Computer Modelling Group Ltd.
TSX : CMG

Computer Modelling Group Ltd.

August 10, 2006 08:45 ET

Computer Modelling Group Announces First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 10, 2006) - Computer Modelling Group Ltd. (TSX:CMG) is pleased to announce its first quarter results for its 2007 fiscal year. CMG reported revenues of $4.6 million for the three months ended June 30, 2006, gross profit of $3.4 million and earnings of $1.0 million ($0.13 per share). These results compare to revenues of $3.4 million, gross profit of $2.3 million and earnings of $0.6 million ($0.07 per share) for the corresponding period in fiscal 2006.

Management's Discussion and Analysis

The following discussion and analysis, presented as at August 9, 2006, is management's assessment of the financial and operating results of Computer Modelling Group Ltd. ("CMG" or the "Company") as well as its future opportunities and risks, and should be read in conjunction with the unaudited consolidated financial statements and related notes of the Company for the three months ended June 30, 2006 and the audited consolidated financial statements and MD&A for the years ended March 31, 2006 and 2005 contained in the 2006 annual report for CMG. The reader should be aware that historical results are not necessarily indicative of future performance. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com.

Funds from operations, which are determined before changes in non-cash working capital, is used by us as a key measure of performance. Funds from operations do not have a standardized meaning prescribed by Canadian Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable with the calculation of similar measures for other companies. Funds from operations as presented is not intended to represent operating profits for the period nor should it be viewed as an alternative to cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Funds from operations per share are calculated using the same share bases which are used in the determination of earnings per share.

The financial data contained herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), and unless otherwise indicated, all comments in this report are expressed in Canadian dollars.

Forward Looking Statements

Certain statements in the Management's Discussion and Analysis for CMG may constitute forward-looking statements, which can generally be identified as such because of the context of the statements including words such as the Company believes, anticipates, expects, plans, estimates or words of a similar nature. The forward-looking statements are based on current expectations and are subject to known and unknown risks and uncertainties, certain of which are beyond CMG's control, including: the impact of general economic conditions in the oil and gas industry, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange and country risk in areas in which the Company currently does, or proposes to do, business. CMG's actual results, performance or achievement could differ materially from those expressed in, or implied by these forward looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward looking statements will transpire or occur, or if any of them do so, what benefits CMG will derive there from.

Revenues

CMG's revenues are comprised of software license sales, which provide the majority of the Company's revenues, and consulting and contract research fees. On an overall basis, CMG's revenues of $4.6 million for the three months ended June 30, 2006 reflect an increase of $1.2 million, a 35 percent increase, from the $3.4 million recorded in the comparative period last fiscal year, primarily due to increased software license sales.



Quarterly Performance

------------------------------------------------------------------------
Fiscal Fiscal Fiscal
2005 2006 2007
------------------------------------------------------------------------
$Thousands, unless
otherwise stated Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
------------------------------------------------------------------------
Annuity/maintenance
licenses 1,905 1,997 2,223 2,315 2,389 2,447 2,634 2,805
Perpetual licenses 441 1,248 1,433 298 356 1,067 2,111 941
------------------------------------------------------------------------
Software licenses 2,346 3,245 3,656 2,613 2,745 3,514 4,745 3,746
Consulting and
contract research 802 740 1,039 821 1,100 823 859 867
------------------------------------------------------------------------
Revenues 3,148 3,985 4,695 3,434 3,845 4,337 5,604 4,613
Gross Profit 1,903 2,932 3,547 2,259 2,705 3,021 4,336 3,360
Gross Profit % 60 74 76 66 70 70 77 73
Earnings before
income and other
taxes 562 1,512 2,142 1,033 1,285 1,497 2,589 1,622
Income and other
taxes 215 504 656 468 464 576 911 586
Earnings for the
quarter 347 1,008 1,486 565 821 921 1,678 1,036
Funds from operations 574 1,234 1,651 523 1,000 1,120 1,907 1,196
Cash dividends
declared and paid 311 309 310 1,967 399 403 403 2,449
------------------------------------------------------------------------
Per share amounts - $
Earnings per share -
basic 0.04 0.13 0.19 0.07 0.10 0.11 0.21 0.13
Earnings per share -
diluted 0.04 0.13 0.19 0.07 0.10 0.11 0.20 0.13
Funds from operations
per share - basic 0.07 0.16 0.21 0.07 0.13 0.14 0.24 0.15
Cash dividends
declared per share 0.04 0.04 0.04 0.25 0.05 0.05 0.05 0.30
Book value per share,
at quarter end 1.44 1.54 1.70 1.52 1.60 1.67 1.84 1.68
Trading price per
share, at quarter
end 4.10 4.55 5.59 6.24 6.45 7.30 7.85 7.30
------------------------------------------------------------------------
------------------------------------------------------------------------


Software Licenses -

Software license revenues were $3.7 million for the three months ended June 30, 2006, up 43 percent or $1.1 million from the $2.6 million recorded in the same period last year. As we stated in our 2006 Annual Report, the growing utilization by the oil and gas industry of enhanced recovery processes and production from unconventional sources of supply of hydrocarbons have generated increased demand for CMG's advanced physics reservoir simulators. In addition, demand for CMG's parallel computing options and flexible gridding features that enable clients to run large highly complex models with reduced computational time has increased.

The annuity/maintenance component of these revenues amounted to $2.8 million for the three months ended June 30, 2006, an increase of 21 percent from the $2.3 million recorded in the same period last year. As the quarterly performance table demonstrates, this component of the software license revenue stream has reflected growth quarter over quarter. Each of the annuity and maintenance components of this revenue stream has grown due to increased sales to existing customers and sales to new customers. CMG has found that a large percentage of its customers who have acquired perpetual software licenses subsequently purchase maintenance licenses to ensure they have access to current versions of CMG software.

Software license revenues under perpetual sales amounted to $0.9 million for the first quarter of fiscal 2007, which was significantly higher than the $0.3 million recorded a year ago. The decision by our customers to acquire our software through annuity or perpetual licenses is their sole decision; as is the timing of their acquisition once the customer has decided on its licensing strategy. As a result, perpetual software license sales are variable and unpredictable in nature and the magnitude thereof will fluctuate between reporting periods.

At June 30, 2006, CMG has pre-sold $6.2 million of software licenses revenue, $5.8 million of which relates to its current fiscal year ending March 31, 2007.

Consulting and Contract Research Revenues -

CMG recorded consulting and contract research revenues of $0.9 million for the three months ended June 30, 2006, with a contribution of $0.4 million to earnings. This compares to revenues of $0.8 million and a $0.3 million contribution to earnings for the same period last year.

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.

At June 30, 2006, CMG has recorded approximately $0.1 million of pre-sold revenue relating to consulting and contract research revenues for projects to be completed in the fiscal year ending March 31, 2007.

Expenses -

CMG's gross profit margin for the three months ended June 30, 2006 was 73 percent (2005 - 66 percent) and CMG realized a gross profit of $3.4 million, up $1.1 million from the $2.3 million recorded in the same period last year. This increase in gross profit is primarily attributable to the growth in software license sales.

CMG's total expenses, excluding depreciation and income and other taxes, amounted to $2.8 million for the three months ended June 30, 2006, up $0.3 million from the $2.5 million expended in the comparable period last year. This increase in total expenses is primarily due to higher staff costs in the three months ended June 30, 2006 as compared to the same period last year. As a technology service company, CMG's largest area of expenditure is for its people. Approximately $2.1 million (2005 - $1.7 million) expended was directly related to staff costs. As stated in CMG's 2006 Annual Report, staffing levels grew over its 2006 fiscal year and the Company plans to add eleven new positions, three of which were added in the three months ended June 30, 2006, to the Company's staffing complement over its 2007 fiscal year.

Liquidity and Capital Resources

Operating activities -

CMG generated $1.2 million ($0.15 per share) of funds from operations in the three months ended June 30, 2006, an increase of $0.7 million from the $0.5 million ($0.07 per share) generated in the comparative period last year. The changes in CMG's non-cash working capital for the three months ended June 30, 2006 are reflective of normal operations and the timing of customer purchases. In addition, due to the timing of when CMG became taxable, it was able to defer the payment of a portion of its accrued income tax liability into the first quarter of fiscal 2007.

Financing activities -

At June 30, 2006, CMG has recognized an obligation of $6.5 million of deferred revenue for pre-sold revenues, the majority of which relates to fiscal 2007. This is up $0.8 million from March 31, 2006 and is reflective of increased software licensing revenues and the stage of completion of consulting and contract research projects at the respective balance sheet dates.

During the three months ended June 30, 2006, CMG employees and directors exercised options to purchase 85,575 Common Shares, which resulted in $0.3 million in cash proceeds.

In the three months ended June 30, 2006, CMG paid $2.4 million in dividends, representing a quarterly dividend of $0.06 Canadian per share and a special dividend of $0.24 Canadian per share on its Common and Non-Voting Shares. On August 9, 2006, CMG announced the payment of a quarterly dividend of $0.06 Canadian per share on CMG's Common and Non-Voting Shares. The dividend will be paid on September 15, 2006 to shareholders of record at the close of business on September 1, 2006.

On November 17, 2005, CMG announced its intention to purchase for cancellation up to 395,000 of its Common Shares in accordance with the normal course issuer bid ("NCIB") procedures under Canadian securities law during the 12-month period commencing November 21, 2005. During the three months ended June 30, 2006, and cumulatively since adoption of the NCIB, 28,600 Common Shares were repurchased at market price for a total cost of $218,377.

Investing activities -

During the three months ended June 30, 2006, CMG expended $0.1 million on property and equipment additions of its $0.6 million capital budget for its fiscal year ending March 31, 2007.

Liquidity and capital resources-

At June 30, 2006, CMG has $15.5 million in cash, no debt and has access to a $1.0 million line of credit with its principal banker, of which US $19,000 has been drawn on for performance bonds.

During the three months ended June 30, 2006, 398,758 shares of CMG's public float were traded on the TSX Stock Exchange. CMG's share prices ranged from $6.90 to $8.00 per share and last traded on June 28, 2006 at $7.30 for a June 30, 2006 market capitalization of $59.4 million.

Commitments, Off Balance Sheet Items and Transactions with Related Parties -

On May 1, 2006, CMG entered into a two phased joint research and development agreement with Shell International Exploration and Production BV to develop the newest generation reservoir simulation software system. The first phase is anticipated to be completed prior to the end of December 2006, with CMG's funding commitment for its share of Phase 1 project costs currently estimated at $500,000. One of the deliverables of the first phase is to identify the resource requirements and the project timeline for the second phase, which will only proceed with the mutual agreement of the parties. CMG currently estimates that it could increase its staff complement by 25 individuals to meet the project requirements and that the total project could have a duration of up to five years, at an annual funding commitment of $2.0 million by the Company.

In conjunction with entering into this project, a research grant proposal was presented to CMG Reservoir Simulation Foundation ("the Foundation"), the sole holder of CMG's Non-Voting Shares, which agreed to provide $1.0 million in funding to cover 50 percent of the first $2.0 million of CMG's allocated project costs. CMG has reflected $111,227 in research grants from the Foundation in consulting and contract research revenue in the three months ended June 30, 2006 with respect to this project.

CMG plans on funding its share of the project costs associated with the development of the newest generation reservoir simulation software system from internal cash and funding from the Foundation.

The Foundation's research grant relative to this new project is in addition to a 2001 research and development commitment by the Foundation, whereby it agreed to provide CMG with research grants valued at $125,000 on a quarterly basis through January 1, 2008. During both the three months ended June 30, 2006 and 2005, the Foundation paid $125,000 to the CMG, which is reflected in consulting and contract research revenues.

CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold revenues which are reflected as deferred revenue on its balance sheet. Contractual obligations for office premise leases are not considered to be significant and are estimated to be as follows: 2007 - $488,000; 2008 - $505,000; $2009 - $460,000; and 2010 - $331,000.

Outstanding Share Data as at August 9, 2006

CMG's authorized share capital has remained unchanged from June 30, 2006 to August 9, 2006 and subsequent to June 30, 2006 the only share capital transactions were for the exercise of 13,600 stock options to acquire Common Shares of the Company. CMG's issued and outstanding shares at August 9, 2006 are 5,689,406 Common Shares and 2,459,775 Non-Voting Shares.

Critical Accounting Estimates and Business Risks

These remain unchanged from the factors detailed in CMG's 2006 Annual Report.

Changes in Accounting Policies

CMG's participation in the research and development of the newest generation reservoir simulation software system is by means of a joint venture and the Company has reflected its proportionate share of the project costs in product research and development costs for the three months ended June 30, 2006, as required by Canadian accounting standards.

Outlook

We see many market opportunities that support both short-term and long-term growth in both CMG's revenue base and underlying value. The growth in our software license revenue base demonstrates the value that our customers see in CMG products and we will continue to develop our existing suite of simulation products.

CMG's investment in the development of the newest generation reservoir simulation software system aligns perfectly with our corporate strategy that focuses our efforts on providing our customers with new and enhanced software products full of unique physics and features that are not offered by our competition. We believe this new software product coupled with our existing products will set the industry benchmark for future reservoir simulation technologies; further enhancing our global position and assisting CMG in achieving its vision of being the leader and provider of the best reservoir simulation software products.



On behalf of the Board of Directors


Kenneth M. Dedeluk
President and Chief Executive Officer
August 9, 2006


COMPUTER MODELLING GROUP LTD.
Consolidated Balance Sheets
(unaudited)

June 30, 2006 March 31, 2006
------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents (note 2) $ 15,521,408 $ 16,509,473
Accounts receivable 4,881,634 6,520,664
Prepaid expenses 421,621 487,903
------------------------------------------------------------------------
20,824,663 23,518,040
Property and equipment (note 3) 1,039,111 1,061,241
Future income taxes (note 5) 65,466 88,458
------------------------------------------------------------------------
$ 21,929,240 $ 24,667,739
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued
liabilities $ 1,367,418 $ 2,085,042
Income taxes payable 387,417 1,892,608
Deferred revenue 6,508,628 5,728,724
Future income taxes (note 5) 18,823 72,123
------------------------------------------------------------------------
8,282,286 9,778,497

Shareholders' equity:
Share capital (note 6) 12,147,529 11,815,845
Retained earnings 1,499,425 3,073,397
------------------------------------------------------------------------
13,646,954 14,889,242
------------------------------------------------------------------------
$ 21,929,240 $ 24,667,739
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.
Consolidated Statements of Earnings and Retained Earnings
For the three months ended June 30
(unaudited)

2006 2005
------------------------------------------------------------------------

Revenue
Software licenses $ 3,746,146 $ 2,612,739
Consulting and contract research 867,400 821,061
------------------------------------------------------------------------
4,613,546 3,433,800
------------------------------------------------------------------------

Cost of Sales
Marketing expenses 838,335 791,921
Direct consulting expenses 351,965 229,781
Third-party contract costs 63,020 153,260
------------------------------------------------------------------------
1,253,320 1,174,962
------------------------------------------------------------------------

Gross Profit 3,360,226 2,258,838

General and administrative expenses 582,310 526,420
Depreciation and amortization 60,300 24,425
Product research and development costs
(note 4) 1,031,789 857,191
Foreign exchange (gain) loss 202,425 (97,822)
Interest and other income (138,741) (84,627)
------------------------------------------------------------------------
Earnings before income and other taxes 1,622,143 1,033,251
Income and other taxes (note 5) 585,501 467,972
------------------------------------------------------------------------
Earnings for the period 1,036,642 565,279
Retained earnings, beginning of period 3,073,397 2,260,516
Dividends paid (2,449,254) (1,967,114)
Common shares buy-back (note 6) (161,360) -
------------------------------------------------------------------------
Retained earnings, end of period $ 1,499,425 $ 858,681
------------------------------------------------------------------------
------------------------------------------------------------------------

Per share

Weighted average number of shares
outstanding 8,108,146 7,798,774
Earnings for the period
Basic and diluted $ 0.13 $ 0.07

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.
Consolidated Statements of Cash Flows
For the three months ended June 30
(unaudited)

2006 2005
------------------------------------------------------------------------

Cash provided by (used for)

Operating

Earnings for the period $ 1,036,642 $ 565,279
Items not involving cash:
Depreciation and amortization 104,195 64,938
Future income taxes (30,308) (170,315)
Stock-based compensation 85,761 62,834
------------------------------------------------------------------------
Funds from operations 1,196,290 522,736
Changes in non-cash working capital:
Accounts receivable 1,639,030 1,157,831
Accounts payable and accrued liabilities (717,624) (348,567)
Income taxes payable (1,505,191) (171,516)
Prepaid expenses 66,282 4,323
Deferred revenue 6,083,587 4,863,016
------------------------------------------------------------------------
6,762,374 6,027,823
------------------------------------------------------------------------

Financing

Deferred revenue (5,303,683) (4,270,200)
Issue of common shares 302,940 138,622
Dividends paid (2,449,254) (1,967,114)
Common shares buy-back (218,377) -
------------------------------------------------------------------------
(7,668,374) (6,098,692)
------------------------------------------------------------------------

Investing

Property and equipment additions (82,065) (117,154)
------------------------------------------------------------------------
Decrease in cash and cash equivalents (988,065) (188,023)
Cash and cash equivalents, beginning of
period 16,509,473 14,360,282
------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 15,521,408 $ 14,172,259
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.

Notes to Consolidated Financial Statements

For the three months ended June 30, 2006 and 2005 and as at March 31, 2006
(unaudited)

1. Significant Accounting Policies:

(a) Basis of Consolidation: These consolidated financial statements include the accounts of the Company and its subsidiaries, all 100% owned. All inter-company transactions have been eliminated.

(b) Revenue Recognition: Software license sales are recognized as revenue upon the fulfillment of all significant obligations under the terms of the license agreements. Any software license fees received relating to a future fiscal period are deferred and recognized in the appropriate future period. Both consulting and contract research revenues are recorded on a percentage-of-completion basis whereby revenues and costs are recorded in operations based on work completed.

(c) Cash and Cash Equivalents: Cash and cash equivalents consist of cash and highly liquid investments which have maturities of less than three months at the time of purchase. These cash equivalents consist primarily of term deposits and are stated at cost, which approximates market value.

(d) Property and Equipment: Property and equipment are recorded at cost. Leases that transfer substantially all the benefits and risks of ownership to the Company are accounted for as capital leases whereby the asset values and related obligations are recorded in the consolidated financial statements.

Depreciation is provided using the following annual rates and methods that are expected to amortize the cost of the property and equipment over their estimated useful lives:



Computer equipment 33 1/3% straight-line
Furniture and equipment 20% straight-line
Leasehold improvements Straight-line over the lease term


(e) Product Research and Development Costs: All costs of product research and development are expensed to operations as incurred as the impact of both technological changes and competition require the Company to continually enhance its products on an annual basis.

(f) Joint Research and Development Costs: The Company participates in a joint venture engaged in product research and development and accordingly records its proportionate share of costs incurred as product research and development costs.

(g) Foreign Currency: The Company's subsidiaries are considered to be integrated operations. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date while other consolidated balance sheet items are translated at historic rates.

Revenues and expenses are translated at the rate of exchange in effect on the transaction dates. Realized and unrealized foreign exchange gains and losses are included in operations in the period in which they occur.

(h) Income Taxes: The Company provides for income taxes using the asset and liability method. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year and future income taxes are recognized for temporary differences between the tax and accounting bases of assets and liabilities and for the benefit of losses available to be carried forward for tax purposes that are more likely than not to be realized. Future income tax assets and liabilities are measured using tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. Any change to the net future income tax assets and liabilities is included in operations in the period it occurs.

(i) Per Share Amounts: Basic earnings per share is computed by dividing earnings by the weighted average number of Common and Non-Voting Shares outstanding for the period. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted to Common Shares. The treasury stock method is used to determine the dilutive effect of stock options and other dilutive instruments.

In computing diluted earnings per share, 111,760 shares (2005 - 269,432 shares) were added to the weighted average number of Common and Non-Voting Shares outstanding during the three months ended June 30, 2006 for the dilutive effect of employee and directors' stock options.

(j) Stock-Based Compensation Plan: The Company has a stock-based compensation plan that is described in note 6(e). Commencing in the year ended March 31, 2004, the fair value of stock options has been expensed over the vesting period. The fair value of stock options that have been expensed is credited to contributed surplus. When the stock options are exercised for stock, the recorded amount is transferred from contributed surplus to common share capital.

(k) Use of Estimates and Assumptions: The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses for the year. Actual results may differ from such estimates and the differences could be material.



2. Cash and Cash Equivalents:

June 30, 2006 March 31, 2006
------------------------------------------------------------------------
Cash $ 821,408 $ 609,473
Term deposits 14,700,000 15,900,000
------------------------------------------------------------------------
$ 15,521,408 $ 16,509,473
------------------------------------------------------------------------
------------------------------------------------------------------------

3. Property and Equipment:

------------------------------------------------------------------------
Accumulated
June 30, 2006 Cost Depreciation Net Book Value
------------------------------------------------------------------------
Computer equipment $ 1,226,715 $ 802,306 $ 424,409
Furniture and equipment 523,734 399,525 124,209
Leasehold improvements 873,802 383,309 490,493
------------------------------------------------------------------------
$ 2,624,251 $ 1,585,140 $ 1,039,111
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Accumulated
March 31, 2006 Cost Depreciation Net Book Value
------------------------------------------------------------------------
Computer equipment $ 1,217,525 $ 793,033 $ 424,492
Furniture and equipment 503,512 391,860 111,652
Leasehold improvements 873,320 348,223 525,097
------------------------------------------------------------------------
$ 2,594,357 $ 1,533,116 $ 1,061,241
------------------------------------------------------------------------
------------------------------------------------------------------------

4. Product Research and Development Costs:

For the three months ended
June 30,
2006 2005
------------------------------------------------------------------------
Product research and development costs $ 1,046,499 $ 876,978
Depreciation 43,895 40,513
Scientific research and experimental
development investment tax credits (58,605) (60,300)
------------------------------------------------------------------------
$ 1,031,789 $ 857,191
------------------------------------------------------------------------
------------------------------------------------------------------------


5. Income and Other Taxes:

The provision for income and other taxes reported differs from the
amount computed by applying the combined Canadian Federal and
Provincial statutory rate to the earnings before income and other taxes.
The reasons for this difference and the related tax effects are as
follows:

For the three months ended
June 30,
2006 2005
------------------------------------------------------------------------
Statutory tax rate 32.12% 33.62%
------------------------------------------------------------------------
Expected income tax $ 521,033 $ 347,379
Non-deductible costs 30,943 64,799
Change in valuation allowance 25,204 54,571
Other 8,321 1,223
------------------------------------------------------------------------
$ 585,501 $ 467,972
------------------------------------------------------------------------

Represented by:
Current income taxes $ 604,308 $ 594,287
Future income taxes (recovery) (30,308) (170,315)
Foreign withholding and other taxes 11,501 44,000
------------------------------------------------------------------------
$ 585,501 $ 467,972
------------------------------------------------------------------------
------------------------------------------------------------------------

The components of the Company's net future income tax liability at
June 30, 2006 are as follows:

------------------------------------------------------------------------
Canada Other Total
------------------------------------------------------------------------
Investment tax credits,
net of future tax
liabilities $ 319,138 $ - $ 319,138
Property and equipment 65,466 - 65,466
Benefit of operating
losses - 158,275 158,275
------------------------------------------------------------------------
$ 384,604 $ 158,275 $ 542,879
Valuation allowance (496,236)
------------------------------------------------------------------------
Future income tax asset, net $ 46,643
------------------------------------------------------------------------

Represented by:
Future income tax liability, current $ (18,823)
Future income tax asset, long-term 65,466
------------------------------------------------------------------------
Future income tax asset, net $ 46,643
------------------------------------------------------------------------
------------------------------------------------------------------------

The operating losses in other countries expire in varying amounts
between 2007 and 2010.


6. Share Capital:

(a) Authorized: An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.



(b) Issued:

Common Shares
Number Consideration
------------------------------------------------------------------------
Balance, March 31, 2005 4,895,256 $ 10,353,859
Issued for cash on exercise of stock options 323,575 585,935
Stock-based compensation:
- current period expense
- stock options exercised 78,197
------------------------------------------------------------------------
Balance, March 31, 2006 5,218,831 11,017,991
Issued for cash on exercise of stock options 85,575 302,940
Common shares buy-back (28,600) (57,017)
Converted into Common shares 400,000 51,430
Stock-based compensation:
- current period expense
- stock options exercised 69,181
------------------------------------------------------------------------
Balance, June 30, 2006 5,675,806 $ 11,384,525
------------------------------------------------------------------------
------------------------------------------------------------------------


Non-Voting Shares Contributed
Number Consideration Surplus
------------------------------------------------------------------------
Balance, March 31, 2005 2,859,775 $ 367,698 $ 199,220
Issued for cash on exercise
of stock options
Stock-based compensation:
- current period expense 309,133
- stock options exercised (78,197)
------------------------------------------------------------------------
Balance, March 31, 2006 2,859,775 367,698 430,156
Issued for cash on exercise
of stock options
Common shares buy-back
Converted into Common shares (400,000) (51,430)
Stock-based compensation:
- current period expense 85,761
- stock options exercised (69,181)
------------------------------------------------------------------------
Balance, June 30, 2006 2,459,775 $ 316,268 $ 446,736
------------------------------------------------------------------------
------------------------------------------------------------------------


The Non-Voting Shares are convertible into an equivalent number of Common Shares at any time at the option of the holder.

On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "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 is 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 Plan was approved by the Company's shareholders on July 13, 2006.

(c) Common Shares Buy-Back: On November 17, 2005, the Company announced a Normal Course Issuer Bid ("NCIB") commencing November 21, 2005 to purchase for cancellation up to 395,000 of its Common Shares. Since commencement of the NCIB through the three months ended June 30, 2006 a total of 28,600 Common Shares were repurchased at market price for a total cost of $218,377.

(d) Non-Voting Shares: On January 30, 2001, the Company and CMG Reservoir Simulation Foundation ("the Foundation"), the sole holder of the Non-Voting Shares, entered into an Amended and Restated Research and Development Agreement ("Agreement"), which was approved by the Company's shareholders on May 25, 2001. The Agreement terms as negotiated resulted in the Company receiving on a quarterly basis commencing as of April 1, 2001 through January 1, 2008: $125,000 cash; or the surrender to the Company of a specified number of shares for cancellation (starting at 108,571 per quarter through fiscal 2002 and declining through the eight years to 57,699 per quarter through fiscal 2008); or a pro-rata combination of cash and shares for cancellation. During both the three months ended June 30, 2006 and 2005, the Foundation paid $125,000 in cash to the Company, which is reflected in consulting and contract research revenues. On July 1, 2006, the Foundation paid its quarterly commitment in cash and the maximum number of shares that could now potentially be surrendered for cancellation through January 1, 2008 pursuant to this Agreement is 359,016 Non-Voting Shares.

(e) Stock-Based Compensation Plan: The Company adopted a rolling stock option plan as of July 13, 2005 which allows it to grant options to acquire Common Shares of up to 10 percent of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at June 30, 2006, the Company could grant up to 813,558 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. These outstanding stock options vest as to 50% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates. Changes in options in the period from March 31, 2005 were as follows:




For the three For the year
months ended ended
June 30, 2006 March 31, 2006
------------------------------------------------------------------------
Weighted Weighted
Average Average
Options Exercise Options Exercise
Granted Price Granted Price
------------------------------------------------------------------------
Outstanding at beginning of
period 529,175 $ 5.00 636,750 $ 2.69
Granted - - 216,500 7.00
Cancelled - - (500) 1.20
Exercised (85,575) 3.54 (323,575) 1.81
------------------------------------------------------------------------
Outstanding at end of period 443,600 $ 5.28 529,175 $ 5.00
------------------------------------------------------------------------
------------------------------------------------------------------------
Options exercisable at end of
period 62,350 $ 2.58 147,925 $ 3.13
------------------------------------------------------------------------
------------------------------------------------------------------------

The weighted average life of all options outstanding at June 30, 2006 is
3.8 years.

In previous years, we estimated the fair value of stock options granted
using the Black-Scholes option pricing model under the following
assumptions:

For the year ended
March 31 March 31
2006 2005
------------------------------------------------------------------------
Weighted-Average Fair Value ($/option) $ 1.30 to $2.15 $ 0.90 to $1.42
Risk-Free Interest Rate (%) 3.0 to 3.2 3.3 to 3.9
Estimated Hold Period Prior to Exercise
(years) 1.5 to 5 1.5 to 5
Volatility in the Price of Common
Shares (%) 40 46 to 47
Dividends per Common Share ($/share) 0.20 0.16
------------------------------------------------------------------------


The Company recognized a total stock-based compensation expense for the three months ended June 30, 2006 of $85,761 (2005 - $62,834).

7. Financial Instruments:

(a) Fair Value: The carrying values of all monetary assets and liabilities approximate their fair values due to the relatively short period to maturity of the instruments.

(b) Credit Risk: Accounts receivable include balances from customers operating in the oil and gas industry, both domestically and internationally. The Company assesses the credit worthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Accordingly, the Company views the credit risks on these amounts as normal for the industry.

As at June 30, 2006, the amounts from eight domestic and international customers who generated 30 percent of revenues in the three months ended June 30, 2006, and represent 38 percent of the deferred revenue on the Company's balance sheet as at June 30, 2006, represent 55 percent of the Company's accounts receivable. Of this amount, 36 percent have been outstanding for over 90 days as at June 30, 2006. These eight customers have a long-standing history of consistently paying all invoices rendered.

(c) Foreign Currency Risk: The Company is affected by the exchange rate between the Canadian and US dollar as approximately 71% percent of its revenues in the three months ended June 30, 2006 were denominated in US dollars. Approximately 20 to 30 percent of the Company's total costs were also denominated in US dollars and provided a hedge against the fluctuation in the currency exchange. At June 30, 2006, the Company has approximately $3.0 million of its working capital denominated in US dollars.

8. Other Information:

(a) Research Commitments: On May 1, 2006, the Company entered into a two phased joint research and development agreement. The first phase is anticipated to be completed prior to December 31, 2006. The Company's funding commitment to the joint venture for its share of Phase I project costs is estimated at $500,000. One of the deliverables of the first phase is to identify the resource requirements and the project timeline for the second phase, which will only proceed with the mutual agreement of the parties.

In conjunction with entering into this project, a research grant proposal was presented to the Foundation, which agreed to provide $1 million in funding to cover 50 percent of the first $2 million of the Company's allocated project costs. At June 30, 2006, the Company has reflected $111,227 in research grants from the Foundation in revenue with respect to this project.

(b) Lease Commitments: The Company has lease commitments relating to its office premises. The minimum operating lease rental payments pursuant to these contracts are estimated to be 2007 - $488,000; 2008 - $505,000; 2009 - $460,000; and 2010 - $331,000.

(c) Line of Credit: The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility and/or letters of credit. As at June 30, 2006, US $19,000 had been drawn on this line of credit for performance bonds.




(d) Supplemental Cash Flow Information:

For the three months ended
June 30,
2006 2005
------------------------------------------------------------------------
Interest received $ 137,948 $ 77,841
Income taxes paid $ 2,050,894 $ 705,503
------------------------------------------------------------------------

9. Segmented Information:

Consulting
Operating Segments and
For the three months Software Contract
ended June 30, 2006 Licenses Research Corporate Total
------------------------------------------------------------------------
Revenue $ 3,746,146 $ 867,400 $ - $ 4,613,546
------------------------------------------------------------------------
Gross profit 2,937,110 423,116 - 3,360,226
------------------------------------------------------------------------
General and
administrative
expenses 582,310 582,310
Depreciation and
amortization 17,887 12,614 29,799 60,300
Product and
development costs 1,031,789 1,031,789
Interest and other
income and foreign
exchange 63,684 63,684
Income and other
taxes 1,317 10,184 574,000 585,501
------------------------------------------------------------------------
Earnings (loss) for
the period $ 2,917,906 $ 400,318 $ (2,281,582) $ 1,036,642
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Assets $ 4,499,154 $ 710,426 $ 16,719,660 $ 21,929,240
------------------------------------------------------------------------
Capital
Expenditures $ 12,593 $ - $ 69,472 $ 82,065
------------------------------------------------------------------------


Consulting
Operating Segments and
For the three months Software Contract
ended June 30, 2005 Licenses Research Corporate Total
------------------------------------------------------------------------
Revenue $ 2,612,739 $ 821,061 $ - $ 3,433,800
------------------------------------------------------------------------
Gross profit 1,902,911 355,927 - 2,258,838
------------------------------------------------------------------------
General and
administrative
expenses 526,420 526,420
Depreciation and
amortization 11,615 7,708 5,102 24,425
Product research
and development
costs 857,191 857,191
Interest and other
income and foreign
exchange (182,449) (182,449)
Income and other
taxes 14,302 29,698 423,972 467,972
------------------------------------------------------------------------
Earnings (loss) for
the period $ 1,876,994 $ 318,521 $ (1,630,236) $ 565,279
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Assets $ 3,039,673 $ 1,238,205 $ 14,672,819 $ 18,950,697
------------------------------------------------------------------------
Capital
Expenditures $ 24,659 $ 10,737 $ 81,758 $ 117,154
------------------------------------------------------------------------


Geographic Segments
For the three months ended June 30,

2006 2005
------------------------------------------------------------
Property and Property and
Revenue Equipment Revenue Equipment
------------------------------------------------------------
Canada $ 1,268,529 $ 980,579 $ 1,006,222 $ 418,235
United
States 950,152 26,358 671,960 35,080
Venezuela 103,523 31,273 369,678 56,690
Other
Foreign 2,291,342 901 1,385,940 9,332
------------------------------------------------------------
$ 4,613,546 $ 1,039,111 $ 3,433,800 $ 519,337
------------------------------------------------------------
------------------------------------------------------------


In the three months ended June 30, 2006, the Company derived 15 percent (2005 - 18 percent) in revenue from one customer.

CORPORATE INFORMATION

Computer Modelling Group Ltd. is a computer software technology and consulting company serving the oil and gas industry. The Company, recognized by oil and gas companies worldwide as a leading developer of reservoir modelling software, has sales and technical support services based in Calgary, Houston, London, and Caracas. CMG is the leading supplier of advanced processes reservoir modelling software in the world with a blue chip client base of international oil companies and technology centers in 40 countries.

The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information