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Press release from Marketwire

Computer Modelling Group Announces Year End Results

Thursday, May 20, 2010

Computer Modelling Group Announces Year End Results08:00 EDT Thursday, May 20, 2010 CALGARY, ALBERTA--(Marketwire - May 20, 2010) - Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our") (TSX:CMG) is pleased to report our financial results for the fiscal year ended March 31, 2010. ---------------------------------------------------------------------------- $ thousands, unless otherwise March 31, March 31, March 31, stated 2010 2009 2008 ---------------------------------------------------------------------------- Annuity/maintenance licenses 29,507 25,947 18,033 Perpetual licenses 10,443 12,459 4,574 ---------------------------------------------------------------------------- Software licenses 39,950 38,406 22,607 Consulting and contract research 5,353 5,536 5,386 ---------------------------------------------------------------------------- Revenues 45,303 43,942 27,993 Gross profit 35,590 34,785 21,208 Gross profit (%) 79 79 76 Earnings for the year 14,463 16,616 7,600 Cash dividends declared and paid 16,557 10,926 6,952 Total assets 49,906 48,044 33,339 Total shares outstanding 17,830 17,260 16,866 Trading price per share at March 31 17.25 9.25 7.60 Market capitalization at March 31 307,568 159,651 128,181 ---------------------------------------------------------------------------- Per share amounts - $ ---------------------------------------------------------------------------- Earnings per share - basic 0.82 0.97 0.45 Earnings per share - diluted 0.80 0.95 0.44 Cash dividends declared and paid per share 0.94 0.635 0.415 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSISThe following discussion and analysis, presented as at May 19, 2010, is an extract of CMG's Management's Discussion and Analysis ("MD&A") filed on SEDAR and presented in our 2010 Annual Report. This discussion and analysis reflects management's assessment of the financial and operating results of CMG and should be read in conjunction with the complete MD&A, the audited consolidated financial statements and the related notes of the Company for the years ended March 31, 2010 and 2009. 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.RESULTS OF OPERATIONS - ANNUALCMG achieved another strong year with revenues and gross profit for its fiscal year ended March 31, 2010 exceeding all previous results. For the year ended March 31, 2010, CMG reported revenues of $45.3 million, up three percent over the prior year revenues of $43.9 million, and a gross profit of $35.6 million compared to $34.8 million in fiscal 2009. Net earnings remained solid at $14.5 million ($0.82 per share), a decline of 13 percent from the record earnings of $16.6 million ($0.97 per share) in fiscal 2009.REVENUESCMG'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 total revenues of $45.3 million for its 2010 fiscal year reflect an increase of $1.4 million, a three percent increase from the $43.9 million recorded in its 2009 fiscal year. This growth is due to increased software license sales in the annuity/maintenance revenue streams partially offset by a decline in perpetual software sales.Software License RevenuesCMG generated another record year in its software license sales, with nearly $40.0 million in software license revenues recorded in the year ended March 31, 2010. This reflects a growth rate of four percent from prior year's software license revenues of $38.4 million despite software license revenues being negatively impacted by the cancellation of some annuity licenses due to the suspension of projects by our customers, the strengthening of the Canadian dollar, and the prior year's timing of revenue recognition associated with a customer (see discussion under "Results of Operations - Fourth Quarter").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 license sales, whereby the customer purchases the-then-current version of the software and has the right to use that version in perpetuity. Annuity/maintenance license fees have historically had a high renewal rate and accordingly provide a reliable revenue stream while perpetual license sales are more variable and unpredictable in nature as the purchase decision and its timing fluctuate with the customers' needs and budgets. CMG has found that a large percentage of its customers who have acquired perpetual software licenses subsequently purchase maintenance licenses to ensure they have access to current versions of CMG software.CMG's annuity/maintenance licensing for the year ended March 31, 2010 was $29.5 million, representing 74 percent of fiscal 2010 total software license revenues. This reflects an increase of 14 percent from the $25.9 million (68 percent of fiscal 2009 total software license revenues) in annuity/maintenance software license revenues generated last year. The growth in annuity/maintenance license revenue was driven by greater take up of annuity licenses by our existing customers along with some new customers and the increased maintenance revenue tied to our record perpetual sales in fiscal 2009. It should be noted that this growth came during a year when the Company had some annuity license agreements cancelled due to the suspension of projects by our customers, the negative impact of the strengthening Canadian dollar and the prior year's timing of revenue recognition with another customer.Software license revenues under perpetual sales for the year ended March 31, 2010 were $10.4 million, down $2.1 million from the $12.5 million recorded in fiscal 2009. Software licensing under perpetual sales is a significant part of CMG's business but may fluctuate significantly between periods. In the previous year, CMG experienced unprecedented growth in the sales of perpetual licenses due to the greater availability of funds driven by higher commodity prices. By pre-2009 standards, perpetual license revenues for fiscal 2010 would have set a new record and exceeded our internal forecasts by nearly $4.0 million. The decrease in perpetual sales has been more than offset with the increase in maintenance license fees partially derived from the previous year's perpetual sales which is significant given that our maintenance fees represent a recurring base for our revenue.It is important to note that even though our perpetual sales were lower in the current fiscal year, our recurring revenue base experienced growth in the current year compared to prior year.On a geographic basis, software license sales to CMG's two most sizeable markets, Canada and the United States, continued to demonstrate strong revenue growth of 16 percent each. While Canada demonstrated growth in both annuity/maintenance license revenue and perpetual license revenue, the growth in the United States related only to annuity/maintenance license revenue. The Company's overall software license revenue in the rest of the world decreased by seven percent. CMG continues to increase its market presence throughout the world which is made evident by the 12 percent increase in annuity/maintenance revenue generated from markets other than Canada and the United States. This increase has been offset by the decrease in the number of perpetual sales made during the year compared to the previous year.CMG has historically maintained a significant percentage of repeat customers and expects that this will continue. At March 31, 2010, CMG has pre-sold $13.7 million (2009 - $11.4 million) of annuity/maintenance software license revenue, the majority of which relates to its next fiscal year ending March 31, 2011.Consulting and Contract Research RevenuesCMG recorded consulting and contract research revenues of $5.4 million for the year ended March 31, 2010, down three percent from the $5.5 million recorded for the same period last year. The decrease was due to lower activity levels in the early quarters of fiscal 2010.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 March 31, 2010, CMG has recorded approximately $0.1 million (2009 - $0.4 million) of pre-sold revenue relating to consulting and contract research revenues.EXPENSESCMG realized a gross profit of $35.6 million (79 percent) for the year ended March 31, 2010, up $0.8 million from the $34.8 million (79 percent) recorded last year. This increase in gross profit resulted from growth in our software license revenues and more particularly in our annuity/maintenance revenue stream.CMG's total expenses, excluding depreciation and income and other taxes, amounted to $22.5 million for the year ended March 31, 2010, up $1.8 million or nine percent from the $20.7 million expended last year.The increase in total expenses between the two years is primarily due to growth in CMG's staff base, associated office costs, including costs related to new leases for expanded office space, and increased costs under performance-based compensation plans. Offsetting these increased expenditures has been a reduction in our third party contract costs, lesser use of professional advisors and greater benefits recorded in respect of the scientific research and experimental development ("SR&ED") investment tax credit program. SR&ED credits of $1.3 million recorded for the year ended March 31, 2010 were $0.3 million higher than $1.0 million recorded in the year ended March 31, 2009 due to increases in staff costs and due to the new provincial SR&ED program that was implemented in the fourth quarter of the prior fiscal year. The benefit of the SR&ED credits is utilized by CMG to reduce its Canadian income taxes otherwise payable.As a technology company, CMG's largest area of expenditure is its people. Approximately $18.2 million or 81 percent of the total expenses for the year ended March 31, 2010 relate to staff costs. This compares to $15.7 million or 76 percent of the total expenses in the comparative period last year. During the year ended March 31, 2010, our staff complement grew by 10 employees and CMG could potentially add a similar number by the end of fiscal 2011, depending upon prevailing business opportunities.Research and DevelopmentCMG maintains its belief that its strategy of growing long-term value for shareholders can be achieved only through continued investment in research and development. Along with its leadership position in the simulation of proven advanced recovery processes, CMG has positioned itself to play an important role in experimenting with new petroleum extraction processes and technology. CMG works closely with its customers to provide solutions to complex problems.During the year ended March 31, 2010, CMG incurred research and development expenditures of $8.6 million (2009 - $8.0 million), which includes its proportionate share of the research and development costs on the DRMS project of $2.4 million (2009 - $2.1 million), all of which is expensed to earnings. The increase in research and development costs is a result of the increase in people cost and consulting services from third party companies involved in new research initiatives which is offset by higher SR&ED benefits recorded in the most recent fiscal year. Research and development costs represented 19 percent (2009 - 18 percent) of total revenues.INTEREST INCOME AND FOREIGN EXCHANGEInterest income decreased to $0.1 million in the year ended March 31, 2010 from the $0.6 million recorded last year due to lower prevailing interest rates and due to investing marginally lower cash balances.CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 66 percent (2009 - 68 percent) of CMG's revenues for the year ended March 31, 2010 are denominated in US dollars, whereas only approximately 21 percent (2009 - 19 percent) of CMG's total costs are denominated in US dollars. ---------------------------------------------------------------------------- CDN$ to US$ At March 31 Yearly average ---------------------------------------------------------------------------- 2008 0.9729 0.9652 2009 0.7935 0.8966 2010 0.9846 0.9220 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Given the significant portion of our business that is conducted in US dollars, the strengthening of the Canadian dollar against the US dollar during fiscal 2010 has negatively impacted our financial results in both the valuation of our US dollar net working capital position and current period revenues.CMG recorded a foreign exchange loss of $1.2 million for the year ended March 31, 2010 compared to $1.2 million gain recorded last year. This $2.4 million shift in foreign exchange had a significant negative impact on the Company's earnings in fiscal 2010 as compared to fiscal 2009.INCOME AND OTHER TAXESCMG's effective tax rate for the year ended March 31, 2010 is reflected as 30.6 percent (2009 - 31.5 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 foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts future income taxes. The investment tax credit earned in the current fiscal year is utilized by CMG to reduce income taxes otherwise payable for the current fiscal year and the federal portion of 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. QUARTERLY PERFORMANCE ------------------------------------------------------ Fiscal 2009(1) Fiscal 2010(2) ---------------------------------------------------------------------------- $ thousands, unless otherwise stated Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ---------------------------------------------------------------------------- Annuity/maintenance licenses 5,618 5,350 6,937 8,042 7,208 7,240 7,406 7,653 Perpetual licenses 1,171 2,882 3,383 5,023 1,976 582 2,903 4,982 ---------------------------------------------------------------------------- Software licenses 6,789 8,232 10,320 13,065 9,184 7,822 10,309 12,635 Consulting and contract research 1,479 1,353 1,340 1,364 1,051 1,262 1,383 1,657 ---------------------------------------------------------------------------- Revenues 8,268 9,585 11,660 14,429 10,235 9,084 11,692 14,292 Gross Profit 6,314 7,157 9,525 11,789 7,882 6,785 9,337 11,586 Gross Profit (%) 76 75 82 82 77 75 80 81 Earnings before income and other taxes 3,814 4,414 7,254 8,765 3,991 3,437 5,708 7,710 Income and other taxes 1,187 1,446 2,350 2,648 1,302 1,023 1,708 2,350 Earnings for the quarter 2,627 2,968 4,904 6,117 2,689 2,414 4,000 5,360 Cash dividends declared and paid 3,843 2,073 2,422 2,588 6,975 3,179 3,194 3,209 ---------------------------------------------------------------------------- Per share amounts - ($/share) Earnings per share - basic 0.15 0.17 0.28 0.35 0.16 0.14 0.23 0.30 Earnings per share - diluted 0.15 0.17 0.28 0.35 0.15 0.13 0.22 0.30 Cash dividends declared and paid per share 0.225 0.12 0.14 0.15 0.40 0.18 0.18 0.18 ---------------------------------------------------------------------------- (1) Q1, Q3 and Q4 of fiscal 2009 include $0.7 million, $0.7 million and $1.1 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. (2) Q1, Q2, Q3 and Q4 of fiscal 2010 include $0.4 million, $0.4 million, $0.3 million and $0.4 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. RESULTS OF OPERATIONS - FOURTH QUARTERCMG reported revenues of $14.3 million and earnings of $5.4 million ($0.30 per share) for the three months ended March 31, 2010, down from revenues of $14.4 million and earnings of $6.1 million ($0.35 per share) for the comparable period of last year.REVENUESSoftware license revenues were $12.6 million in the three months ended March 31, 2010 compared to $13.1 million recorded in the fourth quarter of fiscal 2009. The annuity/maintenance revenues decreased from $8.0 million in the fourth quarter of 2009 to $7.7 million in the fourth quarter of 2010. Sales under perpetual licenses were comparable between the two reporting periods. Our annuity/maintenance revenue decreased primarily as a result of the timing of the payment received from a customer for which revenue recognition criteria is fulfilled at the time of the receipt of cash (see discussion below about such amounts). The fourth quarter of fiscal 2009 included this amount whereas the fourth quarter of fiscal 2010 did not. The fourth quarter's revenues in fiscal 2010 also experienced the negative impact from the strengthening of the Canadian dollar.As footnoted in the Quarterly Performance table, in the normal course of business CMG may complete the negotiation of certain annuity/maintenance contracts and/or fulfill revenue recognition requirements within a current quarter that includes usage of CMG's products in prior quarters. This situation particularly affects contracts negotiated with countries that face increased economic and political risks leading to revenue recognition criteria being satisfied only at the time of the receipt of cash. The dollar magnitude of such contracts may be significant to the quarterly comparatives of our annuity/maintenance revenue stream and to provide a normalized comparison, we specifically identify the revenue component where revenue recognition is satisfied in the current period for products provided in previous quarters.Consulting and contract research revenues were $1.7 million in the three months ended March 31, 2010 compared to $1.4 million recorded in the fourth quarter of fiscal 2009.EXPENSESCMG realized a gross profit of $11.6 million in the three months ended March 31, 2010, down $0.2 million from the $11.8 million recorded in the fourth quarter of fiscal 2009. This decrease is mainly a result of the decrease in software revenues.CMG's total expenses, excluding depreciation and income and other taxes, amounted to $6.2 million for the fourth quarter ended March 31, 2010, up $0.2 million from the $6.0 million recorded in the fourth quarter of fiscal 2009. This increase in total expenses is primarily due to higher staff costs as a result of staff additions, variable compensation that is dependent on growth in CMG's revenue base and earnings and stock-based compensation expense. The increase in these expenses has been slightly offset by the increase in SR&ED credits recorded in the fourth quarter of fiscal 2010 compared to the same period of last year.LIQUIDITY AND CAPITAL RESOURCESOperating ActivitiesCMG generated $9.2 million from operating activities in the year ended March 31, 2010, a decrease of $12.4 million from the $21.6 million generated in the year ended March 31, 2009. The decrease is a result of lower net earnings recorded in the current fiscal year and 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. The main contributors to the decrease are the increase in accounts receivable as a result of sales made in the last quarter of the year and the increase in the deferred revenue balance. In addition, tax instalments paid during fiscal 2010 are significantly higher than in the previous fiscal year.Financing ActivitiesDuring the year ended March 31, 2010, CMG employees and directors exercised options to purchase 570,525 Common Shares, which resulted in $3.7 million in cash proceeds.In the year ended March 31, 2010, CMG paid $16.6 million in dividends, representing four quarterly dividends of $0.18 per share and a special dividend of $0.22 per share. On May 19, 2010, CMG announced the payment of a quarterly dividend of $0.18 per share and a special dividend of $0.17 per share on CMG's Common and Non-Voting Shares. The dividend will be paid on June 15, 2010 to shareholders of record at the close of business on June 7, 2010.On March 22, 2010, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on March 23, 2010 to purchase for cancellation up to 1,314,686 of its Common Shares. No shares have been purchased pursuant to this NCIB through March 31, 2010.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 were purchased pursuant to this NCIB, which expired on March 2, 2010.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 ActivitiesCMG's current needs for capital asset investment relate to computer equipment and office infrastructure costs. During fiscal 2010, CMG expended $2.2 million on property and equipment additions and has a capital budget of $2.4 million for fiscal 2011, all of which will be funded internally.Liquidity and Capital ResourcesAt March 31, 2010, CMG has $28.8 million in cash, no debt and has access to just over $0.8 million under a line of credit with its principal banker.During the year ended March 31, 2010, 6,538,226 shares of CMG's public float were traded on the TSX. CMG's share prices ranged from $9.20 to $17.71 per share and last traded on March 31, 2010 at $17.25 for a March 31, 2010 market capitalization of $307.6 million.COMMITMENTS, OFF BALANCE SHEET ITEMS AND TRANSACTIONS WITH RELATED PARTIESCMG committed approximately $10.6 million to the five year DRMS research and development project with its industry partners Shell International Exploration and Production BV and Petroleo Brasileiro S.A., of which $7.2 million has been incurred from inception to March 31, 2010.In conjunction with entering into this project, the Foundation 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 year ended March 31, 2010, CMG has reflected $1.2 million (2009 - $1.0 million) in research grants from the Foundation in revenue with respect to this project. From commencement of the project to March 31, 2010, these research grants aggregate to $3.6 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 and contractual obligations for office leases which are estimated as follows: 2011 - $1.5 million; 2012 through 2014 - $1.4 million per year; and, 2015 - $1.0 million.OUTLOOKCMG 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 appear to have stabilized and natural gas prices have shown some recent improvement, 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. We are well positioned to continue to grow and diversify our revenue base and to ultimately return value to our shareholders in the form of regular quarterly dividend payments and growth in share value.Kenneth M. Dedeluk, President and Chief Executive OfficerMay 19, 2010 COMPUTER MODELLING GROUP LTD. Consolidated Balance Sheets ---------------------------------------------------------------------------- March 31, 2010 March 31, 2009 ---------------------------------------------------------------------------- Assets Current assets: Cash $ 28,826,173 $ 34,701,292 Accounts receivable 16,071,989 11,352,448 Prepaid expenses 1,141,793 825,892 Prepaid income taxes 1,432,673 - ---------------------------------------------------------------------------- 47,472,628 46,879,632 Property and equipment (note 3) 2,400,737 1,112,103 Future income taxes (note 5) 32,645 52,340 ---------------------------------------------------------------------------- $ 49,906,010 $ 48,044,075 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 5,397,358 $ 4,951,571 Income taxes payable - 3,438,733 Deferred revenue 13,843,201 11,796,342 Future income taxes (note 5) 222,083 197,272 ---------------------------------------------------------------------------- 19,462,642 20,383,918 Shareholders' equity: Share capital (note 6) 20,390,396 16,083,799 Contributed surplus (note 6) 1,815,948 1,245,485 Retained earnings 8,237,024 10,330,873 ---------------------------------------------------------------------------- 30,443,368 27,660,157 ---------------------------------------------------------------------------- $ 49,906,010 $ 48,044,075 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Commitments (note 9) See accompanying notes to consolidated financial statements. COMPUTER MODELLING GROUP LTD. Consolidated Statements of Earnings and Retained Earnings ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 ---------------------------------------------------------------------------- Revenue Software licenses $ 39,950,173 $ 38,406,245 Consulting and contract research 5,352,521 5,535,276 ---------------------------------------------------------------------------- 45,302,694 43,941,521 ---------------------------------------------------------------------------- Cost of Sales Marketing expenses 7,593,759 7,142,764 Direct consulting expenses 2,051,378 1,834,075 Third-party contract costs 67,406 179,872 ---------------------------------------------------------------------------- 9,712,543 9,156,711 ---------------------------------------------------------------------------- Gross Profit 35,590,151 34,784,810 General and administrative expenses 4,675,548 3,955,507 Depreciation and amortization 455,166 323,330 Product research and development costs (note 4) 8,566,280 7,975,130 Foreign exchange loss/(gain) 1,188,015 (1,160,871) Interest and other income (141,054) (555,591) ---------------------------------------------------------------------------- Earnings before income and other taxes 20,846,196 24,247,305 Income and other taxes (note 5) 6,383,076 7,630,934 ---------------------------------------------------------------------------- Earnings for the Year 14,463,120 16,616,371 Retained earnings, beginning of year 10,330,873 5,155,818 Dividends paid (16,556,969) (10,925,980) Common shares buy-back (note 6(c)) - (515,336) ---------------------------------------------------------------------------- Retained earnings, end of year $ 8,237,024 $ 10,330,873 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings Per Share Basic (note 6(e)) $ 0.82 $ 0.97 Diluted (note 6(e)) $ 0.80 $ 0.95 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. COMPUTER MODELLING GROUP LTD. Consolidated Statements of Cash Flows ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 ---------------------------------------------------------------------------- Cash provided by (used for) Operating Earnings for the year $ 14,463,120 $ 16,616,371 Items not involving cash: Depreciation and amortization 887,003 716,422 Future income taxes (note 5) 44,506 96,713 Stock-based compensation 1,223,275 841,731 ---------------------------------------------------------------------------- 16,617,904 18,271,237 Changes in non-cash working capital: Accounts receivable (4,719,541) (3,444,376) Accounts payable and accrued liabilities 445,787 1,918,933 Income taxes payable/prepaid (4,871,406) 2,046,812 Prepaid expenses (315,901) (166,544) Deferred revenue 2,046,859 2,957,128 ---------------------------------------------------------------------------- 9,203,702 21,583,190 ---------------------------------------------------------------------------- Financing Issue of common shares 3,653,785 1,739,197 Dividends paid (16,556,969) (10,925,980) Common shares buy-back (note 6 (c)) - (598,564) ---------------------------------------------------------------------------- (12,903,184) (9,785,347) ---------------------------------------------------------------------------- Investing Property and equipment additions (2,175,637) (575,981) ---------------------------------------------------------------------------- Increase (decrease) in cash (5,875,119) 11,221,862 Cash, beginning of year 34,701,292 23,479,430 ---------------------------------------------------------------------------- Cash, end of year $ 28,826,173 $ 34,701,292 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Supplemental disclosure of cash flow information (note 11) See accompanying notes to consolidated financial statements. COMPUTER MODELLING GROUP LTD. Notes to Consolidated Financial Statements Years ended March 31, 2010 and 2009. 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 fees, 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 collectability 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 experimental development expenditures. Investment tax credits are recorded as a deduction against related expenses or capital items provided that 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 initially recorded at fair value and subsequently 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: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, it has developed a convergence plan to ensure successful transition to IFRS by April 1, 2011. The impact of IFRS on the Consolidated Financial Statements is not reasonably determinable at this time. 3. PROPERTY AND EQUIPMENT: ---------------------------------------------------------------------------- Accumulated March 31, 2010 Cost Depreciation Net Book Value ---------------------------------------------------------------------------- Computer equipment $ 3,386,237 $ 2,273,787 $ 1,112,450 Furniture and equipment 1,255,942 620,186 635,756 Leasehold improvements 1,699,407 1,046,876 652,531 ---------------------------------------------------------------------------- $ 6,341,586 $ 3,940,849 $ 2,400,737 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Accumulated March 31, 2009 Cost Depreciation Net Book 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: ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 ---------------------------------------------------------------------------- Product research and development costs $ 9,384,757 $ 8,586,208 Depreciation 431,837 393,092 Scientific research and experimental development investment tax credits (1,250,314) (1,004,170) ---------------------------------------------------------------------------- $ 8,566,280 $ 7,975,130 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 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: ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 ---------------------------------------------------------------------------- Statutory tax rate 28.75% 29.38% ---------------------------------------------------------------------------- Expected income tax $ 5,993,281 $ 7,123,858 Non-deductible costs 372,279 277,876 Change in valuation allowance (108,740) (20,928) Withholding taxes 123,712 229,905 Other 2,544 20,223 ---------------------------------------------------------------------------- $ 6,383,076 $ 7,630,934 ---------------------------------------------------------------------------- Represented by: Current income taxes $ 6,152,758 $ 7,206,504 Future income taxes 44,506 96,713 Foreign withholding and other taxes 185,812 327,717 ---------------------------------------------------------------------------- $ 6,383,076 $ 7,630,934 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- The components of the Company's net future income tax liability are as follows: ---------------------------------------------------------------------------- March 31, 2010 2009 ---------------------------------------------------------------------------- Net tax asset (liability) on investment tax credits $ (222,083) $ 290,465 Property and equipment 32,645 52,340 Benefit of operating losses in a foreign subsidiary 86,658 195,398 ---------------------------------------------------------------------------- $ (102,780) $ 538,203 Valuation allowance (86,658) (683,135) ---------------------------------------------------------------------------- Future income tax liability, net $ (189,438) $ (144,932) Represented by: Future income tax liability, current $ (222,083) $ (197,272) Future income tax asset, long-term 32,645 52,340 ---------------------------------------------------------------------------- Future income tax liability, net $ (189,438) $ (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.(b) Issued: ---------------------------------------------------------------------------- Common Shares --------------------------- Number Consideration ---------------------------------------------------------------------------- Balance, March 31, 2008 12,916,878 $ 13,833,303 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 Stock-based compensation: Current period expense Stock options exercised 340,651 ---------------------------------------------------------------------------- Balance, March 31, 2009 14,363,572 $ 15,897,624 Issued for cash on exercise of stock options 570,525 3,653,785 Converted into Common Shares 624,517 40,149 Stock-based compensation: Current period expense Stock options exercised 652,812 ---------------------------------------------------------------------------- Balance, March 31, 2010 15,558,614 $ 20,244,370 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Non-Voting Shares Contributed --------------------------- Number Consideration Surplus ---------------------------------------------------------------------------- Balance, March 31, 2008 3,949,034 $ 253,876 $ 744,405 Issued for cash on exercise of stock options Common Shares buy-back Converted into Common Shares (1,053,088) (67,701) Stock-based compensation: Current period expense 841,731 Stock options exercised (340,651) ---------------------------------------------------------------------------- Balance, March 31, 2009 2,895,946 $ 186,175 $ 1,245,485 Issued for cash on exercise of stock options Converted into Common Shares (624,517) (40,149) Stock-based compensation: Current period expense 1,223,275 Stock options exercised (652,812) ---------------------------------------------------------------------------- Balance, March 31, 2010 2,271,429 $ 146,026 $ 1,815,948 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- The Non-Voting Shares are convertible into an equivalent number of Common Shares at any time at the option of the holder.Subsequent to March 31, 2010, 18,800 stock options were exercised for cash proceeds of $173,163. In addition, 900,000 Non-Voting Shares were converted to Common Shares.On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "Original Rights Plan"), whereby the Company issued 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 was 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 Normal Course Issuer Bid ("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 were purchased pursuant to this NCIB which expired on March 2, 2010.On March 22, 2010, the Company announced a NCIB commencing on March 23, 2010 to purchase for cancellation up to 1,314,686 of its Common Shares. No shares have been purchased pursuant to this NCIB through March 31, 2010.(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 March 31, 2010, the Company could grant up to 1,783,004 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.The following table outlines changes in options: ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 ---------------------------------------------------------------------------- Weighted Weighted Options Average Options Average Granted Exercise Granted Exercise Price Price ---------------------------------------------------------------------------- Outstanding at beginning of year 1,367,424 $ 8.10 1,235,150 $ 4.95 Granted 511,900 15.60 620,000 11.03 Exercised (570,525) 6.40 (468,726) 3.71 Forfeited (22,750) 10.74 (19,000) 7.38 ---------------------------------------------------------------------------- Outstanding at end of year 1,286,049 $ 11.79 1,367,424 $ 8.10 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Options exercisable at end of year 368,649 $ 8.49 371,424 $ 5.47 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- The range of exercise prices of options outstanding and exercisable at March 31, 2010 is as follows: Outstanding Exercisable ---------------------------------------------------------------------------- Weighted Average Weighted Weighted Remaining Average Average Contractual Exercise Exercise Exercise Price Number of Life Price Number of Price ($/option) Options (Years) ($/option) Options ($/option) ---------------------------------------------------------------------------- 3.50 - 5.62 74,124 1.3 3.81 74,124 3.81 5.63 - 6.90 4,000 3.6 6.90 - - 6.91 - 7.40 217,825 2.4 7.39 107,325 7.38 7.41 - 11.26 484,200 3.4 11.04 187,200 10.98 11.27 - 15.60 505,900 4.4 15.60 - - ---------------------------------------------------------------------------- 1,286,049 3.5 11.79 368,649 8.49 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- The fair value of stock options granted was estimated using the Black-Scholes option pricing model under the following assumptions: ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 2008 ---------------------------------------------------------------------------- Weighted-Average Fair Value ($/option) 2.82 to 3.16 0.98 to 2.01 1.15 to 1.77 Risk-Free Interest Rate (%) 1.31 to 2.61 1.50 to 3.10 3.20 to 4.25 Estimated Hold Period Prior to Exercise (years) 2 to 5 2 to 5 2 to 5 Volatility in the Price of Common Shares (%) 37 to 43 31 to 49 30 to 33 Dividend Yield per Common Share (%) 5.95 to 6.07 5.37 to 9.93 4.05 to 5.52 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- The Company recognized a total stock-based compensation expense for the year ended March 31, 2010 of $1,223,275 (2009 - $841,731).(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: ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 ---------------------------------------------------------------------------- Weighted Weighted Average Earnings Average Earnings Shares Per Shares Per Earnings Outstanding Share Earnings Outstanding Share ---------------------------------------------------------------------------- Basic $14,463,120 17,585,990 $0.82 $16,616,371 17,172,234 $ 0.97 Dilutive effect of stock options 430,384 230,589 ---------------------------------------------------------------------------- Diluted $14,463,120 18,016,374 $0.80 $16,616,371 17,402,823 $ 0.95 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- During the year ended March 31, 2010, 90,317 (2009 - 607,000) 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 23, 2010 to March 22, 2011. 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 year. 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 Other financial liabilities Amortized cost liabilities ---------------------------------------------------------------------------- (ii) Fair values of financial instrumentsThe carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments.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:(a) 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 over 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 collectability 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 March 31, 2010.As at March 31, 2010, the Company has a concentration of credit risk with nine domestic and international customers who represent 65 percent of accounts receivable and $1,175,000 of accounts receivable are over 90 days. The Company assesses the creditworthiness 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.(b) 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 66 percent of the Company's revenues for the year ended March 31, 2010 were denominated in US dollars and at March 31, 2010, the Company had approximately $9.6 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 Statements of Earnings. It is estimated that a one cent change in the US dollar would result in a net change of approximately $67,000 on net earnings for the year ended March 31, 2010. 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 March 31, 2010 cash balance, each one percent change in the interest rate on the Company's cash balance would change net earnings by approximately $205,000.(c) 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 March 31, 2010, the Company has significant cash balances in excess of its obligations and over $800,000 of the 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 year ended March 31, 2010, the Company has reflected $1,217,794 (2009 - $1,036,821) in research grants from the Foundation in revenue with respect to this project. To March 31, 2010 these research grants aggregate to $3,619,591 since commencement of the project.(b) Lease Commitments:The Company has operating lease commitments relating to its office premises with the minimum annual lease rental payments as follows: ---------------------------------------------------------------------------- ($) ---------------------------------------------------------------------------- 2011 1,486,000 2012 1,426,000 2013 1,428,000 2014 1,429,000 2015 1,040,000 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 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 March 31, 2010, US$165,000 (2009 - $Nil) had been drawn on this line of credit for performance bonds. 11. SUPPLEMENTAL CASH FLOW INFORMATION: ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 ---------------------------------------------------------------------------- Interest received $ 125,073 $ 585,997 Income taxes paid $ 9,827,141 $ 4,153,084 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 12. SEGMENTED INFORMATION: Operating Segments ---------------------------------------------------------------------------- Contract Software Research and Year ended March 31, 2010 Licenses Consulting Corporate Total ---------------------------------------------------------------------------- Revenue $39,950,173 $2,493,780 $2,858,741 $ 45,302,694 ---------------------------------------------------------------------------- Gross profit 32,634,288 98,251 2,857,612 35,590,151 ---------------------------------------------------------------------------- General and administrative expenses 4,675,548 4,675,548 Depreciation and amortization 120,726 119,565 214,875 455,166 Product research and development costs 8,566,280 8,566,280 Interest and other income and foreign exchange 1,046,961 1,046,961 Income and other taxes 170,308 3,638 6,209,130 6,383,076 ---------------------------------------------------------------------------- Earnings (loss) for the year $ 32,343,254 $ (24,952) $(17,855,182) $ 14,463,120 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total Assets $ 14,007,011 $1,974,981 $ 33,924,018 $ 49,906,010 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Capital Expenditures $ 160,693 $ 299,346 $ 1,715,598 $ 2,175,637 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Operating Segments ---------------------------------------------------------------------------- Contract Software Research and Year ended March 31, 2009 Licenses Consulting Corporate Total ---------------------------------------------------------------------------- Revenue $ 38,406,245 $3,216,120 $ 2,319,156 $43,941,521 ---------------------------------------------------------------------------- Gross profit 31,426,771 1,038,883 2,319,156 34,784,810 ---------------------------------------------------------------------------- General and administrative expenses 3,955,507 3,955,507 Depreciation and amortization 100,363 79,489 143,478 323,330 Product research and development costs 7,975,130 7,975,130 Interest and other income and foreign exchange (1,716,462) (1,716,462) Income and other taxes 321,753 4,979 7,304,202 7,630,934 ---------------------------------------------------------------------------- Earnings (loss) for the year $ 31,004,655 $ 954,415 $ (15,342,699) $16,616,371 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total Assets $ 10,058,925 $1,370,227 $ 36,614,923 $48,044,075 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Capital Expenditures $ 210,040 $ 80,762 $ 285,179 $ 575,981 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Geographic Segments ---------------------------------------------------------------------------- Years ended March 31, 2010 2009 ---------------------------------------------------------------------------- Property and Property and Revenue Equipment Revenue Equipment ---------------------------------------------------------------------------- Canada $ 16,912,025 $2,185,385 $15,228,993 $ 896,105 United States 7,810,316 140,584 6,586,271 160,816 Other Foreign 20,580,353 74,768 22,126,257 55,182 ---------------------------------------------------------------------------- $ 45,302,694 $2,400,737 $43,941,521 $ 1,112,103 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- In the year ended March 31, 2010, the Company derived 12.0 percent (2009 - 11.9 percent) of its revenue from one customer.CORPORATE INFORMATIONComputer Modelling Group Ltd. is a computer software technology and consulting company serving the oil and gas industry. CMG, 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, London, Caracas and Dubai. 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 over 50 countries. The Company's shares are listed on the Toronto Stock Exchange under the trading symbol "CMG."FORWARD-LOOKING STATEMENTSThe reader should be aware that historical results are not necessarily indicative of future performance. Certain statements in this press release 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, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results.FOR FURTHER INFORMATION PLEASE CONTACT: Computer Modelling Group Ltd. Kenneth M. Dedeluk President & CEO (403) 531-1300 ken.dedeluk@cmgl.ca or Computer Modelling Group Ltd. John Kalman Vice President, Finance & CFO (403) 531-1300 john.kalman@cmgl.ca www.cmgl.ca