note 5) 467,972 354,279
------------------------------------------------------------------------
Earnings for the period 565,279 632,701
Retained earnings, beginning of period 2,260,516 263,194
Dividends paid (1,967,114) (311,279)
------------------------------------------------------------------------
Retained earnings, end of period $ 858,681 $ 584,616
------------------------------------------------------------------------
------------------------------------------------------------------------

Per share

Weighted average number of shares
outstanding 7,798,774 7,779,948
Earnings for the period
Basic and diluted $0.07 $0.08


See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.
Consolidated Statements of Cash Flows
For the three months ended June 30
(unaudited)


2005 2004
------------------------------------------------------------------------

Cash provided by (used for)

Operating

Earnings for the period $ 565,279 $ 632,701
Items not involving cash:
Depreciation and amortization 64,938 65,720
Future income taxes (170,315) 156,407
Stock-based compensation 62,834 8,502
------------------------------------------------------------------------
Cash flow from operations 522,736 863,330
Changes in non-cash working capital:
Accounts receivable 1,157,831 (191,852)
Accounts payable and accrued liabilities (348,567) (227,872)
Income taxes payable (171,516) (22,459)
Prepaid expenses 4,323 (57,833)
Deferred revenue 4,863,016 4,047,070
------------------------------------------------------------------------
6,027,823 4,410,384
------------------------------------------------------------------------

Financing

Deferred revenue (4,270,200) (3,929,444)
Issue of common shares 138,622 6,000
Dividends paid (1,967,114) (311,279)
------------------------------------------------------------------------
(6,098,692) (4,234,723)
------------------------------------------------------------------------

Investing

Property and equipment additions (117,154) (32,886)
------------------------------------------------------------------------
Increase(decrease) in cash and cash
equivalents (188,023) 142,775
Cash and cash equivalents,
beginning of period 14,360,282 12,711,097
------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 14,172,259 $ 12,853,872
------------------------------------------------------------------------
------------------------------------------------------------------------


See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.
Notes to Consolidated Financial Statements
For the three months ended June 30, 2005 and 2004 and as at March 31,
2005
(unaudited)


1. Significant Accounting Policies:

(a) Basis of Consolidation: These consolidated financial statements include the accounts of the Company and its subsidiaries, all 100% owned. All inter-company transactions have been eliminated.

(b) Revenue Recognition: Software license sales are recognized as revenue upon the fulfillment of all significant obligations under the terms of the license agreements. Any software license fees received relating to a future fiscal period are deferred and recognized in the appropriate future period. Both 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) Cash and Cash Equivalents: Cash and cash equivalents consist of cash and highly liquid investments which have maturities of less than three months at the time of purchase. These cash equivalents consist primarily of term deposits and are stated at cost, which approximates market value.

(d) Property and Equipment: Property and equipment are recorded at cost. Leases that transfer substantially all the benefits and risks of ownership to the Company are accounted for as capital leases whereby the asset values and related obligations are recorded in the consolidated financial statements.

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


(e) 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.

(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 year-end 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 year 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 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) Per Share Amounts: 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 and other dilutive instruments.

In computing diluted earnings per share, 269,432 shares were added to the weighted average number of Common and Non-Voting Shares outstanding during the three months ended June 30, 2005 (2004 - 308,421 shares) for the dilutive effect of employee stock options.

(i) Stock-Based Compensation Plan: The Company has a stock-based compensation plan that is described in note 6(e). Commencing in the year ended March 31, 2004, the fair value of stock options have been expensed over the vesting period. For stock options issued prior to 2004, pro forma disclosure of the effect on net earnings and earnings per share had the fair value been expensed, is provided. The fair value of stock options that have been expensed is credited to contributed surplus. When the stock options are exercised for stock, the recorded amount is transferred from contributed surplus to common share capital.

(j) 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 respective period reported upon. Actual results may differ from such estimates and the differences could be material.



2. Cash and Cash Equivalents:

June 30, 2005 March 31, 2005
------------------------------------------------------------------------
Cash $ 872,259 $ 910,282
Term deposits 13,300,000 13,450,000
------------------------------------------------------------------------
$ 14,172,259 $ 14,360,282
------------------------------------------------------------------------
------------------------------------------------------------------------

3. Property and Equipment:

June 30, 2005
------------------------------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
------------------------------------------------------------------------
Computer equipment $ 1,097,243 $ 764,010 $ 333,233
Furniture and equipment 414,829 359,750 55,079
Leasehold improvements 401,183 270,158 131,025
------------------------------------------------------------------------
$ 1,913,255 $ 1,393,918 $ 519,337
------------------------------------------------------------------------
------------------------------------------------------------------------

March 31, 2005
------------------------------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
------------------------------------------------------------------------
Computer equipment $ 1,056,599 $ 740,832 $ 315,767
Furniture and equipment 414,829 352,004 62,825
Leasehold improvements 348,898 260,369 88,529
------------------------------------------------------------------------
$ 1,820,326 $ 1,353,205 $ 467,121
------------------------------------------------------------------------
------------------------------------------------------------------------

4. Product Research and Development Costs:

For the
three months
ended June 30,
------------------------------------------------------------------------
2005 2004
------------------------------------------------------------------------
Product research and development costs $ 876,978 $ 783,849
Depreciation 40,513 33,449
Scientific research and experimental development
investment tax credits (60,300) (48,885)
------------------------------------------------------------------------
$ 857,191 $ 768,413
------------------------------------------------------------------------
------------------------------------------------------------------------


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,
------------------------------------------------------------------------
2005 2004
------------------------------------------------------------------------
Statutory tax rate 33.62% 33.62%
Expected income tax $ 347,379 $ 331,823
Permanent differences 64,799 6,377
Change in valuation allowance 54,571 20,637
Other 1,223 (4,558)
------------------------------------------------------------------------
$ 467,972 $ 354,279
------------------------------------------------------------------------

Represented by:
Current income tax expense $ 594,287 $ 369,615
Future income taxes (benefit) (170,315) (37,893)
Foreign withholding and other taxes 44,000 22,557
------------------------------------------------------------------------
$ 467,972 $ 354,279
------------------------------------------------------------------------

The components of the Company's net future income tax asset at June 30,
2005 are as follows:

------------------------------------------------------------------------
Canada Other Total
------------------------------------------------------------------------

Investment tax credits,
net of future tax liabilities $ 224,099 $ - $ 224,099
Property and equipment 94,698 - 94,698
Benefit of net operating losses - 65,438 65,438
------------------------------------------------------------------------
$ 318,797 $ 65,438 $ 384,235
Valuation allowance (309,810)
------------------------------------------------------------------------
Future income tax asset, net $ 74,425
------------------------------------------------------------------------

Represented by:
Future income tax liability, current $ (20,273)
Future income tax asset, long-term 94,698
------------------------------------------------------------------------
Future income tax asset, net $ 74,425
------------------------------------------------------------------------


The net operating losses in other countries expire in varying amounts between 2006 and 2008.

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.

(b) Issued:



Common Shares Non-Voting Shares Contributed
Number Consideration Number Consideration Surplus
------------------------------------------------------------------------
Balance,
March 31,
2004 4,917,206 $10,487,109 2,859,775 $367,698 $20,399
Issued for
cash on
exercise
of stock
options 100,250 122,297
Cancelled
pursuant
to Common
Shares
buy-back (122,200) (259,437)
Stock-based
compensation:
- Current
period
expense 182,711
- Stock
options
exercised 3,890 (3,890)
------------------------------------------------------------------------
Balance,
March 31,
2005 4,895,256 10,353,859 2,859,775 367,698 199,220
Issued for
cash on
exercise
of stock
options 113,425 138,622
Stock-based
compensation:
- Current
period
expense 62,834
- Stock
options
exercised 6,807 (6,807)
------------------------------------------------------------------------
Balance,
June 30,
2005 5,008,681 $10,499,288 2,859,775 $367,698 $255,247
------------------------------------------------------------------------


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

(c) Common Shares Buy-Back: On November 3, 2003, the Company announced a Normal Course Issuer Bid ("NCIB") commencing as of November 13, 2003 to purchase for cancellation up to 300,000 of its Common Shares. The NCIB began on November 13, 2003 and ended on November 12, 2004. During the year ended March 31, 2005, a total of 122,200 Common Shares were repurchased at market price for a total cost of $494,613 and all of these shares have been cancelled. On a cumulative basis, the Company purchased 126,000 Common Shares pursuant to this NCIB at a total cost of $503,847.

(d) Non-Voting Shares: On January 30, 2001, the Company and CMG Reservoir Simulation Foundation ("the Foundation"), the sole holder of the Non-Voting Shares, entered into an Amended and Restated Research and Development Agreement ("Agreement"), which was approved by the Company's shareholders on May 25, 2001. The Agreement terms as negotiated resulted in the Company receiving on a quarterly basis commencing as of April 1, 2001 through January 1, 2008: $125,000 cash; or the surrender to the Company of a specified number of shares for cancellation (starting at 108,571 per quarter through fiscal 2002 and declining through the eight years to 57,699 per quarter through fiscal 2008); or a pro-rata combination of cash and shares for cancellation. During both the three month periods ended June 30, 2005 and 2004, the Foundation paid $125,000 in cash to the Company, which is reflected in consulting and contract research revenues. On July 1, 2005, the Foundation paid its quarterly commitment in cash and the maximum number of shares that could now potentially be surrendered for cancellation through January 1, 2008 pursuant to this Agreement is 629,704 Non-Voting Shares.

(e) Stock-Based Compensation Plan: The Company has reserved 566,773 Common Shares for issuance to employees and directors pursuant to the Company's stock option plan. 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% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates. Changes in options in the period from March 31, 2004 were as follows:



For the For the
three months ended year ended
June 30, 2005 March 31, 2005
------------------------------------------------------------------------
Weighted Weighted
Average Average
Options Exercise Options Exercise
Granted Price Granted Price
------------------------------------------------------------------------
Outstanding at beginning
of period 636,750 $2.69 438,000 $1.29
Granted - 305,000 4.20
Cancelled (500) 1.20 (6,000) 1.20
Exercised (113,425) 1.22 (100,250) 1.22
------------------------------------------------------------------------
Outstanding at end of period 522,825 $3.01 636,750 $2.69
------------------------------------------------------------------------
------------------------------------------------------------------------
Options exercisable at end
of period 41,700 $1.31 151,250 $1.24
------------------------------------------------------------------------
------------------------------------------------------------------------


The weighted average life of all options outstanding at June 30, 2005 is 4.06 years.

The Company began prospectively expensing the fair value of stock options granted in the year ended March 31, 2004 over the vesting period. In accordance with the prospective method of adoption, the Company will continue to record no compensation expense for stock options granted prior to April 1, 2003, and will continue to provide pro forma disclosure of the net effect on net earnings per share had fair value been expensed.

In previous periods, we estimated the fair value of stock options granted using the Black-Scholes option pricing model under the following assumptions:



For the year ended March 31,
------------------------------------------------------------------------
2005 2004
------------------------------------------------------------------------
Weighted-Average Fair Value ($/option) $0.90 - $1.42 $0.98
Risk-Free Interest Rate (%) 3.3 to 3.9 3.9 to 4.1
Estimated Hold Period Prior to
Exercise (years) 1.5 to 5 5
Volatility in the Price of Common
Shares (%) 46 to 47 47 to 51
Dividends per Common Share ($/share) 0.16 -
------------------------------------------------------------------------
------------------------------------------------------------------------


The Company recognized a total stock-based compensation expense for the three months ended June 30, 2005 of $62,834 (2004 - $ 8,502).

If the fair value method had been used for options issued in the year ended March 31, 2003, the Company's net earnings and earnings per share would approximate the following pro forma amounts:



For the three months ended June 30,
------------------------------------------------------------------------
2005 2004
------------------------------------------------------------------------
Net earnings:
As reported $ 565,279 $ 632,701
Pro forma $ 557,080 $ 612,088
Earnings per share:
As reported - Basic and Diluted $ 0.07 $ 0.08
Pro forma - Basic and Diluted $ 0.07 $ 0.08
------------------------------------------------------------------------
------------------------------------------------------------------------


7. Financial Instruments:

(a) Fair Value: The carrying values of all monetary assets and liabilities approximate their fair values due to the relatively short period to maturity of the instruments.

(b) Credit Risk: Accounts receivable includes balances from customers operating in the oil and gas industry, both domestically and internationally. 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. As at June 30, 2005, the amounts from five domestic and international customers, who generated 38 percent of revenues in the quarter ended June 30, 2005, represent a combined 54 percent of the Company's accounts receivable. Of this amount, 13 percent have been outstanding for over 90 days as at June 30, 2005 with customers who have excellent collection history with the Company.

(c) Foreign Currency Risk: The Company is affected by the exchange rate between the Canadian and US dollar as approximately 72 percent of its revenues in the three months ended June 30, 2005 were denominated in US dollars. Approximately 25 to 30 percent of the Company's total costs were also denominated in US dollars and provided a hedge against the fluctuation in the currency exchange. At June 30, 2005, the Company has approximately $2.5 million of its working capital denominated in US dollars.

8. Other Information:

(a) Commitments: The Company has lease commitments relating to its office premises. The minimum operating lease rental payments pursuant to these contracts are estimated to be 2006 - $409,000; 2007 - $538,000; 2008 - $492,000; 2009 - $443,000 and 2010 - $319,000.

(b) 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, 2005, US $64,800 had been drawn on this line of credit for performance bonds.



(c) Supplemental Cash Flow Information:



For the three months ended June 30,
------------------------------------------------------------------------
2005 2004
------------------------------------------------------------------------
Interest received $ 77,841 $ 62,878
Income taxes paid $ 705,503 $ 149,289
------------------------------------------------------------------------

9. Segmented Information:

Consulting
Operating Segments and
For the three months Software Contract
ended June 30, 2005 Licenses Research Corporate Total
------------------------------------------------------------------------
Revenue $ 2,612,739 $ 821,061 $ - $ 3,433,800
------------------------------------------------------------------------
Gross profit 1,902,911 355,927 - 2,258,838
------------------------------------------------------------------------
General and
administrative
expenses 526,420 526,420
Depreciation and
amortization 11,615 7,708 5,102 24,425
Product research and
development costs 857,191 857,191
Interest and other
income and foreign
exchange (182,449) (182,449)
Income and other
taxes 14,302 29,698 423,972 467,972
------------------------------------------------------------------------
Earnings (loss) for
the period $ 1,876,994 $ 318,521 $(1,630,236) $ 565,279
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Assets $ 3,039,673 $ 1,238,205 $14,672,819 $18,950,697
------------------------------------------------------------------------
Capital Expenditures $ 24,659 $ 10,737 $ 81,758 $ 117,154
------------------------------------------------------------------------

Consulting
Operating Segments and
For the three months Software Contract
ended June 30, 2004 Licenses Research Corporate Total
------------------------------------------------------------------------
Revenue $ 2,261,409 $ 1,075,196 $ - $ 3,336,605
------------------------------------------------------------------------
Gross profit 1,553,102 542,237 - 2,095,339
------------------------------------------------------------------------
General and
administrative
expenses 413,930 413,930
Depreciation and
amortization 22,111 4,677 5,483 32,271
Product research and
development costs 768,413 768,413
Interest and other
income and foreign
exchange (106,255) (106,255)
Income and other
taxes 6,868 14,339 333,072 354,279
------------------------------------------------------------------------
Earnings (loss) for
the period $ 1,524,123 $ 523,221 $(1,414,643) $ 632,701
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Assets $ 2,192,707 $ 1,315,507 $13,412,437 $16,920,651
------------------------------------------------------------------------
Capital Expenditures $ 20,529 $ 5,403 $ 6,954 $ 32,886
------------------------------------------------------------------------

Geographic Segments
For three months ended June 30,
2005 2004
-------------------------- --------------------------
Property and Property and
Revenue Equipment Revenue Equipment
-------------------------- --------------------------
Canada $1,006,222 $ 418,235 $ 787,739 $ 398,184
United States 671,960 35,080 1,027,593 35,683
Venezuela 369,678 56,690 275,557 60,743
Other Foreign 1,385,940 9,332 1,245,716 13,330
-------------------------- --------------------------
$3,433,800 $ 519,337 $3,336,605 $ 507,940
-------------------------- --------------------------


In the three months ended June 30, 2005, the Company derived 18% (2004 - 20%) in revenue from one customer.

CORPORATE INFORMATION

Computer Modelling Group Ltd. is a computer software technology and consulting company serving the oil and gas industry. The Company, recognized by oil and gas companies worldwide as a leading developer of reservoir modelling software, has sales and technical support services based in Calgary, Houston, Beijing, London, and Caracas. CMG 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 centers in 41 countries.

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

Contact Information