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Press release from Marketwire

Computer Modelling Group Announces First Quarter Results

Tuesday, August 23, 2011

Computer Modelling Group Announces First Quarter Results08:00 EDT Tuesday, August 23, 2011CALGARY, ALBERTA--(Marketwire - Aug. 23, 2011) - Computer Modelling Group Ltd. (TSX:CMG) ("CMG" or the "Company") is very pleased to announce our first quarter results for the three months ended June 30, 2011.FIRST QUARTER HIGHLIGHTSFor the three months ended June 30, 2011 2010 $ change % change($ thousands, except per share data)--------------------------------------------------------------------------------------------------------------------------------------------------------Annuity/maintenance software licenses 8,997 8,325 672 8%Perpetual software licenses 5,391 1,824 3,567 196%Total revenue 15,939 12,054 3,885 32%Operating profit 9,092 5,933 3,159 53%Net income 6,663 4,229 2,434 58%Earnings per share - basic 0.18 0.12 0.06 50%----------------------------------------------------------------------------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 August 22, 2011, should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of the Company for the three months ended June 30, 2011 and the audited consolidated financial statements and MD&A for the years ended March 31, 2011 and 2010 contained in the 2011 Annual report for CMG. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars and rounded to the nearest thousand.Effective on the close of business on June 20, 2011, CMG's Common Shares were split on a two-for-one basis. Accordingly, all comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one split.FORWARD-LOOKING 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 the Company's partners in the DRMS project and it being completed in a timely manner- Ability to enter into additional software license agreements- Ability to continue current research and new product development- Ability to recruit and retain qualified 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 2011 Annual Report under the heading "Business Risks":- Economic conditions in the oil and gas industry- Reliance on key clients- Foreign exchange- Economic and political risks in countries where the Company currently does or proposes to do business- Increased competition- Reliance on employees with specialized skills or knowledge- Protection of proprietary 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-IFRS FINANCIAL MEASURESThis MD&A contains the terms "direct employee costs" and "other corporate costs" which are not measures defined by IFRS, do not have standardized meaning prescribed by IFRS and should not be considered an alternative to expenses as determined in accordance with IFRS. Direct employee costs and other corporate costs, as computed by CMG, may differ from similar measures as reported by other issuers. These non-IFRS measures are presented in this MD&A because management considers them to be important in highlighting the quantitative impact of cost management as it relates to corporate and people-related costs. The items constituting direct employee costs are outlined in the table under the "Expenses" heading.CORPORATE PROFILECMG is a computer software technology 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. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities. CMG has sales and technical support services based in Calgary, Houston, London, Caracas and Dubai. CMG's Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG".QUARTERLY PERFORMANCE Fiscal 2010(1)($ thousands, unless otherwise stated) Q2 Q3 Q4----------------------------------------------------------------------------Annuity/maintenance licenses 7,240 7,406 7,653Perpetual licenses 582 2,903 4,982----------------------------------------------------------------------------Software licenses 7,822 10,309 12,635Professional services 1,262 1,383 1,657----------------------------------------------------------------------------Total revenue 9,084 11,692 14,292Operating profit 3,706 5,920 7,844Operating profit % 41 51 55Profit before income and other taxes 3,437 5,708 7,710Income and other taxes 1,023 1,708 2,350Net income for the period 2,414 4,000 5,360Cash dividends declared and paid 3,179 3,194 3,209----------------------------------------------------------------------------Per share amounts - ($/share)Earnings per share - basic 0.07 0.12 0.15Earnings per share - diluted 0.07 0.11 0.15Cash dividends declared and paid 0.09 0.09 0.09----------------------------------------------------------------------------QUARTERLY PERFORMANCE Fiscal Fiscal 2011(2) 2012(3)($ thousands, unless otherwise stated) Q1 Q2 Q3 Q4 Q1----------------------------------------------------------------------------Annuity/maintenance licenses 8,325 7,855 7,999 8,531 8,997Perpetual licenses 1,824 2,975 2,335 3,911 5,391----------------------------------------------------------------------------Software licenses 10,149 10,830 10,333 12,442 14,388Professional services 1,905 2,502 1,730 1,936 1,551----------------------------------------------------------------------------Total revenue 12,054 13,332 12,063 14,378 15,939Operating profit 5,933 6,695 5,517 7,523 9,092Operating profit % 49 50 46 52 57Profit before income and other taxes 6,178 6,565 5,278 7,413 9,240Income and other taxes 1,949 1,999 1,715 2,605 2,577Net income for the period 4,229 4,565 3,563 4,808 6,663Cash dividends declared and paid 6,274 3,430 3,623 3,643 7,519----------------------------------------------------------------------------Per share amounts - ($/share)Earnings per share - basic 0.12 0.13 0.10 0.13 0.18Earnings per share - diluted 0.12 0.13 0.10 0.13 0.18Cash dividends declared and paid 0.175 0.095 0.10 0.10 0.205----------------------------------------------------------------------------(1) Q2, Q3 and Q4 of fiscal 2010 include $0.4 million, $0.3 million and $0.4 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.(2) Q1, Q2, Q3 and Q4 of fiscal 2011 include $1.1 million, $0.2 million, $0.3 million and $0.1 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.(3) Q1 of fiscal 2012 includes $0.3 million in revenue that pertains to usage of CMG's products in prior quarters.Note: all quarterly data contained in the above table has been prepared in accordance with IFRS.HighlightsDuring the three months ended June 30, 2011, as compared to the same period of prior fiscal year, CMG:- Increased annuity/maintenance revenue by 8%- Increased perpetual revenue by 196%- Increased net income by 58%- Increased spending on research and development by 12%- Realized earnings per share of $0.18, representing a 50% increaseRevenueFor the three months ended June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Software licenses 14,388 10,149 4,239 42%Professional services 1,551 1,905 (354) -19%----------------------------------------------------------------------------Total revenue 15,939 12,054 3,885 32%--------------------------------------------------------------------------------------------------------------------------------------------------------Software license revenue - % of total revenue 90% 84%Professional services - % of total revenue 10% 16%----------------------------------------------------------------------------CMG's revenue is comprised of software license sales, which provide the majority of the Company's revenue, and fees for professional services. The 32% increase in total revenue in the three months ended June 30, 2011, compared to the same period of previous fiscal year, is attributable to an increase in software license sales driven by the increase in perpetual sales as well as the growth in annuity/maintenance license revenue. This increase was partially offset by the decrease in fees for professional services earned during the quarter.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 June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/maintenance licenses 8,997 8,325 672 8%Perpetual licenses 5,391 1,824 3,567 196%----------------------------------------------------------------------------Total software license revenue 14,388 10,149 4,239 42%--------------------------------------------------------------------------------------------------------------------------------------------------------Annuity/maintenance as a % of total software license revenue 63% 82%Perpetual as a % of total software license revenue 37% 18%----------------------------------------------------------------------------The 42% growth in software license revenue in the first quarter of this fiscal year compared to the first quarter of previous fiscal year is attributable to the increase in perpetual sales driven mainly by one large perpetual sale and several smaller perpetual sales made during the quarter as well as the increase in annuity/maintenance license revenue related to increased sales to new and existing customers. As discussed below, this increase 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 June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------US dollar annuity/maintenance license sales US$ 5,546 US$ 5,685 (139) -2%Weighted average conversion rate 0.998 1.049----------------------------------------------------------------------------Canadian dollar equivalent CDN$ 5,536 CDN$ 5,962 (426) -7%--------------------------------------------------------------------------------------------------------------------------------------------------------US dollar perpetual license sales US$ 5,621 US$ 1,760 3,861 219%Weighted average conversion rate 0.953 1.036----------------------------------------------------------------------------Canadian dollar equivalent CDN$ 5,359 CDN$ 1,824 3,535 194%----------------------------------------------------------------------------CMG's annuity/maintenance license revenue increased by 8% during the three months ended June 30, 2011, compared to the same period of last year. This increase was driven by sales to new and existing clients as well as the increase in maintenance revenue tied to our strong perpetual sales generated in the current quarter and in the previous two fiscal years. We expect the current quarter's large perpetual sale to continue contributing to our maintenance revenue stream in the future. 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% increase in the current quarter, 11% increase in Q4 of fiscal 2011 and 8% increases in each of Q3 and Q2 of fiscal 2011, despite the negative effects of foreign exchange as discussed below. It should also be noted that the annuity/maintenance license revenue recorded in the first quarter of prior year included $1.1 million of revenue that pertained to usage of CMG's products in prior quarters compared to only $0.3 million included in the current quarter's annuity/maintenance revenue that pertains to prior quarters (see the discussion about revenue earned in the current period that pertains to usage of products in prior quarters above the "Quarterly Software License Revenue" graph).The increase in annuity/maintenance revenue as measured in Canadian dollars has been negatively affected by the strengthening of the Canadian dollar relative to the US dollar. The table above illustrates revenue generated in US dollars and the rates at which it was converted into Canadian dollars to show the movement in US dollar denominated revenue without the impact of the foreign exchange. Had the exchange rate between the US and Canadian dollars remained constant between the three months ended June 30, 2011 and 2010, our first quarter annuity/maintenance revenue would have increased by 11%.Software license revenue under perpetual sales increased by 196% or $3.6 million for the three months ended June 30, 2011 compared to the same period of previous fiscal year. This increase is attributable mainly to the large perpetual sale made during the quarter as well as the increase in volume of perpetual sales. Software licensing under perpetual sales is a significant part of CMG's business, but may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. For this reason, we expect to observe fluctuations in the quarterly perpetual revenue amounts throughout the fiscal year.We can observe from the table 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. Had the exchange rate between the US and Canadian dollars remained constant between the three months ended June 30, 2011 and 2010, our first quarter perpetual license revenue would have increased by 221%.REVENUE BY GEOGRAPHIC SEGMENTFor the three months ended June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/maintenance revenue Canada 3,734 2,504 1,230 49% United States 1,991 1,679 312 19% Other 3,272 4,142 (870) -21%---------------------------------------------------------------------------- 8,997 8,325 672 8%----------------------------------------------------------------------------Perpetual revenue Canada 32 - 32 N/A United States 462 991 (529) -53% Other 4,897 833 4,064 488%---------------------------------------------------------------------------- 5,391 1,824 3,567 196%----------------------------------------------------------------------------Total software license revenue Canada 3,766 2,504 1,262 50% United States 2,453 2,670 (217) -8% Other 8,169 4,975 3,194 64%---------------------------------------------------------------------------- 14,388 10,149 4,239 42%----------------------------------------------------------------------------On a geographic basis, total software license sales in Canada and other markets experienced increases of 50% and 64%, respectively. The US market experienced a slight decrease of 8%.Software revenue growth in the Canadian market was driven solely by the annuity/maintenance software license sales generated during the quarter. The increase in the annuity revenue stream was supported by the increase in sales to both existing and new clients. In addition, strong perpetual license sales generated in the past have enabled the Canadian market to maintain increased revenue levels from the maintenance contracts tied to those perpetual licenses.The US market also experienced growth in annuity/maintenance revenue which was offset by the decrease in perpetual license revenue generated during the quarter.Other markets appear to have experienced a decrease in the annuity/maintenance revenue stream as a result of the inclusion of a significant revenue amount in Q1 of fiscal 2011 that related to usage of CMG's software in prior quarters. For this particular account, revenue recognition criteria were only fulfilled at the time of the receipt of cash in Q1 of fiscal 2011. If we adjust Q1 of fiscal 2011 revenue for this amount, we can observe that annuity/maintenance revenue derived from other markets increased by 5%. In addition, other markets had a significant increase in perpetual revenue driven by the large perpetual sale made during the quarter.The movements in perpetual sales in both the US and other markets are indicative of the unpredictable nature of the timing and location of perpetual license sales. Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions.The increases in US-dollar generated revenue from the US and other markets have been negatively affected by the strengthening Canadian dollar compared to the US dollar during the current quarter.As footnoted in the Quarterly Performance table, in the normal course of business CMG may complete the negotiation of certain annuity/maintenance contracts and/or fulfill revenue recognition requirements within a current quarter that includes usage of CMG's products in prior quarters. This situation particularly affects contracts negotiated with countries that face increased economic and political risks leading to revenue recognition criteria being satisfied only at the time of the receipt of cash. The dollar magnitude of such contracts may be significant to the quarterly comparatives of our annuity/maintenance revenue stream and, to provide a normalized comparison, we specifically identify the revenue component where revenue recognition is satisfied in the current period for products provided in previous quarters.DEFERRED REVENUE 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Deferred revenue at:March 31 16,755 13,843 2,912 21%June 30 15,326 12,496 2,830 23%----------------------------------------------------------------------------CMG's deferred revenue consists primarily of amounts for pre-sold licenses. Our annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time.The increase in deferred revenue year over year as at 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 which explains the decrease in the deferred revenue balance at the end of the first quarter (June 30) compared to fiscal year-end (March 31). Deferred revenue at June 30, 2011 increased compared to the same period of prior fiscal year due to both renewal of the existing and signing of the new annuity and maintenance contracts in the quarter.PROFESSIONAL SERVICES REVENUECMG recorded professional services revenue of $1.6 million for the three months ended June 30, 2011, representing a decrease of $0.4 million from the amount recorded for the same period of previous fiscal year. CMG had been engaged in a few large projects in the previous fiscal year, which are either complete or continue on a smaller scale in the first quarter of the current fiscal year, causing the professional services revenue to be lower in the first quarter of the current fiscal year compared to the first quarter of the previous fiscal year. It should be noted that, despite the decrease in revenue derived from consulting contracts, we have experienced a slight increase in training activities during the current quarter compared to the same period of the previous year.Professional services revenue consists of specialized consulting, training, and contract research activities. CMG performs consulting and contract research activities on an ongoing basis but such activities are not considered to be a core part of our business and are primarily undertaken to increase our knowledge base and hence expand the technological abilities of our simulators in a funded manner, combined with servicing our customers' needs. In addition, these activities are undertaken to market the capabilities of our suite of software products with the ultimate objective to increase software license sales. Our experience is that consulting activities are variable in nature as both the timing and dollar magnitude of work are dependent on activities and budgets within client companies.At June 30, 2011, approximately $0.07 million (2010 - $0.13 million) is included in deferred revenue relating to professional services.ExpensesFor the three months ended June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Sales, marketing and professional services 3,125 2,730 395 14%Research and development 2,495 2,218 277 12%General and administrative 1,227 1,173 54 5%----------------------------------------------------------------------------Total operating expenses 6,847 6,121 726 12%----------------------------------------------------------------------------Direct employee costs(i) 5,563 4,918 645 13%Other corporate costs 1,284 1,203 81 7%---------------------------------------------------------------------------- 6,847 6,121 726 12%----------------------------------------------------------------------------(i) Includes salaries, bonuses, stock-based compensation, benefits and commissions.CMG's total expenses increased by 12% during the three months ended June 30, 2011, compared to the same period of previous fiscal year, mainly as a result of an increase in direct employee costs and, to a lesser extent, due to an increase in other corporate costs.DIRECT EMPLOYEE COSTSAs a technology company, CMG's largest area of expenditure is for its people. Approximately 81% of the total operating expenses in the three months ended June 30, 2011 related to staff costs, which compares to 80% recorded in the comparative period of last year. Staffing levels for the first three months of the current fiscal year grew in comparison to the same period of previous fiscal year to support our continued growth. At June 30, 2011, CMG's staff complement was 144 employees, up from 132 employees as at June 30, 2010. Direct employee costs increased during the first quarter of fiscal 2012 compared to the first quarter of fiscal 2011 due to staff additions, increased levels of compensation, commissions and related benefits.OTHER CORPORATE COSTSOther corporate costs held consistent between the first quarters of fiscal 2012 and 2011 with only a slight increase of 7% relating to the increase in professional service fees and other miscellaneous office costs.RESEARCH AND DEVELOPMENTFor the three months ended June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Research and development (gross) 2,799 2,502 297 12%SR&ED credits (304) (284) (20) 7%----------------------------------------------------------------------------Research and development 2,495 2,218 277 12%--------------------------------------------------------------------------------------------------------------------------------------------------------Research and development as a % of total revenue 16% 18%----------------------------------------------------------------------------CMG maintains its belief that its strategy of growing long-term value for shareholders can only be achieved through continued investment in research and development. CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes.The above research and development includes CMG's proportionate share of joint research and development costs on the DRMS system development of $0.7 million for the three months ended June 30, 2011 (2010 - $0.7 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."The increase of 12% in our gross spending on research and development for the three months ended June 30, 2011 demonstrates our continued commitment to advancement of our technology. Research and development costs, net of research and experimental development ("SR&ED") credits, increased by 12% during the three months ended June 30, 2011 compared to the same period of previous fiscal year, due to increased employee-related costs and expenses related to computing resources. At the same time, we had a slight increase in SR&ED credits driven mainly by the increases in our direct employee costs.DEPRECIATION AND AMORTIZATIONFor the three months ended June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Depreciation of property and equipment, allocated to: Sales, marketing and professional services 91 72 19 26% Research and development 118 100 18 18% General and administrative 65 57 8 14%----------------------------------------------------------------------------Total depreciation and amortization 274 229 45 20%----------------------------------------------------------------------------The year-to-date increase in depreciation and amortization reflects the increase in our asset base, mainly as a result of increased spending on computing resources.FINANCE INCOMEFor the three months ended June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Interest income 107 35 72 206%Foreign exchange gain 41 210 (169) -80%----------------------------------------------------------------------------Total finance income 148 245 (97) -40%----------------------------------------------------------------------------Interest income increased in the three months ended June 30, 2011, compared to the same period 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 75% (2010 - 73%) of CMG's revenue for the three months ended June 30, 2011 is denominated in US dollars, whereas only approximately 21% (2010 - 25%) of CMG's total costs are denominated in US dollars.CDN$ to US$ At June 30 Three month trailing average----------------------------------------------------------------------------2009 0.8602 0.86892010 0.9429 0.96202011 1.0370 1.0411----------------------------------------------------------------------------CMG recorded a foreign exchange gain of $0.04 million for the three months ended June 30, 2011 compared to $0.21 million foreign exchange gain recorded in the same period of last year.We have observed lower volatility in the foreign exchange rates between the US and Canadian dollars in the first quarter of the current fiscal year compared to the first quarter of the previous fiscal year, minimizing the effect of the foreign exchange gain recorded in Q1 of fiscal 2012 compared to Q1 of fiscal 2011.INCOME AND OTHER TAXESCMG's effective tax rate for the three months ended June 30, 2011 is reflected as 27.9% (2010 - 31.5%), whereas the prevailing Canadian statutory tax rate is now 26.13%. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts deferred income taxes. The investment tax credit earned in the current fiscal year is utilized by CMG to reduce income taxes otherwise payable for the current fiscal year and the federal portion of this benefit bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a non-current deferred tax liability and then, in the following fiscal year, is transferred to income taxes payable.Operating Profit and Net IncomeFor the three months ended June 30, 2011 2010 $ change % change($ thousands, except per share amounts)----------------------------------------------------------------------------Total revenue 15,939 12,054 3,885 32%Operating expenses (6,847) (6,121) (726) 12%----------------------------------------------------------------------------Operating profit 9,092 5,933 3,159 53%Operating profit as a % of total revenue 57% 49%--------------------------------------------------------------------------------------------------------------------------------------------------------Net income for the period 6,663 4,229 2,434 58%Net income for the period as a % of total revenue 42% 35%--------------------------------------------------------------------------------------------------------------------------------------------------------Earnings per share ($/share) 0.18 0.12 0.06 50%----------------------------------------------------------------------------CMG continues to demonstrate its ability to sustain its operating profit margin. The operating profit as a percentage of total revenue for the three months ended June 30, 2011 was at 57%, compared to 49% recorded in the same period of prior fiscal year. The operating profit margin improved as a result of the increase in revenue and the effective management of corporate costs.Net income for the period as a percentage of revenue increased to 42% for the three months ended June 30, 2011, compared to 35% for the same period of previous fiscal year, as a result of the improvement in our operating profit margin with only a slight negative effect due to lower foreign exchange gain recorded in the current quarter compared to the first quarter of the previous fiscal year.Liquidity and Capital ResourcesFor the three months ended June 30, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Cash, beginning of period 41,753 28,826 12,927 45%Cash flow from (used in) Operating activities 2,840 9,730 (6,890) -71% Financing activities (6,082) (5,528) (554) 10% Investing activities (164) (406) 242 -60%----------------------------------------------------------------------------Cash, end of period 38,347 32,622 5,725 18%----------------------------------------------------------------------------OPERATING ACTIVITIESThe decrease of $6.9 million in cash from operating activities is mainly caused by the timing differences when the sales are made and when the resulting receivables are collected. In Q1 of fiscal 2011, collections were higher compared to Q1 of fiscal 2012 as a result of a higher receivable balance recorded at the end of fiscal 2010. In contrast, the receivable balance at the end of fiscal 2011 was lower, which resulted in fewer collections during the current quarter.FINANCING ACTIVITIESDuring the first quarter of the current fiscal year, we used $0.6 million more in cash for our financing activities, compared to the first quarter of the previous fiscal year, as a result of a larger dividend payment.During the three months ended June 30, 2011, CMG employees and directors exercised options to purchase 274,000 Common Shares, which resulted in cash proceeds of $1.4 million.In the three months ended June 30, 2011, CMG paid $7.5 million in dividends, representing a quarterly dividend of $0.105 per share and a special dividend of $0.10 per share. On August 22, 2011, CMG announced the payment of a quarterly dividend of $0.11 per share on CMG's Common Shares. The dividend will be paid on September 15, 2011 to shareholders of record at the close of business on September 8, 2011. On August 22, 2011, the Board of Directors also approved the issuance of 988,000 options to purchase CMG's Common Shares in accordance with CMG's stock option plan.On April 6, 2011, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on April 7, 2011 to purchase for cancellation up to 1,636,000 of its Common Shares. No shares have been purchased pursuant to this NCIB through June 30, 2011.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 three months ended June 30, 2011, CMG expended $0.2 million on property and equipment additions and currently has a capital budget of $2.4 million for fiscal 2012.LIQUIDITY AND CAPITAL RESOURCESAt June 30, 2011, CMG has $38.3 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 three months ended June 30, 2011, 954,000 shares of CMG's public float were traded on the TSX. As at June 30, 2011, CMG's market capitalization based upon its June 30, 2011 closing price of $13.61 was $499.5 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 ("Shell") and Petroleo Brasileiro S.A. ("Petrobras") to develop the newest generation of dynamic reservoir modelling system. While the original funding commitment has been fulfilled during the current quarter, CMG and its partners are committed to continue funding the project beyond the initially estimated five-year period with CMG's share of the project costs estimated at $3.0 million per year. We expect to release a beta version of the new reservoir modelling system to our partners by the end of calendar 2011, with the first commercial release expected to take place by the end of calendar 2012.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 project costs over the initial five years of the project. For the three months ended June 30, 2011, the Company has reflected $366,000 (2010 - $358,000) in research grants from the Foundation in revenue with respect to this project which completes the Foundation's $5.2 million funding commitment.CMG plans to continue funding its share of the project costs associated with the development of the newest generation reservoir simulation software system from internally generated cash flows.CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which are reflected as deferred revenue on its statement of financial position, and contractual obligations for office leases which are estimated as follows: 2012 - $1.1 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 2011 Annual Report.Changes in Accounting PoliciesINTERNATIONAL FINANCIAL REPORTING STANDARDSThe CICA Accounting Standards Board requires all Canadian publicly listed entities to adopt IFRS for interim and annual financial reporting purposes for fiscal years beginning on or after January 1, 2011. Accordingly, this is the first quarter in which we have provided unaudited condensed consolidated financial statements which are in compliance with the interim reporting requirements found in IAS 34, Interim Financial Reporting, as well as IFRS 1, First-time Adoption of IFRS. In accordance with IFRS 1, we have applied IFRS retrospectively as of April 1, 2010, our transition date, as if IFRS had always been in effect, subject to certain mandatory exceptions and optional exemptions. Our consolidated financial statements for the year ended April 1, 2012, will be our first annual financial statements that comply with IFRS.An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in note 16 to the Condensed Consolidated Financial Statements for the three months ended June 30, 2011.Transition to IFRS did not have a material impact on retained earnings, net income or cash flows. The only adjustments were reclassifications on the Statement of Financial Position, Statement of Operations and Comprehensive Income, and the Statement of Cash Flows as follows:Statement of Financial Position- Deferred taxes are classified as non-current under IFRS. Under previous Canadian GAAP, deferred taxes were classified as current and non-current based on the classification of the underlying assets or liabilities to which they relate or based on the expected reversal of the temporary differences.Transition rules resulted in reclassification of deferred tax liability associated with SR&ED credits from current to non-current. In addition, the deferred tax asset associated with property and equipment was offset against deferred tax liability as both relate to income taxes levied by the same taxation authority for the same taxable entity.Statement of Operations and Comprehensive Income- Expense classification - the Company has elected to present its expenses in the consolidated statements of operations and comprehensive income prepared under IFRS according to their function. As a result, depreciation and amortization, which was reported as a separate line item under previous Canadian GAAP, was allocated to its respective functions.- Finance income and costs - under Canadian GAAP, interest income and foreign exchange gains and losses were classified as separate line items in the consolidated statement of earnings. Under IFRS, interest income and foreign exchange gains are presented as finance income, and foreign exchange losses are presented as finance costs. Finance income and costs are presented on a gross basis as required by IFRS.Statement of Cash Flows- Interest received and income taxes paid have been moved into the body of the statement of cash flows under operating activities, whereas they were previously disclosed as supplemental information.Accounting Standards and Interpretations Issued but Not Yet EffectiveThe following standards and interpretations have not been adopted by the Company as they apply to future periods: http://media3.marketwire.com/docs/cmg_asi.pdf Outstanding Share DataThe following table represents the number of Common Shares and options outstanding:As at August 22, 2011(thousands)----------------------------------------------------------------------------Common Shares 36,725Options 2,579----------------------------------------------------------------------------On July 13, 2005, CMG adopted a rolling stock option plan which allows the Company to grant options to its employees and directors to acquire Common Shares of up to 10% of the outstanding Common Shares at the date of grant. Based upon this calculation, at August 22, 2011, CMG could grant up to 3,673,000 stock options.Disclosure Controls and Procedures and Internal Control over Financial ReportingManagement is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR") as defined under National Instrument 52-109. These controls and procedures were reviewed and the effectiveness of their design and operation was evaluated in fiscal 2011 in accordance with the COSO control framework. The evaluation confirmed the effectiveness of DC&P and ICFR at March 31, 2011. During our fiscal year 2012, we continue to monitor and review our controls and procedures.During the three months ended June 30, 2011, there have been no significant changes to the Company's ICFR that have materially affected, or are reasonably likely to materially affect, the company's ICFR.OutlookAs in the past several years, CMG remains committed to focusing all its resources on the development, enhancement and deployment of simulation software tools relevant to the challenges and opportunities facing its diverse customer base. While oil prices have dipped recently, they remain at levels that should allow our customers to move forward on projects involving various types of unconventional reserves and advanced recovery processes. The greater challenges have been with natural gas prices, which have not fared as well, and petroleum producers are faced with uncertainty related to the fears of another worldwide economic recession, political unrest in several petroleum producing countries and environmental issues that have threatened to increase the costs of development and production.CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continues to make progress in fiscal 2012. We expect to release a beta version to our partners by the end of calendar 2011 with the first commercial release by the end of calendar 2012. CMG and its partners remain committed to funding the ongoing development and to the future success of the project.The Company remains confident that the value that CMG technology provides to its customers is greater than ever and accordingly we continue to be optimistic that our software license revenue will remain solid. With our strong working capital position, we are well positioned to continue to invest in all aspects of our business to continue to grow and diversify our revenue base and to ultimately return value to our shareholders in the form of regular quarterly dividend payments and growth in share value.Finally, on a somber note, CMG's employees and directors were saddened by the passing of Mr. Ken McCready on July 30, 2011. An inaugural director of CMG, Ken's career was devoted to sustainable energy development and his experience, vision and advice has been integral to CMG's stewardship. CMG's Board and Executives will miss Ken's counsel and his friendship.Kenneth M. Dedeluk, President and Chief Executive OfficerAugust 22, 2011COMPUTER MODELLING GROUP LTD.CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONUNAUDITED (thousands of Canadian $) June 30, 2011 March 31, 2011 April 1, 2010----------------------------------------------------------------------------AssetsCurrent assets: Cash 38,347 41,753 28,826 Trade and other receivables 15,463 13,318 16,072 Prepaid expenses 1,123 1,064 1,141 Prepaid income taxes - - 1,433---------------------------------------------------------------------------- 54,933 56,135 47,472Property and equipment 2,444 2,554 2,401----------------------------------------------------------------------------Total assets 57,377 58,689 49,873----------------------------------------------------------------------------Liabilities and Shareholders' EquityCurrent liabilities: Trade payables and accrued liabilities 3,102 4,543 5,398 Income taxes payable 1,970 1,237 - Deferred revenue 15,326 16,755 13,843---------------------------------------------------------------------------- 20,398 22,535 19,241Deferred tax liability (note 6) 218 384 189----------------------------------------------------------------------------Total liabilities 20,616 22,919 19,430----------------------------------------------------------------------------Shareholders' equity: Share capital 26,494 24,801 20,390 Contributed surplus 2,809 2,655 1,816 Retained earnings 7,458 8,314 8,237----------------------------------------------------------------------------Total shareholders' equity 36,761 35,770 30,443----------------------------------------------------------------------------Total liabilities and shareholders' equity 57,377 58,689 49,873--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVEINCOMEFor the three months ended June 30, 2011 2010UNAUDITED (thousands of Canadian $ except per share amounts)----------------------------------------------------------------------------Revenue (note 8) 15,939 12,054----------------------------------------------------------------------------Operating expenses Sales, marketing and professional services 3,125 2,730 Research and development (note 4) 2,495 2,218 General and administrative 1,227 1,173---------------------------------------------------------------------------- 6,847 6,121----------------------------------------------------------------------------Operating profit 9,092 5,933Finance income (note 5) 148 245----------------------------------------------------------------------------Profit before income and other taxes 9,240 6,178Income and other taxes (note 6) 2,577 1,949----------------------------------------------------------------------------Net and comprehensive income 6,663 4,229----------------------------------------------------------------------------Earnings Per ShareBasic (note 7(e)) 0.18 0.12Diluted (note 7(e)) 0.18 0.12----------------------------------------------------------------------------See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYUNAUDITED (thousands of Share Capital Contributed Retained Total ---------------------- Canadian $) Common Non-voting Surplus Earnings Equity----------------------------------------------------------------------------Balance, April 1, 2010 20,244 146 1,816 8,237 30,443Total comprehensive income for the period - - - 4,229 4,229Dividends paid - - - (6,274) (6,274)Shares issued for cash on exercise of stock options (note 7(b)) 746 - - - 746Converted into common shares (note 7(b)) 146 (146) - - -Stock-based compensation: - - - - - Current period expense - - 320 - 320 Stock options exercised 143 - (143) - -----------------------------------------------------------------------------Balance, June 30, 2010 21,279 - 1,993 6,192 29,464----------------------------------------------------------------------------Balance, April 1, 2011 24,801 - 2,655 8,314 35,770Total comprehensive income for the period - - - 6,663 6,663Dividends paid - - - (7,519) (7,519)Shares issued for cash on exercise of stock options (note 7(b)) 1,437 - - - 1,437Stock-based compensation: - - - - - Current period expense - - 410 - 410 Stock options exercised 256 - (256) - -----------------------------------------------------------------------------Balance, June 30, 2011 26,494 - 2,809 7,458 36,761----------------------------------------------------------------------------See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the three months ended June 30, 2011 2010UNAUDITED (thousands of Canadian $)----------------------------------------------------------------------------Cash flows from operating activities Net income 6,663 4,229Adjustments for: Depreciation and amortization 274 229 Income and other taxes (note 6) 2,577 1,949 Stock-based compensation (note 7(d)) 410 320 Interest income (note 5) (107) (35)---------------------------------------------------------------------------- 9,817 6,692Changes in non-cash working capital: Trade and other receivables (2,144) 7,495 Trade payables and accrued liabilities (1,441) (1,556) Prepaid expenses (59) (101) Deferred revenue (1,429) (1,347)----------------------------------------------------------------------------Cash generated from operating activities 4,744 11,183 Interest received 106 31 Income taxes paid (2,010) (1,484)----------------------------------------------------------------------------Net cash from operating activities 2,840 9,730----------------------------------------------------------------------------Cash flows from financing activitiesProceeds from issue of common shares 1,437 746Dividends paid (7,519) (6,274)----------------------------------------------------------------------------Net cash used in financing activities (6,082) (5,528)----------------------------------------------------------------------------Cash flows used in investing activitiesProperty and equipment additions (164) (406)----------------------------------------------------------------------------Increase (decrease) in cash (3,406) 3,796Cash, beginning of period 41,753 28,826----------------------------------------------------------------------------Cash, end of period 38,347 32,622--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFor the three months ended June 30, 2011 and 2010 (unaudited).1. Reporting Entity:Computer Modelling Group Ltd. ("CMG") is a company domiciled in Alberta, Canada and is incorporated pursuant to the Alberta Business Corporations Act, with its Common Shares listed on the Toronto Stock Exchange under the symbol "CMG". The address of CMG's registered office is #150, 3553 - 31 Street N.W., Calgary, Alberta, Canada, T2L 2K7. The condensed consolidated financial statements as at and for the three months ended June 30, 2011 comprise CMG and its subsidiaries (together referred to as the "Company"). The Company is a computer software technology company engaged in the development and licensing of reservoir simulation software. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities.2. Basis of Preparation:(A) STATEMENT OF COMPLIANCE:These condensed consolidated financial statements represent the initial presentation of the Company's results and financial position in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).These condensed consolidated financial statements have been prepared on a going concern basis in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting and IFRS 1, First-time Adoption of IFRS. The condensed consolidated financial statements do not include all of the information required for full annual financial statements.The preparation of these condensed consolidated financial statements resulted in changes to accounting policies as compared with the most recent annual consolidated financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP). The accounting policies set out below have been applied consistently to all periods presented in these condensed consolidated financial statements and in preparing an opening IFRS balance sheet at April 1, 2010, the Company's transition date, as required by IFRS 1. The impact of the transition from Canadian GAAP to IFRS is presented in note 16.The unaudited condensed consolidated financial statements as at and for the three months ended June 30, 2011 were authorized for issuance by the Board of Directors on August 22, 2011.(B) BASIS OF MEASUREMENT:The condensed consolidated financial statements have been prepared on the historical cost basis, which is based on the fair value of the consideration at the time of the transaction.(C) FUNCTIONAL AND PRESENTATION CURRENCY:The condensed consolidated financial statements are presented in Canadian dollars, which is the functional currency of CMG and its subsidiaries. All financial information presented in Canadian dollars has been rounded to the nearest thousand.(D) USE OF ESTIMATES, JUDGMENTS AND ASSUMPTIONS:The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses for the period. Estimates and underlying assumptions are based on historical experience and other assumptions that are considered reasonable in the circumstances and are reviewed on an on-going basis. Actual results may differ from such estimates and it is possible that the differences could be material. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In preparing these condensed consolidated financial statements, the significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty are expected to be the same as those applied in the first annual IFRS financial statements.The key judgments made in applying accounting policies that have the most significant effect on the amounts recognized in these condensed consolidated financial statements are as follows:Research and development - assumptions are made in respect to the eligibility of certain research and development projects for inclusion in the calculation of scientific research and experimental development ("SR&ED") investment tax credits which are netted against the research and development costs in the statement of operations. SR&ED claims are subject to audits by relevant taxation authorities and the actual amount may change depending on the outcome of such audits (note 4).Revenue recognition - certain software license agreements contain multiple-element arrangements as they may also include maintenance fees. Judgment is used in determining a fair value of each element of a contract. Professional services revenue earned from certain consulting contracts is recognized by the stage of completion of the transaction determined using the percentage-of-completion method. Judgment is used in determining progress of each contract at period end. In assessing revenue recognition, judgment is also used in determining the ability to collect the corresponding account receivable (note 8).Property and equipment - estimates are used in determining useful economic lives of property and equipment for the purposes of calculating depreciation.Stock-based compensation - assumptions and estimates are used in determining the inputs used in the Black-Scholes option pricing model, including assumptions regarding volatility, dividend yield, risk-free interest rates, forfeiture estimates and expected option lives (note 7(d)).Deferred income taxes - assumptions and estimates are made regarding the amount and timing of realization and/or settlement of the temporary differences between the accounting carrying value of the Company's assets versus the tax basis of those assets, and the tax rates at which the differences will be recovered or settled in the future (note 6).3. Significant Accounting Policies:(A) BASIS OF CONSOLIDATION:The condensed consolidated financial statements include the accounts of CMG and its subsidiaries, all 100% owned. All inter-company transactions and balances have been eliminated on consolidation. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.(B) REVENUE RECOGNITION:Revenue consists of software license fees and professional service fees.Software License RevenueSoftware 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 recognized on a straight-line basis over the life of the related license period, which is generally one year or less. Revenue for licenses billed in advance is deferred and recognized in revenue over the relevant license period.License fees for perpetual licenses are recognized fully in revenue when all recognition conditions are satisfied.Software license agreements with multiple-element arrangements, such as those including license fees and maintenance fees, are recognized as separate units of accounting and are recognized as each element is earned based on the relative fair value of each element. A delivered element is considered a separate unit of accounting if it has value to the customer on a standalone basis, and delivery or performance of the undelivered elements is considered probable and substantially under the Company's control. If these criteria are not met, revenue for the arrangement as a whole is accounted for as a single unit of accounting.Professional Services RevenueRevenue from professional services, consisting of consulting, training and contract research activities, is recorded on a percentage-of-completion basis or as such services are performed as appropriate in the circumstances. Percentage-of-completion is used when the outcome of the contract can be estimated reliably and is assessed based on work completed as determined by the hours incurred. When the outcome of the contract cannot be estimated reliably, the amount of revenue recognized is limited to the cost incurred in the period.(C) CASH:Cash is comprised of interest-earning bank accounts.(D) PROPERTY AND EQUIPMENT:Property and equipment are recorded at cost less accumulated depreciation. Cost includes expenditures that are directly attributable to the acquisition of the asset.Depreciation is based on the cost of an asset and is recognized in the statement of operations 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 termThe estimated useful lives and depreciation methods are reviewed at each fiscal year-end and adjusted if appropriate.(E) 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. Research and development costs are recorded net of related SR&ED investment tax credits.(F) 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 research and development costs within the statement of operations.(G) FINANCE INCOME AND FINANCE COSTS:Finance income comprises interest income earned on the bank balances and is recognized as it accrues through the statement of operations, using the effective interest method.Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. Foreign currency gains and losses are recognized in the period in which they occur.(H) FOREIGN CURRENCY TRANSLATION:Transactions in foreign currencies are translated to Canadian dollars, the functional currency of the Company, at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the reporting date while non-monetary assets and liabilities that are measured in terms of cost are translated using the exchange rates at the dates of the transactions.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 the statement of operations in the period in which they occur.(I) INCOME TAXES:Income taxes comprise current and deferred tax.Current tax is the expected tax payable or receivable based on taxable profit for the period calculated using tax rates that have been enacted or substantively enacted at the reporting date, and includes any adjustments to tax payable in respect of previous years. Taxable profit differs from profit as reported in the Consolidated Statement of Operations and Comprehensive Income because of items that are taxable or deductible in other years and items that are never taxable and deductible.Deferred 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 to the extent that it is probable that future taxable profits will be available against which the losses can be utilized. Deferred 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 deferred tax assets and liabilities is included in operations in the period it occurs. Deferred tax assets and liabilities are offset only when a legally enforceable right of offset exists and the deferred tax assets and liabilities arise in the same tax jurisdiction and relate to the same taxable entity.(J) INVESTMENT TAX CREDITS:The Company receives federal and provincial investment tax credits in Canada on qualified scientific research and experimental development expenditures incurred in each taxation year. 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.(K) EARNINGS PER SHARE:Basic earnings per share is computed by dividing the net income 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. In calculating the dilutive effect of stock options, it is assumed 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.(L) STOCK-BASED COMPENSATION PLAN:The Company has a stock-based compensation plan that is described in note 7(d). The fair value of stock options is determined using the Black-Scholes valuation model as of the grant date and is expensed over the vesting period, with a corresponding increase in equity, based on the Company's estimate of the number of options that will actually vest. At the end of each reporting period, the Company revises its estimates of the number of options that are expected to vest and recognizes the impact of any revision in the statement of operations. When stock options are exercised, the Company records consideration received, together with amounts previously recognized in contributed surplus, as an increase in share capital.(M) FINANCIAL INSTRUMENTS:(i) Non-derivative financial assetsThe Company initially recognizes loans and receivables on the date that they are originated. All other financial assets are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instruments. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. The Company classifies non-derivative financial assets into the following categories:Financial assets at fair value through profit or loss ("FVTPL"):A financial asset is classified in this category if it is either held for trading or designated as such upon initial recognition.It is held for trading if:- It has been acquired principally for the purpose of selling it in the near term;- It is part of the Company's portfolio of financial instruments that are managed together and have a pattern of short-term profit taking;- It is a derivative not designated and effective as a hedging instrument.It is classified as FVTPL if:- It forms part of a contract containing one or more embedded derivatives;- It forms part of a group of financial instruments which is managed and its performance is evaluated on a fair value basis.FVTPL are measured initially and subsequently at fair value, and changes therein are recognized in the statement of operations. Transaction costs are recognized in the statement of operations as incurred. The Company's only financial asset belonging to this category is cash.Loans and receivables:Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Company's trade and other receivables are classified as loans and receivables. Trade receivables are recognized initially at fair value plus any directly attributable transaction costs, and subsequently measured at amortized cost using the effective interest rate method less a provision for impairment. The Company's trade and other receivables are classified as current assets.(ii) Non-derivative financial liabilitiesFinancial liabilities at amortized cost include trade payables and accrued liabilities. Such liabilities are initially recognized at fair value on the trade date at which the Company becomes a party to the contractual provisions of the instrument, represented by the amount required to be paid plus any directly attributable transaction costs, and subsequently measured at amortized cost using the effective interest method. Financial liabilities are classified as current liabilities if payment is due within a year; otherwise, they are classified as non-current liabilities. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.(iii) Share CapitalCommon Shares are classified as equity. Incremental costs directly attributable to the issue of Common Shares are recognized as a deduction from equity, net of any tax effects.(N) IMPAIRMENT:(i) ReceivablesTrade and other receivables are assessed for impairment at each reporting date at both a specific and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired, together with receivables that are not individually significant, are collectively assessed for impairment by grouping together receivables with similar risk characteristics. In assessing collective impairment, the Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognized in the statement of operations and reflected in an allowance account against trade and other receivables. When a subsequent event (such as the repayment by a debtor) causes the amount of impairment loss to decrease, the decrease is reversed through the statement of operations.(ii) Non-financial assetsThe carrying amounts of the Company's non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.(O) LEASES:The Company's only lease commitments relate to its office premises which are classified as operating leases since they do not transfer the risks and rewards of ownership to the Company. Payments made under operating leases are recognized in the statement of operations on a straight-line basis over the term of the lease.4. Research and Development Costs:For the three months ended June 30, 2011 2010(thousands of $)----------------------------------------------------------------------------Research and development 2,799 2,502SR&ED investment tax credits (304) (284)---------------------------------------------------------------------------- 2,495 2,218----------------------------------------------------------------------------5. Finance Income:For the three months ended June 30, 2011 2010(thousands of $)----------------------------------------------------------------------------Interest income 107 35Foreign exchange gain 41 210---------------------------------------------------------------------------- 148 245----------------------------------------------------------------------------6. Income and Other Taxes:The provision for income and other taxes reported differs from the amount computed by applying the combined Canadian Federal and Provincial statutory rate to the profit before income and other taxes. The reasons for this difference and the related tax effects are as follows:For the three months ended June 30, 2011 2010(thousands of $, unless otherwise stated)----------------------------------------------------------------------------Statutory tax rate 26.13% 27.63%----------------------------------------------------------------------------Expected income tax 2,415 1,707Non-deductible costs 112 93Change in unrecognized temporary differences - (31)Withholding taxes 60 178Other (10) 2---------------------------------------------------------------------------- 2,577 1,949----------------------------------------------------------------------------Represented by:Current income taxes 2,650 1,865Deferred tax expense (166) (163)Foreign withholding and other taxes 93 247---------------------------------------------------------------------------- 2,577 1,949----------------------------------------------------------------------------The components of the Company's net deferred income tax liability are as follows:(thousands of $) June 30, 2011 March 31, 2011 April 1, 2010----------------------------------------------------------------------------Tax liability on investment tax credits (49) (181) (222)Tax (liability) asset on property and equipment (169) (203) 33----------------------------------------------------------------------------Deferred tax liability, net (218) (384) (189)----------------------------------------------------------------------------7. Share Capital:(A) AUTHORIZED:An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.Effective June 20, 2011, the Common Shares were split on a two-for-one basis. Accordingly, the comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one adjustment.(B) ISSUED:(thousands of shares) Common Shares Non-Voting Shares----------------------------------------------------------------------------Balance, April 1, 2010 31,117 4,543Issued for cash on exercise of stock options 194 -Converted into common shares 4,543 (4,543)----------------------------------------------------------------------------Balance, June 30, 2010 35,854 -----------------------------------------------------------------------------Balance, April 1, 2011 36,427 -Issued for cash on exercise of stock options 274 -----------------------------------------------------------------------------Balance, June 30, 2011 36,701 -----------------------------------------------------------------------------The Non-Voting Shares were convertible into an equivalent number of Common Shares at any time at the option of the holder.Subsequent to June 30, 2011, 24,000 stock options were exercised for cash proceeds of $151,000.On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "Original Rights Plan"), whereby the Company issued one right in respect of each share outstanding at the close of business on May 18, 2006 and for each additional share issued by the Company thereafter. The issuance of the rights was not dilutive and will not affect reported earnings per share until the rights separate from the underlying shares and become exercisable or until the exercise of the rights. The Original Rights Plan was approved by the Company's shareholders on July 13, 2006.On May 21, 2009, the Board of Directors reviewed the Original Rights Plan and determined that it was in the best interest of the Company to continue to have a shareholder rights plan in place. The Company, therefore, adopted a new shareholder rights plan (the "Rights Plan") which is identical in all respects to the Original Rights Plan, with the exception of certain minor amendments which have been made to provide for renewal or approval of the Rights Plan every three years (rather than only one three-year period as was set out in the Original Rights Plan) and to update references to statutory provisions now out of date. The Rights Plan was approved by the Company's shareholders on July 9, 2009.(C) COMMON SHARES BUY-BACK:On March 22, 2010, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on March 23, 2010 to purchase for cancellation up to 1,315,000 of its Common Shares. This NCIB ended on March 22, 2011 and a total of 5,000 shares were purchased at market price for a total cost of $126,000.On April 6, 2011, the Company announced a NCIB commencing on April 7, 2011 to purchase for cancellation up to 1,636,000 of its Common Shares. No shares have been purchased pursuant to this NCIB through June 30, 2011.(D) STOCK-BASED COMPENSATION PLAN:The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 10, 2008, which allows it to grant options to acquire Common Shares of up to 10% of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at June 30, 2011, the Company could grant up to 3,670,000 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. The outstanding stock options vest as to 50% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates.The following table outlines changes in options:(thousands except per For the three months ended For the year endedshare amounts) June 30, 2011 March 31, 2011---------------------------------------------------------------------------- Weighted Weighted Average Average Options Exercise Price Options Exercise Price Granted ($/share)Granted ($/share)----------------------------------------------------------------------------Outstanding at beginning of period 2,825 7.41 2,572 5.90Granted 5 14.24 1,094 9.07Exercised (274) 5.24 (777) 4.76Forfeited/cancelled (12) 8.75 (64) 7.08----------------------------------------------------------------------------Outstanding at end of period 2,544 7.65 2,825 7.41----------------------------------------------------------------------------Options exercisable at end of period 695 6.17 969 5.91----------------------------------------------------------------------------The range of exercise prices of options outstanding and exercisable at June30, 2011 is as follows: Outstanding Exercisable---------------------------------------------------------------------------- Weighted Average Weighted Weighted Remaining Average AverageExercise Number Contractual Exercise Number ExercisePrice of Options Life Price of Options Price($/option) (thousands) (years) ($/option) (thousands) ($/option)----------------------------------------------------------------------------3.45 - 3.70 119 1.2 3.69 115 3.693.71 - 5.63 563 2.1 5.51 283 5.475.64 - 7.80 780 3.1 7.80 297 7.807.81 - 9.07 1,077 4.1 9.07 - -9.08 - 14.24 5 4.9 14.24 - ----------------------------------------------------------------------------- 2,544 3.2 7.65 695 6.17--------------------------------------------------------------------------------------------------------------------------------------------------------The fair value of stock options granted was estimated using the Black-Scholes option pricing model under the following assumptions: For the three months For the year ended ended June 30, 2011 March 31, 2011----------------------------------------------------------------------------Fair value at grant date ($/option) 2.79 to 2.99 1.56 to 1.78Share price at grant date ($/share) 14.24 9.07Risk-free interest rate (%) 1.81 to 2.06 1.37 to 2.17Estimated hold period prior to exercise (years) 3 to 4 2 to 5Volatility in the price of common shares (%) 34 to 35 35 to 39Dividend yield per common share (%) 3.70 5.12----------------------------------------------------------------------------The Company recognized total stock-based compensation expense for the three months ended June 30, 2011 of $410,000 (2010 - $320,000).(E) EARNINGS PER SHARE:The following table summarizes the earnings and weighted average number of Common and Non-Voting Shares used in calculating basic and diluted earnings per share:For the three months ended June 30, 2011 2010(thousands except per share amounts)---------------------------------------------------------------------------- Weighted Weighted Average Earnings Average Earnings Shares Per Share Shares Per Share Earnings($) Outstanding ($/share) Earnings($) Outstanding ($/share)----------------------------------------------------------------------------Basic 6,663 36,532 0.18 4,229 35,746 0.12Dilutive effect of stock options 1,066 751----------------------------------------------------------------------------Diluted 6,663 37,598 0.18 4,229 36,497 0.12----------------------------------------------------------------------------8. Revenue:For the three months ended June 30, 2011 2010(thousands of $)----------------------------------------------------------------------------Software licenses 14,388 10,149Professional services 1,551 1,905---------------------------------------------------------------------------- 15,939 12,054----------------------------------------------------------------------------9. Capital Management:The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth combined with strategic acquisitions and to maximize the return to its shareholders. The capital structure of the Company consists of cash, credit facilities and shareholders' equity. The Company does not have any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital.The Company's policy is to pay quarterly dividends based on the Company's overall financial performance and cash flow generation. In addition, since May 2005, the Company has declared a special dividend after review of the completion of the immediately prior fiscal year results. Decisions on dividend payments are made on a quarterly basis by the Board of Directors. There can be no assurance as to the amount or payment of such dividends in the future.Since November 2002, the Company embarked on a series of normal course issuer bids to buy back its shares. The latest normal course issuer bid is effective from April 7, 2011 to April 6, 2012. Reference is made to note 7(c).The Company makes adjustments to its capital structure in light of general economic conditions and the Company's working capital requirements. In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may pay dividends, buy back shares or undertake other activities as deemed appropriate under the specific circumstances. The Board of Directors reviews and approves any material transactions not in the ordinary course of business.There were no changes in the Company's approach to capital management during the period.10. Financial Instruments and Risk Management:(i) Classification of financial instruments Classification Measurement----------------------------------------------------------------------------Cash Held for trading Fair valueTrade and other receivables Loans and receivables Amortized costTrade payables and accrued liabilities Other financial liabilities Amortized cost----------------------------------------------------------------------------(ii) Fair values of financial instrumentsThe carrying values of cash, trade and other receivables, trade payables and accrued liabilities approximate their fair values due to the short-term nature of these instruments.OVERVIEW:The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. The main objectives of the Company's risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to those risks. The principal financial risks to which the Company is exposed are described below:(A) CREDIT RISK:Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligation and arises principally from the Company's cash and trade and other receivables. The amounts reported in the statements of financial position for trade receivables are net of allowances for bad debts, estimated by the Company's management based on prior experience and their assessment of the current economic environment.The Company's trade receivables consist primarily of balances from customers operating in the oil and gas industry, both domestically and internationally, as the Company sells its products and services in over 50 countries worldwide. Some of these countries have greater economic and political risk than experienced in North America and as a result there may be greater risk associated with sales in those jurisdictions. The Company manages this risk by invoicing for the full license term in advance for the majority of software license sales and by invoicing as frequently as the contract allows for consulting and contract research services on a percentage-of-completion basis. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met. Historically, the Company has not experienced any significant losses related to individual customers or groups of customers in any particular geographic area; therefore, no allowance for doubtful accounts has been established at June 30, 2011.As at June 30, 2011, the Company has a concentration of credit risk with 12 domestic and international customers who represent 72% of trade receivables. In addition, $3.6 million of trade receivables are over 90 days. The Company assesses the creditworthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Payment terms with customers are 30 days from invoice date; however, industry practice can extend these terms. Accordingly, the Company views the credit risks on these amounts as normal for the industry.The Company minimizes the credit risk of cash by depositing only with a reputable financial institution in highly liquid interest-bearing cash accounts.(B) MARKET RISK:Market risk is the risk that changes in market prices of the Company's foreign exchange rates and interest rates will affect the Company's income or the value of its financial instruments.(i) Foreign Exchange RiskThe 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 75% of the Company's revenues for the three months ended June 30, 2011 were denominated in US dollars and at June 30, 2011, the Company had approximately $11.9 million of its working capital denominated in US dollars. The Company currently does not use derivative instruments to hedge its exposure to those risks but as approximately 21% of the Company's total costs are also denominated in US dollars they provide a partial economic hedge against the fluctuation in this currency exchange. In addition, the Company manages levels of foreign currency held by converting excess US dollars into Canadian dollars at spot rates.Canadian operations are exposed to currency risk on US denominated financial assets and liabilities with fluctuations in the rate recognized as foreign exchange gains or losses in the Consolidated Statements of Operations and Comprehensive Income. It is estimated that a one cent change in the US dollar would result in a net change of approximately $91,000 on net income for the three months ended June 30, 2011. A weaker US dollar with respect to the Canadian dollar will result in a negative impact while the reverse would result from a stronger US dollar.(ii) Interest Rate RiskThe 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 June 30, 2011 cash balance, each 1% change in the interest rate on the Company's cash balance would change net income for the three months ended June 30, 2011 by approximately $283,000.(C) LIQUIDITY RISK:Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company manages liquidity risk through the management of its capital structure as outlined in note 9. The Company's growth is financed through a combination of the cash flows from operations and its cash balances on hand. Given the Company's available liquid resources as compared to the timing of the payments of its liabilities, management assesses the Company's liquidity risk to be low. The Company monitors its expenditures by preparing annual budgets which are updated periodically. At June 30, 2011, the Company has significant cash balances in excess of its obligations and over $800,000 of the line of credit (note 12) available for its use.11. Commitments:(A) RESEARCH COMMITMENTS:The DRMS research and development project, a collaborative effort with our partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras") to jointly develop the newest generation of reservoir simulation software, which commenced in 2006 and was originally estimated to take five years to complete, is now anticipated to continue beyond the initial five-year time frame; however, the Company and its partners are committed to continue funding the project with the Company's share of the project costs estimated at $3.0 million per year.In conjunction with entering into this project, CMG Reservoir Simulation Foundation (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 initial five years of the project. For the three months ended June 30, 2011, the Company has reflected $366,000 (2010 - $358,000) in research grants from the Foundation in revenue with respect to this project which completes the Foundation's $5.2 million funding commitment.(B) LEASE COMMITMENTS:The Company has operating lease commitments relating to its office premises with the minimum annual lease rental payments as follows:(thousands of $)----------------------------------------------------------------------------2012 1,1112013 1,4462014 1,4472015 1,039----------------------------------------------------------------------------12. Line Of Credit:The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility or may be used to support letters of credit. As at June 30, 2011, US $165,000 (2010 - US $165,000) had been reserved on this line of credit for the letter of credit supporting a performance bond.13. Segmented Information:The Company is organized into one operating segment represented by the development and licensing of reservoir simulation software. The Company provides professional services, consisting of support, training, consulting and contract research activities, to promote the use and development of its software; however, these activities are not evaluated as a separate business segment.Revenues and property and equipment of the Company arise in the following geographic regions:(thousands of $) Revenue Property and equipment---------------------------------------------------------------------------- For the three months ended June 30, As at June 30, 2011 2010 2011 2010----------------------------------------------------------------------------Canada 4,580 3,419 2,209 2,353United States 2,555 2,766 91 139Other Foreign 8,804 5,869 144 86---------------------------------------------------------------------------- 15,939 12,054 2,444 2,578--------------------------------------------------------------------------------------------------------------------------------------------------------In the three months ended June 30, 2011, the Company derived 21.6% (2010 - 10.4%) of its revenue from one customer.14. Subsidiaries:CMG is the beneficial owner of the entire issued share capital and controls all the votes of its subsidiaries. The principal activities of all the subsidiaries are the sale and support for the use of CMG's software licenses. Transactions between subsidiaries are eliminated on consolidation. The following is the list of CMG's subsidiaries:Subsidiary Country of Incorporation----------------------------------------------------------------------------Computer Modelling Group Inc. United StatesCMG Venezuela VenezuelaCMG Middle East FZ LLC Dubai, UAE----------------------------------------------------------------------------15. Subsequent Events:On August 22, 2011, the Board of Directors declared a cash dividend of $0.11 per share on its Common Shares, payable on September 15, 2011, to all shareholders of record at the close of business on September 8, 2011.On August 22, 2011, the Board of Directors also approved the issuance of 988,000 options to purchase CMG's Common Shares in accordance with CMG's stock option plan.16. Transition to IFRS:As stated in note 2(a), these are the Company's first condensed consolidated financial statements prepared in accordance with IFRS. The accounting policies described in note 3 have been applied in preparing these condensed consolidated financial statements for the three months ended June 30, 2011, the comparative information for both the three months ended June 30, 2010 and year ended March 31, 2011, and the opening IFRS balance sheet at April 1, 2010, the Company's date of transition to IFRS.This transition note explains the effect of the transition from previous Canadian GAAP to IFRS on the Company's financial position, financial performance and cash flows.16.1 ELECTED EXEMPTIONS FROM FULL RETROSPECTIVE APPLICATION:In preparing these condensed consolidated financial statements in accordance with IFRS 1, we applied the following optional exemptions from full retrospective application of IFRS:- IFRS 3 - Business CombinationsIFRS 1 allows the Company to apply IFRS 3, Business Combinations, retrospectively or prospectively from the date of transition. The retrospective application would require restatement of all business combinations that occurred prior to the transition date, April 1, 2010. The Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to its transition date and such business combinations have not been restated.- IFRS 2 - Share-based PaymentsIFRS 1 provides the exemption from retrospective application of IFRS 2, Share-based Payments, to options granted on or before November 7, 2002 and options granted after November 7, 2002 that vested before April 1, 2010. The Company adopted the exemption in IFRS 1 and applied IFRS 2 to employee options granted after November 7, 2002 that had not vested by April 1, 2010. While minor differences occurred on the transition from Canadian GAAP to IFRS, these differences were not material, and hence, no adjustments have been made to the consolidated financial statements.16.2 MANDATORY EXCEPTIONS TO RETROSPECTIVE APPLICATION:In preparing these condensed consolidated financial statements in accordance with IFRS 1, the Company applied the following mandatory exception:- EstimatesIFRS 1 disallows hindsight to be used in creating or revising estimates. Estimates made in accordance with IFRSs at the date of transition are consistent with estimates made under Canadian GAAP except where the revision was necessary to reflect any difference in accounting policies. In making estimates under IFRSs not required under Canadian GAAP, the estimates reflect conditions that existed at the relevant reporting date and/or transition date.16.3 RECONCILIATION OF FINANCIAL POSITION AND SHAREHOLDERS' EQUITY:(thousands of $) March 31, 2011 June 30, 2010---------------------------------------------------------------------------- Canadian IFRS Canadian IFRS GAAP Adj. IFRS GAAP Adj. IFRS----------------------------------------------------------------------------AssetsCurrent assets: Cash 41,753 41,753 32,622 32,622 Trade and other receivables 13,318 13,318 8,581 8,581 Prepaid expenses 1,064 1,064 1,242 1,242 Prepaid income taxes - - 805 805---------------------------------------------------------------------------- 56,135 56,135 43,250 43,250Property and equipment 2,554 2,554 2,578 2,578Deferred tax asset (note 16.5(A)) - - 21 (21) -----------------------------------------------------------------------------Total assets 58,689 58,689 45,849 (21) 45,828----------------------------------------------------------------------------Liabilities and Shareholders'EquityCurrent liabilities: Trade payables and accrued liabilities 4,543 4,543 3,841 3,841 Income taxes payable 1,237 1,237 - - Deferred revenue 16,755 16,755 12,496 12,496 Deferred tax liability (note 16.5(A)) 181 (181) - 48 (48) ----------------------------------------------------------------------------- 22,716 (181) 22,535 16,385 (48) 16,337Deferred tax liability (note 16.5(A)) 203 181 384 - 27 27----------------------------------------------------------------------------Total liabilities 22,919 - 22,919 16,385 (21) 16,364----------------------------------------------------------------------------Shareholders' equity: Share capital 24,801 24,801 21,279 21,279 Contributed surplus 2,655 2,655 1,993 1,993 Retained earnings 8,314 8,314 6,192 6,192----------------------------------------------------------------------------Total shareholders' equity 35,770 35,770 29,464 29,464----------------------------------------------------------------------------Total liabilities and shareholders' equity 58,689 58,689 45,849 (21) 45,828----------------------------------------------------------------------------(thousands of $) April 1, 2010---------------------------------------------------------------------------- Canadian IFRS GAAP Adj. IFRS----------------------------------------------------------------------------AssetsCurrent assets: Cash 28,826 28,826 Trade and other receivables 16,072 16,072 Prepaid expenses 1,141 1,141 Prepaid income taxes 1,433 1,433---------------------------------------------------------------------------- 47,472 47,472Property and equipment 2,401 2,401Deferred tax asset (note 16.5(A)) 33 (33) -----------------------------------------------------------------------------Total assets 49,906 (33) 49,873----------------------------------------------------------------------------Liabilities and Shareholders' EquityCurrent liabilities: Trade payables and accrued liabilities 5,398 5,398 Income taxes payable - - Deferred revenue 13,843 13,843 Deferred tax liability (note 16.5(A)) 222 (222) ----------------------------------------------------------------------------- 19,463 (222) 19,241Deferred tax liability (note 16.5(A)) - 189 189----------------------------------------------------------------------------Total liabilities 19,463 (33) 19,430----------------------------------------------------------------------------Shareholders' equity: Share capital 20,390 20,390 Contributed surplus 1,816 1,816 Retained earnings 8,237 8,237----------------------------------------------------------------------------Total shareholders' equity 30,443 30,443----------------------------------------------------------------------------Total liabilities and shareholders' equity 49,906 (33) 49,873----------------------------------------------------------------------------16.4 RECONCILIATION OF NET AND COMPREHENSIVE INCOME:For the three months ended June 30, 2010 Canadian IFRS IFRS(thousands of $) GAAP Adjustments----------------------------------------------------------------------------Revenue 12,054 - 12,054----------------------------------------------------------------------------Operating expenses Sales, marketing and professional services (note 16.5(B)) 2,658 72 2,730 Research and development 2,218 - 2,218 General and administrative (note 16.5(B)) 1,116 57 1,173 Depreciation and amortization (note 16.5(B)) 129 (129) - Foreign exchange gain (note 16.5(C)) (210) 210 - Interest and other income (note 16.5(C)) (35) 35 ----------------------------------------------------------------------------- 5,876 245 6,121----------------------------------------------------------------------------Operating profit 6,178 (245) 5,933Finance income (note 16.5(C)) - 245 245----------------------------------------------------------------------------Profit before income and other taxes 6,178 - 6,178Income and other taxes 1,949 - 1,949----------------------------------------------------------------------------Net and comprehensive income 4,229 - 4,229--------------------------------------------------------------------------------------------------------------------------------------------------------For the year ended March 31, 2011 Canadian IFRS IFRS(thousands of $) GAAP Adjustments----------------------------------------------------------------------------Revenue 51,827 - 51,827----------------------------------------------------------------------------Operating expenses Sales, marketing and professional services (note 16.5(B)) 11,393 310 11,703 Research and development 9,338 - 9,338 General and administrative (note 16.5(B)) 4,868 251 5,119 Depreciation and amortization (note 16.5(B)) 561 (561) - Foreign exchange loss (note 16.5(C)) 523 (523) - Interest and other income (note 16.5(C)) (290) 290 ----------------------------------------------------------------------------- 26,393 (233)26,160----------------------------------------------------------------------------Operating profit 25,434 233 25,667Finance income (note 16.5(C)) - 290 290Finance costs (note 16.5(C)) - (523) (523)----------------------------------------------------------------------------Profit before income and other taxes 25,434 - 25,434Income and other taxes 8,268 - 8,268----------------------------------------------------------------------------Net and comprehensive income 17,166 - 17,166----------------------------------------------------------------------------16.5 EXPLANATION OF PRESENTATION RECLASSIFICATIONS:(A) Deferred taxes - deferred taxes are classified as non-current under IFRS. Under previous Canadian GAAP, deferred taxes were classified as current and non-current based on the classification of the underlying assets or liabilities to which they relate or based on the expected reversal of the temporary differences.Transition rules resulted in reclassification of deferred tax liability associated with SR&ED credits from current to non-current. In addition, deferred tax asset associated with property and equipment was offset against deferred tax liability as both relate to income taxes levied by the same taxation authority for the same taxable entity.(B) Expense classification - the Company has elected to present its expenses in the consolidated statements of operations and comprehensive income prepared under IFRS according to their function. As a result, depreciation and amortization, which was reported as a separate line item under previous Canadian GAAP, was allocated to its respective functions.(C) Finance income and costs - under Canadian GAAP, interest income and foreign exchange gains and losses were classified as separate line items in the consolidated statement of earnings. Under IFRS, interest income and foreign exchange gains are presented as finance income, and foreign exchange losses are presented as finance costs. Finance income and costs are presented on a gross basis as required by IFRS.16.6 ADJUSTMENTS TO THE STATEMENTS OF CASH FLOWS:Interest received and income taxes paid have been moved into the body of the statement of cash flows under operating activities, whereas they were previously disclosed as supplemental information. There are no other material differences between the statement of cash flows presented under IFRS and the statement of cash flows previously presented under Canadian GAAP.FOR FURTHER INFORMATION PLEASE CONTACT: 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