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Press release from Marketwire

Computer Modelling Group Announces Third Quarter Results

Friday, February 10, 2012

Computer Modelling Group Announces Third Quarter Results07:00 EST Friday, February 10, 2012CALGARY, ALBERTA--(Marketwire - Feb. 10, 2012) - Computer Modelling Group Ltd. ("CMG" or the "Company") (TSX:CMG) is very pleased to announce our third quarter results for the three and nine months ended December 31, 2011.THIRD QUARTER HIGHLIGHTSFor the three months ended December 31,20112010$ change% change($ thousands, except per share data)Annuity/maintenance software licenses12,0567,9994,05751%Perpetual software licenses2,3212,335(14)-1%Total revenue15,89812,0633,83532%Operating profit8,0935,5162,57747%Net income5,7903,5632,22763%Earnings per share - basic0.160.100.0660%For the nine months ended December 31,20112010$ change% change($ thousands, except per share data)Annuity/maintenance software licenses30,36124,1786,18326%Perpetual software licenses9,3087,1342,17430%Total revenue43,81937,4496,37017%Operating profit22,41118,1454,26624%Net income16,77112,3584,41336%Earnings per share - basic0.460.340.1235%MANAGEMENT'S DISCUSSION AND ANALYSISThis Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our"), presented as at February 9, 2012, should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of the Company for the three and nine months ended December 31, 2011 and the audited consolidated financial statements and MD&A for the years ended March 31, 2011 and 2010 contained in the 2011 Annual report for CMG. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars and rounded to the nearest thousand.Effective on the close of business on June 20, 2011, CMG's Common Shares were split on a two-for-one basis. Accordingly, all comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one split. FORWARD-LOOKING 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 staff Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties, only some of which are described herein. Many factors could cause the Company's actual results, performance or achievements, or future events or developments, to differ materially from those expressed or implied by the forward-looking information including, without limitation, the following factors which are described in the MD&A of CMG's 2011 Annual Report under the heading "Business Risks":Economic conditions in the oil and gas industry Reliance on key clients Foreign exchange Economic and political risks in countries where the Company currently does or proposes to do business Increased competition Reliance on employees with specialized skills or knowledge Protection of proprietary rights Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievement may vary materially from those expressed or implied by the forward-looking information contained in this MD&A. These factors should be carefully considered and readers are cautioned not to place undue reliance on forward-looking information, which speaks only as of the date of this MD&A. All subsequent forward-looking information attributable to the Company herein is expressly qualified in its entirety by the cautionary statements contained in or referred to herein. The Company does not undertake any obligation to release publicly any revisions to forward-looking information contained in this MD&A to reflect events or circumstances that occur after the date of this MD&A or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.NON-IFRS FINANCIAL 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 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 PERFORMANCEFiscal 2010(1)Fiscal 2011(2)Fiscal 2012(3)($ thousands, unless otherwise stated)Q4Q1Q2Q3Q4Q1Q2Q3Annuity/maintenance licenses7,6538,3257,8557,9998,5318,9979,30812,056Perpetual licenses4,9821,8242,9752,3353,9115,3911,5962,321Software licenses12,63510,14910,83010,33312,44214,38810,90414,377Professional services1,6571,9052,5021,7301,9361,5511,0781,521Total revenue14,29212,05413,33212,06314,37815,93911,98215,898Operating profit7,8445,9336,6955,5167,5239,0925,2268,093Operating profit %5549504652574451Profit before income and other taxes7,7106,1786,5655,2787,4139,2406,0968,184Income and other taxes2,3501,9491,9991,7152,6052,5771,7782,394Net income for the period5,3604,2294,5653,5634,8086,6634,3185,790Cash dividends declared and paid3,2096,2743,4303,6233,6437,5194,0534,079Per share amounts - ($/share)Earnings per share - basic0.150.120.130.100.130.180.120.16Earnings per share - diluted0.150.120.130.100.130.180.110.15Cash dividends declared and paid0.090.1750.0950.100.100.2050.110.11Q4 of fiscal 2010 includes $0.4 million in revenue that pertains to usage of CMG's products in prior quarters. 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. Q1, Q2, and Q3 of fiscal 2012 include $0.3 million, $0.04 million and $2.6 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. Note: all quarterly data contained in the above table has been prepared in accordance with IFRS. HighlightsDuring the nine months ended December 31, 2011, as compared to the same period of prior fiscal year, CMG:Increased annuity/maintenance revenue by 26%; Increased perpetual sales by 30%; Increased net income by 36%; Increased gross spending on research and development by 12%; Realized earnings per share of $0.46, representing a 35% increase. RevenueFor the three months ended December 31,20112010$ change% change ($ thousands)Software licenses14,37710,3334,04439%Professional services1,5211,730(209)-12%Total revenue15,89812,0633,83532%Software license revenue - % of total revenue90%86%Professional services - % of total revenue10%14%For the nine months ended December 31,20112010$ change% change($ thousands)Software licenses39,66931,3128,35727%Professional services4,1506,137(1,987)-32%Total revenue43,81937,4496,37017%Software license revenue - % of total revenue91%84%Professional services - % of total revenue9%16%CMG's revenue is comprised of software license sales, which provide the majority of the Company's revenue, and fees for professional services.Total revenue increased by 32% and 17% for the three and nine months ended December 31, 2011, respectively, due to increases in both our annuity/maintenance and perpetual license revenue streams. The increases in software licenses revenue were partially offset by the decreases in fees earned from professional services. SOFTWARE LICENSE REVENUE Software license revenue is made up of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less and perpetual software license sales, whereby the customer purchases the-then-current version of the software and has the right to use that version in perpetuity. Annuity/maintenance license fees have historically had a high renewal rate and, accordingly, provide a reliable revenue stream while perpetual license sales are more variable and unpredictable in nature as the purchase decision and its timing fluctuate with the customers' needs and budgets. CMG has found that the majority of its customers who have acquired perpetual software licenses subsequently purchase maintenance licenses to ensure they have access to current versions of CMG's software.For the three months ended December 31,20112010$ change% change($ thousands)Annuity/maintenance licenses12,0567,9994,05751%Perpetual licenses2,3212,335(14)-1%Total software license revenue14,37710,3334,04439%Annuity/maintenance as a % of total software license revenue84%77%Perpetual as a % of total software license revenue16%23%For the nine months ended December 31,20112010$ change% change($ thousands)Annuity/maintenance licenses30,36124,1786,18326%Perpetual licenses9,3087,1342,17430%Total software license revenue39,66931,3128,35727%Annuity/maintenance as a % of total software license revenue77%77%Perpetual as a % of total software license revenue23%23%Total software license revenue increased by 39% and 27% during the three and nine months ended December 31, 2011, respectively, compared to the same periods of the previous fiscal year. The increase in our quarterly total software license revenue was driven by the increase in annuity/maintenance license sales. Our year-to-date increase in total software license revenue was supported by growth in both annuity/maintenance and perpetual license sales. CMG's annuity/maintenance license revenue increased by 51% and 26% during the three and nine months ended December 31, 2011, respectively, compared to the same periods of last year. While we have seen strong growth in these license sales throughout the year, the significant contributor to the increase in the quarterly revenue, which also had a positive impact on the year-to-date revenue growth, is a payment received from one of our large customers for whom revenue recognition criteria are fulfilled only at the time of the receipt of funds. The payment was received for the licenses and services provided in past periods (see the discussion about revenue earned in the current period that pertains to usage of products in prior quarters above the "Quarterly Software License Revenue" graph). Payments from this customer have at times been irregular, with the last payment having been received in Q1 2011, which is reflected in our year-to-date comparative numbers. The payment received in the current quarter represents the initial payment for a multi-year arrangement with this long-standing client. We expect to continue to receive payments under this arrangement, however, the amount and timing is uncertain and, accordingly, may introduce some variability in our quarterly revenue results.If we were to adjust our quarterly and year-to-date annuity/maintenance licenses revenue, by removing revenue from this one customer for the current and prior fiscal year, we would see that the annuity/maintenance license sales have grown by 19% and 20% in the three and nine months ended December 31, 2011, respectively, compared to the same periods of the previous fiscal year. These increases were driven by sales to new and existing clients as well as the increase in maintenance revenue tied to our strong perpetual sales generated in the previous quarters. Our annuity/maintenance license revenue, representing a recurring revenue stream, continues experiencing steady growth quarter over quarter as evidenced by consecutive quarterly increases in this revenue stream over the past several fiscal years. The increase in annuity/maintenance revenue as measured in Canadian dollars has been negatively affected by the strengthening of the Canadian dollar relative to the US dollar in the current fiscal year. The table below illustrates revenue generated in US dollars and the rates at which it was converted into Canadian dollars to show the movement in US dollar denominated revenue without the impact of the foreign exchange. Had the exchange rate between the US and Canadian dollars remained constant between the three and nine months ended December 31, 2011 and 2010, our third quarter annuity/maintenance revenue would have increased by 56% (instead of 51%) and our year-to-date annuity/maintenance revenue would have increased by 30% (instead of 26%).Our perpetual license sales for the three months ended December 31, 2011, were virtually unchanged from the same period of the previous fiscal year, whereas, they increased by 30% for the nine months ended December 31, 2011, compared to the same period of the previous fiscal year. The year-to-date increase is driven by a multi-million perpetual contract closed in the first quarter of the current fiscal year. Software licensing under perpetual sales is a significant part of CMG's business, but may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. For this reason, we expect to observe fluctuations in the quarterly perpetual revenue amounts throughout the fiscal year.We can observe from the table below that our year-to-date perpetual sales in US dollars were negatively affected by the foreign exchange movement between the US and Canadian dollars as a result of the strengthening Canadian dollar in the current fiscal year. Had the exchange rate between the US and Canadian dollars remained constant between the nine months ended December 31, 2011 and 2010, our year-to-date perpetual license revenue would have increased by 39% (instead of 30%). The foreign exchange rates had a minimum impact on our quarterly perpetual sales. The following table summarizes the US dollar denominated revenue and the weighted average exchange rates at which it was converted to Canadian dollars:For the three months ended December 31,20112010$ change% change($ thousands)US dollar annuity/maintenance license salesUS$8,711US$5,1613,55069%Weighted average conversion rate0.9921.044Canadian dollar equivalentCDN$8,643CDN$5,3893,25460%US dollar perpetual license salesUS$1,866US$1,883(17)-1%Weighted average conversion rate1.0191.025Canadian dollar equivalentCDN$1,902CDN$1,930(28)-1%For the nine months ended December 31,20112010$ change% change($ thousands)US dollar annuity/maintenance license salesUS$20,160US$15,9074,25327%Weighted average conversion rate0.9931.049Canadian dollar equivalentCDN$20,020CDN$16,6833,33720%US dollar perpetual license salesUS$9,144US$4,6184,52698%Weighted average conversion rate0.9691.036Canadian dollar equivalentCDN$8,857CDN$4,7844,07385%REVENUE BY GEOGRAPHIC SEGMENTFor the three months ended December 31,20112010$ change% change($ thousands)Annuity/maintenance revenueCanada4,0072,8591,14840%United States2,1391,77936020%Other5,9103,3612,54976%12,0567,9994,05751%Perpetual revenueCanada420405154%United States39024814257%Other1,5111,682(171)-10%2,3212,335(14)-1%Total software license revenueCanada4,4273,2641,16336%United States2,5292,02650325%Other7,4215,0432,37847%14,37710,3334,04439%For the nine months ended December 31,20112010$ change% change($ thousands)Annuity/maintenance revenueCanada11,6488,0133,63545%United States6,1915,1841,00719%Other12,52210,9811,54114%30,36124,1786,18326%Perpetual revenueCanada4522,350(1,898)-81%United States9921,262(270)-21%Other7,8643,5224,342123%9,3087,1342,17430%Total software license revenueCanada12,10010,3631,73717%United States7,1836,44673711%Other20,38614,5035,88341%39,66931,3128,35727%On a geographic basis, total software license sales increased across all regions with Canada and the United States experiencing increases of 17% and 11%, respectively, for the nine months ended December 31, 2011 compared to the same periods of previous fiscal year. This growth has been led by the increases in annuity/maintenance revenue stream. Our other markets grew total software license revenue by 41% in the nine months ended December 31, 2011 compared to the same period of previous fiscal year, driven mainly by the increase in perpetual sales. The Canadian market experienced strong growth in the recurring annuity/maintenance revenue stream as evidenced by the increases of 40% and 45% for the three and nine months ended December 31, 2011 compared to the same periods of the previous fiscal year. The increases in the annuity revenue stream were supported by the increase in sales to both existing and new clients. In addition, strong perpetual license sales generated in the past have enabled the Canadian market to maintain increased revenue levels from the maintenance contracts tied to those perpetual licenses. On the other hand, perpetual sales during the current fiscal year did not reach the same levels of the perpetual sales made during the previous fiscal year, offsetting the increase in year-to-date annuity/maintenance revenue. Similar to the Canadian market, the US market also experienced growth in annuity/maintenance revenue with the increases of 20% and 19% recorded for the three and nine months ended December 31, 2011 compared to the same periods of the previous fiscal year. While perpetual revenue grew by $0.1 million in the three months ended December 31, 2011, it decreased by $0.3 million for the nine months ended December 31, 2011 offsetting the growth in year-to-date annuity/maintenance revenue. Other markets experienced increases of 76% and 14% in annuity/maintenance revenue stream for the three and nine months ended December 31, 2011, respectively, compared to the same periods of the previous fiscal year. The growth in quarterly annuity/maintenance revenue occurred solely due to inclusion of the payment for the contract for which revenue is recognized on a cash basis (see more detailed discussion under "Software License Revenue"). On a year-to-date basis, the effect of the inclusion of this significant amount during the current quarter is somewhat mitigated by the similar inclusion of a significant amount on the same contract in Q1 of the previous fiscal year. While the perpetual sales in other markets decreased only slightly during three months ended December 31, 2011, they increased by 123% on a year-to-date basis driven solely by the large perpetual sale made during the first quarter of the current fiscal year. In addition to closing one significant contract, we have seen a general increase in the number of perpetual license sales made to other markets. The movements in perpetual sales across the regions are indicative of the unpredictable nature of the timing and location of perpetual license sales. Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions. The increases in US-dollar generated revenue from the US and other markets have been negatively affected by the strengthening Canadian dollar compared to the US dollar during the nine months ended December 31, 2011.As footnoted in the Quarterly Performance table, in the normal course of business CMG may complete the negotiation of certain annuity/maintenance contracts and/or fulfill revenue recognition requirements within a current quarter that includes usage of CMG's products in prior quarters. This situation particularly affects contracts negotiated with countries that face increased economic and political risks leading to revenue recognition criteria being satisfied only at the time of the receipt of cash. The dollar magnitude of such contracts may be significant to the quarterly comparatives of our annuity/maintenance revenue stream and, to provide a normalized comparison, we specifically identify the revenue component where revenue recognition is satisfied in the current period for products provided in previous quarters.DEFERRED REVENUE 20112010$ change% change($ thousands)Deferred revenue at:March 3116,75513,8432,91221%June 3015,32612,4962,83023%September 3014,60012,6581,94215%December 3114,74611,8922,85424%CMG's deferred revenue consists primarily of amounts for pre-sold licenses. Our annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time. The increase in deferred revenue year over year as at December 31, September 30, June 30 and March 31 is reflective of the growth in annuity/maintenance license sales. The variation within a year is due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year which explains the general trend of declining deferred revenue balance from March 31 to December 31. Deferred revenue at December 31, 2011 increased compared to the same period of prior fiscal year due to both renewal of the existing and signing of the new software licenses and maintenance contracts in the quarter. Our deferred revenue balance continues to grow at a steady pace as demonstrated in the table above by the consecutive quarterly double-digit growth experienced during the current fiscal year. PROFESSIONAL SERVICES REVENUE CMG recorded professional services revenue of $1.5 million and $4.2 million for the three and nine months ended December 31, 2011, respectively, representing decreases of $0.2 million and $2.0 million from the amounts recorded for the same periods of previous fiscal year. CMG had been engaged in a few large projects in the previous fiscal year, which are either complete or continue on a smaller scale in the current fiscal year, causing the majority of the decrease in the quarterly and year-to-date professional services revenue. Additionally, the funding commitment for the DRMS project received from the CMG Reservoir Simulation Foundation ("Foundation CMG") was fulfilled in the first quarter of the current fiscal year further contributing to the decrease in the professional services revenue. Refer to the discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."Professional services revenue consists of specialized consulting, training, and contract research activities. CMG performs consulting and contract research activities on an ongoing basis but such activities are not considered to be a core part of our business and are primarily undertaken to increase our knowledge base and hence expand the technological abilities of our simulators in a funded manner, combined with servicing our customers' needs. In addition, these activities are undertaken to market the capabilities of our suite of software products with the ultimate objective to increase software license sales. Our experience is that consulting activities are variable in nature as both the timing and dollar magnitude of work are dependent on activities and budgets within client companies.At December 31, 2011, approximately $0.08 million (2010 - $0.5 million) is included in deferred revenue relating to professional services.ExpensesFor the three months ended December 31,20112010$ change% change($ thousands)Sales, marketing and professional services3,5362,83670025%Research and development2,7472,40833914%General and administrative1,5221,30321917%Total operating expenses7,8056,5471,25819%Direct employee costs*6,0635,0221,04121%Other corporate costs1,7421,52521714%7,8056,5471,25819%For the nine months ended December 31,20112010$ change% change($ thousands)Sales, marketing and professional services9,7038,70499911%Research and development7,6356,94169410%General and administrative4,0703,65941111%Total operating expenses21,40819,3042,10411%Direct employee costs*17,02814,8452,18315%Other corporate costs4,3804,459(79)-2%21,40819,3042,10411%*Includes salaries, bonuses, stock-based compensation, benefits and commissions. CMG's total operating expenses increased by 19% and 11% for the three and nine months ended December 31, 2011, respectively, compared to the same periods of previous fiscal year mainly as a result of an increase in direct employee costs. While other corporate costs increased during the quarter, they remained relatively consistent on a year-to-date basis. DIRECT EMPLOYEE COSTS As a technology company, CMG's largest area of expenditure is for its people. Approximately 80% of the total operating expenses in the nine months ended December 31, 2011 related to staff costs compared to 77% recorded in the comparative period of last year. Staffing levels for the first nine months of the current fiscal year grew in comparison to the same period of previous fiscal year to support our continued growth. At December 31, 2011, CMG's staff complement was 148 employees, up from 131 employees as at December 31, 2010. Direct employee costs increased during the three and nine months ended December 31, 2011 compared to the same period of previous fiscal year, due to staff additions, increased levels of compensation, commissions and related benefits.OTHER CORPORATE COSTS Other corporate costs increased by 14% for the three months ended December 31, 2011 compared to the same period of previous fiscal year, due to incurring promotional, marketing and other expenses associated with the Society of Petroleum Engineers' Annual Technical Conference and Exhibition which took place in the third quarter of the current fiscal year and the second quarter of the previous fiscal year, and due to inclusion of the costs associated with the expansion of our office space at the end of calendar 2011.Other corporate costs decreased slightly for the nine months ended December 31, 2011 compared to the same period of previous fiscal year mainly as a result of the inclusion of the expenses associated with CMG's biennial technical symposium in the second quarter of the previous fiscal year which is offset by the increase in the costs associated with the expanded office space. RESEARCH AND DEVELOPMENTFor the three months ended December 31,20112010$ change% change($ thousands)Research and development (gross)3,1042,65844617%SR&ED credits(357)(250)(107)43%Research and development2,7472,40833914%Research and development as a % of total revenue17%20%For the nine months ended December 31,20112010$ change% change($ thousands)Research and development (gross)8,6567,70994712%SR&ED credits(1,021)(768)(253)33%Research and development7,6356,94169410%Research and development as a % of total revenue17%19%CMG maintains its belief that its strategy of growing long-term value for shareholders can only be achieved through continued investment in research and development. CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes. The above research and development includes CMG's proportionate share of joint research and development costs on the DRMS system development of $0.6 million and $2.0 million for the three and nine months ended December 31, 2011, respectively, (2010 - $0.6 million and $2.0 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."The increases of 17% and 12% in our gross spending on research and development for the three and nine months ended December 31, 2011, respectively, demonstrate our continued commitment to advancement of our technology. Research and development costs, net of research and experimental development ("SR&ED") credits, increased by 14% and 10% during the three and nine months ended December 31, 2011, respectively, compared to the same periods of previous fiscal year mainly due to increased employee-related costs. At the same time, we had an increase in SR&ED credits driven by the increases in our direct employee costs as well as the increase in the eligibility of our expenses for SR&ED credits as a direct result of the completion of the grant received from Foundation CMG which had been netted against our research and development expenses for purposes of calculating SR&ED credits. The funding commitment associated with this grant was fulfilled in the first quarter of the current fiscal year. Refer to the discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."DEPRECIATION AND AMORTIZATIONFor the three months ended December 31,20112010$ change% change($ thousands)Depreciation of property and equipment, allocated to:Sales, marketing and professional services118764255%Research and development1451311411%General and administrative5866(8)-12%Total depreciation and amortization3212734818%For the nine months ended December 31,20112010$ change% change($ thousands)Depreciation of property and equipment, allocated to:Sales, marketing and professional services3052208539%Research and development3833443911%General and administrative18918721%Total depreciation and amortization87775112617%The quarterly and year-to-date increases in depreciation and amortization reflect the increase in our asset base, mainly as a result of increased spending on computing resources and expansion of the office space at the end of Q3 2012. FINANCE INCOME AND COSTSFor the three months ended December 31,20112010$ change% change($ thousands)Interest income123913235%Foreign exchange gain----Finance income123913235%Finance costs (represented by foreign exchange loss)(32)(329)297-90%For the nine months ended December 31,20112010$ change% change($ thousands)Interest income34117916291%Foreign exchange gain768-768-Finance income1,109179930520%Finance costs (represented by foreign exchange loss)-(303)303-Interest income increased in the three and nine months ended December 31, 2011, compared to the same periods of the prior fiscal year, due to slight improvement in interest rates and investing larger cash balances.CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 72% (2010 - 67%) of CMG's revenue for the nine months ended December 31, 2011 is denominated in US dollars, whereas only approximately 23% (2010 - 24%) of CMG's total costs are denominated in US dollars.CDN$ to US$At June 30At September 30At December 31Nine month trailing average20090.86020.93270.95550.910820100.94290.97111.00540.969720111.03700.96260.98331.0132CMG recorded a foreign exchange loss of $0.03 million and a foreign exchange gain of $0.8 million for the three and nine months ended December 31, 2011, respectively, compared to a $0.3 million foreign exchange loss recorded in the three and nine months ended December 31, 2010. The weakening of the Canadian dollar in the current quarter, along with a significant fluctuation in the exchange rates between the Canadian and the US dollars during the first nine months of the current fiscal year, have contributed positively to the valuation of our US-denominated working capital, hence, contributing to the foreign exchange gain in the current fiscal year-to-date. INCOME AND OTHER TAXES CMG's effective tax rate for the nine months ended December 31, 2011 is reflected as 28.69% (2010 - 31.42%), whereas the prevailing Canadian statutory tax rate is now 26.13%. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts deferred income taxes. The investment tax credit earned in the current fiscal year is utilized by CMG to reduce income taxes otherwise payable for the current fiscal year and the federal portion of this benefit bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a non-current deferred tax liability and then, in the following fiscal year, is transferred to income taxes payable.Operating Profit and Net IncomeFor the three months ended December 31,20112010$ change% change($ thousands, except per share amounts)Total revenue15,89812,0633,83532%Operating expenses(7,805)(6,547)(1,258)19%Operating profit8,0935,5162,57747%Operating profit as a % of total revenue51%46%Net income for the period5,7903,5632,22763%Net income for the period as a % of total revenue36%30%Earnings per share ($/share)0.160.100.0660%For the nine months ended December 31,20112010$ change% change($ thousands, except per share amounts)Total revenue43,81937,4496,37017%Operating expenses(21,408)(19,304)(2,104)11%Operating profit22,41118,1454,26624%Operating profit as a % of total revenue51%48%Net income for the period16,77112,3584,41336%Net income for the period as a % of total revenue38%33%Earnings per share ($/share)0.460.340.1235%Operating profit as a percentage of total revenue increased to 51% for the three and nine months ended December 31, 2011, compared to 46% and 48% recorded in the same periods of the previous fiscal year, as a result of the increase in our total revenue driven by the increases in our software licenses revenue, and effective management of our corporate costs. Net income for the period as a percentage of revenue increased to 36% and 38% for the three and nine months ended December 31, 2011, respectively, compared to 30% and 33% recorded in the same periods of previous fiscal year mainly as a result of the positive effect of the changes in foreign exchange rates recorded in the current fiscal year compared to the previous fiscal year and incurring less tax expenses as a result of lower withholding taxes and lower statutory tax rate. Liquidity and Capital ResourcesFor the three months ended December 31,20112010$ change% change($ thousands)Cash, beginning of period43,31032,56510,74533%Cash flow from (used in)Operating activities7,5118,378(867)-10%Financing activities(2,404)(2,669)265-10%Investing activities(802)(262)(540)206%Cash, end of period47,61538,0129,60325%For the nine months ended December 31,20112010$ change% change($ thousands)Cash, beginning of period41,75328,82612,92745%Cash flow from (used in)Operating activities18,67320,465(1,792)-9%Financing activities(11,745)(10,344)(1,401)14%Investing activities(1,066)(935)(131)14%Cash, end of period47,61538,0129,60325%OPERATING ACTIVITIESCash flow generated from operating activities decreased by $0.9 million and $1.8 million in the three and nine months ended December 31, 2011, respectively, compared to the same periods of last year, due to the timing differences when the sales are made and when the resulting receivables are collected, net impact of changes in income taxes payable, trade payables and deferred revenue balance.FINANCING ACTIVITIESCash used in financing activities during the three months ended December 31, 2011 decreased by $0.3 million compared to the same period of last year, as a result of recording more cash proceeds from options being exercised. Cash used in financing activities during the nine months ended December 31, 2011, increased by $1.4 million compared to the same period of last year, as a result of issuing larger dividends and buying back common shares. During the nine months ended December 31, 2011, CMG employees and directors exercised options to purchase 698,000 Common Shares, which resulted in cash proceeds of $4.3 million.In the nine months ended December 31, 2011, CMG paid $15.7 million in dividends, representing quarterly dividends of $0.105, $0.11 and $0.11 per share and a special dividend of $0.10 per share. On February 9, 2012, CMG announced the payment of a quarterly dividend of $0.13 per share on CMG's Common Shares. The dividend will be paid on March 15, 2012 to shareholders of record at the close of business on March 8, 2012. On April 6, 2011, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on April 7, 2011 to purchase for cancellation up to 1,636,000 of its Common Shares. During the nine months ended December 31, 2011, 33,000 Common Shares were purchased at market price for a total cost of $438,000.INVESTING ACTIVITIESCMG's current needs for capital asset investment relate to computer equipment and office infrastructure costs, all of which will be funded internally. During the nine months ended December 31, 2011, CMG expended $1.1 million on property and equipment additions, primarily composed of computing equipment, and currently has a capital budget of $2.4 million for fiscal 2012. LIQUIDITY AND CAPITAL RESOURCESAt December 31, 2011, CMG has $47.6 million in cash, no debt and has access to just over $0.8 million under a line of credit with its principal banker.During the nine months ended December 31, 2011, 6,472,000 shares of CMG's public float were traded on the TSX. As at December 31, 2011, CMG's market capitalization based upon its December 31, 2011 closing price of $15.35 was $569.4 million. Commitments, Off Balance Sheet Items and Transactions with Related Parties In May, 2006, CMG announced that it had committed approximately $10.6 million to the five-year DRMS research and development project with its industry partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras") to develop the newest generation of dynamic reservoir modelling system. While the original funding commitment has been fulfilled during the first quarter of the current fiscal year, CMG and its partners are committed to continue funding the project beyond the initially estimated five-year period with CMG's share of the project costs estimated at $3.0 million per year. We now expect to release a beta version of the new reservoir modelling system to our partners by the end of fiscal 2012, with the first commercial release expected to take place by the end of the third quarter of fiscal 2013.In conjunction with entering into this project, Foundation CMG agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover approximately 50% of the Company's estimated share of project costs over the initial five years of the project. For the nine months ended December 31, 2011, the Company has reflected $366,000 (2010 - $1.0 million) in research grants from Foundation CMG in professional services revenue with respect to this project. Foundation CMG's $5.2 million funding commitment was completed in the first quarter of the current fiscal year.CMG plans to continue funding its share of the project costs associated with the development of the newest generation reservoir simulation software system from internally generated cash flows.CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which are reflected as deferred revenue on its statement of financial position, and contractual obligations for office leases which are estimated as follows: 2012 - $0.5 million; 2013 and 2014 - $1.8 million per year; 2015 - $1.4 million; and 2016 - $0.6 million. Business Risks and Critical Accounting EstimatesThese remain unchanged from the factors detailed in CMG's 2011 Annual Report.Changes in Accounting Policies INTERNATIONAL 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 third quarter in which we have provided unaudited condensed consolidated financial statements which are in compliance with the interim reporting requirements found in IAS 34, Interim Financial Reporting, as well as IFRS 1, First-time Adoption of IFRS. In accordance with IFRS 1, we have applied IFRS retrospectively as of April 1, 2010, our transition date, as if IFRS had always been in effect, subject to certain mandatory exceptions and optional exemptions. Our consolidated financial statements for the year ended March 31, 2012, will be our first annual financial statements that comply with IFRS. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in note 16 to the Condensed Consolidated Financial Statements for the three and nine months ended December 31, 2011. The transition to IFRS did not have a material impact on retained earnings, net income or cash flows. The only adjustments were reclassifications on the Statement of Financial Position, Statement of Operations and Comprehensive Income, and the Statement of Cash Flows as follows:Statement of Financial Position Deferred taxes are classified as non-current under IFRS. Under previous Canadian GAAP, deferred taxes were classified as current and non-current based on the classification of the underlying assets or liabilities to which they relate or based on the expected reversal of the temporary differences. Transition rules resulted in reclassification of deferred tax liability associated with SR&ED credits from current to non-current. In addition, the deferred tax asset associated with property and equipment was offset against deferred tax liability as both relate to income taxes levied by the same taxation authority for the same taxable entity. Statement of Operations and Comprehensive IncomeExpense classification - the Company has elected to present its expenses in the consolidated statements of operations and comprehensive income prepared under IFRS according to their function. As a result, depreciation and amortization, which was reported as a separate line item under previous Canadian GAAP, was allocated to its respective functions. Finance income and costs - under Canadian GAAP, interest income and foreign exchange gains and losses were classified as separate line items in the consolidated statement of earnings. Under IFRS, interest income and foreign exchange gains are presented as finance income, and foreign exchange losses are presented as finance costs. Finance income and costs are presented on a gross basis as required by IFRS. Statement of Cash Flows Interest received and income taxes paid have been moved into the body of the statement of cash flows under operating activities, whereas they were previously disclosed as supplemental information. Accounting Standards and Interpretations Issued But Not Yet Effective The following standards and interpretations have not been adopted by the Company as they apply to future periods:Standard/Interpretation Nature of impending change in accounting policy Impact on CMG's financial statementsIFRS 9 Financial InstrumentsIn November 2009 the IASB issued IFRS 9 Financial Instruments (IFRS 9 (2009)), and in October 2010 the IASB published amendments to IFRS 9 (IFRS 9 (2010)). In December 2011, the IASB issued an amendment to IFRS 9 to defer the mandatory effective date to annual periods beginning on or after January 1, 2015.IFRS 9 (2009) replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement, on the classification and measurement of financial assets. The Standard eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans and receivable. Financial assets will be classified into one of two categories on initial recognition: - financial assets measured at amortized cost; or - financial assets measured at fair value. Gains and losses on remeasurement of financial assets measured at fair value will be recognized in profit or loss, except that for an investment in an equity instrument which is not held-for-trading, IFRS 9 provides, on initial recognition, an irrevocable election to present all fair value changes from the investment in other comprehensive income (OCI). The election is available on an individual share-by-share basis. Amounts presented in OCI will not be reclassified to profit or loss at a later date. IFRS 9 (2010) added guidance to IFRS 9 (2009) on the classification and measurement of financial liabilities, and this guidance is consistent with the guidance in IAS 39 expect as described below. Under IFRS 9 (2010), for financial liabilities measured at fair value under the fair value option, changes in fair value attributable to changes in credit risk will be recognized in OCI, with the remainder of the change recognized in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, the entire change in fair value will be recognized in profit or loss. Amounts presented in OCI will not be reclassified to profit or loss at a later date. IFRS 9 (2010) also requires derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument to be measured at fair value, whereas such derivative liabilities are measured at cost under IAS 39. IFRS 9 (2010) also added the requirements of IAS 39 for the derecognition of financial assets and liabilities to IFRS 9 without change. The IASB has deferred the mandatory effective date of the existing chapters of IFRS 9 Financial Instruments (2009) and IFRS 9 (2010) to annual periods beginning on or after January 1, 2015. The early adoption of either standard continues to be permitted.IFRS 9 (2010) supersedes IFRS 9 (2009) and is effective for annual periods beginning on or after January 1, 2015, with early adoption permitted. For annual periods beginning before January 1, 2015, either IFRS 9 (2009) or IFRS 9 (2010) may be applied. The Company intends to adopt IFRS 9 (2010) in its financial statements for the annual period beginning on April 1, 2015. The Company does not expect IFRS 9 (2010) to have a material impact on the financial statements. The classification and measurement of the Company's financial assets and liabilities is not expected to change under IFRS 9 (2010) because of the nature of the Company's operations and the types of financial assets that it holds. Amendments to IFRS 7 Disclosures - Transfers of Financial Assets In October 2010 the IASB issued Amendments to IFRS 7 Disclosures - Transfers of Financial Assets, which is effective for annual periods beginning on or after January 1, 2012.The amendments to IFRS 7 require disclosure of information that enables users of financial statements: - to understand the relationship between transferred financial assets that are not derecognized in their entirety and the associated liabilities; and - to evaluate the nature of, and risks associated with, the entity's continuing involvement in derecognized financial assets. The amendments define "continuing involvement" for the purposes of applying the disclosure requirements.The Company does not expect the amendments to have a material impact on the financial statements, because of the nature of the Company's operations and the types of financial assets that it holds. IFRS 10 Consolidated Financial StatementsIn May 2011, the IASB issued IFRS 10 Consolidated Financial Statements, which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. If an entity applies this Standard earlier, it shall also apply IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011) at the same time.IFRS 10 replaces the guidance in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities. IAS 27 (2008) survives as IAS 27 (2011) Separate Financial Statements, only to carry forward the existing accounting requirements for separate financial statements. IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are SPEs in the scope of SIC-12. In addition, the consolidation procedures are carried forward substantially unmodified from IAS 27 (2008).The Company intends to adopt IFRS 10 in its financial statements for the annual period beginning on April 1, 2013. The Company does not expect IFRS 10 to have a material impact on the financial statements. IFRS 11 Joint ArrangementsIn May 2011, the IASB issued IFRS 11 Joint Arrangements, which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. If an entity applies this Standard earlier, it shall also apply IFRS 10, IFRS 12, IAS 27 (2011) and IAS 28 (2011) at the same time.IFRS 11 replaces the guidance in IAS 31 Interests in Joint Ventures. Under IFRS 11, joint arrangements are classified as either joint operations or joint ventures. IFRS 11 essentially carves out of previous jointly controlled entities, those arrangements which although structured through a separate vehicle, such separation is ineffective and the parties to the arrangement have rights to the assets and obligations for the liabilities and are accounted for as joint operations in a fashion consistent with jointly controlled assets/operations under IAS 31. In addition, under IFRS 11 joint ventures are stripped of the free choice of equity accounting or proportionate consolidation; these entities must now use the equity method. Upon application of IFRS 11, entities which had previously accounted for joint ventures using proportionate consolidation shall collapse the proportionately consolidated net asset value (including any allocation of goodwill) into a single investment balance at the beginning of the earliest period presented. The investment's opening balance is tested for impairment in accordance with IAS 28 (2011) and IAS 36 Impairment of Assets. Any impairment losses are recognized as an adjustment to opening retained earnings at the beginning of the earliest period presented.The Company intends to adopt IFRS 11 in its financial statements for the annual period beginning on April 1, 2013. The Company does not expect IFRS 11 to have a material impact on the financial statements. IFRS 12 Disclosure of Interests in Other Entities In May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities, which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. If an entity applies this Standard earlier, it needs not to apply IFRS 10, IFRS 11, IAS 27 (2011) and IAS 28 (2011) at the same time.IFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities. Interests are widely defined as contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. The required disclosures aim to provide information in order to enable users to evaluate the nature of, and the risks associated with, an entity's interest in other entities, and the effects of those interests on the entity's financial position, financial performance and cash flows.The Company intends to adopt IFRS 12 in its financial statements for the annual period beginning on April 1, 2013. The Company does not expect the amendments to have a material impact on the financial statements, because of the nature of the Company's interests in other entities. IFRS 13 Fair Value MeasurementIn May 2011, the IASB published IFRS 13 Fair Value Measurement, which is effective prospectively for annual periods beginning on or after January 1, 2013. The disclosure requirements of IFRS 13 need not be applied in comparative information for periods before initial application.IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to provide information that enables financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income. IFRS 13 explains 'how' to measure fair value when it is required or permitted by other IFRSs. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.The Company intends to adopt IFRS 13 prospectively in its financial statements for the annual period beginning on April 1, 2013. The extent of the impact of adoption of IFRS 13 has not yet been determined. Amendments to IAS 1 Presentation of Financial StatementsIn June 2011, the IASB published amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income, which are effective for annual periods beginning on or after July 1, 2012 and are to be applied retrospectively. Early adoption is permitted.The amendments require that an entity present separately the items of OCI that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. Consequently an entity that presents items of OCI before related tax effects will also have to allocate the aggregated tax amount between these categories. The existing option to present the profit or loss and other comprehensive income in two statements has remained unchanged.The Company intends to adopt the amendments in its financial statements for the annual period beginning on April 1, 2013. As the amendments only require changes in the presentation of items in other comprehensive income, the Company does not expect the amendments to IAS 1 to have a material impact on the financial statements. Amendments to IAS 32 and IFRS 7, Offsetting Financial Assets and LiabilitiesIn December 2011, the IASB published Offsetting Financial Assets and Financial Liabilities and issued new disclosure requirements in IFRS 7 Financial Instruments: Disclosures. The effective date for the amendments to IAS 32 is annual periods beginning on or after January 1, 2014. The effective date for the amendments to IFRS 7 is annual periods beginning on or after January 1, 2013. These amendments are to be applied retrospectively.The amendments to IAS 32 clarify that an entity currently has a legally enforceable right to set-off if that right is: - not contingent on a future event; and - enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. The amendments to IAS 32 also clarify when a settlement mechanism provides for net settlement or gross settlement that is equivalent to net settlement. The amendments to IFRS 7 contain new disclosure requirements for financial assets and liabilities that are: - offset in the statement of financial position; or - subject to master netting arrangements or similar arrangements.The Company intends to adopt the amendments to IFRS 7 in its financial statements for the annual period beginning on April 1, 2013, and the amendments to IAS 32 in its financial statements for the annual period beginning April 1, 2014. The Company does not expect the amendments to IAS 19 to have a material impact on the financial statements.Outstanding Share Data The following table represents the number of Common Shares and options outstanding: As at February 9, 2012(thousands)Common Shares37,123Options3,112On July 13, 2005, CMG adopted a rolling stock option plan which allows the Company to grant options to its employees and directors to acquire Common Shares of up to 10% of the outstanding Common Shares at the date of grant. Based upon this calculation, at February 9, 2012, CMG could grant up to 3,712,000 stock options.Disclosure Controls and Procedures and Internal Control over Financial 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 nine months ended December 31, 2011, there have been no significant changes to the Company's ICFR that have materially affected, or are reasonably likely to materially affect, the company's ICFR. 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 continue to fluctuate, they remain at levels that should allow our customers to move forward on projects involving various types of unconventional reserves and advanced recovery processes. The greater challenges have been with natural gas prices, which have not fared as well, and petroleum producers are faced with uncertainty related to the fears of another worldwide economic recession, political unrest in several petroleum producing countries and environmental issues that have threatened to increase the costs of development and production.With diversification of our geographic profile, we plan to strengthen our position in the global marketplace which should also help to mitigate the effects of economic recession and instability experienced in any particular geographic region. Over 70% of our annual software license revenue is derived from our annuity and maintenance contracts which generally represent a recurring source of revenue. We have continued to see successive increases in this revenue base over the past several years and with a strong renewal rate, we expect this trend to continue. CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continues to make progress in fiscal 2012. We now expect to release a beta version to our partners by the end of fiscal 2012, with the first commercial release by the end of the third quarter of fiscal 2013. CMG and its partners remain committed to funding the ongoing development and to the future success of the project. The Company remains confident that the value that CMG technology provides to its customers is greater than ever and accordingly we continue to be optimistic that our software license revenue will remain solid. With our strong working capital position, we are well positioned to continue to invest in all aspects of our business to continue to grow and diversify our revenue base and to ultimately return value to our shareholders in the form of regular quarterly dividend payments and growth in share value.Kenneth M. Dedeluk President and Chief Executive Officer February 9, 2012COMPUTER MODELLING GROUP LTD. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONUNAUDITED (thousands of Canadian $)December 31, 2011March 31, 2011April 1, 2010AssetsCurrent assets:Cash47,61541,75328,826Trade and other receivables11,73313,31816,072Prepaid expenses1,2381,0641,141Prepaid income taxes--1,43360,58656,13547,472Property and equipment2,7432,5542,401Total assets63,32958,68949,873Liabilities and Shareholders' EquityCurrent liabilities:Trade payables and accrued liabilities4,5264,5435,398Income taxes payable1,5411,237-Deferred revenue14,74616,75513,84320,81322,53519,241Deferred tax liability (note 6)287384189Total liabilities21,10022,91919,430Shareholders' equity:Share capital29,93224,80120,390Contributed surplus3,2762,6551,816Retained earnings9,0218,3148,237Total shareholders' equity42,22935,77030,443Total liabilities and shareholders' equity63,32958,68949,873See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMEThree months ended December 31Nine months ended December 31UNAUDITED (thousands of Canadian $ except per share amounts)2011201020112010Revenue (note 8)15,89812,06343,81937,449Operating expensesSales, marketing and professional services3,5362,8369,7038,704Research and development (note 4)2,7472,4087,6356,941General and administrative1,5221,3034,0703,6597,8056,54721,40819,304Operating profit8,0935,51622,41118,145Finance income (note 5)123911,109179Finance costs (note 5)(32)(329)-(303)Profit before income and other taxes8,1845,27823,52018,021Income and other taxes (note 6)2,3941,7156,7495,663Net and comprehensive income5,7903,56316,77112,358Earnings Per ShareBasic (note 7(e))0.160.100.460.34Diluted (note 7(e))0.150.100.440.34See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYShare Capital UNAUDITED (thousands of Canadian $) Common Non-voting Contributed Surplus Retained Earnings Total EquityBalance, April 1, 201020,2441461,8168,23730,443Total comprehensive income for the period---12,35812,358Dividends paid---(13,328)(13,328)Shares issued for cash on exercise of stock options (note 7(b))2,984---2,984Converted into common shares (note 7(b))146(146)---Stock-based compensation:Current period expense--1,134-1,134Stock options exercised576-(576)--Balance, December 31, 201023,950-2,3747,26733,591Balance, April 1, 201124,801-2,6558,31435,770Total comprehensive income for the period---16,77116,771Dividends paid---(15,651)(15,651)Shares issued for cash on exercise of stock options (note 7(b))4,344---4,344Common shares buy-back (note 7(b))(25)(413)(438)Stock-based compensation:Current period expense--1,433-1,433Stock options exercised812-(812)--Balance, December 31, 201129,932-3,2769,02142,229See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSThree months ended December 31Nine months ended December 31UNAUDITED (thousands of Canadian $)2011201020112010Cash flows from operating activitiesNet income5,7903,56316,77112,358Adjustments for:Depreciation and amortization321273877751Income and other taxes (note 6)2,3941,7156,7495,663Stock-based compensation (note 7(d))5664281,4331,134Interest income (note 5)(123)(91)(341)(179)8,9485,88825,48919,727Changes in non-cash working capital:Trade and other receivables(1,151)2,4441,5946,725Trade payables and accrued liabilities1,306739(17)(1,031)Prepaid expenses102107(174)170Deferred revenue146(767)(2,009)(1,952)Cash generated from operating activities9,3518,41124,88323,639Interest received12083332164Income taxes paid(1,960)(116)(6,542)(3,338)Net cash from operating activities7,5118,37818,67320,465Cash flows from financing activitiesProceeds from issue of common shares1,6759544,3442,984Dividends paid(4,079)(3,623)(15,651)(13,328)Common shares buy-back--(438)-Net cash used in financing activities(2,404)(2,669)(11,745)(10,344)Cash flows used in investing activitiesProperty and equipment additions(802)(262)(1,066)(935)Increase (decrease) in cash4,3055,4475,8629,186Cash, beginning of period43,31032,56541,75328,826Cash, end of period47,61538,01247,61538,012See accompanying notes to condensed consolidated financial statements.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended December 31, 2011 and 2010 (unaudited).1. Reporting Entity:Computer Modelling Group Ltd. ("CMG") is a company domiciled in Alberta, Canada and is incorporated pursuant to the Alberta Business Corporations Act, with its Common Shares listed on the Toronto Stock Exchange under the symbol "CMG". The address of CMG's registered office is Suite 200, 1824 Crowchild Trail N.W., Calgary, Alberta, Canada, T2M 3Y7. The condensed consolidated financial statements as at and for the three and nine months ended December 31, 2011 comprise CMG and its subsidiaries (together referred to as the "Company"). The Company is a computer software technology company engaged in the development and licensing of reservoir simulation software. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities. 2. Basis of Preparation:(A) STATEMENT OF COMPLIANCE:These condensed consolidated financial statements have been prepared on a going concern basis in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB"), and using the accounting policies the Company expects to adopt in its consolidated financial statements as at and for the year ending March 31, 2012. These accounting policies are disclosed in note 3 of the Company's condensed consolidated financial statements for the three months ended June 30, 2011. The preparation of these condensed consolidated financial statements resulted in changes to accounting policies as compared with the most recent annual consolidated financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The Company's accounting policies have been applied consistently to all periods presented in these condensed consolidated financial statements with the exception of certain IFRS 1, First-time Adoption of IFRS, exemptions the Company applied in its transition from previous GAAP to International Financial Reporting Standards ("IFRS") at April 1, 2010, the Company's transition date. The condensed consolidated financial statements do not include all of the information required for full annual financial statements, therefore, these condensed consolidated financial statements should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended March 31, 2011, the Company's condensed consolidated financial statements for the three months ended June 30, 2011, and in consideration of the IFRS transition disclosures presented in note 16 to these financial statements.The unaudited condensed consolidated financial statements as at and for the three and nine months ended December 31, 2011 were authorized for issuance by the Board of Directors on February 9, 2012.(B) BASIS OF MEASUREMENT:The condensed consolidated financial statements have been prepared on the historical cost basis, which is based on the fair value of the consideration at the time of the transaction.(C) FUNCTIONAL AND PRESENTATION CURRENCY:The condensed consolidated financial statements are presented in Canadian dollars, which is the functional currency of CMG and its subsidiaries. All financial information presented in Canadian dollars has been rounded to the nearest thousand. (D) USE OF ESTIMATES, JUDGMENTS AND ASSUMPTIONS:The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses for the period. Estimates and underlying assumptions are based on historical experience and other assumptions that are considered reasonable in the circumstances and are reviewed on an on-going basis. Actual results may differ from such estimates and it is possible that the differences could be material. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In preparing these condensed consolidated financial statements, the significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty are expected to be the same as those applied in the first annual IFRS financial statements. The key judgments made in applying accounting policies that have the most significant effect on the amounts recognized in these condensed consolidated financial statements are as follows:Research and development - assumptions are made in respect to the eligibility of certain research and development projects in the calculation of scientific research and experimental development ("SR&ED") investment tax credits which are netted against the research and development costs in the statement of operations. SR&ED claims are subject to audits by relevant taxation authorities and the actual amount may change depending on the outcome of such audits (note 4).Revenue recognition - certain software license agreements contain multiple-element arrangements as they may also include maintenance fees. Judgment is used in determining a fair value of each element of a contract. Professional services revenue earned from certain consulting contracts is recognized by the stage of completion of the transaction determined using the percentage-of-completion method. Judgment is used in determining progress of each contract at period end. In assessing revenue recognition, judgment is also used in determining the ability to collect the corresponding account receivable (note 8). Property and equipment - estimates are used in determining useful economic lives of property and equipment for the purposes of calculating depreciation. Stock-based compensation - assumptions and estimates are used in determining the inputs used in the Black-Scholes option pricing model, including assumptions regarding volatility, dividend yield, risk-free interest rates, forfeiture estimates and expected option lives (note 7(d)). Deferred income taxes - assumptions and estimates are made regarding the amount and timing of realization and/or settlement of the temporary differences between the accounting carrying value of the Company's assets versus the tax basis of those assets, and the tax rates at which the differences will be recovered or settled in the future (note 6).3. Significant Accounting Policies:The significant accounting policies used in preparing these Condensed Consolidated Financial Statements are unchanged from those disclosed in the Company's Condensed Consolidated Financial Statements for the three months ended June 30, 2011. 4. Research and Development Costs:For the three months ended December 31,20112010(thousands of $)Research and development3,1042,658SR&ED investment tax credits(357)(250)2,7472,408For the nine months ended December 31,20112010(thousands of $)Research and development8,6567,709SR&ED investment tax credits(1,021)(768)7,6356,9415. Finance Income and Costs:For the three months ended December 31,20112010(thousands of $)Interest income12391Foreign exchange gain--Finance income12391Foreign exchange loss(32)(329)Finance costs(32)(329)For the nine months ended December 31,20112010(thousands of $)Interest income341179Foreign exchange gain768-Finance income1,109179Foreign exchange loss-(303)Finance costs-(303)6. Income and Other Taxes:The provision for income and other taxes reported differs from the amount computed by applying the combined Canadian Federal and Provincial statutory rate to the profit before income and other taxes. The reasons for this difference and the related tax effects are as follows:For the nine months ended December 31,20112010(thousands of $, unless otherwise stated)Statutory tax rate26.13%27.63%Expected income tax6,1474,979Non-deductible costs396336Change in unrecognized temporary differences-(87)Withholding taxes188517Other18(82)6,7495,663Represented by:Current income taxes6,5804,819Deferred tax expense(97)120Foreign withholding and other taxes2667246,7495,663The components of the Company's net deferred income tax liability are as follows:(thousands of $)December 31, 2011March 31, 2011April 1, 2010Tax liability on investment tax credits(167)(181)(222)Tax (liability) asset on property and equipment(120)(203)33Deferred tax liability, net(287)(384)(189)7. Share Capital: (A) AUTHORIZED: An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.Effective June 20, 2011, the Common Shares were split on a two-for-one basis. Accordingly, the comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one adjustment. (B) ISSUED: (thousands of shares)Common SharesNon-Voting SharesBalance, April 1, 201031,1174,543Issued for cash on exercise of stock options636-Converted into common shares4,543(4,543)Balance, December 31, 201036,296-Balance, April 1, 201136,427-Issued for cash on exercise of stock options698-Common shares buy-back(33)Balance, December 31, 201137,092-The Non-Voting Shares were convertible into an equivalent number of Common Shares at any time at the option of the holder.Subsequent to December 31, 2011, 32,000 stock options were exercised for cash proceeds of $ 226,000.On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "Original Rights Plan"), whereby the Company issued one right in respect of each share outstanding at the close of business on May 18, 2006 and for each additional share issued by the Company thereafter. The issuance of the rights was not dilutive and will not affect reported earnings per share until the rights separate from the underlying shares and become exercisable or until the exercise of the rights. The Original Rights Plan was approved by the Company's shareholders on July 13, 2006.On May 21, 2009, the Board of Directors reviewed the Original Rights Plan and determined that it was in the best interest of the Company to continue to have a shareholder rights plan in place. The Company, therefore, adopted a new shareholder rights plan (the "Rights Plan") which is identical in all respects to the Original Rights Plan, with the exception of certain minor amendments which have been made to provide for renewal or approval of the Rights Plan every three years (rather than only one three-year period as was set out in the Original Rights Plan) and to update references to statutory provisions now out of date. The Rights Plan was approved by the Company's shareholders on July 9, 2009. (C) COMMON SHARES BUY-BACK: On March 22, 2010, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on March 23, 2010 to purchase for cancellation up to 1,315,000 of its Common Shares. This NCIB ended on March 22, 2011 and a total of 10,000 shares were purchased at market price for a total cost of $126,000.On April 6, 2011, the Company announced a NCIB commencing on April 7, 2011 to purchase for cancellation up to 1,636,000 of its Common Shares. During the nine months ended December 31, 2011, 33,000 Common Shares were purchased at market price for a total cost of $438,000.(D) STOCK-BASED COMPENSATION PLAN: The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 10, 2008, which allows it to grant options to acquire Common Shares of up to 10% of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at December 31, 2011, the Company could grant up to 3,709,000 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. The outstanding stock options vest as to 50% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates. The following table outlines changes in options: For the nine months ended For the year ended(thousands except per share amounts)December 31, 2011March 31, 2011Options GrantedWeighted Average Exercise Price ($/share)Options GrantedWeighted Average Exercise Price ($/share)Outstanding at beginning of period2,8257.412,5725.90Granted1,06513.411,0949.07Exercised(698)6.22(777)4.76Forfeited/cancelled(45)10.04(64)7.08Outstanding at end of period3,1479.672,8257.41Options exercisable at end of period1,3307.299695.91The range of exercise prices of options outstanding and exercisable at December 31, 2011 is as follows:OutstandingExercisableExercise Price ($/option)Number of Options (thousands)Weighted Average Remaining Contractual Life (years)Weighted Average Exercise Price ($/option)Number of Options (thousands)Weighted Average Exercise Price ($/option)3.62 - 3.70600.63.70603.703.71 - 5.634231.65.474185.485.64 - 7.806672.67.804337.807.81 - 9.079443.69.074199.079.08 - 14.241,0534.713.41--3,1473.49.671,3307.29The fair value of stock options granted was estimated using the Black-Scholes option pricing model under the following assumptions:For the nine months ended December 31, 2011For the year ended March 31, 2011Fair value at grant date ($/option)1.23 to 3.041.56 to 1.78Share price at grant date ($/share)13.00 to 14.249.07Risk-free interest rate (%)0.99 to 2.061.37 to 2.17Estimated hold period prior to exercise (years)2 to 42 to 5Volatility in the price of common shares (%)24 to 3735 to 39Dividend yield per common share (%)3.20 to 4.945.12The Company recognized total stock-based compensation expense for the three and nine months ended December 31, 2011 of $566,000 and $1,433,000 respectively (three and nine months ended December 31, 2010 - $428,000 and $1,134,000 respectively).(E) EARNINGS PER SHARE: The following table summarizes the earnings and weighted average number of Common and Non-Voting Shares used in calculating basic and diluted earnings per share:For the three months ended December 31, (thousands except per share amounts)20112010Earnings ($)Weighted Average Shares OutstandingEarnings Per Share ($/share)Earnings ($)Weighted Average Shares OutstandingEarnings Per Share ($/share)Basic5,79036,9760.163,56336,1760.10Dilutive effect of stock options990983Diluted5,79037,9660.153,56337,1590.10For the nine months ended December 31, (thousands except per share amounts)20112010Earnings ($)Weighted Average Shares OutstandingEarnings Per Share ($/share)Earnings ($)Weighted Average Shares OutstandingEarnings Per Share ($/share)Basic16,77136,7570.4612,35835,9660.34Dilutive effect of stock options1,056785Diluted16,77137,8130.4412,35836,7510.34During the three and nine months ended December 31, 2011, 88,000 and 155,000 options respectively (three and nine months ended December 31, 2010 - Nil and 120,000 respectively) were excluded from the computation of the weighted-average number of diluted shares outstanding because their effect was not dilutive. 8. Revenue: For the three months ended December 31,20112010(thousands of $)Software licenses14,37710,333Professional services1,5211,73015,89812,063For the nine months ended December 31,20112010(thousands of $)Software licenses39,66931,312Professional services4,1506,13743,81937,4499. 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 ClassificationMeasurementCashHeld for tradingFair valueTrade and other receivablesLoans and receivablesAmortized costTrade payables and accrued liabilitiesOther financial liabilitiesAmortized cost(ii) Fair values of financial instruments The carrying values of cash, trade and other receivables, trade payables and accrued liabilities approximate their fair values due to the short-term nature of these instruments.OVERVIEW: The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. The main objectives of the Company's risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to those risks. The principal financial risks to which the Company is exposed are described below:(A) CREDIT RISK: Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligation and arises principally from the Company's cash and trade and other receivables. The amounts reported in the statements of financial position for trade receivables are net of allowances for bad debts, estimated by the Company's management based on prior experience and their assessment of the current economic environment.The Company's trade receivables consist primarily of balances from customers operating in the oil and gas industry, both domestically and internationally, as the Company sells its products and services in over 50 countries worldwide. Some of these countries have greater economic and political risk than experienced in North America and as a result there may be greater risk associated with sales in those jurisdictions. The Company manages this risk by invoicing for the full license term in advance for the majority of software license sales and by invoicing as frequently as the contract allows for consulting and contract research services on a percentage-of-completion basis. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met. Historically, the Company has not experienced any significant losses related to individual customers or groups of customers in any particular geographic area; therefore, no allowance for doubtful accounts has been established at December 31, 2011. As at December 31, 2011, the Company has a concentration of credit risk with 9 domestic and international customers who represent 62% of trade receivables. In addition, $2.2 million of trade receivables are over 90 days. The Company assesses the creditworthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Payment terms with customers are 30 days from invoice date; however, industry practice can extend these terms. Accordingly, the Company views the credit risks on these amounts as normal for the industry.The Company minimizes the credit risk of cash by depositing only with a reputable financial institution in highly liquid interest-bearing cash accounts.(B) MARKET RISK: Market risk is the risk that changes in market prices of the Company's foreign exchange rates and interest rates will affect the Company's income or the value of its financial instruments.(i) Foreign Exchange Risk The Company operates internationally and primarily prices its products in either the Canadian or US dollar. This gives rise to exposure to market risks from changes in the foreign exchange rates between the Canadian and US dollar. Approximately 72% of the Company's revenues for the nine months ended December 31, 2011 were denominated in US dollars and at December 31, 2011, the Company had approximately $10.4 million of its working capital denominated in US dollars. The Company currently does not use derivative instruments to hedge its exposure to those risks but as approximately 23% of the Company's total costs are also denominated in US dollars they provide a partial economic hedge against the fluctuation in this currency exchange. In addition, the Company manages levels of foreign currency held by converting excess US dollars into Canadian dollars at spot rates. Canadian operations are exposed to currency risk on US denominated financial assets and liabilities with fluctuations in the rate recognized as foreign exchange gains or losses in the Consolidated Statements of Operations and Comprehensive Income. It is estimated that a one cent change in the US dollar would result in a net change of approximately $76,000 on net income for the nine months ended December 31, 2011. A weaker US dollar with respect to the Canadian dollar will result in a negative impact while the reverse would result from a stronger US dollar.(ii) Interest Rate Risk The Company has significant cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in interest-bearing deposits and/or guaranteed investment certificates issued by its principal banker. The Company is exposed to interest cash flow risk from changes in interest rates on its cash balances. Based on the December 31, 2011 cash balance, each 1% change in the interest rate on the Company's cash balance would change net income for the nine months ended December 31, 2011 by approximately $352,000. (C) LIQUIDITY RISK: Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company manages liquidity risk through the management of its capital structure as outlined in note 9. The Company's growth is financed through a combination of the cash flows from operations and its cash balances on hand. Given the Company's available liquid resources as compared to the timing of the payments of its liabilities, management assesses the Company's liquidity risk to be low. The Company monitors its expenditures by preparing annual budgets which are updated periodically. At December 31, 2011, the Company has significant cash balances in excess of its obligations and over $800,000 of the line of credit (note 12) available for its use. 11. Commitments: (A) RESEARCH COMMITMENTS: The DRMS research and development project, a collaborative effort with our partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras") to jointly develop the newest generation of reservoir simulation software, which commenced in 2006 and was originally estimated to take five years to complete, is now anticipated to continue beyond the initial five-year time frame; however, the Company and its partners are committed to continue funding the project with the Company's share of the project costs estimated at $3.0 million per year. In conjunction with entering into this project, CMG Reservoir Simulation Foundation ("Foundation CMG") agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover approximately 50% of the Company's estimated share of costs over the initial five years of the project. For the nine months ended December 31, 2011, the Company has reflected $366,000 (2010 - $990,000) in research grants from Foundation CMG in revenue with respect to this project. Foundation CMG's $5.2 million funding commitment was completed in the first quarter of the current fiscal year.(B) LEASE COMMITMENTS: The Company has operating lease commitments relating to its office premises with the minimum annual lease payments as follows: (thousands of $)201247520131,77720141,79120151,356201660912. Line Of Credit: The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility or may be used to support letters of credit. As at December 31, 2011, US $165,000 (2010 - US $165,000) had been reserved on this line of credit for the letter of credit supporting a performance bond.13. Segmented Information: The Company is organized into one operating segment represented by the development and licensing of reservoir simulation software. The Company provides professional services, consisting of support, training, consulting and contract research activities, to promote the use and development of its software; however, these activities are not evaluated as a separate business segment. Revenues and property and equipment of the Company arise in the following geographic regions:(thousands of $)RevenueProperty and equipment For the nine months ended December 31, As at December 31,2011201020112010Canada14,05912,9302,5482,378United States7,4396,67383116Other Foreign22,32117,8461129143,81937,4492,7432,585In the nine months ended December 31, 2011, the Company derived 9.5% (2010 - 9.6%) of its revenue from one customer.14. Subsidiaries: CMG is the beneficial owner of the entire issued share capital and controls all the votes of its subsidiaries. The principal activities of all the subsidiaries are the sale and support for the use of CMG's software licenses. Transactions between subsidiaries are eliminated on consolidation. The following is the list of CMG's subsidiaries:SubsidiaryCountry of IncorporationComputer Modelling Group Inc.United StatesCMG VenezuelaVenezuelaCMG Middle East FZ LLCDubai, UAE15. Subsequent Events: On February 9, 2012, the Board of Directors declared a cash dividend of $ 0.13 per share on its Common Shares, payable on March 15, 2012, to all shareholders of record at the close of business on March 8, 2012.16. Transition to IFRS: As stated in note 2(a), these condensed consolidated financial statements have been prepared in accordance with IAS 34. The accounting policies described in note 3 to the condensed consolidated financial statements for the three months ended June 30, 2011 have been applied in preparing the condensed consolidated financial statements for the three and nine months ended December 31, 2011, the comparative information for the three and nine months ended December 31, 2010, and in preparation of an opening IFRS statement of financial position at April 1, 2010, the Company's date of transition to IFRS, and statements of financial position as at December 31, 2011 and March 31, 2011.This transition note explains the effect of the transition from previous Canadian GAAP to IFRS on the Company's financial position, financial performance and cash flows. 16.1 ELECTED EXEMPTIONS FROM FULL RETROSPECTIVE APPLICATION: In preparing these condensed consolidated financial statements in accordance with IFRS 1, we applied the following optional exemptions from full retrospective application of IFRS:IFRS 3 - Business 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, 2011December 31, 2010April 1, 2010Canadian GAAPIFRS Adj.IFRSCanadian GAAPIFRS Adj.IFRSCanadian GAAPIFRS Adj.IFRSAssetsCurrent assets:Cash41,75341,75338,01238,01228,82628,826Trade and other receivables13,31813,3189,3629,36216,07216,072Prepaid expenses1,0641,0649729721,1411,141Prepaid income taxes----1,4331,43356,13556,13548,34648,34647,47247,472Property and equipment2,5542,5542,5852,5852,4012,401Deferred tax asset (note 16.5(A))----33(33)-Total assets58,68958,68950,93150,93149,906(33)49,873Liabilities and Shareholders' EquityCurrent liabilities:Trade payables and accrued liabilities4,5434,5434,3674,3675,3985,398Income taxes payable1,2371,237772772--Deferred revenue16,75516,75511,89211,89213,84313,843Deferred tax liability (note 16.5(A))181(181)-129(129)-222(222)-22,716(181)22,53517,160(129)17,03119,463(222)19,241Deferred tax liability (note 16.5(A))203181384180129309-189189Total liabilities22,919-22,91917,340-17,34019,463(33)19,430Shareholders' equity:Share capital24,80124,80123,95023,95020,39020,390Contributed surplus2,6552,6552,3742,3741,8161,816Retained earnings8,3148,3147,2677,2678,2378,237Total shareholders' equity35,77035,77033,59133,59130,44330,443Total liabilities and shareholders' equity58,68958,68950,93150,93149,906(33)49,87316.4 RECONCILIATION OF NET AND COMPREHENSIVE INCOME:For the three months ended December 31, 2010(thousands of $)Canadian GAAPIFRS AdjustmentsIFRSRevenue12,063-12,063Operating expensesSales, marketing and professional services (note 16.5(B))2,760762,836Research and development2,408-2,408General and administrative (note 16.5(B))1,237661,303Depreciation and amortization (note 16.5(B))142(142)-Foreign exchange loss (note 16.5(C))329(329)-Interest and other income (note 16.5(C))(91)91-6,785(238)6,547Operating profit5,2782385,516Finance income (note 16.5(C))-9191Finance costs (note 16.5(C))-(329)(329)Profit before income and other taxes5,278-5,278Income and other taxes1,715-1,715Net and comprehensive income3,563-3,563For the nine months ended December 31, 2010(thousands of $)Canadian GAAPIFRS AdjustmentsIFRSRevenue37,449-37,449Operating expensesSales, marketing and professional services (note 16.5(B))8,4842208,704Research and development6,941-6,941General and administrative (note 16.5(B))3,4721873,659Depreciation and amortization (note 16.5(B))407(407)-Foreign exchange loss (note 16.5(C))303(303)-Interest and other income (note 16.5(C))(179)179-19,428(124)19,304Operating profit18,02112418,145Finance income (note 16.5(C))-179179Finance costs (note 16.5(C))-(303)(303)Profit before income and other taxes18,021-18,021Income and other taxes5,663-5,663Net and comprehensive income12,358-12,35816.5 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