Computer Modelling Group Announces Third Quarter Results

Marketwired

CALGARY, ALBERTA--(Marketwire - Feb. 10, 2012) - Computer Modelling Group Ltd. ("CMG" or the "Company") (TSX:CMG.TO - News) 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)                                        

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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%

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For the nine months ended December 31,     2011    2010  $ change  % change 

($ thousands, except per share data)                                        

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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

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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

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Software licenses                     12,635  10,149  10,830  10,333  12,442

Professional services                  1,657   1,905   2,502   1,730   1,936

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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

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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

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                                                              Fiscal 2012(3)

($ thousands, unless                                                        

 otherwise stated)                         Q1              Q2             Q3

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Annuity/maintenance licenses            8,997           9,308         12,056

Perpetual licenses                      5,391           1,596          2,321

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Software licenses                      14,388          10,904         14,377

Professional services                   1,551           1,078          1,521

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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

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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

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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)                                                               

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Software licenses                        14,377  10,333     4,044        39%

Professional services                     1,521   1,730      (209)      -12%

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Total revenue                            15,898  12,063     3,835        32%

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Software license revenue - % of total                                       

 revenue                                     90%     86%                    

Professional services - % of total                                          

 revenue                                     10%     14%                    

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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%

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Total revenue                            43,819  37,449     6,370        17%

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Software license revenue - % of total                                       

 revenue                                     91%     84%                    

Professional services - % of total                                          

 revenue                                      9%     16%                    

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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)                                                               

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Annuity/maintenance licenses             12,056   7,999     4,057        51%

Perpetual licenses                        2,321   2,335       (14)       -1%

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Total software license revenue           14,377  10,333     4,044        39%

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Annuity/maintenance as a % of total                                         

 software license revenue                    84%     77%                    

Perpetual as a % of total software                                          

 license revenue                             16%     23%                    

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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%

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Total software license revenue           39,669  31,312     8,357        27%

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Annuity/maintenance as a % of total                                         

 software license revenue                    77%     77%                    

Perpetual as a % of total software                                          

 license revenue                             23%     23%                    

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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)                                                               

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US dollar annuity/maintenance                                               

 license sales                    US$ 8,711   US$ 5,161     3,550        69%

Weighted average conversion rate      0.992       1.044                     

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Canadian dollar equivalent       CDN$ 8,643  CDN$ 5,389     3,254        60%

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US dollar perpetual license sales US$ 1,866   US$ 1,883       (17)       -1%

Weighted average conversion rate      1.019       1.025                     

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Canadian dollar equivalent       CDN$ 1,902  CDN$ 1,930       (28)       -1%

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For the nine months ended                                                   

 December 31,                         2011         2010  $ change  % change 

($ thousands)                                                               

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US dollar annuity/maintenance                                               

 license sales                  US$ 20,160   US$ 15,907     4,253        27%

Weighted average conversion                                                 

 rate                                0.993        1.049                     

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Canadian dollar equivalent     CDN$ 20,020  CDN$ 16,683     3,337        20%

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US dollar perpetual license                                                 

 sales                          US$  9,144   US$  4,618     4,526        98%

Weighted average conversion                                                 

 rate                                0.969        1.036                     

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Canadian dollar equivalent     CDN$  8,857  CDN$  4,784     4,073        85%

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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)                                                               

----------------------------------------------------------------------------

                                                                            

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%

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Research and development                  2,747   2,408       339        14%

----------------------------------------------------------------------------

                                                                            

Research and development as a % of total                                    

 revenue                                     17%     20%                    

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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%

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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%

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Total depreciation and amortization           321   273        48        18%

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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%

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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                         -      -          -         - 

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Finance income                              123     91         32        35%

----------------------------------------------------------------------------

Finance costs (represented by foreign                                       

 exchange loss)                             (32)  (329)       297       -90%

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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

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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%

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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%                    

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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%

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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%

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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  

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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.                         

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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.                                      

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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).                                

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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.                                         

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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.                        

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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.                                 

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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.                            

----------------------------------------------------------------------------

----------------------------------------------------------------------------

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.                                      

----------------------------------------------------------------------------

----------------------------------------------------------------------------


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 

----------------------------------------------------------------------------

                                      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)         -          - 

----------------------------------------------------------------------------

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)         -          - 

----------------------------------------------------------------------------

Balance, December                                                           

 31, 2011             29,932           -        3,276      9,021     42,229 

----------------------------------------------------------------------------


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.

Contact:
Kenneth M. Dedeluk
Computer Modelling Group Ltd.
President & CEO
(403) 531-1300
ken.dedeluk@cmgl.ca

John Kalman
Computer Modelling Group Ltd.
Vice President, Finance & CFO
(403) 531-1300
john.kalman@cmgl.ca
www.cmgl.ca

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