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Press release from Marketwire

Computer Modelling Group Announces Third Quarter Results

Friday, February 11, 2011

Computer Modelling Group Announces Third Quarter Results08:00 EST Friday, February 11, 2011CALGARY, ALBERTA--(Marketwire - Feb. 11, 2011) - Computer Modelling Group Ltd. ("CMG" or the "Company") (TSX:CMG) is very pleased to announce our third quarter results for the three and nine months ended December 31, 2010.THIRD QUARTER HIGHLIGHTSFor the three months ended December 31,($ thousands, except per share data) 2010 2009 $ change % change----------------------------------------------------------------------------Annuity/maintenance software licenses 7,999 7,406 593 8%Perpetual software licenses 2,335 2,903 (568) -20%Total revenue 12,063 11,692 371 3%Gross profit 9,303 9,337 (34) 0%Earnings 3,563 4,000 (437) -11%Earnings per share - basic 0.20 0.23 (0.03) -13%----------------------------------------------------------------------------For the nine months ended December 31,($ thousands, except per share data) 2010 2009 $ change % change----------------------------------------------------------------------------Annuity/maintenance software licenses 24,178 21,854 2,324 11%Perpetual software licenses 7,134 5,461 1,673 31%Total revenue 37,449 31,011 6,438 21%Gross profit 28,965 24,004 4,961 21%Earnings 12,358 9,103 3,255 36%Earnings per share - basic 0.69 0.52 0.17 33%----------------------------------------------------------------------------MANAGEMENT'S DISCUSSION AND ANALYSISThis Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our"), presented as at February 10, 2011, should be read in conjunction with the unaudited consolidated financial statements and related notes of the Company for the nine months ended December 31, 2010 and the audited consolidated financial statements and MD&A for the years ended March 31, 2010 and 2009 contained in the 2010 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 Canadian Generally Accepted Accounting Principles ("GAAP") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars.FORWARD-LOOKING INFORMATIONCertain 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 its 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 staffForward-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 2010 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 rightsShould 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-GAAP FINANCIAL MEASURESThis MD&A contains the term "total expenses excluding depreciation and income and other taxes" which is not a measure defined by GAAP, does not have standardized meaning prescribed by GAAP and should not be considered an alternative to expenses as determined in accordance with GAAP. Total expenses excluding depreciation and income and other taxes as computed by CMG may differ from similar measures as reported by other issuers. This non-GAAP measure is presented in this MD&A because management considers it to be important in highlighting the quantitative impact of cost management as it relates to corporate and people-related costs. The items constituting the total expenses excluding depreciation and income and other taxes are clearly outlined in the table under the "Expenses" heading.CORPORATE PROFILECMG is a computer software technology and consulting company serving the oil and gas industry. The Company is a leading supplier of advanced processes reservoir modelling software in the world with a blue chip client base of international oil companies and technology centers in approximately 50 countries. 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 2009(1) Fiscal 2010(2) Fiscal 2011(3)($ thousands, unless otherwise stated) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3----------------------------------------------------------------------------Annuity/maintenance licenses 8,042 7,208 7,240 7,406 7,653 8,325 7,855 7,999Perpetual licenses 5,023 1,976 582 2,903 4,982 1,824 2,975 2,335----------------------------------------------------------------------------Software licenses 13,065 9,184 7,822 10,309 12,635 10,149 10,830 10,333Consulting and contract research 1,364 1,050 1,262 1,383 1,657 1,905 2,502 1,730----------------------------------------------------------------------------Total revenue 14,429 10,234 9,084 11,692 14,292 12,054 13,332 12,063Gross profit 11,789 7,882 6,785 9,337 11,586 9,396 10,266 9,303Gross profit % 82 77 75 80 81 78 77 77Earnings before income and other taxes 8,765 3,991 3,437 5,708 7,710 6,178 6,565 5,278Income and other taxes 2,648 1,302 1,023 1,708 2,350 1,949 1,999 1,715Earnings for the quarter 6,117 2,689 2,414 4,000 5,360 4,230 4,565 3,563Cash dividends declared and paid 2,588 6,975 3,179 3,194 3,209 6,274 3,430 3,623----------------------------------------------------------------------------Per share amounts - ($/share)Earnings per share - basic 0.35 0.16 0.14 0.23 0.30 0.24 0.25 0.20Earnings per share - diluted 0.35 0.15 0.13 0.22 0.30 0.23 0.25 0.19Cash dividends declared and paid 0.15 0.40 0.18 0.18 0.18 0.35 0.19 0.20----------------------------------------------------------------------------(1) Q4 of fiscal 2009 includes $1.1 million in revenue that pertains to usage of CMG's products in prior quarters.(2) Q1, Q2, Q3 and Q4 of fiscal 2010 include $0.4 million, $0.4 million, $0.3 million and $0.4 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.(3) Q1, Q2 and Q3 of fiscal 2011 include $1.1 million, $0.2 million and $0.3 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.REVENUEFor the three months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Software licenses 10,333 10,309 24 0%Consulting and contract research 1,730 1,383 347 25%----------------------------------------------------------------------------Total revenue 12,063 11,692 371 3%----------------------------------------------------------------------------Software license revenue - % of total revenue 86% 88%Consulting and contract research - % of total revenue 14% 12%----------------------------------------------------------------------------For the nine months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Software licenses 31,312 27,315 3,997 15%Consulting and contract research 6,137 3,695 2,442 66%----------------------------------------------------------------------------Total revenue 37,449 31,011 6,438 21%----------------------------------------------------------------------------Software license revenue - % of total revenue 84% 88%Consulting and contract research - % of total revenue 16% 12%----------------------------------------------------------------------------CMG's revenue is comprised of software license sales, which provide the majority of the Company's revenue, and consulting and contract research fees. The 3% increase in total revenue in the three months ended December 31, 2010 compared to the same period of previous fiscal year is attributable solely to the increase in consulting and contract research revenue while the revenue derived from software licenses remained consistent between the two periods. The 21% increase in total revenue in the nine months ended December 31, 2010, compared to the nine months ended December 31, 2009 is primarily due to the growth in both annuity/maintenance license revenue and perpetual license revenue (see further discussion below). We have also experienced an increase in consulting and training activities in the current fiscal year which further contributed to our year-to-date revenue growth.Software License RevenueSoftware 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,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Annuity/maintenance licenses 7,999 7,406 593 8%Perpetual licenses 2,335 2,903 (568) -20%----------------------------------------------------------------------------Total software license revenue 10,333 10,309 24 0%----------------------------------------------------------------------------Annuity/maintenance as a % of total software license revenue 77% 72%Perpetual as a % of total software license revenue 23% 28%----------------------------------------------------------------------------For the nine months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Annuity/maintenance licenses 24,178 21,854 2,324 11%Perpetual licenses 7,134 5,461 1,673 31%----------------------------------------------------------------------------Total software license revenue 31,312 27,315 3,997 15%----------------------------------------------------------------------------Annuity/maintenance as a % of total software license revenue 77% 80%Perpetual as a % of total software license revenue 23% 20%----------------------------------------------------------------------------The total software license revenue for the three months ended December 31, 2010 is comparable to the total software license revenue generated during the same period of last year as the increase in a more stable and predictable annuity/maintenance license revenue stream has been offset by the decrease in the more unpredictable perpetual license sale revenue. The 15% growth in software license revenue in the nine months ended December 31, 2010 compared to the same period of previous fiscal year is attributable mainly to the increase in annuity/maintenance license revenue related to increased sales to new and existing customers as well as the increase in perpetual sales driven by a large perpetual sale made during the second quarter of the current fiscal year. As discussed below, the increase in both current quarter and year-do-date revenue amounts was partially offset by the decrease in both annuity/maintenance and perpetual license revenue as a result of the strengthening of the Canadian dollar relative to the US dollar.The following table summarizes the US dollar denominated revenue and the weighted average exchange rate at which it was converted to Canadian dollars:For the three months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Annuity/maintenance license sales in US dollars US$ 5,161 US$ 4,371 790 18%Weighted average conversion rate 1.04 1.15----------------------------------------------------------------------------Annuity/maintenance license sales in Canadian dollars CDN$ 5,389 CDN$ 5,048 341 7%----------------------------------------------------------------------------Perpetual license sales in US dollars US$ 1,883 US$ 2,717 (834) -31%Weighted average conversion rate 1.02 1.07----------------------------------------------------------------------------Perpetual license sales in Canadian dollars CDN$ 1,930 CDN$ 2,903 (973) -34%----------------------------------------------------------------------------For the nine months ended December 31, 2010 2009 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/maintenance license sales in US dollars US$ 15,907 US$ 12,855 3,052 24%Weighted average conversion rate 1.05 1.17----------------------------------------------------------------------------Annuity/maintenance license sales in Canadian dollars CDN$ 16,683 CDN$ 15,094 1,589 11%----------------------------------------------------------------------------Perpetual license sales in US dollars US$ 4,618 US$ 4,913 (295) -6%Weighted average conversion rate 1.04 1.11----------------------------------------------------------------------------Perpetual license sales in Canadian dollars CDN$ 4,784 CDN$ 5,461 (677) -12%----------------------------------------------------------------------------CMG's annuity/maintenance license revenue increased by 8% and 11% during the three and nine months ended December 31, 2010, respectively, compared to the same periods of last year. As discussed in our 2010 fiscal year end and Q1 of fiscal 2011 MD&A's, the fourth quarter results of fiscal 2010 did not include an amount of revenue from a customer for which revenue recognition criteria are fulfilled only at the time of the receipt of cash. During the first quarter of the current fiscal year, this amount was received and was included in Q1 2011 revenue. If we adjust for this amount, our year-to-date annuity/maintenance revenue increased by 6%. This increase was driven by greater take up of annuity licenses by our existing customers along with some new customers and the increased maintenance revenue tied to our strong perpetual sales in fiscal 2009 and 2010. It is noteworthy that our annuity/maintenance license revenue, representing a recurring revenue stream, is experiencing steady growth quarter over quarter as evidenced by the 8% increases in each of Q2 and Q3 of the current fiscal year despite the negative effects of the foreign exchange as discussed below.The increase in annuity/maintenance revenue has been negatively affected by the strengthening of the Canadian dollar relative to the US dollar. As illustrated in the table above, the weakening of the US dollar in relation to the Canadian dollar negatively impacted the current quarter and year-to-date annuity/maintenance revenue by approximately $0.6 million and $2.0 million respectively.Software license revenue under perpetual sales decreased by 20% for the three months ended December 31, 2010 compared to the same period of previous fiscal year whereas the perpetual license sale revenue for the nine months ended December 31, 2010 increased by 31% compared to the same period of previous fiscal year. The majority of this increase is a direct result of the large perpetual sale made during the second 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. The current quarter's decrease in perpetual sales is a testament to the unpredictability of this revenue stream. We can observe from the table above that the increase in perpetual sales in US dollars was partially offset by the negative effect of foreign exchange resulting from the strengthening Canadian dollar in the current fiscal year which caused a negative impact of approximately $0.4 million on the amount of perpetual revenue recorded in Canadian dollars during nine months ended December 31, 2010.Segmented RevenueFor the three months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Annuity/Maintenance Revenue Canada 2,859 2,507 352 14% United States 1,779 1,632 147 9% Other 3,361 3,267 94 3%---------------------------------------------------------------------------- 7,999 7,406 593 8%----------------------------------------------------------------------------Perpetual Revenue Canada 405 598 (193) -32% United States 248 42 206 490% Other 1,682 2,263 (581) -26%---------------------------------------------------------------------------- 2,335 2,903 (568) -20%----------------------------------------------------------------------------Total Software Revenue Canada 3,264 3,105 159 5% United States 2,026 1,674 352 21% Other 5,043 5,530 (487) -9%---------------------------------------------------------------------------- 10,333 10,309 24 0%----------------------------------------------------------------------------For the nine months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Annuity/Maintenance Revenue Canada 8,013 7,181 832 12% United States 5,184 4,814 370 8% Other 10,981 9,860 1,121 11%---------------------------------------------------------------------------- 24,178 21,854 2,324 11%----------------------------------------------------------------------------Perpetual Revenue Canada 2,350 640 1,710 267% United States 1,262 482 780 162% Other 3,522 4,340 (818) -19%---------------------------------------------------------------------------- 7,134 5,461 1,673 31%----------------------------------------------------------------------------Total Software Revenue Canada 10,363 7,821 2,542 33% United States 6,446 5,296 1,150 22% Other 14,503 14,199 304 2%---------------------------------------------------------------------------- 31,312 27,315 3,997 15%----------------------------------------------------------------------------On a geographic basis, software license sales to CMG's two most sizeable markets, Canada and the United States, continued to demonstrate strong revenue growth of 33% and 22%, respectively, for nine months ended December 31, 2010. The majority of revenue growth in both regions was derived from sales of perpetual licenses. CMG's other markets continue to have a stable recurring annuity/maintenance revenue base with the year-to-date increase of $1.1 million; however, current year-to-date perpetual sale levels in other markets didn't match the year-to-date sales of the previous fiscal year. This is indicative of the unpredictable nature of the timing and location of perpetual sales. The increases in US-dollar generated revenue from the US and other markets have been negatively affected by the strengthening Canadian dollar compared to the US dollar in the current fiscal year. Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions.As footnoted in the Quarterly Performance table, in the normal course of business CMG may complete the negotiation of certain annuity/maintenance contracts and/or fulfill revenue recognition requirements within a current quarter that includes usage of CMG's products in prior quarters. This situation particularly affects contracts negotiated with countries that face increased economic and political risks leading to revenue recognition criteria being satisfied only at the time of the receipt of cash. The dollar magnitude of such contracts may be significant to the quarterly comparatives of our annuity/maintenance revenue stream and, to provide a normalized comparison, we specifically identify the revenue component where revenue recognition is satisfied in the current period for products provided in previous quarters.Deferred Revenue($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Deferred revenue at March 31 13,843 11,796 2,047 17%Deferred revenue at June 30 12,496 10,919 1,577 14%Deferred revenue at September 30 12,658 10,192 2,466 24%Deferred revenue at December 31 11,892 9,468 2,424 26%----------------------------------------------------------------------------CMG's deferred revenue primarily consists 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 the year is due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year. Deferred revenue at December 31, 2010 increased compared to the prior fiscal year due to both renewal of the existing and signing of the new annuity and maintenance contracts in the quarter.Consulting and Contract Research RevenueCMG recorded consulting and contract research revenue of $1.7 million and $6.1 million for the three and nine months ended December 31, 2010, respectively, up $0.3 million and $2.4 million from the amounts recorded for the same periods of last fiscal year. This growth reflects the increase in project activities by our clients and the associated consulting and training activities in the current quarter following the economic downturn experienced in the corresponding periods of the prior year. In addition, CMG has been engaged in a couple of large projects in the current fiscal year further contributing to the increase in consulting revenue.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, 2010, approximately $0.5 million (2009 - $0.2 million) is included in deferred revenue relating to consulting and contract research activities.EXPENSESFor the three months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Cost of sales 2,760 2,355 405 17%General and administrative expenses 1,236 1,102 134 12%Product research and development (net of SR&ED) 2,276 2,091 185 9%----------------------------------------------------------------------------Total expenses excluding depreciation and income and other taxes 6,272 5,548 724 13%----------------------------------------------------------------------------Direct employee costs(1) 5,022 4,508 514 11%Other corporate costs 1,250 1,040 210 20%---------------------------------------------------------------------------- 6,272 5,548 724 13%----------------------------------------------------------------------------For the nine months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Cost of sales 8,484 7,007 1,477 21%General and administrative expenses 3,473 3,236 237 7%Product research and development (net of SR&ED) 6,596 6,130 466 8%----------------------------------------------------------------------------Total expenses excluding depreciation and income and other taxes 18,553 16,373 2,180 13%----------------------------------------------------------------------------Direct employee costs(1) 14,845 13,127 1,718 13%Other corporate costs 3,708 3,246 462 14%---------------------------------------------------------------------------- 18,553 16,373 2,180 13%----------------------------------------------------------------------------(1) Includes salaries, bonuses, stock-based compensation, benefits and commissions.CMG's total expenses, excluding depreciation and income and other taxes, increased by 13% during the three and nine months ending December 31, 2010 as a result of the increases in both direct employee and other corporate costs.Direct Employee CostsAs a technology company, CMG's largest area of expenditure is for its people. Approximately 80 percent of the total expenses in the nine months ended December 31, 2010 related to staff costs, which compares to 80 percent of the total expenses in the comparative period of last year. Staffing levels for the first nine months of the current fiscal year grew throughout the Company to support our continued growth. At December 31, 2010, CMG's staff complement was 131 employees, up from 125 employees as at December 31, 2009. Direct employee costs increased during the third quarter of fiscal 2011 due to staff additions, increased levels of compensation and related benefits.Other Corporate CostsOther corporate costs increased by $0.2 million and $0.5 million for the three and nine months ending December 31, 2010, respectively, due to higher infrastructure costs related to the new leases for expanded office space which were partially offset by the decrease in the use of third party consulting and professional services. In addition, other corporate costs for nine months ended December 31, 2010 include the expenses associated with CMG's biennial technical symposium.Research and DevelopmentFor the three months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Product research and development (gross) 2,527 2,394 133 6%SR&ED credits (250) (303) 53 -17%----------------------------------------------------------------------------Product research and development (net) 2,276 2,091 185 9%Depreciation 132 120 12 10%----------------------------------------------------------------------------Total product research and development 2,408 2,211 197 9%----------------------------------------------------------------------------Total product research and development as a % of total revenue 20% 19%----------------------------------------------------------------------------For the nine months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Product research and development (gross) 7,364 6,987 377 5%SR&ED credits (768) (857) 89 -10%----------------------------------------------------------------------------Product research and development (net) 6,596 6,130 466 8%Depreciation 344 315 29 9%----------------------------------------------------------------------------Total product research and development 6,941 6,445 496 8%----------------------------------------------------------------------------Total product research and development as a % of total revenue 19% 21%----------------------------------------------------------------------------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 product 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 ending December 31, 2010, respectively (2009 - $0.6 million and $1.8 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."The increases of 6% and 5% in our gross spending on product research and development for the three and nine months ending December 31, 2010, respectively, demonstrate our continued commitment to advancement of our technology. During the three and nine months ended December 31, 2010, increased employee-related costs were partially offset by the reduction of third party consulting costs associated with certain research initiatives. The increase in office leases further contributed to the overall increase in product research and development costs. At the same time, we had a slight reduction in scientific research and experimental development ("SR&ED") credits mainly due to claiming fewer hours that qualify for SR&ED program.Depreciation and AmortizationFor the three months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Property and equipment - general 142 104 38 37%Property and equipment - research and development 132 120 12 10%----------------------------------------------------------------------------Total depreciation and amortization 274 224 50 22%----------------------------------------------------------------------------For the nine months ended December 31, 2010 2009 $ change % change($ thousands)----------------------------------------------------------------------------Property and equipment - general 407 274 133 48%Property and equipment - research and development 344 315 29 9%----------------------------------------------------------------------------Total depreciation and amortization 751 589 162 27%----------------------------------------------------------------------------The increase in depreciation and amortization reflects the increase in our asset base, mainly related to the increased office space and computing resources.Interest Income and Foreign ExchangeFor the three months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Interest and other income 91 29 62 214%----------------------------------------------------------------------------Foreign exchange gain (loss) (329) (241) (88) 37%----------------------------------------------------------------------------For the nine months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Interest and other income 179 102 77 75%----------------------------------------------------------------------------Foreign exchange gain (loss) (303) (1,015) 712 -70%----------------------------------------------------------------------------Interest income increased slightly in the three and nine months ending December 31, 2010 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 67% (2009 - 73%) of CMG's revenue for the nine months ended December 31, 2010 is denominated in US dollars, whereas only approximately 24% (2009 - 19%) of CMG's total costs are denominated in US dollars.---------------------------------------------------------------------------- Nine month trailingCDN$ to US$ At March 31 At June 30 At September 30 At December 31 average----------------------------------------------------------------------------2008 0.9729 0.9817 0.9435 0.8166 0.93242009 0.7935 0.8602 0.9327 0.9555 0.91082010 0.9846 0.9429 0.9711 1.0054 0.9697----------------------------------------------------------------------------The strengthening Canadian dollar versus US dollar average exchange rate in the third quarter of fiscal 2011 has negatively impacted our current period sales as well as the valuation of our US dollar net working capital position at the end of the current quarter. CMG recorded a foreign exchange loss of $0.3 million for the three months ended December 31, 2010 compared to $0.2 million loss recorded in the same period of last year. The foreign exchange gain recorded in Q1 of fiscal 2011 minimized some of the impact of the year-to-date foreign exchange loss recorded in the current fiscal year which amounted to $0.3 million compared to $1.0 million loss recorded in the same period of last year.Overall, we have observed lower volatility in the foreign exchange between the US and Canadian dollars in the first nine months of the current fiscal year compared to the same period of last year, minimizing the negative effect on our year-to-date foreign exchange recorded in the current year compared to last year.Income and Other TaxesCMG's effective tax rate for the nine months ended December 31, 2010 is reflected as 31.42% (2009 - 30.70%), whereas the prevailing Canadian statutory tax rate is now 27.63%. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts future income taxes. The investment tax credit earned in the current fiscal period is utilized by CMG to reduce income taxes otherwise payable for the current fiscal year and the federal portion of this benefit bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a current future income tax liability and then, in the following fiscal year, is transferred to income taxes payable.GROSS PROFIT AND EARNINGSFor the three months ended December 31, ($ thousands, except per share amounts) 2010 2009 $ change % change----------------------------------------------------------------------------Total revenue 12,063 11,692 371 3%Cost of sales (2,760) (2,355) (405) 17%----------------------------------------------------------------------------Gross profit 9,303 9,337 (34) 0%Gross profit as a % of revenue 77% 80%----------------------------------------------------------------------------Earnings for the period 3,563 4,000 (437) -11%Earnings for the period as a % of revenue 30% 34%----------------------------------------------------------------------------Earnings per share ($/share) 0.20 0.23 (0.03) -13%----------------------------------------------------------------------------For the nine months ended December 31,($ thousands, except per share amounts) 2010 2009 $ change % change----------------------------------------------------------------------------Total revenue 37,449 31,011 6,438 21%Cost of sales (8,484) (7,007) (1,477) 21%----------------------------------------------------------------------------Gross profit 28,965 24,004 4,961 21%Gross profit as a % of revenue 77% 77%----------------------------------------------------------------------------Earnings for the period 12,358 9,103 3,255 36%Earnings for the period as a % of revenue 33% 29%----------------------------------------------------------------------------Earnings per share ($/share) 0.69 0.52 0.17 33%----------------------------------------------------------------------------CMG's gross profit for the three and nine months ending December 31, 2010 was at 77% which is comparable to 80% and 77% recorded in the comparable periods of prior fiscal year which demonstrates CMG's ability to sustain its gross profit margin.Earnings for the period as a percentage of revenue decreased to 30% for the three months ending December 31, 2010 from 34% recorded in the same period of previous fiscal year as a result of slight increases in expenditures as well as the negative impact of foreign exchange loss for the quarter.Year-to-date earnings for the period as a percentage of revenue increased to 33% for the nine months ended December 31, 2010 compared to 29% recorded in the comparative period of previous fiscal year. The increase is a result of higher revenue, improvement in the recorded year-to-date foreign exchange impact and effective management of corporate costs.LIQUIDITY AND CAPITAL RESOURCESFor the three months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Cash, beginning of period 32,565 27,154 5,411 20%Cash flow from (used in) Operating activities 8,378 4,842 3,536 73% Financing activities (2,669) (2,732) 63 -2% Investing activities (262) (401) 139 -35%----------------------------------------------------------------------------Cash, end of period 38,012 28,864 9,148 32%For the nine months ended December 31,($ thousands) 2010 2009 $ change % change----------------------------------------------------------------------------Cash, beginning of period 28,826 34,701 (5,875) -17%Cash flow from (used in) Operating activities 20,466 5,608 14,858 265% Financing activities (10,345) (10,399) 54 -1% Investing activities (935) (1,047) 112 -11%----------------------------------------------------------------------------Cash, end of period 38,012 28,864 9,148 32%----------------------------------------------------------------------------Operating ActivitiesThe increase of $3.5 million in operating activities during the current quarter is mainly a result of the collection of accounts receivable, lower prepaid expenses and the change in income taxes from the prepaid to the payable amount. These increases have been offset by the decrease in quarterly earnings and lower accounts payable.The increase of $14.9 million for the nine months ending December 31, 2010 in operating activities is a result of higher year-to-date net earnings, lower accounts receivable balance reflective of the collection of the sales, elimination of prepaid income taxes carried on the books at fiscal 2010 year end affected by the variation in the amount of tax installment payments made and the decrease in deferred revenue balance.Financing ActivitiesDuring the nine months ended December 31, 2010, CMG employees and directors exercised options to purchase 318,069 Common Shares, which resulted in cash proceeds of $3.0 million.In the nine months ended December 31, 2010, CMG paid $13.3 million in dividends, representing the quarterly dividends of $0.18, $0.19, and $0.20 per share for the first, second and third quarters respectively, and a special dividend of $0.17 per share. On February 10, 2011, CMG announced the payment of a quarterly dividend of $0.20 per share on CMG's Common Shares. The dividend will be paid on March 15, 2011 to shareholders of record at the close of business on March 4, 2011.On March 22, 2010, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on March 23, 2010 to purchase for cancellation up to 1,314,686 of its Common Shares. No shares have been purchased pursuant to this NCIB through December 31, 2010.Investing ActivitiesCMG'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, 2010, CMG expended $0.9 million on property and equipment additions and expects to spend $0.5 million or less for the balance of the fiscal year.Liquidity and Capital ResourcesAt December 31, 2010, CMG has $38.0 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, 2010, 5,473,278 shares of CMG's public float were traded on the TSX Stock Exchange. As at December 31, 2010, CMG's market capitalization based upon its December 31, 2010 closing price of $25.85 was $469.1 million.COMMITMENTS, OFF BALANCE SHEET ITEMS AND TRANSACTIONS WITH RELATED PARTIESIn 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 and Petroleo Brasileiro S.A., of which $9.2 million has been incurred from inception to December 31, 2010. While the original funding will be fulfilled in the first quarter of fiscal 2012, CMG and its partners are committed to continue funding the project beyond this time period. CMG's share is estimated to be $3.0 million per year.In conjunction with entering into this project, CMG Reservoir Simulation Foundation ("the Foundation") agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50 percent of the Company's estimated share of project costs over the duration of the project. During the nine months ended December 31, 2010, CMG has reflected $1.0 million (2009 - $0.9 million) in research grants from the Foundation in revenue with respect to this project. From commencement of the project to December 31, 2010, these research grants aggregate to $4.6 million.CMG plans to fund its share of the project costs associated with the development of the newest generation reservoir simulation software system from internal cash and funding from the Foundation until the first quarter of fiscal 2012 and from internal cash flows beyond this time period.CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which is reflected as deferred revenue on its balance sheet, and contractual obligations for office leases which are estimated as follows: 2011 - $0.4 million; 2012 - $1.5 million; 2013 and 2014 - $1.4 million per year; and 2015 - $1.0 million.BUSINESS RISKS AND CRITICAL ACCOUNTING ESTIMATESThese remain unchanged from the factors detailed in CMG's 2010 Annual Report.RECENT ACCOUNTING PRONOUNCEMENTSInternational Financial Reporting StandardsIn February 2008, the AcSB confirmed that all Canadian publicly accountable enterprises will be required to adopt International Financial Reporting Standards ("IFRS") for interim and annual financial reporting purposes for fiscal years beginning on or after January 1, 2011 with comparatives for the prior year. The Company will be required to report financial statements prepared in accordance with IFRS for the fiscal year ending March 31, 2012 with comparatives for fiscal year ending March 31, 2011.A project team has been set up to manage the transition and ensure successful implementation by April 1, 2011. The changeover plan has been developed and is expected to be carried out in the following phases, subject to modifications as we proceed with transition:Diagnostic AnalysisPreliminary Assessment- Initial project plan considering resources, timelines and overall project approach- Identify key areas of differences between GAAP and IFRSDetailed Assessment- Identify and evaluate IFRS 1 elective and mandatory exemptions- Provide detailed assessment of the available accounting policy alternatives- Provide recommendations on the adoption of accounting policiesStatus: This phase is substantially complete as all IFRS standards having a potential impact on CMG have now been analyzed with the exception of financial statement presentation and disclosure. See the table below for results of our analysis.Plan and Design- Evaluate business processes and information requirements- Develop detailed project plan for the implementation for each specific item- Develop timelines, resource requirements, status reporting and training programs- Assess effects on computer systems and internal controls over financial reportingStatus: This phase is ongoing throughout the process. See the table below for further details.Implement and Monitor- Implement processes for required information gathering- Prepare IFRS compliant financial statements and notes- Implement and test internal controls over financial reporting and any changes to computer systems- Provide ongoing training and education- Monitor reporting requirements on an on-going basisStatus: This phase is ongoing throughout the process. See the table below for further details.Summary of Transition ProgressAccounting policesAs at the date of this MD&A, we have completed our detailed analysis of the accounting policy choices and have drafted preliminary conclusions and recommendations. All IFRS standards that we believe could have a potential impact on us have been analyzed with the exception of financial statement presentation and disclosure.We have also completed our preliminary opening balance sheet under IFRS which resulted in only one reclassification adjustment of future income tax liability associated with SR&ED credits from short-term to long-term.Another item that we expected to result in a potential adjustment to our opening balance sheet under IFRS due to differences in accounting treatment between IFRS and Canadian GAAP includes stock-based compensation; however, our calculation produced an insignificant difference between the amounts calculated under IFRS and under Canadian GAAP requiring no adjustment to the opening balance sheet under IFRS.We are moving ahead with the analysis of presentation and disclosure requirements as well as developing mock financial statements. We expect to complete this phase in the fourth quarter.Analysis of accounting policies is ongoing and may result in further changes. Accordingly, we will provide updates as they become available.IFRS 1IFRS 1 provides detailed guidance on the procedures to follow when adopting IFRS for the first time. It specifies that, in general, an entity shall apply the principles under IFRS retrospectively. Any adjustments which arise on the convergence to IFRS standards from Canadian GAAP should be directly recognized in opening retained earnings on transition.This Standard outlines optional and mandatory exemptions and exceptions for the application of IFRS. We expect to apply the following optional exemptions:-- Business Combinations - IFRS 1 allows us 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 April 1, 2010 (our transition date). We elected not to retrospectively apply IFRS 3; hence, we will not restate any business combinations that occurred prior to April 1, 2010.-- Share-based Payment Transactions - IFRS 1 provides the exemption from retrospective application of IFRS 2, Share-based Payments to: - Options granted on or before November 7, 2002 - Options granted after November 7, 2002 that vested before April 1, 2010 To apply IFRS 2 retrospectively, the following needs to be met: - Entity must have had publicly disclosed the fair value of such awards in accordance with IFRS 2 - Fair value must have been measured in a manner consistent with IFRSCMG will apply the provisions of IFRS 2 to options granted after November 7, 2002 that vest after April 1, 2010. We will apply the IFRS 1 exemption to all other options.Information TechnologyBased on our to-date assessment, no significant changes to our computer systems are necessary. Any modifications to support the new standards are insignificant and our current processes are capable of supporting such changes. We will continuously monitor any impacts on information technology resulting from IFRS conversion and provide updates accordingly.Internal Controls over Financial Reporting and DisclosureBased on our to-date assessment, our current control environment is sufficient to support the reporting under IFRS and no significant changes are required.In order to satisfy the certification requirements under National Instrument 52-109, we are required to update and test all entity level, information technology, disclosure and business process controls to reflect changes which arise as a result of CMG's convergence to IFRS. Assessment is ongoing in this area, and we will provide updates accordingly.Financial ExpertiseA project team has been set up to manage this transition and ensure successful implementation. The financial members involved in IFRS implementation have completed IFRS training hosted by the Canadian Institute of Chartered Accountants and will continue with relevant training throughout the conversion process.Prior to the implementation of IFRS, all accounting staff will be trained to understand any changes being implemented and understand how these impact their work.Business ActivitiesAs we don't expect significant changes to our financial results, no changes to our business activities are expected. We will continuously monitor this area and provide updates accordingly.The above analysis should not be regarded as complete or final. We will continue to monitor any changes to IFRS as issued by the International Accounting Standards Board and the AcSB. Any changes to IFRS standards or changes in the business circumstances could influence the Company's ultimate conclusions and decisions. All changes to the Company's accounting policies will be presented to the Audit Committee of the Board of Directors and are subject to its approval.OUTSTANDING SHARE DATA AS AT FEBRUARY 10, 2011CMG's authorized share capital has remained unchanged from December 31, 2010 to February 10, 2011 and subsequent to December 31, 2010 the only share capital transaction was for the exercise of 30,375 stock options to acquire Common Shares of the Company. CMG's issued and outstanding shares at February 10, 2011 are 18,178,487 Common Shares.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 percent of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at February 10, 2011, CMG could grant up to 1,817,848 stock options, of which 1,452,355 are currently issued and outstanding.DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTINGManagement is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal controls 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 2010 in accordance with the COSO control framework. The evaluation confirmed the effectiveness of DC&P and ICFR at March 31, 2010. During our fiscal year 2011, we continue to monitor and review our controls and procedures.During the nine months ended December 31, 2010, 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.OUTLOOKCMG continues to be committed to focusing its resources on the development and enhancement of simulation tools relevant to the challenges facing its diverse customer base. It appears that oil prices have stabilized in a range that has allowed our customers to move forward on projects involving various types of unconventional reserves and advanced recovery processes. Conversely, natural gas prices have declined and petroleum producers continue to be faced with uncertainty related to the world wide economic recovery and environmental issues that have come to the forefront.CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continues to make progress in fiscal 2011. We have tested the first "demonstrator" version of the product on a significant offshore asset jointly owned by our partners and can report that, while not yet of commercial quality, the main components of the system are in place and functioning. 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 cautiously 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.On behalf of the Board of DirectorsKenneth M. Dedeluk, President and Chief Executive OfficerFebruary 10, 2011COMPUTER MODELLING GROUP LTD.CONSOLIDATED BALANCE SHEETS(unaudited) December 31, 2010 March 31, 2010----------------------------------------------------------------------------AssetsCurrent assets: Cash $ 38,011,986 $ 28,826,173 Accounts receivable 9,362,454 16,071,989 Prepaid expenses 971,495 1,141,793 Prepaid income taxes - 1,432,673---------------------------------------------------------------------------- 48,345,935 47,472,628Property and equipment (note 3) 2,584,658 2,400,737Future income taxes (note 5) - 32,645---------------------------------------------------------------------------- $ 50,930,593 $ 49,906,010----------------------------------------------------------------------------Liabilities and Shareholders' EquityCurrent liabilities: Accounts payable and accrued liabilities $ 4,366,519 $ 5,397,358 Income taxes payable 772,059 - Deferred revenue 11,891,522 13,843,201 Future income taxes (note 5) 129,061 222,083---------------------------------------------------------------------------- 17,159,161 19,462,642Future income taxes (note 5) 180,435 ----------------------------------------------------------------------------- 17,339,596 19,462,642Shareholders' equity: Share capital (note 6) 23,949,805 20,390,396 Contributed surplus (note 6) 2,373,851 1,815,948 Retained earnings 7,267,341 8,237,024---------------------------------------------------------------------------- 33,590,997 30,443,368---------------------------------------------------------------------------- $ 50,930,593 $ 49,906,010----------------------------------------------------------------------------Commitments (note 9)See accompanying notes to consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS Three months ended Nine months ended December 31 December 31(unaudited) 2010 2009 2010 2009----------------------------------------------------------------------------RevenueSoftware licenses $10,333,316 $ 10,308,648 $ 31,311,943 $ 27,315,436Consulting and contract research 1,729,729 1,383,471 6,137,025 3,695,378---------------------------------------------------------------------------- 12,063,045 11,692,119 37,448,968 31,010,814----------------------------------------------------------------------------Cost of SalesMarketing expenses 2,103,351 1,863,891 6,551,831 5,529,569Direct consulting expenses 555,129 492,618 1,726,800 1,479,906Third-party contract costs 101,712 (1,505) 205,141 (2,794)---------------------------------------------------------------------------- 2,760,192 2,355,004 8,483,772 7,006,681----------------------------------------------------------------------------Gross Profit 9,302,853 9,337,115 28,965,196 24,004,133General and administrative expenses 1,236,148 1,102,326 3,472,616 3,235,841Depreciation and amortization 141,977 103,727 406,980 274,346Product research and development costs (note 4) 2,408,133 2,210,664 6,940,543 6,444,758Foreign exchange loss 328,896 240,817 303,312 1,015,498Interest and other income (90,500) (28,625) (179,355) (102,314)----------------------------------------------------------------------------Earnings before income and other taxes 5,278,199 5,708,206 18,021,100 13,136,004Income and other taxes (note 5) 1,715,161 1,707,954 5,663,068 4,032,552----------------------------------------------------------------------------Earnings for the Period 3,563,038 4,000,252 12,358,032 9,103,452Retained earnings, beginning of period 7,327,156 5,280,197 8,237,024 10,330,873Dividends paid (3,622,853) (3,194,090) (13,327,715) (13,347,966)----------------------------------------------------------------------------Retained earnings, end of period $ 7,267,341 $ 6,086,359 $ 7,267,341 $ 6,086,359----------------------------------------------------------------------------Earnings Per ShareBasic (note 6(e)) $ 0.20 $ 0.23 $ 0.69 $ 0.52Diluted (note 6(e)) $ 0.19 $ 0.22 $ 0.67 $ 0.51----------------------------------------------------------------------------See accompanying notes to consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended Nine months ended December 31 December 31(unaudited) 2010 2009 2010 2009----------------------------------------------------------------------------Cash provided by (used for)OperatingEarnings for the period $ 3,563,038 $ 4,000,252 $ 12,358,032 $ 9,103,452Items not involving cash: Depreciation and amortization 273,626 223,713 751,427 589,311 Future income taxes (note 5) 80,648 64,056 120,058 (33,684) Stock-based compensation 428,311 357,697 1,134,241 885,705---------------------------------------------------------------------------- 4,345,623 4,645,718 14,363,758 10,544,784Changes in non-cash working capital: Accounts receivable 2,433,310 (327,045) 6,709,535 2,725,239 Accounts payable and accrued liabilities 739,330 1,513,665 (1,030,839) (338,445) Income taxes payable/prepaid 1,519,034 (78,177) 2,204,732 (4,674,707) Prepaid expenses 107,166 (187,444) 170,298 (320,473) Deferred revenue (766,373) (724,389) (1,951,679) (2,328,801)---------------------------------------------------------------------------- 8,378,090 4,842,328 20,465,805 5,607,597----------------------------------------------------------------------------FinancingIssue of common shares 953,751 462,049 2,983,071 2,949,439Dividends paid (3,622,853) (3,194,090) (13,327,715) (13,347,966)---------------------------------------------------------------------------- (2,669,102) (2,732,041) (10,344,644) (10,398,527)----------------------------------------------------------------------------InvestingProperty and equipment additions (262,294) (400,549) (935,348) (1,046,572)----------------------------------------------------------------------------Increase (decrease) in cash 5,446,694 1,709,738 9,185,813 (5,837,502)Cash, beginning of period 32,565,292 27,154,052 28,826,173 34,701,292----------------------------------------------------------------------------Cash, end of period $ 38,011,986 $ 28,863,790 $ 38,011,986 $ 28,863,790----------------------------------------------------------------------------Supplemental disclosure of cash flow information (note 11)See accompanying notes to consolidated financial statements.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the nine months ended December 31, 2010 and 2009 and as at March 31, 2010 (unaudited).Computer Modelling Group Ltd. (the "Company") is a computer software technology and consulting firm engaged in the development and licensing of reservoir simulation software.1. SIGNIFICANT ACCOUNTING POLICIES:(a) Basis of Consolidation:These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and include the accounts of the Company and its subsidiaries, all 100% owned. All intercompany transactions have been eliminated.(b) Revenue Recognition:Revenue consists primarily of software license fees and consulting and contract research fees.Software license revenue is comprised of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less, and perpetual software licensing fees, whereby the customer purchases the-then-current version of the software and has the right to use that version in perpetuity. Software license revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable, and collection of the resulting receivable is probable. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met.Annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. License fees for perpetual licenses are recognized fully in revenue when all recognition conditions are satisfied.Consulting and contract research revenues are recorded on a percentage-of-completion basis whereby revenues and costs are recorded based on work completed as determined by hours incurred and/or facility usage as per terms of the agreements.The Company's deferred revenue consists of amounts for pre-sold annuity and/or maintenance licenses. These amounts are 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.(c) Property and Equipment:Property and equipment are recorded at cost less accumulated depreciation.Depreciation is provided using the following annual rates and methods that are expected to amortize the cost of the property and equipment over their estimated useful lives:Computer equipment 33 1/3% straight-lineFurniture and equipment 20% straight-lineLeasehold improvements Straight-line over the lease term(d) Product Research and Development Costs:All costs of product research and development are expensed to operations as incurred as the impact of both technological changes and competition require the Company to continually enhance its products on an annual basis. Product research and development costs are recorded net of the related investment tax credits.(e) Joint Research and Development Costs:The Company participates in a joint project engaged in product research and development and accordingly records its proportionate share of costs incurred as product research and development costs.(f) Foreign Currency:The Company's subsidiaries are considered to be integrated operations. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date while other consolidated balance sheet items are translated at historic rates.Revenues and expenses are translated at the rate of exchange in effect on the transaction dates. Realized and unrealized foreign exchange gains and losses are included in operations in the period in which they occur.(g) Income Taxes:The Company provides for income taxes using the asset and liability method. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year and future income taxes are recognized for temporary differences between the tax and accounting bases of assets and liabilities and for the benefit of losses available to be carried forward for tax purposes that are more likely than not to be realized. Future income tax assets and liabilities are measured using the substantively enacted tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. Any change to the net future income tax assets and liabilities is included in operations in the period it occurs.(h) Investment Tax Credits:The Company receives federal and provincial investment tax credits in Canada on qualified scientific research and experimental development expenditures. Investment tax credits are recorded as a deduction against related expenses or capital items provided that reasonable assurance over collection of the tax credits exists.(i) Earnings Per Share:Basic earnings per share is computed by dividing earnings by the weighted average number of Common and Non-Voting Shares outstanding for the period. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted to Common Shares. The treasury stock method is used to determine the dilutive effect of stock options. This method assumes that proceeds received from the exercise of in-the-money stock options are used to repurchase Common Shares at the average market price during the period.(j) Stock-based Compensation Plan:The Company has a stock-based compensation plan that is described in note 6(d). The fair value of stock options is expensed over the vesting period along with a credit to contributed surplus. When the stock options are exercised for stock, the recorded amount is transferred from contributed surplus to common share capital.(k) Financial Instruments:Financial assets and financial liabilities "held-for-trading" are measured at fair value with changes in those fair values recognized in net earnings. Financial assets "available-for-sale" are measured at fair value, with changes in those fair values recognized in other comprehensive income. Financial assets "held-to-maturity," "loans and receivables" and "other financial liabilities" are initially recorded at fair value and subsequently measured at amortized cost.(l) Use of Estimates and Assumptions:The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses for the period. Actual results may differ from such estimates and the differences could be material.2. CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:Recent accounting pronouncements:In January 2006, the CICA Accounting Standards Board ("AcSB") adopted a strategic plan for the direction of accounting standards in Canada. As part of that plan, the AcSB confirmed in February 2008 that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP for fiscal years beginning on or after January 1, 2011 for profit-oriented Canadian publicly accountable enterprises. As the Company will be required to report its results in accordance with IFRS for the fiscal year ending March 31, 2012 with comparatives for fiscal year ending March 31, 2011, it has developed a convergence plan to ensure successful transition to IFRS by April 1, 2011.3. PROPERTY AND EQUIPMENT: AccumulatedDecember 31, 2010 Cost Depreciation Net Book Value----------------------------------------------------------------------------Computer equipment $3,961,530 $ 2,665,173 $ 1,296,357Furniture and equipment 1,464,525 759,819 704,706Leasehold improvements 1,745,228 1,161,633 583,595---------------------------------------------------------------------------- $7,171,283 $ 4,586,625 $ 2,584,658---------------------------------------------------------------------------- AccumulatedMarch 31, 2010 Cost Depreciation Net Book Value----------------------------------------------------------------------------Computer equipment $3,386,237 $ 2,273,787 $ 1,112,450Furniture and equipment 1,255,942 620,186 635,756Leasehold improvements 1,699,407 1,046,876 652,531---------------------------------------------------------------------------- $6,341,586 $ 3,940,849 $ 2,400,737----------------------------------------------------------------------------4. PRODUCT RESEARCH AND DEVELOPMENT COSTS:For the three months ended December 31, 2010 2009----------------------------------------------------------------------------Product research and development costs $ 2,526,739 $ 2,393,620Depreciation 131,650 119,986Scientific research and experimental development investment tax credits (250,256) (302,942)---------------------------------------------------------------------------- $ 2,408,133 $ 2,210,664----------------------------------------------------------------------------For the nine months ended December 31, 2010 2009----------------------------------------------------------------------------Product research and development costs $ 7,364,412 $ 6,986,577Depreciation 344,447 314,965Scientific research and experimental development investment tax credits (768,316) (856,784)---------------------------------------------------------------------------- $ 6,940,543 $ 6,444,758----------------------------------------------------------------------------5. INCOME AND OTHER TAXES:The provision for income and other taxes reported differs from the amount computed by applying the combined Canadian Federal and Provincial statutory rate to the earnings before income and other taxes. The reasons for this difference and the related tax effects are as follows:For the nine months ended December 31, 2010 2009----------------------------------------------------------------------------Statutory tax rate 27.63% 28.75%----------------------------------------------------------------------------Expected income tax $ 4,979,230 $ 3,776,601Non-deductible costs 336,081 270,437Change in valuation allowance (86,658) (11,442)Withholding taxes 516,844 45,611Other (82,429) (48,655)---------------------------------------------------------------------------- $ 5,663,068 $ 4,032,552----------------------------------------------------------------------------Represented by:Current income taxes $ 4,818,695 $ 3,976,983Future income taxes 120,058 (33,684)Foreign withholding and other taxes 724,315 89,253---------------------------------------------------------------------------- $ 5,663,068 $ 4,032,552----------------------------------------------------------------------------The components of the Company's net future income tax liability are asfollows: December March 31, 31, 2010 2010----------------------------------------------------------------------------Net tax liability on investment tax credits $ (129,061) $ (222,083)Property and equipment (180,435) 32,645Benefit of operating losses in a foreign subsidiary - 86,658---------------------------------------------------------------------------- (309,496) (102,780)Valuation allowance - (86,658)----------------------------------------------------------------------------Future income tax liability, net $ (309,496) $ (189,438)----------------------------------------------------------------------------Represented by:Future income tax liability, current $ (129,061) $ (222,083)Future income tax (liability) asset, long-term (180,435) 32,645----------------------------------------------------------------------------Future income tax liability, net $ (309,496) $ (189,438)----------------------------------------------------------------------------The operating losses in the foreign subsidiary expire over the next three fiscal years.6. SHARE CAPITAL:(a) Authorized:An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.(b) Issued: Common Shares Non-Voting Shares Contributed ---------------------------------------------------- Number Consideration Number Consideration Surplus----------------------------------------------------------------------------Balance, March 31, 2009 14,363,572 $15,897,624 2,895,946 $ 186,175 $1,245,485Issued for cash on exercise of stock options 570,525 3,653,785Converted into common shares 624,517 40,149 (624,517) (40,149)Stock-based compensation:Current period expense 1,223,275Stock options exercised 652,812 (652,812)----------------------------------------------------------------------------Balance, March 31, 2010 15,558,614 $20,244,370 2,271,429 $ 146,026 $1,815,948Issued for cash on exercise of stock options 318,069 2,983,071Converted into common shares 2,271,429 146,026 (2,271,429) (146,026)Stock-based compensation:Current period expense 1,134,241Stock options exercised 576,338 (576,338)----------------------------------------------------------------------------Balance, December 31, 2010 18,148,112 $23,949,805 - $ - $2,373,851----------------------------------------------------------------------------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, 2010, 30,375 stock options were exercised for cash proceeds of $306,861.On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "Original Rights Plan"), whereby the Company issued one right in respect of each share outstanding at the close of business on May 18, 2006 and for each additional share issued by the Company thereafter. The issuance of the rights was not dilutive and will not affect reported earnings per share until the rights separate from the underlying shares and become exercisable or until the exercise of the rights. The Original Rights Plan was approved by the Company's shareholders on July 13, 2006.On May 21, 2009, the Board of Directors reviewed the Original Rights Plan and determined that it was in the best interest of the Company to continue to have a shareholder rights plan in place. The Company, therefore, adopted a new shareholder rights plan (the "Rights Plan") which is identical in all respects to the Original Rights Plan, with the exception of certain minor amendments which have been made to provide for renewal or approval of the Rights Plan every three years (rather than only one three-year period as was set out in the Original Rights Plan) and to update references to statutory provisions now out of date. The Rights Plan was approved by the Company's shareholders on July 9, 2009.(c) Common Shares Buy-back:On February 27, 2009, the Company announced a Normal Course Issuer Bid ("NCIB") commencing March 3, 2009 to purchase for cancellation up to 1,114,791 of its Common Shares. No shares were purchased pursuant to this NCIB which expired on March 2, 2010.On March 22, 2010, the Company announced a NCIB commencing on March 23, 2010 to purchase for cancellation up to 1,314,686 of its Common Shares. No shares have been purchased pursuant to this NCIB through December 31, 2010.(d) Stock-based Compensation Plan:The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 10, 2008, which allows it to grant options to acquire Common Shares of up to 10% of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at December 31, 2010, the Company could grant up to 1,814,811 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. These outstanding stock options vest as to 50% 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 nine months ended For the year ended December 31, 2010 March 31, 2010---------------------------------------------------------------------------- Weighted Weighted Average Average Options Exercise Options Exercise Granted Price Granted Price----------------------------------------------------------------------------Outstanding at beginning of period 1,286,049 $ 11.79 1,367,424 $ 8.10Granted 546,800 18.14 511,900 15.60Exercised (318,069) 9.38 (570,525) 6.40Forfeited/cancelled (32,050) 14.15 (22,750) 10.74----------------------------------------------------------------------------Outstanding at end of period 1,482,730 $ 14.60 1,286,049 $ 11.79----------------------------------------------------------------------------Options exercisable at end of period 545,080 $ 11.68 368,649 $ 8.49----------------------------------------------------------------------------The range of exercise prices of options outstanding and exercisable at December 31, 2010 is as follows: Outstanding Exercisable---------------------------------------------------------------------------- Weighted Average Weighted Weighted Remaining Average Average Contractual Exercise Number ExerciseExercise Price Number of Life Price of Price ($/option) Options (Years) ($/option) Options ($/option)----------------------------------------------------------------------------3.68 - 5.62 19,500 0.6 3.68 19,500 3.685.63 - 6.90 2,000 2.9 6.90 - -6.91 - 7.40 116,250 1.7 7.39 109,000 7.407.41 - 11.26 361,850 2.6 11.00 219,100 10.9811.27 - 15.60 440,330 3.6 15.60 197,480 15.6015.61 - 18.14 542,800 4.6 18.14 - ----------------------------------------------------------------------------- 1,482,730 3.5 14.60 545,080 11.68----------------------------------------------------------------------------The fair value of stock options granted was estimated using the Black-Scholes option pricing model under the following assumptions: For nine For the For the months ended year ended year ended December 31, 2010 March 31, 2010 March 31, 2009----------------------------------------------------------------------------Weighted-average fair value ($/option) 3.12 to 3.55 2.82 to 3.16 0.98 to 2.01Risk-free interest rate (%) 1.37 to 2.17 1.31 to 2.61 1.50 to 3.10Estimated hold period prior to exercise (years) 2 to 5 2 to 5 2 to 5Volatility in the price of common shares (%) 35 to 39 37 to 43 31 to 49Dividend yield per common share (%) 5.12 5.95 to 6.07 5.37 to 9.93----------------------------------------------------------------------------The Company recognized a total stock-based compensation expense for the three and nine months ended December 31, 2010 of $428,311 and $1,134,241 respectively (three and nine months ended December 31, 2009 - $357,697 and $885,705 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 three months endedDecember 31, 2010 2009---------------------------------------------------------------------------- Weighted Weighted Average Earnings Average Earnings Shares Per Shares Per Earnings Outstanding Share Earnings Outstanding Share----------------------------------------------------------------------------Basic $3,563,038 18,087,956 $ 0.20 $4,000,252 17,697,655 $ 0.23Dilutive effect of stock options 491,284 348,132----------------------------------------------------------------------------Diluted $3,563,038 18,579,240 $ 0.19 $4,000,252 18,045,787 $ 0.22----------------------------------------------------------------------------For nine months endedDecember 31, 2010 2009---------------------------------------------------------------------------- Weighted Weighted Average Earnings Average Earnings Shares Per Shares Per Earnings Outstanding Share Earnings Outstanding Share----------------------------------------------------------------------------Basic $12,358,032 17,982,994 $ 0.69 $9,103,452 17,521,358 $ 0.52Dilutive effect of stock options 392,546 439,348----------------------------------------------------------------------------Diluted $12,358,032 18,375,540 $ 0.67 $9,103,452 17,960,706 $ 0.51----------------------------------------------------------------------------During the three and nine months ended December 31, 2010, Nil and 59,941(three and nine months ended December 31, 2009 - 100,953 and 91,124 respectively) options were excluded from the computation of the weighted-average number of diluted shares outstanding because their exercise price was greater than the average market price of the Common Shares during the period.7. CAPITAL MANAGEMENT:The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth combined with strategic acquisitions and to maximize the return to its shareholders. The capital structure of the Company consists of cash, credit facilities and shareholders' equity. The Company does not have any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital.The Company's policy is to pay quarterly dividends based on the Company's overall financial performance and cash flow generation. In addition, since May 2005, the Company 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 March 23, 2010 to March 22, 2011. Reference is made to note 6(c).The Company makes adjustments to its capital structure in light of general economic conditions and the Company's working capital requirements. In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may pay dividends, buy back shares or undertake other activities as deemed appropriate under the specific circumstances. The Board of Directors reviews and approves any material transactions not in the ordinary course of business.There were no changes in the Company's approach to capital management during the period.8. FINANCIAL INSTRUMENTS:(i) Classification of financial instruments Classification Measurement----------------------------------------------------------------------------Cash Held for trading Fair valueAccounts receivable Loans and receivables Amortized costAccounts payable and accrued liabilities Other financial liabilities Amortized cost----------------------------------------------------------------------------(ii) Fair values of financial instrumentsThe carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments.Overview:The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. The main objectives of the Company's risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to those risks. The principal financial risks to which the Company is exposed are described below:(a) Credit Risk:Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligation and arises principally from the Company's cash and accounts receivable. The amounts reported in the balance sheet for accounts receivable are net of allowances for bad debts, estimated by the Company's management based on prior experience and their assessment of the current economic environment.The Company's accounts receivable consist primarily of balances from customers operating in the oil and gas industry, both domestically and internationally, as the Company sells its products and services in over 50 countries worldwide. Some of these countries have greater economic and political risk than experienced in North America and as a result there may be greater risk associated with sales in those jurisdictions. The Company manages this risk by invoicing for the full license term in advance for the majority of software license sales and by invoicing as frequently as the contract allows for consulting and contract research services on a percentage-of-completion basis. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met. Historically, the Company has not experienced any significant losses related to individual customers or groups of customers in any particular geographic area; therefore, no allowance for doubtful accounts has been established at December 31, 2010.As at December 31, 2010, the Company has a concentration of credit risk with seven domestic and international customers who represent 44% of accounts receivable. In addition, $1,434,000 of accounts receivable are over 90 days. The Company assesses the creditworthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Accordingly, the Company views the credit risks on these amounts as normal for the industry.The Company minimizes the credit risk of cash by depositing only with a reputable financial institution in highly liquid interest-bearing cash accounts.The maximum credit exposure is represented by the carrying amount of cash and accounts receivable.(b) Market Risk:Market risk is the risk that changes in market prices of the Company's foreign exchange rates and interest rates will affect the Company's income or the value of its financial instruments.The Company operates internationally and primarily prices its products in either the Canadian or US dollar. This gives rise to exposure to market risks from changes in the foreign exchange rates between the Canadian and US dollar. Approximately 67% of the Company's revenues for the nine months ended December 31, 2010 were denominated in US dollars and at December 31, 2010, the Company had approximately $7.2 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 24% of the Company's total costs are also denominated in US dollars they provide a partial economic hedge against the fluctuation in this currency exchange. In addition, the Company manages levels of foreign currency held by converting excess US dollars into Canadian dollars at spot rates.The Canadian operations are exposed to currency risk on US denominated financial assets and liabilities with fluctuations in the rate recognized as foreign exchange gains or losses in the Consolidated Statements of Earnings. It is estimated that a one cent change in the US dollar would result in a net change of approximately $52,000 on net earnings for the nine months ended December 31, 2010. A weaker US dollar with respect to the Canadian dollar will result in a negative impact while the reverse would result from a stronger US dollar.The Company has significant cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in interest-bearing deposits and/or guaranteed investment certificates issued by its principal banker. The Company is exposed to interest cash flow risk from changes in interest rates on its cash balances. Based on the December 31, 2010 cash balance, each 1% change in the interest rate on the Company's cash balance would change net earnings by approximately $275,000.(c) Liquidity Risk:Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company manages liquidity risk through the management of its capital structure as outlined in note 7. The Company's growth is financed through a combination of the cash flows from operations and its cash balances on hand. Given the Company's available liquid resources as compared to the timing of the payments of its liabilities, management assesses the Company's liquidity risk to be low. The Company monitors its expenditures by preparing annual budgets which are updated periodically. At December 31, 2010, the Company has significant cash balances in excess of its obligations and over $800,000 of the line of credit (note 10) available for its use.9. COMMITMENTS:(a) Research Commitments:On May 1, 2006, the Company announced that it had entered into a two-phased joint research and development agreement (the "DRMS Agreement"). Phase 1 of this project was completed in fiscal 2007 and work is ongoing on Phase 2. It was originally estimated that the project would take five years to complete and that the Company's initial annual expenditures would approximate $2 million for its portion of the aggregate project cost and escalating annually for the duration of the project. It is now anticipated that the project will continue beyond the initially estimated five-year time period; 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 million per year.During Phase 2, the DRMS Agreement provides the participants with withdrawal rights upon the payment of a withdrawal fee to the other participants of an amount equal to one year of the withdrawing party's share of budgeted project costs. In addition to the withdrawal fee, the withdrawing party may be liable for (i) 100% of resizing costs if the project is scaled back or (ii) a proportionate share of wind down costs should the other participants decide to terminate the project as a result of the withdrawal of the participant.In conjunction with entering into this project, CMG Reservoir Simulation Foundation (the "Foundation") agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50% of the Company's estimated share of costs over the duration of the project. For the nine months ended December 31, 2010, the Company has reflected $990,218 (2009 - $875,201) in research grants from the Foundation in revenue with respect to this project. To December 31, 2010 these research grants aggregate to $4,609,809 since commencement of the project.(b) Lease Commitments:The Company has operating lease commitments relating to its office premises with the minimum annual lease rental payments as follows: ($)----------------------------------------------------------------------------2011 379,0002012 1,494,0002013 1,423,0002014 1,424,0002015 1,037,000----------------------------------------------------------------------------10. LINE OF CREDIT:The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility and/or letters of credit. As at December 31, 2010, US $165,000 (2009 - $165,000) had been drawn on this line of credit for performance bonds.11. SUPPLEMENTAL CASH FLOW INFORMATION:For the three months ended December 31, 2010 2009----------------------------------------------------------------------------Interest received $ 82,810 $ 28,280Income taxes paid $ 1,470,000 $ 1,402,451----------------------------------------------------------------------------For the nine months ended December 31, 2010 2009----------------------------------------------------------------------------Interest received $ 164,306 $ 95,137Income taxes paid $ 3,932,986 $ 7,798,373----------------------------------------------------------------------------12. SEGMENTED INFORMATION:Operating Segments ContractFor the three months Software Research and ended December 31, 2010 Licenses Consulting Corporate Total----------------------------------------------------------------------------Revenue $10,333,316 $ 1,084,762 $ 644,967 $12,063,045----------------------------------------------------------------------------Gross profit 8,340,934 316,952 644,967 9,302,853----------------------------------------------------------------------------General and administrative expenses 1,236,148 1,236,148Depreciation and amortization 34,706 41,276 65,995 141,977Product research and development costs 2,408,133 2,408,133Interest and other income and foreign exchange 238,396 238,396Income and other taxes 195,630 9,115 1,510,416 1,715,161----------------------------------------------------------------------------Earnings (loss) for the period $ 8,110,598 $ 266,561 $ (4,814,121) $ 3,563,038---------------------------------------------------------------------------- ContractFor the three months Software Research and ended December 31, 2009 Licenses Consulting Corporate Total----------------------------------------------------------------------------Revenue $10,308,648 $ 730,990 $ 652,481 $11,692,119----------------------------------------------------------------------------Gross profit 8,564,980 119,654 652,481 9,337,115----------------------------------------------------------------------------General and administrative expenses 1,102,326 1,102,326Depreciation and amortization 30,088 37,596 36,043 103,727Product research and development costs 2,210,664 2,210,664Interest and other income and foreign exchange 212,192 212,192Income and other taxes 15,496 563 1,691,895 1,707,954----------------------------------------------------------------------------Earnings (loss) for the period $ 8,519,396 $ 81,495 $ (4,600,639) $ 4,000,252---------------------------------------------------------------------------- ContractFor the nine months Software Research and ended December 30, 2010 Licenses Consulting Corporate Total----------------------------------------------------------------------------Revenue $31,311,943 $ 3,497,055 $ 2,639,970 $37,448,968----------------------------------------------------------------------------Gross profit 25,106,570 1,218,656 2,639,970 28,965,196----------------------------------------------------------------------------General and administrative expenses 3,472,616 3,472,616Depreciation and amortization 99,547 120,439 186,994 406,980Product research and development costs 6,940,543 6,940,543Interest and other income and foreign exchange 123,957 123,957Income and other taxes 692,251 21,919 4,948,898 5,663,068----------------------------------------------------------------------------Earnings (loss) for the period $24,314,772 $ 1,076,298 $ (13,033,038) $12,358,032----------------------------------------------------------------------------Total assets $ 6,833,720 $ 2,489,859 $ 41,607,014 $50,930,593----------------------------------------------------------------------------Capital expenditures $ 122,870 $ 163,374 $ 649,104 $ 935,348---------------------------------------------------------------------------- ContractFor the nine months Software Research and ended December 31, 2009 Licenses Consulting Corporate Total----------------------------------------------------------------------------Revenue $27,315,436 $ 1,624,899 $ 2,070,479 $31,010,814----------------------------------------------------------------------------Gross profit 22,070,615 (136,407) 2,069,925 24,004,133----------------------------------------------------------------------------General and administrative expenses 3,235,841 3,235,841Depreciation and amortization 85,258 82,812 106,276 274,346Product research and development costs 6,444,758 6,444,758Interest and other income and foreign exchange 913,184 913,184Income and other taxes 63,375 760 3,968,417 4,032,552----------------------------------------------------------------------------Earnings (loss) for the period $21,921,982 $ (219,979) $ (12,598,551) $ 9,103,452----------------------------------------------------------------------------Total assets $ 6,947,540 $ 1,804,976 $ 32,731,121 $41,483,637----------------------------------------------------------------------------Capital expenditures $ 73,406 $ 237,073 $ 736,093 $ 1,046,572----------------------------------------------------------------------------Geographic SegmentsFor the nine months ended December 31, 2010 2009---------------------------------------------------------------------------- Property and Property and Revenue Equipment Revenue Equipment----------------------------------------------------------------------------Canada $12,929,639 $ 2,377,842 $ 9,794,084 $ 1,343,973United States 6,673,252 115,793 5,485,838 151,677Other Foreign 17,846,077 91,023 15,730,892 73,714---------------------------------------------------------------------------- $37,448,968 $ 2,584,658 $31,010,814 $ 1,569,364----------------------------------------------------------------------------In the nine months ended December 31, 2010, the Company derived 9.6% (2009 - 13.6%) of its revenue from one customer.FOR FURTHER INFORMATION PLEASE CONTACT: Kenneth M. DedelukComputer Modelling Group Ltd.President & CEO(403) 531-1300ken.dedeluk@cmgl.caORJohn KalmanComputer Modelling Group Ltd.Vice President, Finance & CFO(403) 531-1300john.kalman@cmgl.cawww.cmgl.ca