VANCOUVER, BRITISH COLUMBIA -- (MARKET WIRE) -- 02/10/12 -- Pilot Gold Inc. (TSX: PLG) reports that our initial drilling has returned impressive intervals of gold mineralization at Kinsley Mountain, a system we believe is strongly analogous to the nearby Long Canyon gold deposit in northeastern Nevada.
Kinsley Mountain shares the same unique combination of stratigraphy, structure and mineralization as Long Canyon, a deposit our technical team defined and advanced to a multi-million-ounce resource prior to its acquisition by Newmont Mining Corp. in April last year. Kinsley Mountain is located approximately 90 kilometres to the southeast of Long Canyon. Pilot Gold has an option to earn up to a 65% interest on the Kinsley Mountain project (See Sept. 21, 2011 press release).
Our first work-program included 1,250 metres (six holes) of diamond-core drilling designed to confirm mineralization in historic reverse circulation holes near the margins of open pits at the past-producing Kinsley Mountain Mine. Many of the historic drill holes, averaging 65 metres in depth, stopped short of potentially mineralized zones. Approximately 138,000 oxide ounces were mined from seven pits by Alta Gold, which ceased operations in the late 1990s due to financial difficulties and low gold prices.
Our first six holes are near-twins of existing holes in two locations, one to the north of the main pit and one located between two satellite pits to the southeast. These drill results highlight the exceptional, untapped potential of this system.
Drill highlights from the 2011 program include (full table at bottom of release):
-- 5.91 g/t gold over 18.4 metres, including 11.93 g/t gold over 7.8 metres
in hole PK-04;
-- 6.75 g/t gold over 7.5 metres, including 13.52 g/t gold over 3.2 metres
in PK-03;
-- 6.23 g/t gold over 8.7 metres, including 12.05 g/t gold over 3.0 metres
in hole PK-02.
Primary drill composites were calculated using a cut-off of 0.30 g/t,
with variably higher cut-offs for the sub-intervals. Drill intersections
are reported as drilled thicknesses. True widths of the mineralized
intervals are interpreted to be between 60-100% of the reported lengths.
"Our technical team carries forward Fronteer Gold's in-depth, working knowledge of Long Canyon and our strategy in Nevada was to identify a project with the same attributes and exploration potential as Long Canyon," says Dr. Moira Smith, Pilot Gold's Chief Geologist and previously Fronteer Gold's Chief Geologist for Nevada. "I believe Kinsley Mountain has the framework for discovery and a clear path to building a significant, high-quality deposit in the near-term."
2012 WORK PROGRAM
Kinsley Mountain is one of Pilot Gold's three priority assets to be advanced in 2012. We plan on advancing Kinsley Mountain through detailed geological analysis, aggressive drilling and deposit modeling. The Kinsley Mountain project is under a joint venture option agreement with Nevada Sunrise Gold Corp. We anticipate earning an initial 51% interest in the project by Q2 2012. Our planned 2012 work-program includes:
-- Deposit modelling: Extensive historic databases were compiled and merged
with new surface mapping and sampling. These data are being used to
create a three-dimensional model of geology and mineralization to aid in
selection of new drill targets.
-- Drilling: 12,000 metres of infill and step-out drilling on mineralized
zones identified in historic drill programs. In addition to near-mine
and resource definition drilling, a comprehensive effort to identify new
targets will be undertaken, encompassing both the original 141 claims as
well as 128 claims staked by Pilot Gold to the north, a largely
unexplored area.
-- Resource estimation: Anticipated completion of a project-first resource
by year-end.
-- Development activities: Preliminary metallurgical work, hydrological,
environmental and baseline studies; and, submission of a Plan of
Operation to the U.S. federal government to allow for property-wide
drilling.
FOR DOWNLOAD
Drill results map: http://www.pilotgold.com/sites/default/files/KinsleyMountain_DrillMap_1202.pdf
Long Canyon comparison / Mineralization: http://www.pilotgold.com/sites/default/files/KinsleyMountain_MineralizationComparison_1202.pdf
Project overview: http://pilotgold.com/our-projects/kinsley
2011 DRILL RESULTS
----------------------------------------------------------------------------
From To Interval Gold Silver
Hole ID (metres) (metres) (metres) g/t g/t
----------------------------------------------------------------------------
PK001C 88.5 105.3 16.8 1.64 3.3
PK002C 111.7 120.4 8.7 6.23 2.1
incl 117.3 120.4 3.0 12.05 3.5
and 131.7 135.0 3.4 0.33 1.9
PK003C 102.7 110.2 7.5 6.75 1.4
incl 107.0 110.2 3.2 13.52 2.3
PK004C 42.7 61.1 18.4 5.91 2.5
incl. 45.7 53.5 7.8 11.93 4.2
and 148.0 152.1 4.1 0.54 2.1
PK005C 36.9 39.6 2.7 0.65 0.2
and 159.6 165.0 5.5 0.58 1.6
166.7 167.6 0.9 0.06 2790.0
PK006C 53.0 63.4 10.4 0.95 2.8
----------------------------------------------------------------------------
Moira Smith, P. Geo., Pilot Gold Chief Geologist, is the Company's designated Qualified Person for this news release within the meaning of National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") and has reviewed and validated that the information contained in the release is accurate. Drill composites were calculated using a cut-off of 0.30 g/t. Drill intersections are reported as drilled thicknesses. True widths of the mineralized intervals are interpreted to be between 60-100% of the reported lengths. Drill samples were assayed by ALS Chemex (ISO9001:2000) in Reno, Nevada for gold by Fire Assay of a 30 gram (1 assay ton) charge with an AA finish, or if over 5.0 g/t were re-assayed and completed with a gravimetric finish. For these samples, the gravimetric data were utilized in calculating gold intersections. QA/QC included the insertion and continual monitoring of numerous standards and blanks into the sample stream, and the collection of duplicate samples at random intervals within each batch. Selected holes are also analyzed for a 72-element geochemical suite by ICP-MS. Data citing ounces mined from historical production is attributed to www.metalseconomics.com.
ABOUT PILOT GOLD
Pilot Gold is a gold exploration company led by a proven technical team that continues to discover and define high-quality projects featuring strong grades, meaningful size and mining-friendly addresses. Our three key assets include interests in the Halilaga and TV Tower projects in Turkey, each of which alone has the ability to drive the company forward, and the Kinsley Mountain project in Nevada, a gold system analogous to Long Canyon. We also have a pipeline of projects, characterized by large land positions and district-wide potential, that can meet our growth needs for years to come. For more information, visit www.pilotgold.com.
All statements in this release, other than statements of historical fact, are "forward-looking information" with respect to Pilot Gold Inc. ("Pilot Gold") within the meaning of applicable Canadian securities laws, including statements that address future mineral production, reserve potential, exploration drilling, the future price of gold, potential quantity and/or grade of minerals, potential size of a mineralized zone, potential expansion of mineralization, the timing and results of future resource estimates, or other study, proposed exploration and development of our exploration properties and the estimation of mineral resources. Forward-looking information is often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "project", "predict", "potential", "targeting", "intends", "believe", "potential", and similar expressions, or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "should", "could", "would", "might" or "will" be taken, occur or be achieved. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of Pilot Gold to differ materially from those anticipated in such forward-looking information. Such forward-looking information, including, but not limited to, completion of expenditure obligations under the Kinsley Mountain Option Agreement, proposed exploration and development of the Kinsley Mountain property, future issuances of Common Shares to acquire the Kinsley Mountain Option Agreement from Animas Resources Ltd.; estimated future working capital, funds available, uses of funds, future capital expenditures, exploration expenditures and other expenses for specific operations; information with respect to exploration results, the timing and success of exploration activities generally, and other factors which may cause the actual results, performance or achievement of Pilot Gold to be materially different from any future results, performance or achievements expressed or implied by such forward looking information.
Such factors include, among others, risks related to the interpretation and actual results of historical production at Kinsley Mountain, reliance on technical information provided by third parties on any of our exploration properties, including access to historical information on the Kinsley Mountain property as well as specific historic data associated with and drill results from the property, information from Nevada Sunrise LLC and Nevada Sunrise Gold Corporation, the license and lease owners respectively on the Kinsley Mountain property, current exploration and development activities; changes in project parameters as plans continue to be refined; current economic conditions; future prices of commodities; possible variations in grade or recovery rates; failure of equipment or processes to operate as anticipated; the failure of contracted parties to perform; labour disputes and other risks of the mining industry; delays in obtaining governmental approvals, financing or in the completion of exploration, as well as those factors discussed in the section entitled "Risk Factors" in the Company's Amended Annual Information Form for the year ended December 31, 2010 dated May 12, 2011 (amended June 7, 2011), which is available under Pilot Gold's SEDAR profile at www.sedar.com.
Although Pilot Gold has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Pilot Gold disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. Accordingly, readers should not place undue reliance on forward-looking information.
Forward-looking statements are made as of the date hereof and accordingly are subject to change after such date. Except as otherwise indicated by Pilot Gold, these statements do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans and allowing investors and others to get a better understanding of our operating environment. Pilot Gold does not undertake to update any forward-looking statements that are included in this document, except in accordance with applicable securities laws.
Contacts: Pilot Gold Inc. Matt Lennox-King President & CEO 604-632-4677 or Toll Free: 1-877-632-4677 Pilot Gold Inc. Patrick Reid VP Corporate Affairs 604-632-4677 or Toll Free: 1-877-632-4677 info@pilotgold.com www.pilotgold.com
Source: Pilot Gold Inc.
TORONTO, ONTARIO -- (MARKET WIRE) -- 02/10/12 -- Evton Capital Partners, managers of Evton Real Estate Fund LP, today announced it has completed the acquisition of 2540-2570 Matheson Boulevard in Mississauga's Airport Corporate Centre.
"We are very excited about the prospects for this asset" said D'Arcy McGee, President of Evton Capital Partners. "We see considerable potential in this property through the execution of a condominium sales program, similar to the success we achieved at 2600 Skymark Avenue. We also see the opportunity for capital improvements which will make the property more attractive to tenants and investors alike. This acquisition is in line with our continued, proven strategy of purchasing value-add B-class assets in Southern Ontario that contribute to the growth of our investor's capital within the Fund".
The 125,650 square foot property is located within the prestigious Airport Corporate Centre. The complex is surrounded by office, industrial, and retail uses, and is a short distance from the future interregional Bus Rapid Transit (BRT) corridor. The complex is ideally located just minutes from highways 401, 403, 410 and 427 providing easy access for tenants.
About Evton Capital Partners
Evton Capital Partners is a commercial real estate investment and property management firm based in Toronto. Since its inception in 1995, the company has completed 32 acquisitions representing approximately $150 million in invested capital in Ontario and Alberta, with a gross internal rate of return of 31% on realized and unrealized investments. Evton is focused on acquiring private Canadian real estate investment opportunities for institutional and high-net- worth investors.
Contacts: Evton Capital Partners Chris Gibson 416-513-0356 cgibson@evton.com
Source: Evton Capital Partners
PRINCETON, N.J., Feb. 10, 2012 /PRNewswire/ -- Soligenix, Inc. (OTCBB: SNGXD) (Soligenix or the Company), a development stage biopharmaceutical company, announced preliminary results today from a Phase 1/2 clinical trial evaluating SGX201, a time-release formulation of oral beclomethasone 17,21-dipropionate (oral BDP), for the prevention of acute radiation enteritis.
The Phase 1/2 protocol BDP-ENT-01 was designed as an open label, randomized, dose-finding study at five centers. Sixteen patients with rectal cancer scheduled to undergo concurrent radiation and chemotherapy prior to surgery were enrolled in one of four dose groups, with dosing administered throughout the duration of radiation therapy plus one week. The primary objective of the study was to evaluate the safety and tolerability of escalating doses of SGX201, as well as to assess the preliminary efficacy of SGX201 for prevention of signs and symptoms of acute radiation enteritis. The study was supported in large part by a two-year Small Business Innovation Research (SBIR) grant award from the National Cancer Institute (NCI), which provided Soligenix with approximately $510,000.
The study demonstrated that oral administration of SGX201 was safe and well tolerated across all four dose groups. There was also evidence of a potential dose response with respect to diarrhea, nausea and vomiting and the assessment of enteritis according to NCI Common Terminology Criteria for Adverse Events for selected gastrointestinal events. In addition, the incidence of diarrhea was lower than that seen in recent published historical control data in this patient population.
"This clinical trial in radiation enteritis with SGX201 provided encouraging exploratory data, which we will be submitting for publication," stated Kevin Horgan, MD, Chief Medical Officer of Soligenix. "Though the numbers are small, the low incidence of diarrhea relative to other similar studies was notable. These findings appear to be consistent with the potential for SGX201 having efficacy for this disorder for which there is currently no available therapy."
"Radiation enteritis is a serious complication for colorectal cancer patients receiving radiation therapy that impacts their quality of life and can require treatment modification," stated William Small, Jr., MD, FACRO, FACR, FASTRO Professor and Vice Chairman, Department of Radiation Oncology, Associate Medical Director, Robert H. Lurie Comprehensive Cancer Center of Northwestern University Feinberg School of Medicine, and a Principal Investigator for the Phase 1/2 clinical study. "Based on oral BDP's proven pharmacology in treating severe gastrointestinal inflammation, SGX201 represents a potential prophylactic option that would enable physicians/patients to maintain planned treatment regimens to battle the underlying malignancy. I find these exploratory data encouraging and I look forward to continuing to work with Soligenix on the continued development of SGX201 in this area of great unmet medical need."
About Acute Radiation Enteritis
Acute radiation enteritis is caused by radiation-induced death of cells in the lining of the bowel. As bowel cells die and are not replaced, gastrointestinal toxicity develops due to an inflammatory response to dead cells and bacteria, with diarrhea, nausea, vomiting and pain prominent symptoms. The addition of chemotherapy may exacerbate the intestinal symptoms and itself cause significant toxicity. This treatment-related enteritis can result in delay or interruption of the cancer treatment. There are over 100,000 patients annually in the United States who receive abdominal or pelvic external beam radiation treatment for cancer, and these patients are at risk of developing radiation enteritis.
About SGX201
SGX201 is a time-release, oral formulation of BDP, a highly potent, topically active corticosteroid that has a local effect on inflamed tissue. BDP has been marketed in the United States and worldwide since the early 1970s as the active pharmaceutical ingredient in inhalation products for the treatment of patients with allergic rhinitis and asthma. SGX201 has been awarded fast-track designation from the FDA for the prevention of radiation enteritis. Fast-track designation is designed to facilitate the development and expedite the review of new drugs intended to treat serious or life threatening conditions that are also unmet medical needs.
About Soligenix, Inc.
Soligenix is a development stage biopharmaceutical company developing products to treat life-threatening side effects of cancer treatments and serious gastrointestinal diseases, and vaccines for certain bioterrorism agents. Soligenix's lead product, orBec® (oral beclomethasone dipropionate), is a potent, locally acting corticosteroid that has been initially developed for the treatment of acute gastrointestinal Graft-versus-Host disease (GI GVHD), a common and potentially life-threatening complication of hematopoietic cell transplantation. Soligenix is also conducting a National Cancer Institute (NCI)-supported Phase 1/2 clinical trial of SGX201 in the prevention of acute radiation enteritis. Additionally, Soligenix is developing SGX203 for the treatment of pediatric Crohn's disease.
Through its Biodefense Division, Soligenix is developing countermeasures pursuant to the Project BioShield Act of 2004. Soligenix's biodefense products in development are a recombinant subunit vaccine called RiVax™, which is designed to protect against the lethal effects of exposure to ricin toxin and SGX204, a vaccine against anthrax exposure. RiVax™ has been shown to be well tolerated and immunogenic in a Phase 1 clinical trial in normal volunteers. RiVax™ and SGX204 are currently the subject of a $9.4 million National Institute of Allergy and Infectious Disease (NIAID) grant supporting development of new heat stable vaccines. Soligenix is also developing SGX202 for the treatment of gastrointestinal acute radiation syndrome (GI ARS) and has demonstrated positive preliminary preclinical results in a canine GI ARS model.
For further information regarding Soligenix, Inc., please visit the Company's website at www.soligenix.com.
This press release contains forward-looking statements that reflect Soligenix, Inc.'s current expectations about its future results, performance, prospects and opportunities. Statements that are not historical facts, such as "anticipates," "believes," "intends," or similar expressions, are forward-looking statements. These statements are subject to a number of risks, uncertainties and other factors that could cause actual events or results in future periods to differ materially from what is expressed in, or implied by, these statements. Soligenix cannot assure you that it will be able to successfully develop or commercialize products based on its technology, including orBec®, SGX201, SGX202, SGX203, SGX204, RiVax™, and LPM™, particularly in light of the significant uncertainty inherent in developing vaccines against bioterror threats, manufacturing and conducting preclinical and clinical trials of vaccines, and obtaining regulatory approvals, that its cash expenditures will not exceed projected levels, that product development and commercialization efforts will not be reduced or discontinued due to difficulties or delays in clinical trials or due to lack of progress or positive results from research and development efforts, that it will be able to successfully obtain any further grants and awards, maintain its existing grants which are subject to performance, enter into any biodefense procurement contracts with the US Government or other countries, that the US Congress may not pass any legislation that would provide additional funding for the Project BioShield program, that it will be able to patent, register or protect its technology from challenge and products from competition or maintain or expand its license agreements with its current licensors, or that its business strategy will be successful. Important factors which may affect the future use of orBec® for gastrointestinal GVHD include the Data Safety Monitoring Board's recent determination disclosed in our Form 8-K dated September 15, 2011 recommending that Soligenix stop its confirmatory Phase 3 clinical trial of orBec® in acute GI GVHD and the likelihood that: the FDA will require that Soligenix conduct additional clinical trials to demonstrate the safety and efficacy of orBec® which will take a significant amount of time and money to complete and positive results leading to regulatory approval cannot be assumed; Soligenix is dependent on the expertise, effort, priorities and contractual obligations of third parties in the clinical trials, manufacturing, marketing, sales and distribution of its products; orBec® may not gain market acceptance if it is eventually approved by the FDA; and others may develop technologies or products superior to orBec®. Factors affecting the development and use of SGX201, SGX202, SGX203, SGX204, RiVax™ and LPM™ are similar to those affecting orBec®. These and other factors are described from time to time in filings with the Securities and Exchange Commission, including, but not limited to, Soligenix's reports on Forms 10-Q and 10-K. Unless required by law, Soligenix assumes no obligation to update or revise any forward-looking statements as a result of new information or future events.
SOURCE Soligenix, Inc.
CALGARY, ALBERTA--(Marketwire - Feb. 10, 2012) - Computer Modelling Group Ltd. ("CMG" or the "Company") (TSX: CMG) is very pleased to announce our third quarter results for the three and nine months ended December 31, 2011.
THIRD QUARTER HIGHLIGHTS
For the three months ended December 31, 2011 2010 $ change % change
($ thousands, except per share data)
----------------------------------------------------------------------------
Annuity/maintenance software licenses 12,056 7,999 4,057 51%
Perpetual software licenses 2,321 2,335 (14) -1%
Total revenue 15,898 12,063 3,835 32%
Operating profit 8,093 5,516 2,577 47%
Net income 5,790 3,563 2,227 63%
Earnings per share - basic 0.16 0.10 0.06 60%
----------------------------------------------------------------------------
For the nine months ended December 31, 2011 2010 $ change % change
($ thousands, except per share data)
----------------------------------------------------------------------------
Annuity/maintenance software licenses 30,361 24,178 6,183 26%
Perpetual software licenses 9,308 7,134 2,174 30%
Total revenue 43,819 37,449 6,370 17%
Operating profit 22,411 18,145 4,266 24%
Net income 16,771 12,358 4,413 36%
Earnings per share - basic 0.46 0.34 0.12 35%
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MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our"), presented as at February 9, 2012, should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of the Company for the three and nine months ended December 31, 2011 and the audited consolidated financial statements and MD&A for the years ended March 31, 2011 and 2010 contained in the 2011 Annual report for CMG. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars and rounded to the nearest thousand.
Effective on the close of business on June 20, 2011, CMG's Common Shares were split on a two-for-one basis. Accordingly, all comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one split.
FORWARD-LOOKING INFORMATION
Certain information included in this MD&A is forward-looking. Forward-looking information includes statements that are not statements of historical fact and which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as investment objectives and strategy, the development plans and status of the Company's software development projects, the Company's intentions, results of operations, levels of activity, future capital and other expenditures (including the amount, nature and sources of funding thereof), business prospects and opportunities, research and development timetable, and future growth and performance. When used in this MD&A, statements to the effect that the Company or its management "believes", "expects", "expected", "plans", "may", "will", "projects", "anticipates", "estimates", "would", "could", "should", "endeavours", "seeks", "predicts" or "intends" or similar statements, including "potential", "opportunity", "target" or other variations thereof that are not statements of historical fact should be construed as forward-looking information. These statements reflect management's current beliefs with respect to future events and are based on information currently available to management of the Company. The Company believes that the expectations reflected in such forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.
With respect to forward-looking information contained in this MD&A, we have made assumptions regarding, among other things:
-- Future software license sales
-- The continued financing by and participation of the Company's partners
in the DRMS project and it being completed in a timely manner
-- Ability to enter into additional software license agreements
-- Ability to continue current research and new product development
-- Ability to recruit and retain qualified staff
Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties, only some of which are described herein. Many factors could cause the Company's actual results, performance or achievements, or future events or developments, to differ materially from those expressed or implied by the forward-looking information including, without limitation, the following factors which are described in the MD&A of CMG's 2011 Annual Report under the heading "Business Risks":
-- Economic conditions in the oil and gas industry
-- Reliance on key clients
-- Foreign exchange
-- Economic and political risks in countries where the Company currently
does or proposes to do business
-- Increased competition
-- Reliance on employees with specialized skills or knowledge
-- Protection of proprietary rights
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievement may vary materially from those expressed or implied by the forward-looking information contained in this MD&A. These factors should be carefully considered and readers are cautioned not to place undue reliance on forward-looking information, which speaks only as of the date of this MD&A. All subsequent forward-looking information attributable to the Company herein is expressly qualified in its entirety by the cautionary statements contained in or referred to herein. The Company does not undertake any obligation to release publicly any revisions to forward-looking information contained in this MD&A to reflect events or circumstances that occur after the date of this MD&A or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.
NON-IFRS FINANCIAL MEASURES
This MD&A contains the terms "direct employee costs" and "other corporate costs" which are not measures defined by IFRS, do not have standardized meaning prescribed by IFRS and should not be considered an alternative to expenses as determined in accordance with IFRS. Direct employee costs and other corporate costs, as computed by CMG, may differ from similar measures as reported by other issuers. These non-IFRS measures are presented in this MD&A because management considers them to be important in highlighting the quantitative impact of cost management as it relates to corporate and people-related costs. The items constituting direct employee costs are outlined in the table under the "Expenses" heading.
CORPORATE PROFILE
CMG is a computer software technology company serving the oil and gas industry. The Company is a leading supplier of advanced processes reservoir modelling software with a blue chip client base of international oil companies and technology centers in approximately 50 countries. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities. CMG has sales and technical support services based in Calgary, Houston, London, Caracas and Dubai. CMG's Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG".
QUARTERLY PERFORMANCE
Fiscal 2010(1) Fiscal 2011(2)
($ thousands, unless
otherwise stated) Q4 Q1 Q2 Q3 Q4
----------------------------------------------------------------------------
Annuity/maintenance licenses 7,653 8,325 7,855 7,999 8,531
Perpetual licenses 4,982 1,824 2,975 2,335 3,911
----------------------------------------------------------------------------
Software licenses 12,635 10,149 10,830 10,333 12,442
Professional services 1,657 1,905 2,502 1,730 1,936
----------------------------------------------------------------------------
Total revenue 14,292 12,054 13,332 12,063 14,378
Operating profit 7,844 5,933 6,695 5,516 7,523
Operating profit % 55 49 50 46 52
Profit before income and
other taxes 7,710 6,178 6,565 5,278 7,413
Income and other taxes 2,350 1,949 1,999 1,715 2,605
Net income for the period 5,360 4,229 4,565 3,563 4,808
Cash dividends declared and
paid 3,209 6,274 3,430 3,623 3,643
----------------------------------------------------------------------------
Per share amounts - ($/share)
Earnings per share - basic 0.15 0.12 0.13 0.10 0.13
Earnings per share - diluted 0.15 0.12 0.13 0.10 0.13
Cash dividends declared and
paid 0.09 0.175 0.095 0.10 0.10
----------------------------------------------------------------------------
Fiscal 2012(3)
($ thousands, unless
otherwise stated) Q1 Q2 Q3
----------------------------------------------------------------------------
Annuity/maintenance licenses 8,997 9,308 12,056
Perpetual licenses 5,391 1,596 2,321
----------------------------------------------------------------------------
Software licenses 14,388 10,904 14,377
Professional services 1,551 1,078 1,521
----------------------------------------------------------------------------
Total revenue 15,939 11,982 15,898
Operating profit 9,092 5,226 8,093
Operating profit % 57 44 51
Profit before income and
other taxes 9,240 6,096 8,184
Income and other taxes 2,577 1,778 2,394
Net income for the period 6,663 4,318 5,790
Cash dividends declared and
paid 7,519 4,053 4,079
----------------------------------------------------------------------------
Per share amounts - ($/share)
Earnings per share - basic 0.18 0.12 0.16
Earnings per share - diluted 0.18 0.11 0.15
Cash dividends declared and
paid 0.205 0.11 0.11
----------------------------------------------------------------------------
1. Q4 of fiscal 2010 includes $0.4 million in revenue that pertains to
usage of CMG's products in prior quarters.
2. Q1, Q2, Q3 and Q4 of fiscal 2011 include $1.1 million, $0.2 million,
$0.3 million and $0.1 million, respectively, in revenue that pertains to
usage of CMG's products in prior quarters.
3. Q1, Q2, and Q3 of fiscal 2012 include $0.3 million, $0.04 million and
$2.6 million, respectively, in revenue that pertains to usage of CMG's
products in prior quarters.
Note: all quarterly data contained in the above table has been prepared in accordance with IFRS.
Highlights
During the nine months ended December 31, 2011, as compared to the same period of prior fiscal year, CMG:
-- Increased annuity/maintenance revenue by 26%; -- Increased perpetual sales by 30%; -- Increased net income by 36%; -- Increased gross spending on research and development by 12%; -- Realized earnings per share of $0.46, representing a 35% increase.
Revenue
For the three months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 14,377 10,333 4,044 39% Professional services 1,521 1,730 (209) -12% ---------------------------------------------------------------------------- Total revenue 15,898 12,063 3,835 32% ---------------------------------------------------------------------------- Software license revenue - % of total revenue 90% 86% Professional services - % of total revenue 10% 14% ---------------------------------------------------------------------------- For the nine months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 39,669 31,312 8,357 27% Professional services 4,150 6,137 (1,987) -32% ---------------------------------------------------------------------------- Total revenue 43,819 37,449 6,370 17% ---------------------------------------------------------------------------- Software license revenue - % of total revenue 91% 84% Professional services - % of total revenue 9% 16% ----------------------------------------------------------------------------
CMG's revenue is comprised of software license sales, which provide the majority of the Company's revenue, and fees for professional services.
Total revenue increased by 32% and 17% for the three and nine months ended December 31, 2011, respectively, due to increases in both our annuity/maintenance and perpetual license revenue streams. The increases in software licenses revenue were partially offset by the decreases in fees earned from professional services.
SOFTWARE LICENSE REVENUE
Software license revenue is made up 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 the majority of its customers who have acquired perpetual software licenses subsequently purchase maintenance licenses to ensure they have access to current versions of CMG's software.
For the three months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 12,056 7,999 4,057 51% Perpetual licenses 2,321 2,335 (14) -1% ---------------------------------------------------------------------------- Total software license revenue 14,377 10,333 4,044 39% ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 84% 77% Perpetual as a % of total software license revenue 16% 23% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the nine months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 30,361 24,178 6,183 26% Perpetual licenses 9,308 7,134 2,174 30% ---------------------------------------------------------------------------- Total software license revenue 39,669 31,312 8,357 27% ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 77% 77% Perpetual as a % of total software license revenue 23% 23% ----------------------------------------------------------------------------
Total software license revenue increased by 39% and 27% during the three and nine months ended December 31, 2011, respectively, compared to the same periods of the previous fiscal year. The increase in our quarterly total software license revenue was driven by the increase in annuity/maintenance license sales. Our year-to-date increase in total software license revenue was supported by growth in both annuity/maintenance and perpetual license sales.
CMG's annuity/maintenance license revenue increased by 51% and 26% during the three and nine months ended December 31, 2011, respectively, compared to the same periods of last year. While we have seen strong growth in these license sales throughout the year, the significant contributor to the increase in the quarterly revenue, which also had a positive impact on the year-to-date revenue growth, is a payment received from one of our large customers for whom revenue recognition criteria are fulfilled only at the time of the receipt of funds. The payment was received for the licenses and services provided in past periods (see the discussion about revenue earned in the current period that pertains to usage of products in prior quarters above the "Quarterly Software License Revenue" graph). Payments from this customer have at times been irregular, with the last payment having been received in Q1 2011, which is reflected in our year-to-date comparative numbers. The payment received in the current quarter represents the initial payment for a multi-year arrangement with this long-standing client. We expect to continue to receive payments under this arrangement, however, the amount and timing is uncertain and, accordingly, may introduce some variability in our quarterly revenue results.
If we were to adjust our quarterly and year-to-date annuity/maintenance licenses revenue, by removing revenue from this one customer for the current and prior fiscal year, we would see that the annuity/maintenance license sales have grown by 19% and 20% in the three and nine months ended December 31, 2011, respectively, compared to the same periods of the previous fiscal year. These increases were driven by sales to new and existing clients as well as the increase in maintenance revenue tied to our strong perpetual sales generated in the previous quarters. Our annuity/maintenance license revenue, representing a recurring revenue stream, continues experiencing steady growth quarter over quarter as evidenced by consecutive quarterly increases in this revenue stream over the past several fiscal years.
The increase in annuity/maintenance revenue as measured in Canadian dollars has been negatively affected by the strengthening of the Canadian dollar relative to the US dollar in the current fiscal year. The table below illustrates revenue generated in US dollars and the rates at which it was converted into Canadian dollars to show the movement in US dollar denominated revenue without the impact of the foreign exchange. Had the exchange rate between the US and Canadian dollars remained constant between the three and nine months ended December 31, 2011 and 2010, our third quarter annuity/maintenance revenue would have increased by 56% (instead of 51%) and our year-to-date annuity/maintenance revenue would have increased by 30% (instead of 26%).
Our perpetual license sales for the three months ended December 31, 2011, were virtually unchanged from the same period of the previous fiscal year, whereas, they increased by 30% for the nine months ended December 31, 2011, compared to the same period of the previous fiscal year. The year-to-date increase is driven by a multi-million perpetual contract closed in the first quarter of the current fiscal year. Software licensing under perpetual sales is a significant part of CMG's business, but may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. For this reason, we expect to observe fluctuations in the quarterly perpetual revenue amounts throughout the fiscal year.
We can observe from the table below that our year-to-date perpetual sales in US dollars were negatively affected by the foreign exchange movement between the US and Canadian dollars as a result of the strengthening Canadian dollar in the current fiscal year. Had the exchange rate between the US and Canadian dollars remained constant between the nine months ended December 31, 2011 and 2010, our year-to-date perpetual license revenue would have increased by 39% (instead of 30%). The foreign exchange rates had a minimum impact on our quarterly perpetual sales.
The following table summarizes the US dollar denominated revenue and the weighted average exchange rates at which it was converted to Canadian dollars:
For the three months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- US dollar annuity/maintenance license sales US$ 8,711 US$ 5,161 3,550 69% Weighted average conversion rate 0.992 1.044 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 8,643 CDN$ 5,389 3,254 60% ---------------------------------------------------------------------------- US dollar perpetual license sales US$ 1,866 US$ 1,883 (17) -1% Weighted average conversion rate 1.019 1.025 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 1,902 CDN$ 1,930 (28) -1% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the nine months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- US dollar annuity/maintenance license sales US$ 20,160 US$ 15,907 4,253 27% Weighted average conversion rate 0.993 1.049 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 20,020 CDN$ 16,683 3,337 20% ---------------------------------------------------------------------------- US dollar perpetual license sales US$ 9,144 US$ 4,618 4,526 98% Weighted average conversion rate 0.969 1.036 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 8,857 CDN$ 4,784 4,073 85% ----------------------------------------------------------------------------
REVENUE BY GEOGRAPHIC SEGMENT
For the three months ended December 31, 2011 2010 $ change % change
($ thousands)
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Annuity/maintenance revenue
Canada 4,007 2,859 1,148 40%
United States 2,139 1,779 360 20%
Other 5,910 3,361 2,549 76%
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12,056 7,999 4,057 51%
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Perpetual revenue
Canada 420 405 15 4%
United States 390 248 142 57%
Other 1,511 1,682 (171) -10%
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2,321 2,335 (14) -1%
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Total software license revenue
Canada 4,427 3,264 1,163 36%
United States 2,529 2,026 503 25%
Other 7,421 5,043 2,378 47%
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14,377 10,333 4,044 39%
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For the nine months ended December 31, 2011 2010 $ change % change
($ thousands)
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Annuity/maintenance revenue
Canada 11,648 8,013 3,635 45%
United States 6,191 5,184 1,007 19%
Other 12,522 10,981 1,541 14%
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30,361 24,178 6,183 26%
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Perpetual revenue
Canada 452 2,350 (1,898) -81%
United States 992 1,262 (270) -21%
Other 7,864 3,522 4,342 123%
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9,308 7,134 2,174 30%
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Total software license revenue
Canada 12,100 10,363 1,737 17%
United States 7,183 6,446 737 11%
Other 20,386 14,503 5,883 41%
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39,669 31,312 8,357 27%
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On a geographic basis, total software license sales increased across all regions with Canada and the United States experiencing increases of 17% and 11%, respectively, for the nine months ended December 31, 2011 compared to the same periods of previous fiscal year. This growth has been led by the increases in annuity/maintenance revenue stream. Our other markets grew total software license revenue by 41% in the nine months ended December 31, 2011 compared to the same period of previous fiscal year, driven mainly by the increase in perpetual sales.
The Canadian market experienced strong growth in the recurring annuity/maintenance revenue stream as evidenced by the increases of 40% and 45% for the three and nine months ended December 31, 2011 compared to the same periods of the previous fiscal year. The increases in the annuity revenue stream were supported by the increase in sales to both existing and new clients. In addition, strong perpetual license sales generated in the past have enabled the Canadian market to maintain increased revenue levels from the maintenance contracts tied to those perpetual licenses. On the other hand, perpetual sales during the current fiscal year did not reach the same levels of the perpetual sales made during the previous fiscal year, offsetting the increase in year-to-date annuity/maintenance revenue.
Similar to the Canadian market, the US market also experienced growth in annuity/maintenance revenue with the increases of 20% and 19% recorded for the three and nine months ended December 31, 2011 compared to the same periods of the previous fiscal year. While perpetual revenue grew by $0.1 million in the three months ended December 31, 2011, it decreased by $0.3 million for the nine months ended December 31, 2011 offsetting the growth in year-to-date annuity/maintenance revenue.
Other markets experienced increases of 76% and 14% in annuity/maintenance revenue stream for the three and nine months ended December 31, 2011, respectively, compared to the same periods of the previous fiscal year. The growth in quarterly annuity/maintenance revenue occurred solely due to inclusion of the payment for the contract for which revenue is recognized on a cash basis (see more detailed discussion under "Software License Revenue"). On a year-to-date basis, the effect of the inclusion of this significant amount during the current quarter is somewhat mitigated by the similar inclusion of a significant amount on the same contract in Q1 of the previous fiscal year.
While the perpetual sales in other markets decreased only slightly during three months ended December 31, 2011, they increased by 123% on a year-to-date basis driven solely by the large perpetual sale made during the first quarter of the current fiscal year. In addition to closing one significant contract, we have seen a general increase in the number of perpetual license sales made to other markets.
The movements in perpetual sales across the regions are indicative of the unpredictable nature of the timing and location of perpetual license sales. Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions.
The increases in US-dollar generated revenue from the US and other markets have been negatively affected by the strengthening Canadian dollar compared to the US dollar during the nine months ended December 31, 2011.
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.
DEFERRED REVENUE
2011 2010 $ change % change
($ thousands)
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Deferred revenue at:
March 31 16,755 13,843 2,912 21%
June 30 15,326 12,496 2,830 23%
September 30 14,600 12,658 1,942 15%
December 31 14,746 11,892 2,854 24%
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CMG's deferred revenue consists primarily of amounts for pre-sold licenses. Our 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. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time.
The increase in deferred revenue year over year as at December 31, September 30, June 30 and March 31 is reflective of the growth in annuity/maintenance license sales. The variation within a year is due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year which explains the general trend of declining deferred revenue balance from March 31 to December 31. Deferred revenue at December 31, 2011 increased compared to the same period of prior fiscal year due to both renewal of the existing and signing of the new software licenses and maintenance contracts in the quarter. Our deferred revenue balance continues to grow at a steady pace as demonstrated in the table above by the consecutive quarterly double-digit growth experienced during the current fiscal year.
PROFESSIONAL SERVICES REVENUE
CMG recorded professional services revenue of $1.5 million and $4.2 million for the three and nine months ended December 31, 2011, respectively, representing decreases of $0.2 million and $2.0 million from the amounts recorded for the same periods of previous fiscal year. CMG had been engaged in a few large projects in the previous fiscal year, which are either complete or continue on a smaller scale in the current fiscal year, causing the majority of the decrease in the quarterly and year-to-date professional services revenue. Additionally, the funding commitment for the DRMS project received from the CMG Reservoir Simulation Foundation ("Foundation CMG") was fulfilled in the first quarter of the current fiscal year further contributing to the decrease in the professional services revenue. Refer to the discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."
Professional services revenue consists of specialized consulting, training, and contract research activities. 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 December 31, 2011, approximately $0.08 million (2010 - $0.5 million) is included in deferred revenue relating to professional services.
Expenses
For the three months ended December 31, 2011 2010 $ change % change
($ thousands)
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Sales, marketing and professional services 3,536 2,836 700 25%
Research and development 2,747 2,408 339 14%
General and administrative 1,522 1,303 219 17%
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Total operating expenses 7,805 6,547 1,258 19%
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Direct employee costs(i) 6,063 5,022 1,041 21%
Other corporate costs 1,742 1,525 217 14%
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7,805 6,547 1,258 19%
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For the nine months ended December 31, 2011 2010 $ change % change
($ thousands)
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Sales, marketing and professional
services 9,703 8,704 999 11%
Research and development 7,635 6,941 694 10%
General and administrative 4,070 3,659 411 11%
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Total operating expenses 21,408 19,304 2,104 11%
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Direct employee costs(i) 17,028 14,845 2,183 15%
Other corporate costs 4,380 4,459 (79) -2%
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21,408 19,304 2,104 11%
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(i)Includes salaries, bonuses, stock-based compensation, benefits and commissions.
CMG's total operating expenses increased by 19% and 11% for the three and nine months ended December 31, 2011, respectively, compared to the same periods of previous fiscal year mainly as a result of an increase in direct employee costs. While other corporate costs increased during the quarter, they remained relatively consistent on a year-to-date basis.
DIRECT EMPLOYEE COSTS
As a technology company, CMG's largest area of expenditure is for its people. Approximately 80% of the total operating expenses in the nine months ended December 31, 2011 related to staff costs compared to 77% recorded in the comparative period of last year. Staffing levels for the first nine months of the current fiscal year grew in comparison to the same period of previous fiscal year to support our continued growth. At December 31, 2011, CMG's staff complement was 148 employees, up from 131 employees as at December 31, 2010. Direct employee costs increased during the three and nine months ended December 31, 2011 compared to the same period of previous fiscal year, due to staff additions, increased levels of compensation, commissions and related benefits.
OTHER CORPORATE COSTS
Other corporate costs increased by 14% for the three months ended December 31, 2011 compared to the same period of previous fiscal year, due to incurring promotional, marketing and other expenses associated with the Society of Petroleum Engineers' Annual Technical Conference and Exhibition which took place in the third quarter of the current fiscal year and the second quarter of the previous fiscal year, and due to inclusion of the costs associated with the expansion of our office space at the end of calendar 2011.
Other corporate costs decreased slightly for the nine months ended December 31, 2011 compared to the same period of previous fiscal year mainly as a result of the inclusion of the expenses associated with CMG's biennial technical symposium in the second quarter of the previous fiscal year which is offset by the increase in the costs associated with the expanded office space. RESEARCH AND DEVELOPMENT For the three months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 3,104 2,658 446 17% SR&ED credits (357) (250) (107) 43% ---------------------------------------------------------------------------- Research and development 2,747 2,408 339 14% ---------------------------------------------------------------------------- Research and development as a % of total revenue 17% 20% ---------------------------------------------------------------------------- For the nine months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 8,656 7,709 947 12% SR&ED credits (1,021) (768) (253) 33% ---------------------------------------------------------------------------- Research and development 7,635 6,941 694 10% ---------------------------------------------------------------------------- Research and development as a % of total revenue 17% 19% ----------------------------------------------------------------------------
CMG maintains its belief that its strategy of growing long-term value for shareholders can only be achieved through continued investment in research and development. CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes.
The above research and development includes CMG's proportionate share of joint research and development costs on the DRMS system development of $0.6 million and $2.0 million for the three and nine months ended December 31, 2011, respectively, (2010 - $0.6 million and $2.0 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."
The increases of 17% and 12% in our gross spending on research and development for the three and nine months ended December 31, 2011, respectively, demonstrate our continued commitment to advancement of our technology. Research and development costs, net of research and experimental development ("SR&ED") credits, increased by 14% and 10% during the three and nine months ended December 31, 2011, respectively, compared to the same periods of previous fiscal year mainly due to increased employee-related costs. At the same time, we had an increase in SR&ED credits driven by the increases in our direct employee costs as well as the increase in the eligibility of our expenses for SR&ED credits as a direct result of the completion of the grant received from Foundation CMG which had been netted against our research and development expenses for purposes of calculating SR&ED credits. The funding commitment associated with this grant was fulfilled in the first quarter of the current fiscal year. Refer to the discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."
DEPRECIATION AND AMORTIZATION
For the three months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 118 76 42 55% Research and development 145 131 14 11% General and administrative 58 66 (8) -12% ---------------------------------------------------------------------------- Total depreciation and amortization 321 273 48 18% ---------------------------------------------------------------------------- For the nine months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 305 220 85 39% Research and development 383 344 39 11% General and administrative 189 187 2 1% ---------------------------------------------------------------------------- Total depreciation and amortization 877 751 126 17% ---------------------------------------------------------------------------- The quarterly and year-to-date increases in depreciation and amortization reflect the increase in our asset base, mainly as a result of increased spending on computing resources and expansion of the office space at the end of Q3 2012. FINANCE INCOME AND COSTS For the three months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Interest income 123 91 32 35% Foreign exchange gain - - - - ---------------------------------------------------------------------------- Finance income 123 91 32 35% ---------------------------------------------------------------------------- Finance costs (represented by foreign exchange loss) (32) (329) 297 -90% ----------------------------------------------------------------------------
For the nine months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Interest income 341 179 162 91% Foreign exchange gain 768 - 768 - ---------------------------------------------------------------------------- Finance income 1,109 179 930 520% ---------------------------------------------------------------------------- Finance costs (represented by foreign exchange loss) - (303) 303 - ----------------------------------------------------------------------------
Interest income increased in the three and nine months ended December 31, 2011, compared to the same periods of the prior fiscal year, due to slight improvement in interest rates and investing larger cash balances.
CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 72% (2010 - 67%) of CMG's revenue for the nine months ended December 31, 2011 is denominated in US dollars, whereas only approximately 23% (2010 - 24%) of CMG's total costs are denominated in US dollars.
Nine month
CDN$ to US$ At June 30 At September 30 At December 31 trailing average
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2009 0.8602 0.9327 0.9555 0.9108
2010 0.9429 0.9711 1.0054 0.9697
2011 1.0370 0.9626 0.9833 1.0132
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CMG recorded a foreign exchange loss of $0.03 million and a foreign exchange gain of $0.8 million for the three and nine months ended December 31, 2011, respectively, compared to a $0.3 million foreign exchange loss recorded in the three and nine months ended December 31, 2010.
The weakening of the Canadian dollar in the current quarter, along with a significant fluctuation in the exchange rates between the Canadian and the US dollars during the first nine months of the current fiscal year, have contributed positively to the valuation of our US-denominated working capital, hence, contributing to the foreign exchange gain in the current fiscal year-to-date.
INCOME AND OTHER TAXES
CMG's effective tax rate for the nine months ended December 31, 2011 is reflected as 28.69% (2010 - 31.42%), whereas the prevailing Canadian statutory tax rate is now 26.13%. 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 deferred 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 non-current deferred tax liability and then, in the following fiscal year, is transferred to income taxes payable.
Operating Profit and Net Income
For the three months ended December 31, 2011 2010 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- Total revenue 15,898 12,063 3,835 32% Operating expenses (7,805) (6,547) (1,258) 19% ---------------------------------------------------------------------------- Operating profit 8,093 5,516 2,577 47% Operating profit as a % of total revenue 51% 46% ---------------------------------------------------------------------------- Net income for the period 5,790 3,563 2,227 63% Net income for the period as a % of total revenue 36% 30% ---------------------------------------------------------------------------- Earnings per share ($/share) 0.16 0.10 0.06 60% ---------------------------------------------------------------------------- For the nine months ended December 31, 2011 2010 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- Total revenue 43,819 37,449 6,370 17% Operating expenses (21,408) (19,304) (2,104) 11% ---------------------------------------------------------------------------- Operating profit 22,411 18,145 4,266 24% Operating profit as a % of total revenue 51% 48% ---------------------------------------------------------------------------- Net income for the period 16,771 12,358 4,413 36% Net income for the period as a % of total revenue 38% 33% ---------------------------------------------------------------------------- Earnings per share ($/share) 0.46 0.34 0.12 35% ----------------------------------------------------------------------------
Operating profit as a percentage of total revenue increased to 51% for the three and nine months ended December 31, 2011, compared to 46% and 48% recorded in the same periods of the previous fiscal year, as a result of the increase in our total revenue driven by the increases in our software licenses revenue, and effective management of our corporate costs.
Net income for the period as a percentage of revenue increased to 36% and 38% for the three and nine months ended December 31, 2011, respectively, compared to 30% and 33% recorded in the same periods of previous fiscal year mainly as a result of the positive effect of the changes in foreign exchange rates recorded in the current fiscal year compared to the previous fiscal year and incurring less tax expenses as a result of lower withholding taxes and lower statutory tax rate.
Liquidity and Capital Resources
For the three months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Cash, beginning of period 43,310 32,565 10,745 33% Cash flow from (used in) Operating activities 7,511 8,378 (867) -10% Financing activities (2,404) (2,669) 265 -10% Investing activities (802) (262) (540) 206% ---------------------------------------------------------------------------- Cash, end of period 47,615 38,012 9,603 25% ---------------------------------------------------------------------------- For the nine months ended December 31, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Cash, beginning of period 41,753 28,826 12,927 45% Cash flow from (used in) Operating activities 18,673 20,465 (1,792) -9% Financing activities (11,745) (10,344) (1,401) 14% Investing activities (1,066) (935) (131) 14% ---------------------------------------------------------------------------- Cash, end of period 47,615 38,012 9,603 25% ----------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash flow generated from operating activities decreased by $0.9 million and $1.8 million in the three and nine months ended December 31, 2011, respectively, compared to the same periods of last year, due to the timing differences when the sales are made and when the resulting receivables are collected, net impact of changes in income taxes payable, trade payables and deferred revenue balance.
FINANCING ACTIVITIES
Cash used in financing activities during the three months ended December 31, 2011 decreased by $0.3 million compared to the same period of last year, as a result of recording more cash proceeds from options being exercised. Cash used in financing activities during the nine months ended December 31, 2011, increased by $1.4 million compared to the same period of last year, as a result of issuing larger dividends and buying back common shares.
During the nine months ended December 31, 2011, CMG employees and directors exercised options to purchase 698,000 Common Shares, which resulted in cash proceeds of $4.3 million.
In the nine months ended December 31, 2011, CMG paid $15.7 million in dividends, representing quarterly dividends of $0.105, $0.11 and $0.11 per share and a special dividend of $0.10 per share. On February 9, 2012, CMG announced the payment of a quarterly dividend of $0.13 per share on CMG's Common Shares. The dividend will be paid on March 15, 2012 to shareholders of record at the close of business on March 8, 2012.
On April 6, 2011, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on April 7, 2011 to purchase for cancellation up to 1,636,000 of its Common Shares. During the nine months ended December 31, 2011, 33,000 Common Shares were purchased at market price for a total cost of $438,000.
INVESTING ACTIVITIES
CMG's current needs for capital asset investment relate to computer equipment and office infrastructure costs, all of which will be funded internally. During the nine months ended December 31, 2011, CMG expended $1.1 million on property and equipment additions, primarily composed of computing equipment, and currently has a capital budget of $2.4 million for fiscal 2012.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2011, CMG has $47.6 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 nine months ended December 31, 2011, 6,472,000 shares of CMG's public float were traded on the TSX. As at December 31, 2011, CMG's market capitalization based upon its December 31, 2011 closing price of $15.35 was $569.4 million.
Commitments, Off Balance Sheet Items and Transactions with Related Parties
In May, 2006, CMG announced that it had committed approximately $10.6 million to the five-year DRMS research and development project with its industry partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras") to develop the newest generation of dynamic reservoir modelling system. While the original funding commitment has been fulfilled during the first quarter of the current fiscal year, CMG and its partners are committed to continue funding the project beyond the initially estimated five-year period with CMG's share of the project costs estimated at $3.0 million per year. We now expect to release a beta version of the new reservoir modelling system to our partners by the end of fiscal 2012, with the first commercial release expected to take place by the end of the third quarter of fiscal 2013.
In conjunction with entering into this project, Foundation CMG agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover approximately 50% of the Company's estimated share of project costs over the initial five years of the project. For the nine months ended December 31, 2011, the Company has reflected $366,000 (2010 - $1.0 million) in research grants from Foundation CMG in professional services revenue with respect to this project. Foundation CMG's $5.2 million funding commitment was completed in the first quarter of the current fiscal year.
CMG plans to continue funding its share of the project costs associated with the development of the newest generation reservoir simulation software system from internally generated cash flows.
CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which are reflected as deferred revenue on its statement of financial position, and contractual obligations for office leases which are estimated as follows: 2012 - $0.5 million; 2013 and 2014 - $1.8 million per year; 2015 - $1.4 million; and 2016 - $0.6 million.
Business Risks and Critical Accounting Estimates
These remain unchanged from the factors detailed in CMG's 2011 Annual Report.
Changes in Accounting Policies
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The CICA Accounting Standards Board requires all Canadian publicly listed entities to adopt IFRS for interim and annual financial reporting purposes for fiscal years beginning on or after January 1, 2011. Accordingly, this is the third quarter in which we have provided unaudited condensed consolidated financial statements which are in compliance with the interim reporting requirements found in IAS 34, Interim Financial Reporting, as well as IFRS 1, First-time Adoption of IFRS. In accordance with IFRS 1, we have applied IFRS retrospectively as of April 1, 2010, our transition date, as if IFRS had always been in effect, subject to certain mandatory exceptions and optional exemptions. Our consolidated financial statements for the year ended March 31, 2012, will be our first annual financial statements that comply with IFRS.
An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in note 16 to the Condensed Consolidated Financial Statements for the three and nine months ended December 31, 2011.
The transition to IFRS did not have a material impact on retained earnings, net income or cash flows. The only adjustments were reclassifications on the Statement of Financial Position, Statement of Operations and Comprehensive Income, and the Statement of Cash Flows as follows:
Statement of Financial Position
Deferred taxes are classified as non-current under IFRS. Under previous Canadian GAAP, deferred taxes were classified as current and non-current based on the classification of the underlying assets or liabilities to which they relate or based on the expected reversal of the temporary differences.
Transition rules resulted in reclassification of deferred tax liability associated with SR&ED credits from current to non-current. In addition, the deferred tax asset associated with property and equipment was offset against deferred tax liability as both relate to income taxes levied by the same taxation authority for the same taxable entity.
Statement of Operations and Comprehensive Income
-- Expense classification - the Company has elected to present its expenses
in the consolidated statements of operations and comprehensive income
prepared under IFRS according to their function. As a result,
depreciation and amortization, which was reported as a separate line
item under previous Canadian GAAP, was allocated to its respective
functions.
-- Finance income and costs - under Canadian GAAP, interest income and
foreign exchange gains and losses were classified as separate line items
in the consolidated statement of earnings. Under IFRS, interest income
and foreign exchange gains are presented as finance income, and foreign
exchange losses are presented as finance costs. Finance income and costs
are presented on a gross basis as required by IFRS.
Statement of Cash Flows
-- Interest received and income taxes paid have been moved into the body of
the statement of cash flows under operating activities, whereas they
were previously disclosed as supplemental information.
Accounting Standards and Interpretations Issued But Not Yet Effective
The following standards and interpretations have not been adopted by the Company as they apply to future periods:
Standard/Interpretation Nature of impending change Impact on CMG's
in accounting policy financial statements
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IFRS 9 Financial IFRS 9 (2009) replaces the IFRS 9 (2010)
Instruments guidance in IAS 39 supersedes IFRS 9
Financial Instruments: (2009) and is
In November 2009 the Recognition and effective for annual
IASB issued IFRS 9 Measurement, on the periods beginning on
Financial Instruments classification and or after January 1,
(IFRS 9 (2009)), and in measurement of financial 2015, with early
October 2010 the IASB assets. The Standard adoption permitted.
published amendments to eliminates the existing IAS For annual periods
IFRS 9 (IFRS 9 (2010)). 39 categories of held to beginning before
In December 2011, the maturity, available-for- January 1, 2015,
IASB issued an sale and loans and either IFRS 9 (2009)
amendment to IFRS 9 to receivable. or IFRS 9 (2010) may
defer the mandatory be applied.
effective date to Financial assets will be
annual periods classified into one of two The Company intends to
beginning on or after categories on initial adopt IFRS 9 (2010) in
January 1, 2015. recognition: its financial
statements for the
- financial assets measured annual period
at amortized cost; or beginning on April 1,
- financial assets measured 2015. The Company does
at fair value. not expect IFRS 9
(2010) to have a
Gains and losses on material impact on the
remeasurement of financial financial statements.
assets measured at fair The classification and
value will be recognized in measurement of the
profit or loss, except that Company's financial
for an investment in an assets and liabilities
equity instrument which is is not expected to
not held-for-trading, IFRS change under IFRS 9
9 provides, on initial (2010) because of the
recognition, an irrevocable nature of the
election to present all Company's operations
fair value changes from the and the types of
investment in other financial assets that
comprehensive income (OCI). it holds.
The election is available
on an individual share-by-
share basis. Amounts
presented in OCI will not
be reclassified to profit
or loss at a later date.
IFRS 9 (2010) added
guidance to IFRS 9 (2009)
on the classification and
measurement of financial
liabilities, and this
guidance is consistent with
the guidance in IAS 39
expect as described below.
Under IFRS 9 (2010), for
financial liabilities
measured at fair value
under the fair value
option, changes in fair
value attributable to
changes in credit risk will
be recognized in OCI, with
the remainder of the change
recognized in profit or
loss. However, if this
requirement creates or
enlarges an accounting
mismatch in profit or loss,
the entire change in fair
value will be recognized in
profit or loss. Amounts
presented in OCI will not
be reclassified to profit
or loss at a later date.
IFRS 9 (2010) also requires
derivative liabilities that
are linked to and must be
settled by delivery of an
unquoted equity instrument
to be measured at fair
value, whereas such
derivative liabilities are
measured at cost under IAS
39.
IFRS 9 (2010) also added
the requirements of IAS 39
for the derecognition of
financial assets and
liabilities to IFRS 9
without change.
The IASB has deferred the
mandatory effective date of
the existing chapters of
IFRS 9 Financial
Instruments (2009) and IFRS
9 (2010) to annual periods
beginning on or after
January 1, 2015. The early
adoption of either standard
continues to be permitted.
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Amendments to IFRS 7 The amendments to IFRS 7 The Company does not
Disclosures - Transfers require disclosure of expect the amendments
of Financial Assets information that enables to have a material
users of financial impact on the
In October 2010 the statements: financial statements,
IASB issued Amendments because of the nature
to IFRS 7 Disclosures - - to understand the of the Company's
Transfers of Financial relationship between operations and the
Assets, which is transferred financial types of financial
effective for annual assets that are not assets that it holds.
periods beginning on or derecognized in their
after January 1, 2012. entirety and the associated
liabilities; and
- to evaluate the nature
of, and risks associated
with, the entity's
continuing involvement in
derecognized financial
assets.
The amendments define
"continuing involvement"
for the purposes of
applying the disclosure
requirements.
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IFRS 10 Consolidated IFRS 10 replaces the The Company intends to
Financial Statements guidance in IAS 27 adopt IFRS 10 in its
Consolidated and Separate financial statements
In May 2011, the IASB Financial Statements and for the annual period
issued IFRS 10 SIC-12 Consolidation - beginning on April 1,
Consolidated Financial Special Purpose Entities. 2013. The Company
Statements, which is IAS 27 (2008) survives as does not expect IFRS
effective for annual IAS 27 (2011) Separate 10 to have a material
periods beginning on or Financial Statements, only impact on the
after January 1, 2013, to carry forward the financial statements.
with early adoption existing accounting
permitted. If an requirements for separate
entity applies this financial statements.
Standard earlier, it
shall also apply IFRS IFRS 10 provides a single
11, IFRS 12, IAS 27 model to be applied in the
(2011) and IAS 28 control analysis for all
(2011) at the same investees, including
time. entities that currently are
SPEs in the scope of SIC-
12. In addition, the
consolidation procedures
are carried forward
substantially unmodified
from IAS 27 (2008).
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IFRS 11 Joint IFRS 11 replaces the The Company intends to
Arrangements guidance in IAS 31 adopt IFRS 11 in its
Interests in Joint financial statements
In May 2011, the IASB Ventures. for the annual period
issued IFRS 11 Joint beginning on April 1,
Arrangements, which is Under IFRS 11, joint 2013. The Company
effective for annual arrangements are classified does not expect IFRS
periods beginning on or as either joint operations 11 to have a material
after January 1, 2013, or joint ventures. IFRS 11 impact on the
with early adoption essentially carves out of financial statements.
permitted. If an entity previous jointly controlled
applies this Standard entities, those
earlier, it shall also arrangements which although
apply IFRS 10, IFRS 12, structured through a
IAS 27 (2011) and IAS separate vehicle, such
28 (2011) at the same separation is ineffective
time. and the parties to the
arrangement have rights to
the assets and obligations
for the liabilities and are
accounted for as joint
operations in a fashion
consistent with jointly
controlled
assets/operations under IAS
31. In addition, under
IFRS 11 joint ventures are
stripped of the free choice
of equity accounting or
proportionate
consolidation; these
entities must now use the
equity method.
Upon application of IFRS
11, entities which had
previously accounted for
joint ventures using
proportionate consolidation
shall collapse the
proportionately
consolidated net asset
value (including any
allocation of goodwill)
into a single investment
balance at the beginning of
the earliest period
presented. The
investment's opening
balance is tested for
impairment in accordance
with IAS 28 (2011) and IAS
36 Impairment of Assets.
Any impairment losses are
recognized as an adjustment
to opening retained
earnings at the beginning
of the earliest period
presented.
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IFRS 12 Disclosure of IFRS 12 contains the The Company intends to
Interests in Other disclosure requirements for adopt IFRS 12 in its
Entities entities that have financial statements
interests in subsidiaries, for the annual period
In May 2011, the IASB joint arrangements (i.e. beginning on April 1,
issued IFRS 12 joint operations or joint 2013. The Company
Disclosure of Interests ventures), associates does not expect the
in Other Entities, and/or unconsolidated amendments to have a
which is effective for structured entities. material impact on the
annual periods Interests are widely financial statements,
beginning on or after defined as contractual and because of the nature
January 1, 2013, with non-contractual involvement of the Company's
early adoption that exposes an entity to interests in other
permitted. If an entity variability of returns from entities.
applies this Standard the performance of the
earlier, it needs not other entity. The required
to apply IFRS 10, IFRS disclosures aim to provide
11, IAS 27 (2011) and information in order to
IAS 28 (2011) at the enable users to evaluate
same time. the nature of, and the
risks associated with, an
entity's interest in other
entities, and the effects
of those interests on the
entity's financial
position, financial
performance and cash flows.
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IFRS 13 Fair Value IFRS 13 replaces the fair The Company intends to
Measurement value measurement guidance adopt IFRS 13
contained in individual prospectively in its
In May 2011, the IASB IFRSs with a single source financial statements
published IFRS 13 Fair of fair value measurement for the annual period
Value Measurement, guidance. It defines fair beginning on April 1,
which is effective value as the price that 2013. The extent of
prospectively for would be received to sell the impact of adoption
annual periods an asset or paid to of IFRS 13 has not yet
beginning on or after transfer a liability in an been determined.
January 1, 2013. The orderly transaction between
disclosure requirements market participants at the
of IFRS 13 need not be measurement date, i.e. an
applied in comparative exit price. The standard
information for periods also establishes a
before initial framework for measuring
application. fair value and sets out
disclosure requirements for
fair value measurements to
provide information that
enables financial statement
users to assess the methods
and inputs used to develop
fair value measurements
and, for recurring fair
value measurements that use
significant unobservable
inputs (Level 3), the
effect of the measurements
on profit or loss or other
comprehensive income. IFRS
13 explains 'how' to
measure fair value when it
is required or permitted by
other IFRSs. IFRS 13 does
not introduce new
requirements to measure
assets or liabilities at
fair value, nor does it
eliminate the
practicability exceptions
to fair value measurements
that currently exist in
certain standards.
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Amendments to IAS 1 The amendments require that The Company intends to
Presentation of an entity present adopt the amendments
Financial Statements separately the items of OCI in its financial
that may be reclassified to statements for the
In June 2011, the IASB profit or loss in the annual period
published amendments to future from those that beginning on April 1,
IAS 1 Presentation of would never be reclassified 2013. As the
Financial Statements: to profit or loss. amendments only
Presentation of Items Consequently an entity that require changes in the
of Other Comprehensive presents items of OCI presentation of items
Income, which are before related tax effects in other comprehensive
effective for annual will also have to allocate income, the Company
periods beginning on or the aggregated tax amount does not expect the
after July 1, 2012 and between these categories. amendments to IAS 1 to
are to be applied have a material impact
retrospectively. Early The existing option to on the financial
adoption is permitted. present the profit or loss statements.
and other comprehensive
income in two statements
has remained unchanged.
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----------------------------------------------------------------------------
Amendments to IAS 32 The amendments to IAS 32 The Company intends to
and IFRS 7, Offsetting clarify that an entity adopt the amendments
Financial Assets and currently has a legally to IFRS 7 in its
Liabilities enforceable right to set- financial statements
off if that right is: for the annual period
In December 2011, the beginning on April 1,
IASB published - not contingent on a 2013, and the
Offsetting Financial future event; and amendments to IAS 32
Assets and Financial - enforceable both in the in its financial
Liabilities and issued normal course of business statements for the
new disclosure and in the event of annual period
requirements in IFRS 7 default, insolvency or beginning April 1,
Financial Instruments: bankruptcy of the entity 2014. The Company does
Disclosures. and all counterparties. not expect the
amendments to IAS 19
The effective date for The amendments to IAS 32 to have a material
the amendments to IAS also clarify when a impact on the
32 is annual periods settlement mechanism financial statements.
beginning on or after provides for net settlement
January 1, 2014. The or gross settlement that is
effective date for the equivalent to net
amendments to IFRS 7 is settlement.
annual periods
beginning on or after The amendments to IFRS 7
January 1, 2013. These contain new disclosure
amendments are to be requirements for financial
applied assets and liabilities that
retrospectively. are:
- offset in the statement
of financial position; or
- subject to master netting
arrangements or similar
arrangements.
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Outstanding Share Data
The following table represents the number of Common Shares and options outstanding:
As at February 9, 2012 (thousands) ---------------------------------------------------------------------------- Common Shares 37,123 Options 3,112 ----------------------------------------------------------------------------
On July 13, 2005, CMG adopted a rolling stock option plan which allows the Company to grant options to its employees and directors to acquire Common Shares of up to 10% of the outstanding Common Shares at the date of grant. Based upon this calculation, at February 9, 2012, CMG could grant up to 3,712,000 stock options.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Management is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR") as defined under National Instrument 52-109. These controls and procedures were reviewed and the effectiveness of their design and operation was evaluated in fiscal 2011 in accordance with the COSO control framework. The evaluation confirmed the effectiveness of DC&P and ICFR at March 31, 2011. During our fiscal year 2012, we continue to monitor and review our controls and procedures.
During the nine months ended December 31, 2011, there have been no significant changes to the Company's ICFR that have materially affected, or are reasonably likely to materially affect, the company's ICFR.
Outlook
As in the past several years, CMG remains committed to focusing all its resources on the development, enhancement and deployment of simulation software tools relevant to the challenges and opportunities facing its diverse customer base. While oil prices continue to fluctuate, they remain at levels that should allow our customers to move forward on projects involving various types of unconventional reserves and advanced recovery processes. The greater challenges have been with natural gas prices, which have not fared as well, and petroleum producers are faced with uncertainty related to the fears of another worldwide economic recession, political unrest in several petroleum producing countries and environmental issues that have threatened to increase the costs of development and production.
With diversification of our geographic profile, we plan to strengthen our position in the global marketplace which should also help to mitigate the effects of economic recession and instability experienced in any particular geographic region.
Over 70% of our annual software license revenue is derived from our annuity and maintenance contracts which generally represent a recurring source of revenue. We have continued to see successive increases in this revenue base over the past several years and with a strong renewal rate, we expect this trend to continue.
CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continues to make progress in fiscal 2012. We now expect to release a beta version to our partners by the end of fiscal 2012, with the first commercial release by the end of the third quarter of fiscal 2013. CMG and its partners remain committed to funding the ongoing development and to the future success of the project.
The Company remains confident that the value that CMG technology provides to its customers is greater than ever and accordingly we continue to be optimistic that our software license revenue will remain solid. With our strong working capital position, we are well positioned to continue to invest in all aspects of our business 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 Officer
February 9, 2012
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED (thousands of
Canadian $) December 31, 2011 March 31, 2011 April 1, 2010
----------------------------------------------------------------------------
Assets
Current assets:
Cash 47,615 41,753 28,826
Trade and other
receivables 11,733 13,318 16,072
Prepaid expenses 1,238 1,064 1,141
Prepaid income taxes - - 1,433
----------------------------------------------------------------------------
60,586 56,135 47,472
Property and equipment 2,743 2,554 2,401
----------------------------------------------------------------------------
Total assets 63,329 58,689 49,873
----------------------------------------------------------------------------
Liabilities and
Shareholders' Equity
Current liabilities:
Trade payables and
accrued liabilities 4,526 4,543 5,398
Income taxes payable 1,541 1,237 -
Deferred revenue 14,746 16,755 13,843
----------------------------------------------------------------------------
20,813 22,535 19,241
Deferred tax liability
(note 6) 287 384 189
----------------------------------------------------------------------------
Total liabilities 21,100 22,919 19,430
----------------------------------------------------------------------------
Shareholders' equity:
Share capital 29,932 24,801 20,390
Contributed surplus 3,276 2,655 1,816
Retained earnings 9,021 8,314 8,237
----------------------------------------------------------------------------
Total shareholders'
equity 42,229 35,770 30,443
----------------------------------------------------------------------------
Total liabilities and
shareholders' equity 63,329 58,689 49,873
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended Nine months ended
December 31 December 31
UNAUDITED (thousands of Canadian
$ except per share amounts) 2011 2010 2011 2010
----------------------------------------------------------------------------
Revenue (note 8) 15,898 12,063 43,819 37,449
----------------------------------------------------------------------------
Operating expenses
Sales, marketing and
professional services 3,536 2,836 9,703 8,704
Research and development (note
4) 2,747 2,408 7,635 6,941
General and administrative 1,522 1,303 4,070 3,659
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7,805 6,547 21,408 19,304
----------------------------------------------------------------------------
Operating profit 8,093 5,516 22,411 18,145
Finance income (note 5) 123 91 1,109 179
Finance costs (note 5) (32) (329) - (303)
----------------------------------------------------------------------------
Profit before income and other
taxes 8,184 5,278 23,520 18,021
Income and other taxes (note 6) 2,394 1,715 6,749 5,663
----------------------------------------------------------------------------
Net and comprehensive income 5,790 3,563 16,771 12,358
----------------------------------------------------------------------------
Earnings Per Share
Basic (note 7(e)) 0.16 0.10 0.46 0.34
Diluted (note 7(e)) 0.15 0.10 0.44 0.34
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share Capital
----------------------
UNAUDITED
(thousands of Contributed Retained Total
Canadian $) Common Non-voting Surplus Earnings Equity
----------------------------------------------------------------------------
Balance, April 1,
2010 20,244 146 1,816 8,237 30,443
Total
comprehensive
income for the
period - - - 12,358 12,358
Dividends paid - - - (13,328) (13,328)
Shares issued for
cash on exercise
of stock options
(note 7(b)) 2,984 - - - 2,984
Converted into
common shares
(note 7(b)) 146 (146) - - -
Stock-based
compensation:
Current period
expense - - 1,134 - 1,134
Stock options
exercised 576 - (576) - -
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Balance, December
31, 2010 23,950 - 2,374 7,267 33,591
----------------------------------------------------------------------------
Balance, April 1,
2011 24,801 - 2,655 8,314 35,770
Total
comprehensive
income for the
period - - - 16,771 16,771
Dividends paid - - - (15,651) (15,651)
Shares issued for
cash on exercise
of stock options
(note 7(b)) 4,344 - - - 4,344
Common shares buy-
back (note 7(b)) (25) (413) (438)
Stock-based
compensation:
Current period
expense - - 1,433 - 1,433
Stock options
exercised 812 - (812) - -
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Balance, December
31, 2011 29,932 - 3,276 9,021 42,229
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See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Nine months ended
December 31 December 31
UNAUDITED (thousands of Canadian
$) 2011 2010 2011 2010
----------------------------------------------------------------------------
Cash flows from operating
activities
Net income 5,790 3,563 16,771 12,358
Adjustments for:
Depreciation and amortization 321 273 877 751
Income and other taxes (note 6) 2,394 1,715 6,749 5,663
Stock-based compensation (note
7(d)) 566 428 1,433 1,134
Interest income (note 5) (123) (91) (341) (179)
----------------------------------------------------------------------------
8,948 5,888 25,489 19,727
Changes in non-cash working
capital:
Trade and other receivables (1,151) 2,444 1,594 6,725
Trade payables and accrued
liabilities 1,306 739 (17) (1,031)
Prepaid expenses 102 107 (174) 170
Deferred revenue 146 (767) (2,009) (1,952)
----------------------------------------------------------------------------
Cash generated from operating
activities 9,351 8,411 24,883 23,639
Interest received 120 83 332 164
Income taxes paid (1,960) (116) (6,542) (3,338)
----------------------------------------------------------------------------
Net cash from operating
activities 7,511 8,378 18,673 20,465
----------------------------------------------------------------------------
Cash flows from financing
activities
Proceeds from issue of common
shares 1,675 954 4,344 2,984
Dividends paid (4,079) (3,623) (15,651) (13,328)
Common shares buy-back - - (438) -
----------------------------------------------------------------------------
Net cash used in financing
activities (2,404) (2,669) (11,745) (10,344)
----------------------------------------------------------------------------
Cash flows used in investing
activities
Property and equipment additions (802) (262) (1,066) (935)
----------------------------------------------------------------------------
Increase (decrease) in cash 4,305 5,447 5,862 9,186
Cash, beginning of period 43,310 32,565 41,753 28,826
----------------------------------------------------------------------------
Cash, end of period 47,615 38,012 47,615 38,012
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2011 and 2010 (unaudited).
1. Reporting Entity:
Computer Modelling Group Ltd. ("CMG") is a company domiciled in Alberta, Canada and is incorporated pursuant to the Alberta Business Corporations Act, with its Common Shares listed on the Toronto Stock Exchange under the symbol "CMG". The address of CMG's registered office is Suite 200, 1824 Crowchild Trail N.W., Calgary, Alberta, Canada, T2M 3Y7. The condensed consolidated financial statements as at and for the three and nine months ended December 31, 2011 comprise CMG and its subsidiaries (together referred to as the "Company"). The Company is a computer software technology company engaged in the development and licensing of reservoir simulation software. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities.
2. Basis of Preparation: (A) STATEMENT OF COMPLIANCE:
These condensed consolidated financial statements have been prepared on a going concern basis in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB"), and using the accounting policies the Company expects to adopt in its consolidated financial statements as at and for the year ending March 31, 2012. These accounting policies are disclosed in note 3 of the Company's condensed consolidated financial statements for the three months ended June 30, 2011.
The preparation of these condensed consolidated financial statements resulted in changes to accounting policies as compared with the most recent annual consolidated financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The Company's accounting policies have been applied consistently to all periods presented in these condensed consolidated financial statements with the exception of certain IFRS 1, First-time Adoption of IFRS, exemptions the Company applied in its transition from previous GAAP to International Financial Reporting Standards ("IFRS") at April 1, 2010, the Company's transition date.
The condensed consolidated financial statements do not include all of the information required for full annual financial statements, therefore, these condensed consolidated financial statements should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended March 31, 2011, the Company's condensed consolidated financial statements for the three months ended June 30, 2011, and in consideration of the IFRS transition disclosures presented in note 16 to these financial statements.
The unaudited condensed consolidated financial statements as at and for the three and nine months ended December 31, 2011 were authorized for issuance by the Board of Directors on February 9, 2012.
(B) BASIS OF MEASUREMENT:
The condensed consolidated financial statements have been prepared on the historical cost basis, which is based on the fair value of the consideration at the time of the transaction.
(C) FUNCTIONAL AND PRESENTATION CURRENCY:
The condensed consolidated financial statements are presented in Canadian dollars, which is the functional currency of CMG and its subsidiaries. All financial information presented in Canadian dollars has been rounded to the nearest thousand.
(D) USE OF ESTIMATES, JUDGMENTS AND ASSUMPTIONS:
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, 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. Estimates and underlying assumptions are based on historical experience and other assumptions that are considered reasonable in the circumstances and are reviewed on an on-going basis. Actual results may differ from such estimates and it is possible that the differences could be material. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In preparing these condensed consolidated financial statements, the significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty are expected to be the same as those applied in the first annual IFRS financial statements.
The key judgments made in applying accounting policies that have the most significant effect on the amounts recognized in these condensed consolidated financial statements are as follows:
Research and development - assumptions are made in respect to the eligibility of certain research and development projects in the calculation of scientific research and experimental development ("SR&ED") investment tax credits which are netted against the research and development costs in the statement of operations. SR&ED claims are subject to audits by relevant taxation authorities and the actual amount may change depending on the outcome of such audits (note 4).
Revenue recognition - certain software license agreements contain multiple-element arrangements as they may also include maintenance fees. Judgment is used in determining a fair value of each element of a contract. Professional services revenue earned from certain consulting contracts is recognized by the stage of completion of the transaction determined using the percentage-of-completion method. Judgment is used in determining progress of each contract at period end. In assessing revenue recognition, judgment is also used in determining the ability to collect the corresponding account receivable (note 8).
Property and equipment - estimates are used in determining useful economic lives of property and equipment for the purposes of calculating depreciation.
Stock-based compensation - assumptions and estimates are used in determining the inputs used in the Black-Scholes option pricing model, including assumptions regarding volatility, dividend yield, risk-free interest rates, forfeiture estimates and expected option lives (note 7(d)).
Deferred income taxes - assumptions and estimates are made regarding the amount and timing of realization and/or settlement of the temporary differences between the accounting carrying value of the Company's assets versus the tax basis of those assets, and the tax rates at which the differences will be recovered or settled in the future (note 6).
3. Significant Accounting Policies:
The significant accounting policies used in preparing these Condensed Consolidated Financial Statements are unchanged from those disclosed in the Company's Condensed Consolidated Financial Statements for the three months ended June 30, 2011.
4. Research and Development Costs:
For the three months ended December 31, 2011 2010
(thousands of $)
----------------------------------------------------------------------------
Research and development 3,104 2,658
SR&ED investment tax credits (357) (250)
----------------------------------------------------------------------------
2,747 2,408
----------------------------------------------------------------------------
For the nine months ended December 31, 2011 2010
(thousands of $)
----------------------------------------------------------------------------
Research and development 8,656 7,709
SR&ED investment tax credits (1,021) (768)
----------------------------------------------------------------------------
7,635 6,941
----------------------------------------------------------------------------
5. Finance Income and Costs:
For the three months ended December 31, 2011 2010 (thousands of $) ---------------------------------------------------------------------------- Interest income 123 91 Foreign exchange gain - - ---------------------------------------------------------------------------- Finance income 123 91 ---------------------------------------------------------------------------- Foreign exchange loss (32) (329) ---------------------------------------------------------------------------- Finance costs (32) (329) ---------------------------------------------------------------------------- For the nine months ended December 31, 2011 2010 (thousands of $) ---------------------------------------------------------------------------- Interest income 341 179 Foreign exchange gain 768 - ---------------------------------------------------------------------------- Finance income 1,109 179 ---------------------------------------------------------------------------- Foreign exchange loss - (303) ---------------------------------------------------------------------------- Finance costs - (303) ----------------------------------------------------------------------------
6. 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 profit before income and other taxes. The reasons for this difference and the related tax effects are as follows:
For the nine months ended December 31, 2011 2010
(thousands of $, unless otherwise stated)
----------------------------------------------------------------------------
Statutory tax rate 26.13% 27.63%
----------------------------------------------------------------------------
Expected income tax 6,147 4,979
Non-deductible costs 396 336
Change in unrecognized temporary differences - (87)
Withholding taxes 188 517
Other 18 (82)
----------------------------------------------------------------------------
6,749 5,663
----------------------------------------------------------------------------
Represented by:
Current income taxes 6,580 4,819
Deferred tax expense (97) 120
Foreign withholding and other taxes 266 724
----------------------------------------------------------------------------
6,749 5,663
----------------------------------------------------------------------------
The components of the Company's net deferred income tax liability are as follows:
December 31, March 31, April 1,
(thousands of $) 2011 2011 2010
----------------------------------------------------------------------------
Tax liability on investment tax
credits (167) (181) (222)
Tax (liability) asset on property
and equipment (120) (203) 33
----------------------------------------------------------------------------
Deferred tax liability, net (287) (384) (189)
----------------------------------------------------------------------------
7. Share Capital:
(A) AUTHORIZED:
An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.
Effective June 20, 2011, the Common Shares were split on a two-for-one basis. Accordingly, the comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one adjustment.
(B) ISSUED:
(thousands of shares) Non-Voting
Common Shares Shares
----------------------------------------------------------------------------
Balance, April 1, 2010 31,117 4,543
Issued for cash on exercise of stock options 636 -
Converted into common shares 4,543 (4,543)
----------------------------------------------------------------------------
Balance, December 31, 2010 36,296 -
----------------------------------------------------------------------------
Balance, April 1, 2011 36,427 -
Issued for cash on exercise of stock options 698 -
Common shares buy-back (33)
----------------------------------------------------------------------------
Balance, December 31, 2011 37,092 -
----------------------------------------------------------------------------
The Non-Voting Shares were convertible into an equivalent number of Common Shares at any time at the option of the holder.
Subsequent to December 31, 2011, 32,000 stock options were exercised for cash proceeds of $ 226,000.
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 March 22, 2010, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on March 23, 2010 to purchase for cancellation up to 1,315,000 of its Common Shares. This NCIB ended on March 22, 2011 and a total of 10,000 shares were purchased at market price for a total cost of $126,000.
On April 6, 2011, the Company announced a NCIB commencing on April 7, 2011 to purchase for cancellation up to 1,636,000 of its Common Shares. During the nine months ended December 31, 2011, 33,000 Common Shares were purchased at market price for a total cost of $438,000.
(D) STOCK-BASED COMPENSATION PLAN:
The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 10, 2008, which allows it to grant options to acquire Common Shares of up to 10% of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at December 31, 2011, the Company could grant up to 3,709,000 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. The outstanding stock options vest as to 50% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates.
The following table outlines changes in options:
For the nine months ended For the year ended
----------------------------------------------------------------------------
(thousands
except per
share amounts) December 31, 2011 March 31, 2011
----------------------------------------------------------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
Granted ($/share) Granted ($/share)
----------------------------------------------------------------------------
Outstanding at
beginning of
period 2,825 7.41 2,572 5.90
Granted 1,065 13.41 1,094 9.07
Exercised (698) 6.22 (777) 4.76
Forfeited/cancel
led (45) 10.04 (64) 7.08
----------------------------------------------------------------------------
Outstanding at
end of period 3,147 9.67 2,825 7.41
----------------------------------------------------------------------------
Options
exercisable at
end of period 1,330 7.29 969 5.91
----------------------------------------------------------------------------
The range of exercise prices of options outstanding and exercisable at December 31, 2011 is as follows:
Outstanding Exercisable
----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Remaining Exercise Number of Exercise
Exercise Price Options Contractual Price Options Price
($/option) (thousands) Life (years) ($/option) (thousands) ($/option)
----------------------------------------------------------------------------
3.62 - 3.70 60 0.6 3.70 60 3.70
3.71 - 5.63 423 1.6 5.47 418 5.48
5.64 - 7.80 667 2.6 7.80 433 7.80
7.81 - 9.07 944 3.6 9.07 419 9.07
9.08 - 14.24 1,053 4.7 13.41 - -
----------------------------------------------------------------------------
3,147 3.4 9.67 1,330 7.29
----------------------------------------------------------------------------
The fair value of stock options granted was estimated using the Black-Scholes option pricing model under the following assumptions:
For the nine
months ended For the year ended
December 31, 2011 March 31, 2011
----------------------------------------------------------------------------
Fair value at grant date ($/option) 1.23 to 3.04 1.56 to 1.78
Share price at grant date ($/share) 13.00 to 14.24 9.07
Risk-free interest rate (%) 0.99 to 2.06 1.37 to 2.17
Estimated hold period prior to
exercise (years) 2 to 4 2 to 5
Volatility in the price of common
shares (%) 24 to 37 35 to 39
Dividend yield per common share (%) 3.20 to 4.94 5.12
----------------------------------------------------------------------------
The Company recognized total stock-based compensation expense for the three and nine months ended December 31, 2011 of $566,000 and $1,433,000 respectively (three and nine months ended December 31, 2010 - $428,000 and $1,134,000 respectively).
(E) EARNINGS PER SHARE:
The following table summarizes the earnings and weighted average number of Common and Non-Voting Shares used in calculating basic and diluted earnings per share:
For the three months ended December 31,
(thousands except per share amounts) 2011
----------------------------------------------------------------------------
Weighted Earnings
Average Shares Per Share
Earnings ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 5,790 36,976 0.16
Dilutive effect of stock
options 990
----------------------------------------------------------------------------
Diluted 5,790 37,966 0.15
----------------------------------------------------------------------------
For the three months ended
December 31,
(thousands except per share
amounts) 2010
---------------------------------------------------------------------------
Weighted Earnings
Average Shares Per Share
Earnings ($) Outstanding ($/share)
---------------------------------------------------------------------------
Basic 3,563 36,176 0.10
Dilutive effect of stock
options 983
---------------------------------------------------------------------------
Diluted 3,563 37,159 0.10
---------------------------------------------------------------------------
For the nine months ended December 31,
(thousands except per share amounts) 2011
----------------------------------------------------------------------------
Weighted Earnings
Average Shares Per Share
Earnings ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 16,771 36,757 0.46
Dilutive effect of stock
options 1,056
----------------------------------------------------------------------------
Diluted 16,771 37,813 0.44
----------------------------------------------------------------------------
For the nine months ended
December 31,
(thousands except per share
amounts) 2010
---------------------------------------------------------------------------
Weighted Earnings
Average Shares Per Share
Earnings ($) Outstanding ($/share)
---------------------------------------------------------------------------
Basic 12,358 35,966 0.34
Dilutive effect of stock
options 785
---------------------------------------------------------------------------
Diluted 12,358 36,751 0.34
---------------------------------------------------------------------------
During the three and nine months ended December 31, 2011, 88,000 and 155,000 options respectively (three and nine months ended December 31, 2010 - Nil and 120,000 respectively) were excluded from the computation of the weighted-average number of diluted shares outstanding because their effect was not dilutive.
8. Revenue:
For the three months ended December 31, 2011 2010
(thousands of $)
----------------------------------------------------------------------------
Software licenses 14,377 10,333
Professional services 1,521 1,730
----------------------------------------------------------------------------
15,898 12,063
----------------------------------------------------------------------------
For the nine months ended December 31, 2011 2010
(thousands of $)
----------------------------------------------------------------------------
Software licenses 39,669 31,312
Professional services 4,150 6,137
----------------------------------------------------------------------------
43,819 37,449
----------------------------------------------------------------------------
9. 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 has 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 April 7, 2011 to April 6, 2012. Reference is made to note 7(c).
The Company makes adjustments to its capital structure in light of general economic conditions and the Company's working capital requirements. In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may pay dividends, buy back shares or undertake other activities as deemed appropriate under the specific circumstances. The Board of Directors reviews and approves any material transactions not in the ordinary course of business.
There were no changes in the Company's approach to capital management during the period.
10. Financial Instruments and Risk Management:
(i) Classification of financial instruments
Classification Measurement
----------------------------------------------------------------------------
Cash Held for trading Fair value
Trade and other receivables Loans and receivables Amortized cost
Trade payables and accrued
liabilities Other financial liabilities Amortized cost
----------------------------------------------------------------------------
(ii) Fair values of financial instruments
The carrying values of cash, trade and other receivables, trade payables 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 trade and other receivables. The amounts reported in the statements of financial position for trade receivables 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 trade receivables 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 December 31, 2011.
As at December 31, 2011, the Company has a concentration of credit risk with 9 domestic and international customers who represent 62% of trade receivables. In addition, $2.2 million of trade receivables 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. Payment terms with customers are 30 days from invoice date; however, industry practice can extend these terms. 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.
(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.
(i) Foreign Exchange Risk
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 72% of the Company's revenues for the nine months ended December 31, 2011 were denominated in US dollars and at December 31, 2011, the Company had approximately $10.4 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 23% 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.
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 Operations and Comprehensive Income. It is estimated that a one cent change in the US dollar would result in a net change of approximately $76,000 on net income for the nine months ended December 31, 2011. 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.
(ii) Interest Rate Risk
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 December 31, 2011 cash balance, each 1% change in the interest rate on the Company's cash balance would change net income for the nine months ended December 31, 2011 by approximately $352,000.
(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 9. 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 December 31, 2011, the Company has significant cash balances in excess of its obligations and over $800,000 of the line of credit (note 12) available for its use.
11. Commitments: (A) RESEARCH COMMITMENTS:
The DRMS research and development project, a collaborative effort with our partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras") to jointly develop the newest generation of reservoir simulation software, which commenced in 2006 and was originally estimated to take five years to complete, is now anticipated to continue beyond the initial five-year time frame; however, the Company and its partners are committed to continue funding the project with the Company's share of the project costs estimated at $3.0 million per year.
In conjunction with entering into this project, CMG Reservoir Simulation Foundation ("Foundation CMG") agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover approximately 50% of the Company's estimated share of costs over the initial five years of the project. For the nine months ended December 31, 2011, the Company has reflected $366,000 (2010 - $990,000) in research grants from Foundation CMG in revenue with respect to this project. Foundation CMG's $5.2 million funding commitment was completed in the first quarter of the current fiscal year.
(B) LEASE COMMITMENTS:
The Company has operating lease commitments relating to its office premises with the minimum annual lease payments as follows:
(thousands of $) ---------------------------------------------------------------------------- 2012 475 2013 1,777 2014 1,791 2015 1,356 2016 609 ----------------------------------------------------------------------------
12. 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 or may be used to support letters of credit. As at December 31, 2011, US $165,000 (2010 - US $165,000) had been reserved on this line of credit for the letter of credit supporting a performance bond.
13. Segmented Information:
The Company is organized into one operating segment represented by the development and licensing of reservoir simulation software. The Company provides professional services, consisting of support, training, consulting and contract research activities, to promote the use and development of its software; however, these activities are not evaluated as a separate business segment.
Revenues and property and equipment of the Company arise in the following geographic regions:
(thousands of $) Revenue Property and equipment
----------------------------------------------------------------------------
For the nine months
ended December 31, As at December 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
Canada 14,059 12,930 2,548 2,378
United States 7,439 6,673 83 116
Other Foreign 22,321 17,846 112 91
----------------------------------------------------------------------------
43,819 37,449 2,743 2,585
----------------------------------------------------------------------------
In the nine months ended December 31, 2011, the Company derived 9.5% (2010 - 9.6%) of its revenue from one customer.
14. Subsidiaries:
CMG is the beneficial owner of the entire issued share capital and controls all the votes of its subsidiaries. The principal activities of all the subsidiaries are the sale and support for the use of CMG's software licenses. Transactions between subsidiaries are eliminated on consolidation. The following is the list of CMG's subsidiaries:
Subsidiary Country of Incorporation ---------------------------------------------------------------------------- Computer Modelling Group Inc. United States CMG Venezuela Venezuela CMG Middle East FZ LLC Dubai, UAE ----------------------------------------------------------------------------
15. Subsequent Events:
On February 9, 2012, the Board of Directors declared a cash dividend of $ 0.13 per share on its Common Shares, payable on March 15, 2012, to all shareholders of record at the close of business on March 8, 2012.
16. Transition to IFRS:
As stated in note 2(a), these condensed consolidated financial statements have been prepared in accordance with IAS 34. The accounting policies described in note 3 to the condensed consolidated financial statements for the three months ended June 30, 2011 have been applied in preparing the condensed consolidated financial statements for the three and nine months ended December 31, 2011, the comparative information for the three and nine months ended December 31, 2010, and in preparation of an opening IFRS statement of financial position at April 1, 2010, the Company's date of transition to IFRS, and statements of financial position as at December 31, 2011 and March 31, 2011.
This transition note explains the effect of the transition from previous Canadian GAAP to IFRS on the Company's financial position, financial performance and cash flows.
16.1 ELECTED EXEMPTIONS FROM FULL RETROSPECTIVE APPLICATION:
In preparing these condensed consolidated financial statements in accordance with IFRS 1, we applied the following optional exemptions from full retrospective application of IFRS:
IFRS 3 - Business Combinations
IFRS 1 allows the Company to apply IFRS 3, Business Combinations, retrospectively or prospectively from the date of transition. The retrospective application would require restatement of all business combinations that occurred prior to the transition date, April 1, 2010. The Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to its transition date and such business combinations have not been restated.
IFRS 2 - Share-based Payments
IFRS 1 provides the exemption from retrospective application of IFRS 2, Share-based Payments, to options granted on or before November 7, 2002 and options granted after November 7, 2002 that vested before April 1, 2010. The Company adopted the exemption in IFRS 1 and applied IFRS 2 to employee options granted after November 7, 2002 that had not vested by April 1, 2010. While minor differences occurred on the transition from Canadian GAAP to IFRS, these differences were not material, and hence, no adjustments have been made to the consolidated financial statements.
16.2 MANDATORY EXCEPTIONS TO RETROSPECTIVE APPLICATION:
In preparing these condensed consolidated financial statements in accordance with IFRS 1, the Company applied the following mandatory exception:
Estimates
IFRS 1 disallows hindsight to be used in creating or revising estimates. Estimates made in accordance with IFRSs at the date of transition are consistent with estimates made under Canadian GAAP except where the revision was necessary to reflect any difference in accounting policies. In making estimates under IFRSs not required under Canadian GAAP, the estimates reflect conditions that existed at the relevant reporting date and/or transition date.
16.3 RECONCILIATION OF FINANCIAL POSITION AND SHAREHOLDERS' EQUITY:
(thousands of $) March 31, 2011 December 31, 2010
----------------------------------------------------------------------------
Canadian IFRS Canadian IFRS
GAAP Adj. IFRS GAAP Adj. IFRS
----------------------------------------------------------------------------
Assets
Current assets:
Cash 41,753 41,753 38,012 38,012
Trade and other
receivables 13,318 13,318 9,362 9,362
Prepaid expenses 1,064 1,064 972 972
Prepaid income
taxes - - - -
----------------------------------------------------------------------------
56,135 56,135 48,346 48,346
Property and
equipment 2,554 2,554 2,585 2,585
Deferred tax asset
(note 16.5(A)) - - - -
----------------------------------------------------------------------------
Total assets 58,689 58,689 50,931 50,931
----------------------------------------------------------------------------
Liabilities and
Shareholders'
Equity
Current liabilities:
Trade payables and
accrued
liabilities 4,543 4,543 4,367 4,367
Income taxes
payable 1,237 1,237 772 772
Deferred revenue 16,755 16,755 11,892 11,892
Deferred tax
liability (note
16.5(A)) 181 (181) - 129 (129) -
----------------------------------------------------------------------------
22,716 (181) 22,535 17,160 (129) 17,031
Deferred tax
liability (note
16.5(A)) 203 181 384 180 129 309
----------------------------------------------------------------------------
Total liabilities 22,919 - 22,919 17,340 - 17,340
----------------------------------------------------------------------------
Shareholders'
equity:
Share capital 24,801 24,801 23,950 23,950
Contributed
surplus 2,655 2,655 2,374 2,374
Retained earnings 8,314 8,314 7,267 7,267
----------------------------------------------------------------------------
Total shareholders'
equity 35,770 35,770 33,591 33,591
----------------------------------------------------------------------------
Total liabilities
and shareholders'
equity 58,689 58,689 50,931 50,931
----------------------------------------------------------------------------
(thousands of $) April 1, 2010
----------------------------------------------------------------------------
IFRS
Canadian GAAP Adj. IFRS
----------------------------------------------------------------------------
Assets
Current assets:
Cash 28,826 28,826
Trade and other
receivables 16,072 16,072
Prepaid expenses 1,141 1,141
Prepaid income
taxes 1,433 1,433
----------------------------------------------------------------------------
47,472 47,472
Property and
equipment 2,401 2,401
Deferred tax asset
(note 16.5(A)) 33 (33) -
----------------------------------------------------------------------------
Total assets 49,906 (33) 49,873
----------------------------------------------------------------------------
Liabilities and
Shareholders'
Equity
Current liabilities:
Trade payables and
accrued
liabilities 5,398 5,398
Income taxes
payable - -
Deferred revenue 13,843 13,843
Deferred tax
liability (note
16.5(A)) 222 (222) -
----------------------------------------------------------------------------
19,463 (222) 19,241
Deferred tax
liability (note
16.5(A)) - 189 189
----------------------------------------------------------------------------
Total liabilities 19,463 (33) 19,430
----------------------------------------------------------------------------
Shareholders'
equity:
Share capital 20,390 20,390
Contributed
surplus 1,816 1,816
Retained earnings 8,237 8,237
----------------------------------------------------------------------------
Total shareholders'
equity 30,443 30,443
----------------------------------------------------------------------------
Total liabilities
and shareholders'
equity 49,906 (33) 49,873
----------------------------------------------------------------------------
16.4 RECONCILIATION OF NET AND COMPREHENSIVE INCOME:
For the three months ended December 31, Canadian IFRS
2010(thousands of $) GAAP Adjustments IFRS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue 12,063 - 12,063
----------------------------------------------------------------------------
Operating expenses
Sales, marketing and professional
services (note 16.5(B)) 2,760 76 2,836
Research and development 2,408 - 2,408
General and administrative (note
16.5(B)) 1,237 66 1,303
Depreciation and amortization (note
16.5(B)) 142 (142) -
Foreign exchange loss (note 16.5(C)) 329 (329) -
Interest and other income (note
16.5(C)) (91) 91 -
----------------------------------------------------------------------------
6,785 (238) 6,547
----------------------------------------------------------------------------
Operating profit 5,278 238 5,516
Finance income (note 16.5(C)) - 91 91
Finance costs (note 16.5(C)) - (329) (329)
----------------------------------------------------------------------------
Profit before income and other taxes 5,278 - 5,278
Income and other taxes 1,715 - 1,715
----------------------------------------------------------------------------
Net and comprehensive income 3,563 - 3,563
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months ended December 31, Canadian IFRS
2010(thousands of $) GAAP Adjustments IFRS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue 37,449 - 37,449
----------------------------------------------------------------------------
Operating expenses
Sales, marketing and professional
services (note 16.5(B)) 8,484 220 8,704
Research and development 6,941 - 6,941
General and administrative (note
16.5(B)) 3,472 187 3,659
Depreciation and amortization (note
16.5(B)) 407 (407) -
Foreign exchange loss (note 16.5(C)) 303 (303) -
Interest and other income (note
16.5(C)) (179) 179 -
----------------------------------------------------------------------------
19,428 (124) 19,304
----------------------------------------------------------------------------
Operating profit 18,021 124 18,145
Finance income (note 16.5(C)) - 179 179
Finance costs (note 16.5(C)) - (303) (303)
----------------------------------------------------------------------------
Profit before income and other taxes 18,021 - 18,021
Income and other taxes 5,663 - 5,663
----------------------------------------------------------------------------
Net and comprehensive income 12,358 - 12,358
----------------------------------------------------------------------------
----------------------------------------------------------------------------
16.5 EXPLANATION OF PRESENTATION RECLASSIFICATIONS:
(A) Deferred taxes - deferred taxes are classified as non-current under IFRS. Under previous Canadian GAAP, deferred taxes were classified as current and non-current based on the classification of the underlying assets or liabilities to which they relate or based on the expected reversal of the temporary differences.
Transition rules resulted in reclassification of deferred tax liability associated with SR&ED credits from current to non-current. In addition, deferred tax asset associated with property and equipment was offset against deferred tax liability as both relate to income taxes levied by the same taxation authority for the same taxable entity.
(B) Expense classification - the Company has elected to present its expenses in the consolidated statements of operations and comprehensive income prepared under IFRS according to their function. As a result, depreciation and amortization, which was reported as a separate line item under previous Canadian GAAP, was allocated to its respective functions.
(C) Finance income and costs - under Canadian GAAP, interest income and foreign exchange gains and losses were classified as separate line items in the consolidated statement of earnings. Under IFRS, interest income and foreign exchange gains are presented as finance income, and foreign exchange losses are presented as finance costs. Finance income and costs are presented on a gross basis as required by IFRS.
16.6 ADJUSTMENTS TO THE STATEMENTS OF CASH FLOWS:
Interest received and income taxes paid have been moved into the body of the statement of cash flows under operating activities, whereas they were previously disclosed as supplemental information. There are no other material differences between the statement of cash flows presented under IFRS and the statement of cash flows previously presented under Canadian GAAP.
FOR FURTHER INFORMATION PLEASE CONTACT:
Computer Modelling Group Ltd.
Kenneth M. Dedeluk
President & CEO
(403) 531-1300
ken.dedeluk@cmgl.ca
Computer Modelling Group Ltd.
John Kalman
Vice President, Finance & CFO
(403) 531-1300
john.kalman@cmgl.ca
www.cmgl.ca
Source: Computer Modelling Group Ltd.
GUANGZHOU, China, Feb. 10, 2012 /PRNewswire-Asia-FirstCall/ -- 7 Days Group Holdings Limited (NYSE: SVN) ("7 Days" or the "Company"), a leading economy hotel chain based in China, announced today that it will release unaudited financial results for the fourth quarter and full year ended December 31, 2011 on Thursday, March 8, 2012.
The earnings release will be available on the investor relations page of the Company's website at http://en.7daysinn.cn/.
Following the release of the earnings announcement, 7 Days' senior management will host a conference call at 8:00 pm (US Eastern) / 5:00 pm (US Pacific) on Thursday, March 8, 2012, which is 9:00 am (HK / Beijing Time) on Friday, March 9, 2012 to discuss its 2011 fourth quarter and full year financial results and recent business activity.
The conference call may be accessed by calling +1 866 519 4004 or +1 718 354 1231 (for callers in the US), +800 819 0121 (for callers in China), +400 620 8038 (for mobile callers in China), +65 6723 9381 (for international callers), +800 930 346 or +852 2475 0994 (for callers in Hong Kong) and stating passcode 7 Days. Please dial in approximately 10 minutes before the scheduled time of the call.
A recording of the conference call will be available by calling +1 866 214 5335 (for callers in the US), +61 2 8235 5000 (for callers outside the US), +10 800 714 0386 (for callers in Northern China), +10 800 140 0386 (for callers in Southern China) or +800 901 596 (for callers in Hong Kong) and entering Conference ID number 50937240.
A live webcast of the conference call and recording of the conference call will be available on the investor relations page of 7 Days' website at http://en.7daysinn.cn/.
About 7 Days Group Holdings Limited
7 Days Group is a leading and fast growing national economy hotel chain based in China. It converts and operates limited service economy hotels across major metropolitan areas in China under its award-winning "7 Days Inn" brand. The Company strives to offer consistent and high-quality accommodations and services primarily to the growing population of value-conscious business and leisure travelers who demand affordable, clean, comfortable, convenient and safe lodging, and to respond to its guests' needs.
|
Contacts:
|
|
|
Investor Contact: Vivian Chen, Investor Relations Director7 Days Group Holdings Limited+86-20-8922-5858
|
Investor Relations (US): Kelly Gawlik, Director Taylor Rafferty +1 (212) 889-43507DaysInn@taylor-rafferty.com
|
|
Investor Relations (HK): Mahmoud Siddig, Managing Director Taylor Rafferty +852 3196 37127DaysInn@taylor-rafferty.com |
|
SOURCE 7 Days Group Holdings Limited
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Ronald E. Hermance Jr., Hudson City Chairman and CEO Takes Temporary Medical Leave of Absence
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Questcor Pharmaceuticals to Present at the Leerink Swann Global Healthcare Conference on February 16, 2012
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Consumer Groups Denounce Attack on Consumer Watchdog
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Carrizo Oil & Gas, Inc. Announces Conference Call for the Fourth Quarter and Full Year 2011 Financial Results
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Marina Biotech Announces Closing of $1.5 MM Bridge Loan
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ValueVision Secures $40M Credit Facility, Renews TV Distribution Agreements and Previews Q4 FY'11 Sales
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Immersion to Report Fourth Quarter 2011 Results and Host Quarterly Conference Call on March 1st
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This Valentine's Day Add Soyfoods to Your Plate to Protect Your Heart
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Uniquefox.com Launches Spanish Property Portal with Listings from Spain's Leading Property Agents
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Metso to supply containerboard machine for Kipas Kagit in Turkey
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Whiplash Claims and the Rising Cost of Motor Insurance
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Michael Andretti's ORG Garage Makeover Delivers Winning Style
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Mattel Unveils 2012 Toy Portfolio Taking Global Brands to New Platforms and Play Patterns
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Perfect World Announces Recent Business Developments
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Talison Lithium Reports Second Quarter Fiscal 2012 Results
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BMO Annual Valentine's Day Study: For Couples, Love Is In The Air...But Not Talk Of Retirement
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Recon Technology Announces Its Return to Compliance with Nasdaq Marketplace Rule 5250(c)(1)
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SelectCore Signs Agreement to Purchase Canadian Payment Processor
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Industry Intelligence Inc. Offers Comprehensive Intelligence on the Food And Beverage Industry
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Hispanic Scholarship Consortium Names New Leader
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Snyder's-Lance, Inc. Reports Results for Full Year 2011
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Alliant Energy Announces 2011 Results
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Calpine Reports Fourth Quarter and Full Year 2011 Results, Tightens 2012 Guidance
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Freeman's to Sell Historic USS Constitution Colors from the Collection of H. Richard Dietrich, Jr.
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LasVegasShows.com Makes Finding the Perfect Valentine's Day Gift Easy
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Stephen Zaniboni Joins Trovagene, Inc. as Chief Financial Officer
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‘International Condom Day’ 2012: AHF & Partners to Distribute over One Million Free Condoms Worldwide
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SearchMedia Partners with Local Firms to Win Hangzhou Tourism Commission’s 2012 Overseas Outdoor Campaign
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Taro Provides Preliminary 2011 Full Year and Q4 Results
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Exelixis Announces Pricing of $60.5 Million Public Offering of Common Stock
