Computer Modelling Group Ltd. — Interim / Quarterly Report 2022

Nov 10, 2021

Condensed Consolidated Interim Financial Statements

Condensed Consolidated Statements of Financial Position

UNAUDITED (thousands of Canadian $)	September 30, 2021	March 31, 2021
Assets
Current assets:
Cash	48,012	49,068
Trade and other receivables	14,081	23,239
Prepaid expenses	1,020	820
Prepaid income taxes(note 10)	1,522	8
	64,635	73,135
Property and equipment	11,318	12,025
Right-of-use assets	34,292	35,509
Deferred tax asset(note 10)	1,878	1,822
Total assets	112,123	122,491
Liabilities and shareholders’ equity
Current liabilities:
Trade payables and accrued liabilities	5,597	6,316
Income taxes payable (note 10)	36	49
Deferred revenue (note 4)	21,242	30,461
Lease liability (note 5)	1,436	1,356
	28,311	38,182
Long-term stock-based compensation liability (note 11(c))	1,052	1,281
Long-term lease liability (note 5)	38,914	39,606
Total liabilities	68,277	79,069
Shareholders’ equity:
Share capital (note 11)	80,248	80,051
Contributed surplus	14,630	14,251
Deficit	(51,032)	(50,880)
Total shareholders' equity	43,846	43,422
Total liabilities and shareholders' equity	112,123	122,491

Subsequent event (note 15)

See accompanying notes to condensed consolidated interim financial statements.

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Q2 2022

Computer Modelling Group Ltd.

Condensed Consolidated Interim Financial Statements

Condensed Consolidated Statements of Operations and Comprehensive Income

Comprehensive Income
	Three months ended			Six months ended
	September 30			September 30
UNAUDITED (thousands of Canadian $ exceptper share amounts)	2021		2020	2021		2020
Revenue(note 6)	15,949		17,852	30,363		34,524
Operating expenses (note 7)
Sales, marketing and professional services	3,840		3,590	7,252		7,874
Research and development (note 8)	4,656		3,107	8,673		8,066
General and administrative	2,013		1,294	3,425		3,012
	10,509		7,991	19,350		18,952
Operating profit	5,440		9,861	11,013		15,572
Finance income (note 9)	384		97	224		196
Finance costs(note 9)	(503)		(598)	(1,089)		(2,003)
Profit before income and other taxes	5,321		9,360	10,148		13,765
Income and other taxes(note 10)	1,175		2,600	2,269		3,743
Net and total comprehensive income	4,146		6,760	7,879		10,022
Earnings per share
Basic and diluted (note 11(d))	0.05		0.08	0.10		0.12

See accompanying notes to condensed consolidated interim financial statements.

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Q2 2022

Computer Modelling Group Ltd.

Condensed Consolidated Interim Financial Statements

Condensed Consolidated Statements of Changes in Equity

Share	Contributed	Total
UNAUDITED (thousands of Canadian $) capital	surplus	Deficit equity
Balance, April 1, 2020 79,851 Total comprehensive income for the year - Dividends paid - Shares issued on redemption of restricted share units (note 11(b)) 200 Stock-based compensation: Currentperiod expense(note 11(c)) -	13,533 - - - 341	(55,015) 38,369 10,022 10,022 (8,026) (8,026) - 200 - 341
Balance, September 30, 2020 80,051	13,874	(53,019) 40,906
Balance, April 1, 2021 80,051	14,251	(50,880) 43,422
Total comprehensive income for the year -	-	7,879 7,879
Dividends paid -	-	(8,031) (8,031)
Shares issued on redemption of restricted share units (note 11(b)) 197	-	- 197
Stock-based compensation:
Currentperiod expense(note 11(c)) -	379	- 379
Balance, September 30, 2021 80,248	14,630	(51,032) 43,846

See accompanying notes to condensed consolidated interim financial statements.

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Q2 2022

Computer Modelling Group Ltd.

Condensed Consolidated Interim Financial Statements

Condensed Consolidated Statements of Cash Flows

	Three	months ended	Six months ended	Six months ended
		September 30	September 30
UNAUDITED (thousands of Canadian $)	2021	2020	2021	2020
Operating activities
Net income	4,146	6,760	7,879	10,022
Adjustments for:
Depreciation	1,033	1,072	2,056	2,128
Deferred income tax expense (recovery) (note 10)	157	(7)	(55)	(434)
Stock-based compensation(note 11(c))	(432)	166	(165)	978
Funds flow from operations	4,904	7,991	9,715	12,694
Movement in non-cash working capital:
Trade and other receivables	(5,264)	(3,383)	9,158	15,202
Trade payables and accrued liabilities	1,582	(1,282)	(209)	(2,047)
Prepaid expenses	(153)	(128)	(200)	(168)
Income taxes payable	(867)	62	(1,527)	1,092
Deferred revenue	(2,209)	(5,943)	(9,219)	(14,289)
Increase in non-cash workingcapital	(6,911)	(10,674)	(1,997)	(210)
Net cash(used in) provided by operating activities	(2,007)	(2,683)	7,718	12,484
Financing activities
Repayment of lease liability (note 5)	(277)	(317)	(583)	(632)
Dividendspaid	(4,016)	(4,013)	(8,031)	(8,026)
Net cash used in financing activities	(4,293)	(4,330)	(8,614)	(8,658)
Investing activities
Propertyand equipment additions	(133)	(200)	(160)	(349)
(Decrease) Increase in cash	(6,433)	(7,213)	(1,056)	3,477
Cash, beginningofperiod	54,445	51,195	49,068	40,505
Cash, end ofperiod	48,012	43,982	48,012	43,982
Supplementary cash flow information
Interest received (note 9)	126	99	224	198
Interest paid (notes 5 and 9)	503	521	1,010	1,046
Income taxes paid	1,782	3,294	3,510	3,478

See accompanying notes to condensed consolidated interim financial statements.

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Q2 2022

Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Notes to Condensed Consolidated Interim Financial Statements

For the three and six months ended September 30, 2021 and 2020.

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 3710 33 Street N.W., Calgary, Alberta, Canada, T2L 2M1. The condensed consolidated interim financial statements as at and for the three and six months ended September 30, 2021 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 in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting . Accordingly, they do not include all of the information required for full annual financial statements and should be read in conjunction with the Company’s most recent annual consolidated financial statements as at and for the year ended March 31, 2021, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These unaudited condensed consolidated interim financial statements as at and for the three and six months ended September 30, 2021 were authorized for issuance by the Board of Directors on November 9, 2021.

(b) Basis of Measurement:

The condensed consolidated interim 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 interim financial statements are presented in Canadian dollars, which is the Company’s functional currency. 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. Estimates and underlying assumptions are reviewed on an ongoing 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.

Significant estimates and judgments used in the preparation of these condensed consolidated interim financial statements were the same as those that applied to the consolidated financial statements for the year ended March 31, 2021.

(e) Impact of the COVID-19 Pandemic:

In March 2020, the World Health Organization declared the coronavirus outbreak a pandemic. Responses to the spread of COVID-19 resulted in a partial shutdown of the global economy leading to significant disruption to business operations and a significant increase in economic uncertainty with volatile commodity prices and currency exchange rates. In addition,

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Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

fluctuating demand for crude oil resulting from world economies emerging from and then entering into subsequent COVID-19 waves has resulted in significant volatility in global energy prices. These events are resulting in a challenging economic climate in which it is difficult to reliably estimate the length or severity of these developments and their financial impact. A potential adverse impact to the Company includes reductions in revenues and cash flows and increased risk of non-payment from customers. Estimates made during this period of extreme volatility are subject to a higher level of uncertainty and as a result, there may be a further prospective impact in future periods.

3. 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.

Property, equipment and right-of-use assets of the Company are located in the following geographic regions (for revenue by geographic region, refer to note 6):

(thousands of $)	September 30, 2021	March 31, 2021
Canada	44,678	46,393
United States	643	755
South America	254	325
Eastern Hemisphere(1)	35	61
	45,610	47,534

(1) Includes Europe, Africa, Asia and Australia.

4. Deferred Revenue:

The following table presents changes in the deferred revenue balance:

(thousands of $)
Balance, March 31, 2021 Invoiced during the period, excluding amounts recognized as revenue during the period Recognition of deferred revenue included in the balance at the beginningof theperiod	30,461
	10,929
	(20,148)
Balance, September 30, 2021	21,242

5. Lease Liability:

The Company’s leases are for office space, the most significant of which is the twenty-year head office lease that commenced in 2017. These leases contain renewal options for additional terms, but since the Company is not reasonably certain it will exercise the renewal options, they have not been included in the measurement of the lease obligations.

(thousands of $)
Balance, March 31, 2021	40,962
Interest on lease liability (note 9)	1,010
Lease payments	(1,593)
Remeasurement due to renegotiated leasepayments	(29)
Balance, September 30, 2021	40,350
Current	1,436
Long-term	38,914

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Q2 2022

Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

The following table presents contractual undiscounted payments for lease liability as at September 30, 2021:

(thousands of $)
Less than one year	3,406
Between one and five years	14,042
More than fiveyears	41,513
Total undiscountedpayments	58,961

6. Revenue:

In the following table, revenue is disaggregated by geographical region and timing of revenue recognition:

	Three months ended	Three months ended		Six months ended
		September 30		September 30
(thousands of $)	2021	2020	2021	2020
Annuity/maintenance license revenue
Canada	3,088	3,143	6,122	6,355
United States	3,089	3,649	6,073	7,884
South America	1,817	1,702	3,311	3,092
Eastern Hemisphere	5,245	5,650	10,019	11,336
	13,239	14,144	25,525	28,667
Perpetual license revenue
Canada	-	-	-	-
United States	96	-	221	-
South America	-	979	-	979
Eastern Hemisphere	750	796	750	796
	846	1,775	971	1,775
Total software license revenue	14,085	15,919	26,496	30,442
Professional services
Canada	1,735	1,734	3,570	3,551
United States	25	154	57	391
South America	79	-	79	26
Eastern Hemisphere	25	45	161	114
	1,864	1,933	3,867	4,082
Total revenue
Canada	4,823	4,877	9,692	9,906
United States	3,210	3,803	6,351	8,275
South America	1,896	2,681	3,390	4,097
Eastern Hemisphere	6,020	6,491	10,930	12,246
	15,949	17,852	30,363	34,524

During the six months ended September 30, 2021, revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods is $0.4 million (2020 – $1.2 million).

The Company applies the practical expedient available under IFRS 15 and does not disclose the amount of the transaction price allocated to unsatisfied performance obligations if the underlying contract has an expected duration of one year or less.

Receivables from contracts with customers were as follows:

(thousands of $)	September 30, 2021	March 31, 2021
Receivables(included in "Trade and other receivables")	13,776	22,812

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Q2 2022

Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

During the six months ended September 30, 2021, one customer comprised 12.5% of the Company’s total revenue (2020 – two customers, 12.9% and 10.0%).

7. Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy

As a result of the decline in revenue, CMG became eligible for the Canada Emergency Wage Subsidy (“CEWS”) and the Canada Emergency Rent Subsidy (“CERS”) programs and recorded CEWS and CERS benefits of $0.4 million during the six months ended September 30, 2021 ($2.5 million during six months ended September 30, 2020). The CEWS and CERS benefits were recorded against the financial statement line items that they are intended to compensate, resulting in the following credits to the operating expense categories:

Three months ended September 30,	2021 2020
(thousands of $)
Sales, marketing and professional services	- (432) - (1,702) - (406)
Research and development
General and administrative
	- (2,540)
	2021 2020
Six months ended September 30,
(thousands of $)
Sales, marketing and professional services	(62) (432) (246) (1,702) (59) (406)
Research and development
General and administrative
	(367) (2,540)
8. Research and Development Costs:	2021 2020
Three months ended September 30,
(thousands of $)
Research and development, net of government grants	4,904 3,175 (248) (68)
Scientific research and experimental development(SR&ED)investment tax credits
	4,656 3,107
	2021 2020
Six months ended September 30,
(thousands of $)
Research and development, net of government grants	9,159 8,478 (486) (412)
Scientific research and experimental development(SR&ED)investment tax credits
	8,673 8,066
9. Finance Income and Finance Costs:	2021 2020
Three months ended September 30,
(thousands of $)
Interest income	126 97 258 -
Net foreign exchangegain
Finance income	384 97
Interest expense on lease liability (note 5) Net foreign exchange loss	(503) (521) - (77)
Finance costs	(503) (598)

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Q2 2022

Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Six months ended September 30,	2021 2020
(thousands of $)
Interest income	224 196
Finance income	224 196
Interest expense on lease liability (note 5) Net foreign exchange loss	(1,010) (1,046) (79) (957)
Finance costs	(1,089) (2,003)

10. Income and Other Taxes:

The major components of income tax expense are as follows:

Six months ended September 30,	2021	2020
(thousands of $)
Current year income tax expense	2,412	3,881
Adjustment forprioryear	(138)	(46)
Current income taxes	2,274	3,835
Deferred tax recovery	(55)	(434)
Foreign withholdingand other taxes	50	342
	2,269	3,743

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:

Six months ended September 30,	2021	2020
(thousands of $, unless otherwise stated)
Combined statutorytax rate	23.00%	24.75%
Expected income tax	2,334	3,407
Non-deductible costs	136	120
Withholding taxes	(79)	200
Effect of tax rates in foreign jurisdictions	(4)	(15)
Effect of statutory tax rate reduction	-	16
Adjustment for prior year	(138)	(46)
Other	20	61
	2,269	3,743

The components of the Company’s deferred tax asset are as follows:

(thousands of $)	September 30, 2021	March 31, 2021
Right-of-use assets	1,363	1,245
Stock-based compensation liability	446	616
Property and equipment	172	115
SR&ED investment tax credits	(103)	(154)
Net deferred tax asset	1,878	1,822

All movement in deferred tax assets and liabilities is recognized through net income of the respective period.

Prepaid income taxes and current income taxes payable have not been offset as the amounts relate to income taxes levied by different tax authorities on different taxable entities.

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Q2 2022

Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

11. Share Capital:

(a) Authorized:

An unlimited number of common shares, an unlimited number of non-voting shares, and an unlimited number of preferred shares, issuable in series.

(b) Issued:

(thousands of shares)		Common shares
Balance, April 1, 2020		80,249
Issued on redemption of restricted share units		37
Balance, September 30, 2020		80,286
Balance, April 1, 2021		80,286
Issued on redemption of restricted share units		49
Balance, September 30, 2021		80,335

(c) Stock-Based Compensation:

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense:

Three months ended September 30,	2021	2020
(thousands of $)
Equity-settled plans	185	175
Cash-settledplans	219	758
Total stock-based compensation expense	404	933
Six months ended September 30,	2021	2020
(thousands of $)
Equity-settled plans	379	341
Cash-settledplans	292	1,403
Total stock-based compensation expense	671	1,744

Liability Recognized for Stock-Based Compensation[(1)]

The following table summarizes liabilities for the Company’s cash-settled plans:

(thousands of $)	September 30, 2021	March 31, 2021
SARs	255	407
RSUs	828	1,641
PSUs	286	204
DSUs	569	426
Total stock-based compensation liability	1,938	2,678
Current, recorded within trade payables and accrued liabilities	886	1,397
Long-term, recorded in long-term stock-based compensation liability	1,052	1,281

(1) The intrinsic value of the vested awards at September 30, 2021 was $0.6 million.

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Q2 2022

Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

The Company has several stock-based compensation plans, including a stock option plan, a share appreciation rights plan, a performance share unit and restricted share unit plan, and a deferred share unit plan.

The maximum number of common shares reserved for issuance under the Company’s security-based compensation plans is limited to 10% of the issued and outstanding common shares. Based on this calculation, at September 30, 2021, the Company may reserve up to 8,033,000 common shares for issuance under its security-based compensation plans.

(i) Stock Option Plan

The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company’s shareholders on July 16, 2020. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. Fifty percent of stock options vest on the first anniversary from the grant date and then 25% vest on each of the second and third anniversary dates. Stock options have a five-year life.

The following table outlines changes in stock options:

Six months ended		Year ended
September 30, 2021		March 31, 2021
Number of Options (thousands) Weighted Average Exercise Price ($/share)	Number of Options (thousands)	Weighted Average Exercise Price ($/share)
Outstanding at beginning of period 3,524 7.82	3,900	9.64
Granted 1,006 3.98	796	5.10
Forfeited/expired (779) 9.68	(1,172)	12.03
Outstandingat end ofperiod 3,751 6.40	3,524	7.82
Options exercisable at end ofperiod 2,152 7.77	2,234	8.95

The range of exercise prices of stock options outstanding and exercisable at September 30, 2021 is as follows:

		Outstanding		Exercisable
Exercise Price ($/option)	Number of Options (thousands)	Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price ($/option)	Number of Options (thousands)	Weighted Average Exercise Price ($/option)
3.98 to 5.07 5.08 to 6.30 6.31 to 9.19 9.20 to 9.32 9.33 to 9.33	1,006	4.9 3.98	-	-
	786	3.9 5.08	393	5.08
	749	2.9 6.38	549	6.36
	465	1.9 9.20	465	9.20
	745	0.9 9.33	745	9.33
	3,751	3.1 6.40	2,152	7.77

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

	Six months ended	Year ended
	September 30, 2021	March 31, 2021
Fair value at grant date ($/option)	0.78 to 0.80	1.00 to 1.50
Share price at grant date ($/share)	3.98	5.08 to 6.59
Risk-free interest rate (%)	0.57 to 0.70	0.22 to 0.37
Estimated hold period prior to exercise (years)	3 to 4	3 to 4
Volatility in the price of common shares (%)	39 to 42	35 to 41
Dividend yield per common share (%)	5.18	3.06 to 3.71

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Q2 2022

Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

(ii) Share Appreciation Rights Plan

The Company adopted a share appreciation rights plan (“SAR Plan”) in November 2015. A share appreciation right (“SAR”) entitles the holder to receive a cash payment equal to the difference between the stated exercise price and the market price of the Company’s common shares on the date the SAR is exercised. SARs are granted to executive officers and employees residing and working outside of Canada. Fifty percent of SARs vest on the first year anniversary from the grant date and then 25% vest on each of the second and third year anniversary dates. SARs have a five-year life.

The following table outlines changes in SARs:

Six months ended		Year ended
September 30, 2021		March 31, 2021
Number of SARs (thousands) Weighted Average Exercise Price ($/SAR)	Number of SARs (thousands)	Weighted Average Exercise Price($/SAR)
Outstanding at beginning of period 1,373 8.19	1,152	8.80
Granted 278 3.98	221	5.08
Forfeited/expired (208) 9.78	-	-
Outstandingat end ofperiod 1,443 7.15	1,373	8.19
SARs exercisable at end of period 999 8.31	948	9.04

(iii) Share Unit Plans

Performance Share Units (PSUs) and Restricted Share Units (RSUs)

The Performance Share Unit and Restricted Share Unit Plan (“PSU & RSU Plan”) is open to all employees and contractors of the Company. PSUs cliff-vest at the end of three years, with the vesting multiplier ranging from 0.0 to 2.0 contingent upon achieving certain corporate performance criteria. RSUs vest annually over a three-year period. Upon vesting, PSUs and RSUs can be exchanged for common shares of the Company or surrendered for cash at the option of the holder. As such, the Company accounts for PSUs and RSUs as cash-settled awards and recognizes a liability for potential cash settlements.

The International Employees PSU & RSU Plan includes substantially the same terms, conditions and PSU performance criteria as the PSU & RSU Plan, with the main two exceptions being that (i) it is available only to employees and contractors residing and working outside of Canada and (ii) PSUs and RSUs under this plan can be redeemed for cash only. As such, the Company accounts for PSUs and RSUs issued under the International Employees PSU & RSU Plan as cash-settled awards and recognizes a liability for potential cash settlements.

Deferred Share Units (DSUs)

The DSU Plan was adopted in May 2017 and is limited to non-employee members of the Board of Directors. DSUs vest immediately, but are redeemable for cash only after a director ceases Board membership.

The following table summarizes the activity related to the Company’s share unit plans:

Six months ended	Year ended	Year ended
(thousands) September 30, 2021	March 31, 2021
RSUs PSUs DSUs RSUs	PSUs	DSUs
Outstanding at beginning of period 589 93 74 421	30	48
Granted 476 68 46 379	63	33
Exercised (255) - - (181)	-	(7)
Forfeited (64) - - (30)	-	-
Outstanding at end of period 746 161 120 589	93	74

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Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

(d) Earnings Per Share:

The following table summarizes the earnings and weighted average number of common shares used in calculating basic and diluted earnings per share:

Three months ended September 30, (thousands except per share amounts) 2021		2020
Earnings ($) Weighted average shares outstanding Earnings per share ($/share) Earnings ($)	Weighted average shares outstanding	Earnings per share ($/share)
Basic 4,146 80,307 0.05 6,760	80,265	0.08
Dilutive effect of share-based awards 353	235
Diluted 4,146 80,660 0.05 6,760	80,500	0.08
Six months ended September 30, (thousands except per share amounts) 2021		2020
Earnings ($) Weighted average shares outstanding Earnings per share ($/share) Earnings ($)	Weighted average shares outstanding	Earnings per share ($/share)
Basic 7,879 80,296 0.10 10,022	80,257	0.12
Dilutive effect of share-based awards 388	231
Diluted 7,879 80,684 0.10 10,022	80,488	0.12

During the three and six months ended September 30, 2021, 343,000 and 386,000 awards, respectively, (three and six months ended September 30, 2020 – 299,000 and 235,000 awards, respectively) were excluded from the computation of the weighted average number of diluted shares outstanding because their effect was not dilutive.

12. Financial Instruments:

Financial assets include cash and trade and other receivables which are classified as and measured at amortized cost, which approximates their fair values.

Financial liabilities include trade payables and accrued liabilities which are classified as other financial liabilities and are measured at amortized cost, which approximates their fair values.

13. Commitments:

(a) Research Commitment:

CMG, in partnership with Shell Global Solutions International B.V. (“Shell”) at present, and also in partnership with Petroleo Brasileiro S.A. historically, is the developer of CoFlow, the newest generation of reservoir and production system simulation software.

On January 1, 2017, Shell and CMG entered into an agreement (the “CoFlow Agreement”) with an initial five-year term whereby CMG would be responsible for the research and development costs of CoFlow and Shell would be responsible for providing a contribution for the continuing development of the software.

On December 21, 2020, the CoFlow Agreement was amended when Shell exercised its right to request a five-year term extension, commencing January 1, 2022. All other terms and conditions in the CoFlow Agreement, including any related amendments, remain unchanged and in full force and effect during the extended term. In September 2021, CMG and Shell

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Computer Modelling Group Ltd.

Notes to Condensed Consolidated Interim Financial Statements

agreed that CMG will add and/or allocate up to six additional full-time employees in order to accelerate CoFlow development and support targeted CoFlow deployments, and Shell’s contribution will increase accordingly.

CoFlow costs are estimated to be $8.3 million and Shell’s contribution is estimated to be $6.7 million in fiscal 2022, which includes the additional resources agreed to in September of 2021.

During the three and six months ended September 30, 2021, the Company recorded professional services revenue of $1.7 million and $3.4 million, respectively (three and six months ended September 30, 2020 – $1.7 million and $3.5 million, respectively), and CoFlow costs of $2.0 million and $3.8 million, respectively, to research and development expenses (three and six months ended September 30, 2020 – $1.3 million and $3.5 million, respectively).

(b) Commitments:

The Company’s non-lease commitments include operating cost commitments and short-term office leases:

(thousands of $)	September 30, 2021
Less than one year	1,010
Between one and five years	4,530
More than fiveyears	12,270
	17,810

14. Line of Credit:

The Company has arranged for a $2.0 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 September 30, 2021, $1.0 million (March 31, 2021 – $0.9 million) had been reserved on this line of credit for letters of credit supporting performance bonds.

15. Subsequent Event:

On November 9, 2021, the Board of Directors declared a quarterly cash dividend of $0.05 per share on its common shares, payable on December 15, 2021 to all shareholders of record at the close of business on December 7, 2021.

14

Q2 2022

Computer Modelling Group Ltd.