Computer Modelling Group Ltd.
TSX : CMG

Computer Modelling Group Ltd.

November 10, 2010 08:00 ET

Computer Modelling Group Announces Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2010) - Computer Modelling Group Ltd. (TSX:CMG) ("CMG" or the "Company") is very pleased to announce our second quarter results for the three and six months ended September 30, 2010.



SECOND QUARTER HIGHLIGHTS

For the three months ended September 30, 2010 2009 $ change % change
($ thousands, except per share data)
----------------------------------------------------------------------------
Annuity/maintenance software licenses 7,855 7,240 615 8%
Perpetual software licenses 2,975 582 2,393 411%
Total revenue 13,332 9,084 4,248 47%
Gross profit 10,266 6,785 3,481 51%
Earnings 4,565 2,414 2,151 89%
Earnings per share - basic 0.25 0.14 0.11 79%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands, except per share data)
----------------------------------------------------------------------------
Annuity/maintenance software licenses 16,179 14,448 1,731 12%
Perpetual software licenses 4,799 2,558 2,241 88%
Total revenue 25,386 19,319 6,067 31%
Gross profit 19,662 14,667 4,995 34%
Earnings 8,795 5,103 3,692 72%
Earnings per share - basic 0.49 0.29 0.20 69%
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MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our"), presented as at November 9, 2010, should be read in conjunction with the unaudited consolidated financial statements and related notes of the Company for the six months ended September 30, 2010 and the audited consolidated financial statements and MD&A for the years ended March 31, 2010 and 2009 contained in the 2010 Annual Report for CMG. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars.

FORWARD-LOOKING INFORMATION

Certain information included in this MD&A is forward-looking. Forward-looking information includes statements that are not statements of historical fact and which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as investment objectives and strategy, the development plans and status of the Company's software development projects, the Company's intentions, results of operations, levels of activity, future capital and other expenditures (including the amount, nature and sources of funding thereof), business prospects and opportunities, research and development timetable, and future growth and performance. When used in this MD&A, statements to the effect that the Company or its management "believes", "expects", "expected", "plans", "may", "will", "projects", "anticipates", "estimates", "would", "could", "should", "endeavours", "seeks", "predicts" or "intends" or similar statements, including "potential", "opportunity", "target" or other variations thereof that are not statements of historical fact should be construed as forward-looking information. These statements reflect management's current beliefs with respect to future events and are based on information currently available to management of the Company. The Company believes that the expectations reflected in such forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.

With respect to forward-looking information contained in this MD&A, we have made assumptions regarding, among other things:

- Future software license sales

- The continued financing by and participation of its partners in the DRMS project and it being completed in a timely manner

- Ability to enter into additional software license agreements

- Ability to continue current research and new product development

- Ability to recruit and retain qualified 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 2010 Annual Report under the heading "Business Risks":

- Economic conditions in the oil and gas industry

- Reliance on key clients

- Foreign exchange

- Economic and political risks in countries where the Company currently does or proposes to do business

- Increased competition

- Reliance on employees with specialized skills or knowledge

- Protection of proprietary 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-GAAP FINANCIAL MEASURES

This MD&A contains the term "total expenses excluding depreciation and income and other taxes" which is not a measure defined by GAAP, does not have standardized meaning prescribed by GAAP and should not be considered an alternative to expenses as determined in accordance with GAAP. Total expenses excluding depreciation and income and other taxes as computed by CMG may differ from similar measures as reported by other issuers. This non-GAAP measure is presented in this MD&A because management considers it to be important in highlighting the quantitative impact of cost management as it relates to corporate and people-related costs. The items constituting the total expenses excluding depreciation and income and other taxes are clearly outlined in the table under the "Expenses" heading.

CORPORATE PROFILE

CMG is a computer software technology and consulting company serving the oil and gas industry. The Company is a leading supplier of advanced processes reservoir modelling software in the world with a blue chip client base of international oil companies and technology centers in approximately 50 countries. CMG has sales and technical support services based in Calgary, Houston, London, Caracas and Dubai. CMG's Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG".



QUARTERLY PERFORMANCE

Fiscal 2009 (1) Fiscal 2010 (2)
($ thousands, unless
otherwise stated) Q3 Q4 Q1 Q2 Q3 Q4
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Annuity/maintenance licenses 6,937 8,042 7,208 7,240 7,406 7,653
Perpetual licenses 3,383 5,023 1,976 582 2,903 4,982
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Software licenses 10,320 13,065 9,184 7,822 10,309 12,635
Consulting and contract
research 1,340 1,364 1,050 1,262 1,383 1,657
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Total revenue 11,660 14,429 10,234 9,084 11,692 14,292
Gross profit 9,525 11,789 7,882 6,785 9,337 11,586
Gross profit % 82 82 77 75 80 81

Earnings before income
and other taxes 7,254 8,765 3,991 3,437 5,708 7,710
Income and other taxes 2,350 2,648 1,302 1,023 1,708 2,350
Earnings for the quarter 4,904 6,117 2,689 2,414 4,000 5,360
Cash dividends declared and
paid 2,422 2,588 6,975 3,179 3,194 3,209
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Per share amounts - ($/share)
Earnings per share - basic 0.28 0.35 0.16 0.14 0.23 0.30
Earnings per share - diluted 0.28 0.35 0.15 0.13 0.22 0.30
Cash dividends declared and
paid 0.14 0.15 0.40 0.18 0.18 0.18
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QUARTERLY PERFORMANCE

Fiscal 2011 (3)
($ thousands, unless otherwise stated) Q1 Q2
----------------------------------------------------------------------------
Annuity/maintenance licenses 8,325 7,855
Perpetual licenses 1,824 2,975
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Software licenses 10,149 10,830
Consulting and contract research 1,905 2,502
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Total revenue 12,054 13,332
Gross profit 9,396 10,266
Gross profit % 78 77

Earnings before income and other taxes 6,178 6,565
Income and other taxes 1,949 1,999
Earnings for the quarter 4,230 4,565
Cash dividends declared and paid 6,274 3,430
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Per share amounts - ($/share)
Earnings per share - basic 0.24 0.25
Earnings per share - diluted 0.23 0.25
Cash dividends declared and paid 0.35 0.19
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(1) Q3 and Q4 of fiscal 2009 include $0.7 million and $1.1 million,
respectively, in revenue that pertains to usage of CMG's products in
prior quarters.
(2) Q1, Q2, Q3 and Q4 of fiscal 2010 include $0.4 million, $0.4 million,
$0.3 million and $0.4 million, respectively, in revenue that pertains
to usage of CMG's products in prior quarters.
(3) Q1 and Q2 of fiscal 2011 include $1.1 million and $0.2 million,
respectively, in revenue that pertains to usage of CMG's products in
prior quarters.


REVENUE

For the three months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Software licenses 10,830 7,822 3,007 38%
Consulting and contract research 2,502 1,262 1,241 98%
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Total revenue 13,332 9,084 4,248 47%
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Software license revenue - % of total revenue 81% 86%
Consulting and contract research - % of
total revenue 19% 14%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Software licenses 20,979 17,007 3,972 23%
Consulting and contract research 4,407 2,312 2,095 91%
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Total revenue 25,386 19,319 6,067 31%
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Software license revenue - % of total revenue 83% 88%
Consulting and contract research - % of
total revenue 17% 12%
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CMG's revenue is comprised of software license sales, which provide the majority of the Company's revenue, and consulting and contract research fees. The 47 percent and 31 percent increases in total revenue in the three and six months ended September 30, 2010, respectively, compared to the three and six months ended September 30, 2009 is primarily due to the significant growth in perpetual license revenue and the increase in annuity/maintenance license revenue (see further discussion below). We have also experienced the increase in consulting and training activities in the current fiscal year which further contributed to our revenue growth.

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 September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance licenses 7,855 7,240 614 8%
Perpetual licenses 2,975 582 2,393 411%
----------------------------------------------------------------------------
Total software license revenue 10,830 7,822 3,007 38%
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Annuity/maintenance as a % of total
software license revenue 73% 93%
Perpetual as a % of total software
license revenue 27% 7%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance licenses 16,179 14,448 1,731 12%
Perpetual licenses 4,799 2,558 2,241 88%
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Total software license revenue 20,979 17,007 3,972 23%
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Annuity/maintenance as a % of total
software license revenue 77% 85%
Perpetual as a % of total software
license revenue 23% 15%
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The 38 percent and 23 percent growth in software license revenue in the three and six months ended September 30, 2010, respectively, compared to the same periods of previous fiscal year are attributable mainly to a large perpetual sale made during the current quarter as well as the increase in annuity/maintenance license revenue related to increased sales to new and existing customers. As discussed below, the increase in both current quarter and year-do-date revenue amounts was partially offset by the decrease in both annuity/maintenance and perpetual license revenue as a result of the strengthening of the Canadian dollar relative to the US dollar.

The following table summarizes the US dollar denominated revenue and the weighted average exchange rate at which it was converted to Canadian dollars:



For the three months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance license
sales in US dollars US$ 5,062 US$ 4,134 928 22%
Weighted average conversion rate 1.05 1.17
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Annuity/maintenance license sales
in Canadian dollars CDN$ 5,332 CDN$ 4,856 475 10%
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Perpetual license sales in
US dollars US$ 975 US$ 520 455 88%
Weighted average conversion rate 1.06 1.12
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Perpetual license sales in
Canadian dollars CDN$ 1,030 CDN$ 582 447 77%
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For the six months ended
September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance license
sales in US dollars US$ 10,746 US$ 8,484 2,262 27%
Weighted average conversion rate 1.05 1.18
----------------------------------------------------------------------------
Annuity/maintenance license sales
in Canadian dollars CDN$ 11,293 CDN$ 10,047 1,247 12%
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Perpetual license sales in
US dollars US$ 2,735 US$ 2,195 540 25%
Weighted average conversion rate 1.04 1.17
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Perpetual license sales in
Canadian dollars CDN$ 2,854 CDN$ 2,558 295 12%
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CMG's annuity/maintenance license revenue increased by 8 percent and 12 percent during the three and six months ended September 30, 2010, respectively, compared to the same periods of last year. As discussed in our 2010 fiscal year end and Q1 of fiscal 2011 MD&A's, the fourth quarter results of fiscal 2010 did not include an amount of revenue from a customer for which revenue recognition criteria are fulfilled only at the time of the receipt of cash. During the first quarter of current fiscal year, this amount was received and was included in Q1 2011 revenue. If we adjust the year-to-date annuity/maintenance revenue for this amount, our year-to-date annuity/maintenance revenue increased by five percent. This increase was driven by greater take up of annuity licenses by our existing customers along with some new customers and the increased maintenance revenue tied to our strong perpetual sales in fiscal 2009 and 2010. The increase in annuity/maintenance revenue has been negatively affected by the strengthening of the Canadian dollar relative to the US dollar. As illustrated in the table above, the weakening of the US dollar in relation to the Canadian dollar negatively impacted the current quarter and year-to-date annuity/maintenance revenue by approximately $0.6 million and $1.4 million respectively.

Software license revenue under perpetual sales increased by $2.4 million and $2.2 million during the three and six months ended September 30, 2010, respectively, compared to the same periods of previous fiscal year. As mentioned earlier, the majority of this increase is a direct result of the large perpetual sale made during the current quarter. Software licensing under perpetual sales is a significant part of CMG's business, but may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. The majority of growth in perpetual license revenue is attributable to the Canadian market whereas smaller increase is attributable to revenue generated in US dollars. We can observe from the table above that the increase in perpetual sales in US dollars was partially offset by the negative effect of foreign exchange resulting from the strengthening Canadian dollar in the current fiscal year which caused a negative impact of approximately $0.3 million on the amount of perpetual revenue recorded in Canadian dollars during six months ended September 30, 2010.



Segmented Revenue

For the three months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/Maintenance Revenue
Canada 2,649 2,530 119 5%
United States 1,727 1,549 178 11%
Other 3,479 3,162 317 10%
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7,855 7,240 614 8%
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Perpetual Revenue
Canada 1,945 - 1,945 -
United States 24 222 (198) -89%
Other 1,006 361 645 179%
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2,975 582 2,393 411%
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Total Software Revenue
Canada 4,595 2,530 2,065 82%
United States 1,751 1,770 (20) -1%
Other 4,485 3,522 962 27%
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10,830 7,822 3,007 38%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/Maintenance Revenue
Canada 5,154 4,674 480 10%
United States 3,405 3,182 223 7%
Other 7,620 6,592 1,028 16%
----------------------------------------------------------------------------
16,179 14,448 1,731 12%
----------------------------------------------------------------------------
Perpetual Revenue
Canada 1,945 43 1,903 4474%
United States 1,015 439 575 131%
Other 1,839 2,076 (237) -11%
----------------------------------------------------------------------------
4,799 2,558 2,241 88%
----------------------------------------------------------------------------
Total Software Revenue
Canada 7,099 4,716 2,383 51%
United States 4,420 3,622 798 22%
Other 9,460 8,669 791 9%
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20,979 17,007 3,972 23%
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On a geographic basis, software license sales to CMG's two most sizeable markets, Canada and the United States, continued to demonstrate strong revenue growth of 51 percent and 22 percent, respectively, for six months ended September 30, 2010. Majority of revenue growth in both regions was derived from sales of perpetual licenses. CMG's other markets continue to have a stable recurring annuity/maintenance revenue base; however, current year-to-date perpetual sale levels in other markets didn't match the year-to-date sales of the previous fiscal year. This is indicative of the unpredictable nature of the timing and location of perpetual sales. The increases in US-dollar generated revenue from the US and other markets have been negatively affected by the strengthening Canadian dollar compared to the US dollar in the current fiscal year. Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions.

As footnoted in the Quarterly Performance table, in the normal course of business CMG may complete the negotiation of certain annuity/maintenance contracts and/or fulfill revenue recognition requirements within a current quarter that includes usage of CMG's products in prior quarters. This situation particularly affects contracts negotiated with countries that face increased economic and political risks leading to revenue recognition criteria being satisfied only at the time of the receipt of cash. The dollar magnitude of such contracts may be significant to the quarterly comparatives of our annuity/maintenance revenue stream and, to provide a normalized comparison, we specifically identify the revenue component where revenue recognition is satisfied in the current period for products provided in previous quarters.



Deferred Revenue
2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Deferred revenue at March 31 13,843 11,796 2,047 17%
Deferred revenue at June 30 12,496 10,919 1,577 14%
Deferred revenue at September 30 12,658 10,192 2,466 24%
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CMG's deferred revenue consists of amounts for pre-sold licenses. Our annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time.

The increase in deferred revenue year over year as at September 30, June 30 and March 31 is reflective of the growth in annuity/maintenance license sales. The variation within the year is due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year. Deferred revenue at September 30, 2010 increased due to the signing of significant annuity and maintenance contracts in the quarter.

Consulting and Contract Research Revenue

CMG recorded consulting and contract research revenue of $2.5 million and $4.4 million for the three and six months ended September 30, 2010, respectively, up $1.2 million and $2.1 million from the amounts recorded for the same periods of last fiscal year. This growth reflects the increase in project activities by our clients and the associated consulting and training activities in the current quarter following the economic downturn experienced in the corresponding periods of the prior year. In addition, CMG has been engaged in a couple of large projects in the current fiscal year further contributing to the increase in consulting revenue.

CMG performs consulting and contract research activities on an ongoing basis but such activities are not considered to be a core part of our business and are primarily undertaken to increase our knowledge base and hence expand the technological abilities of our simulators in a funded manner, combined with servicing our customers' needs. In addition, these activities are undertaken to market the capabilities of our suite of software products with the ultimate objective to increase software license sales. Our experience is that consulting activities are variable in nature as both the timing and dollar magnitude of work are dependent on activities and budgets within client companies.

At September 30, 2010, approximately $0.1 million (2009 - $0.3 million) is included in deferred revenue relating to consulting and contract research activities.



Expenses

For the three months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Cost of sales 3,066 2,300 766 33%
General and administrative expenses 1,121 1,025 96 9%
Product research and development
(net of SR&ED) 2,202 1,859 343 18%
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Total expenses excluding depreciation
and income and other taxes 6,389 5,184 1,205 23%
----------------------------------------------------------------------------
Direct employee costs(i) 4,905 4,255 650 15%
Other corporate costs 1,484 929 555 60%
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6,389 5,184 1,205 23%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Cost of sales 5,724 4,652 1,072 23%
General and administrative expenses 2,236 2,134 102 5%
Product research and development
(net of SR&ED) 4,320 4,039 281 7%
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Total expenses excluding depreciation
and income and other taxes 12,280 10,825 1,455 13%
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Direct employee costs(i) 9,823 8,619 1,204 14%
Other corporate costs 2,457 2,206 251 11%
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12,280 10,825 1,455 13%
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(i) Includes salaries, bonuses, stock-based compensation, benefits and
commissions.


CMG's total expenses, excluding depreciation and income and other taxes, increased by 23 percent and 13 percent for the three and six months ending September 30, 2010, respectively, as a result of the increases in both direct employee and other corporate costs.

Direct Employee Costs

As a technology company, CMG's largest area of expenditure is for its people. Approximately 80 percent of the total expenses in the six months ended September 30, 2010 related to staff costs, which compares to 80 percent of the total expenses in the comparative period of last year. Staffing levels for the first six months of the current fiscal year grew throughout the Company to support our continued growth. At September 30, 2010, CMG's staff complement was 129 employees, up from 126 employees as at September 30, 2009. Direct employee costs increased during the second quarter of fiscal 2011 due to staff additions, increased levels of compensation and related benefits.

Other Corporate Costs

Other corporate costs increased by $0.6 million and $0.3 million for the three and six months ending September 30, 2010, respectively, due to higher infrastructure costs related to the new leases for expanded office space which were partially offset by the decrease in the use of third party consulting services. In addition, other corporate costs included the expenses associated with CMG's biennial technical symposium as well as the expenses associated with the Society of Petroleum Engineer's Annual Technical Conference and Exhibition both of which were held in the current quarter. The latter event took place during the third quarter in the previous fiscal year.



Research and Development

For the three months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Product research and development (gross) 2,436 2,153 283 13%
SR&ED credits (234) (294) 59 -20%
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Product research and development (net) 2,202 1,859 343 18%
Depreciation 113 108 5 4%
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Total product research and development 2,315 1,968 347 18%
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Total product research and development
as a % of total revenue 17% 22%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Product research and development (gross) 4,838 4,593 245 5%
SR&ED credits (518) (554) 36 -6%
----------------------------------------------------------------------------
Product research and development (net) 4,320 4,039 280 7%
Depreciation 213 195 18 9%
----------------------------------------------------------------------------
Total product research and development 4,532 4,234 298 7%
----------------------------------------------------------------------------
Total product research and development
as a % of total revenue 18% 22%
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CMG maintains its belief that its strategy of growing long-term value for shareholders can only be achieved through continued investment in research and development. CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes.

The above product research and development includes CMG's proportionate share of joint research and development costs on the DRMS system development of $0.7 million and $1.4 million for the three and six months ending September 30, 2010, respectively (2009 - $0.6 million and $1.2 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

The increases of 13 percent and 5 percent in our gross spending on product research and development for the three and six months ending September 30, 2010, respectively, demonstrate our continued commitment to advancement of our technology. During the three and six months ended September 30, 2010, increased employee-related costs were partially offset by the reduction of third party consulting costs associated with certain research initiatives resulting in the overall increase in product research and development costs. At the same time, we had a slight reduction in scientific research and experimental development ("SR&ED") credits mainly due to claiming fewer hours that qualify for SR&ED program.



Depreciation and Amortization

For the three months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Property and equipment - general 136 87 49 56%
Property and equipment - research and
development 113 108 5 5%
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Total depreciation and amortization 249 195 54 28%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Property and equipment - general 265 171 94 55%
Property and equipment - research and
development 213 195 18 9%
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Total depreciation and amortization 478 366 112 31%
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The increase in depreciation and amortization reflects the increase in our
asset base, mainly related to the increased office space and computing
resources.

Interest Income and Foreign Exchange

For the three months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Interest and other income 54 51 3 6%
----------------------------------------------------------------------------
Foreign exchange gain (loss) (184) (320) 136 -43%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Interest and other income 89 74 15 20%
----------------------------------------------------------------------------
Foreign exchange gain (loss) 26 (775) 801 -103%
----------------------------------------------------------------------------


Interest income increased slightly in the three and six months ending September 30, 2010 compared to the same periods of the prior fiscal year, due to slight improvement in interest rates and investing larger cash balances.

CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 66 percent (2009 - 71 percent) of CMG's revenue for the six months ended September 30, 2010 is denominated in US dollars, whereas only approximately 25 (2009 - 20) percent of CMG's total costs are denominated in US dollars.



----------------------------------------------------------------------------
Six month
CDN$ to US$ At March 31 At June 30 At September 30 trailing average
----------------------------------------------------------------------------
2008 0.9729 0.9817 0.9435 0.9724
2009 0.7935 0.8602 0.9327 0.8955
2010 0.9846 0.9429 0.9711 0.9614
----------------------------------------------------------------------------


The strengthening Canadian dollar versus US dollar average exchange rate in the second quarter of fiscal 2011 has negatively impacted our current period sales as well as the valuation of our US dollar net working capital position at the end of the current quarter. CMG recorded a foreign exchange loss of $0.2 million for the three months ended September 30, 2010 compared to $0.3 million loss recorded in the same period of last year. The foreign exchange gain recorded in Q1 of fiscal 2011 has offset the loss recorded in Q2 of fiscal 2011, resulting in a slight gain of $0.03 million recorded in the six months ending September 30, 2010 compared to $0.8 million loss recorded in the same period of last year.

Overall, we have observed lower volatility in the foreign exchange between the US and Canadian dollars in the first six months of the current fiscal year compared to the same period of last year, creating a positive effect on our foreign exchange recorded in the current year compared to last year.

Income and Other Taxes

CMG's effective tax rate for the six months ended September 30, 2010 is reflected as 31.0 percent (2009 - 31.3 percent), whereas the prevailing Canadian statutory tax rate is now 27.63 percent. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.

The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts future income taxes. The investment tax credit earned in the current fiscal period is utilized by CMG to reduce income taxes otherwise payable for the current fiscal year and the federal portion of this benefit bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a current future income tax liability and then, in the following fiscal year, is transferred to income taxes payable.



GROSS PROFIT AND EARNINGS

For the three months ended September 30, 2010 2009 $ change % change
($ thousands, except per share amounts)
----------------------------------------------------------------------------
Total revenue 13,332 9,084 4,248 47%
Cost of sales (3,066) (2,300) (766) 33%
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Gross profit 10,266 6,785 3,482 51%
Gross profit as a % of revenue 77% 75%
----------------------------------------------------------------------------
Earnings for the period 4,565 2,414 2,151 89%
Earnings for the period as a % of revenue 34% 27%
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Earnings per share ($/share) 0.25 0.14 0.11 79%
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For the six months ended September 30, 2010 2009 $ change % change
($ thousands, except per share amounts)
----------------------------------------------------------------------------
Total revenue 25,386 19,319 6,067 31%
Cost of sales (5,724) (4,652) (1,072) 23%
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Gross profit 19,662 14,667 4,995 34%
Gross profit as a % of revenue 77% 76%
----------------------------------------------------------------------------
Earnings for the period 8,795 5,103 3,692 72%
Earnings for the period as a % of revenue 35% 26%
----------------------------------------------------------------------------
Earnings per share ($/share) 0.49 0.29 0.20 69%
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CMG's gross profit for the three and six months ending September 30, 2010 was at 77 percent which is comparable to 75 percent and 76 percent recorded in the comparable periods of prior fiscal year.

Earnings for the period as a percentage of revenue increased to 34 percent and 35 percent for the three and six months ending September 30, 2010, respectively, from 27 percent and 26 percent recorded in the comparable periods of fiscal 2010. The increase is a result of higher revenue, improvement in the recorded foreign exchange impact and effective management of corporate costs.



LIQUIDITY AND CAPITAL RESOURCES

For the three months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Cash, beginning of period 32,622 29,274 3,348 11%
Cash flow from (used in)
Operating activities 2,357 (119) 2,476 -2081%
Financing activities (2,147) (1,644) (503) 31%
Investing activities (267) (357) 90 -25%
----------------------------------------------------------------------------
Cash, end of period 32,565 27,154 5,411 20%
----------------------------------------------------------------------------

For the six months ended September 30, 2010 2009 $ change % change
($ thousands)
----------------------------------------------------------------------------
Cash, beginning of period 28,826 34,701 (5,875) -17%
Cash flow from (used in)
Operating activities 12,088 765 11,323 1480%
Financing activities (7,676) (7,666) (10) 0%
Investing activities (673) (646) (27) 4%
----------------------------------------------------------------------------
Cash, end of period 32,565 27,154 5,411 20%
----------------------------------------------------------------------------


Operating Activities

The increase of $2.5 million in operating activities during the current quarter is mainly a result of higher net earnings and a slight decrease in prepaid expenses and taxes. The increase of $11.3 million for the six months ending September 30, 2010 in operating activities is a result of higher net earnings, lower accounts receivable balance reflective of the collection of the sales, lower amount of prepaid income taxes carried on the books affected by the variation in the amount of tax installment payments made and the decrease in deferred revenue balance.

Financing Activities

During the six months ended September 30, 2010, CMG employees and directors exercised options to purchase 227,294 Common Shares, which resulted in cash proceeds of $2.0 million.

In the six months ended September 30, 2010, CMG paid $9.7 million in dividends, representing a quarterly dividend of $0.18 per share, a quarterly dividend of $0.19 per share and a special dividend of $0.17 per share. On November 9, 2010, CMG announced the payment of a quarterly dividend of $0.20 per share on CMG's Common Shares. The dividend will be paid on December 15, 2010 to shareholders of record at the close of business on December 3, 2010.

On March 22, 2010, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on March 23, 2010 to purchase for cancellation up to 1,314,686 of its Common Shares. No shares have been purchased pursuant to this NCIB through September 30, 2010.

Investing Activities

CMG's current needs for capital asset investment relate to computer equipment and office infrastructure costs. During the six months ended September 30, 2010, CMG expended $0.7 million on property and equipment additions and has a capital budget of $2.4 million for fiscal 2011, all of which will be funded internally.

Liquidity and Capital Resources

At September 30, 2010, CMG has $32.6 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 six months ended September 30, 2010, 3,657,748 shares of CMG's public float were traded on the TSX Stock Exchange. As at September 30, 2010, CMG's market capitalization based upon its September 30, 2010 closing price of $18.00 was $325.0 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 and Petroleo Brasileiro S.A., of which $8.7 million has been incurred from inception to September 30, 2010. While the original funding will be fulfilled in the first quarter of fiscal 2012, CMG and its partners are committed to continue funding the project beyond this time period.

In conjunction with entering into this project, CMG Reservoir Simulation Foundation ("the Foundation") agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50 percent of the Company's estimated share of project costs over the duration of the project. During the six months ended September 30, 2010, CMG has reflected $0.7 million (2009 - $0.6 million) in research grants from the Foundation in revenue with respect to this project. From commencement of the project to September 30, 2010, these research grants aggregate to $4.3 million.

CMG plans to fund its share of the project costs associated with the development of the newest generation reservoir simulation software system from internal cash and funding from the Foundation until the first quarter of fiscal 2012 and from internal cash flows beyond this time period.

CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which is reflected as deferred revenue on its balance sheet, and contractual obligations for office leases which are estimated as follows: 2011 - $0.7 million; 2012 through 2014 - $1.4 million per year; and 2015 - $1.0 million.

BUSINESS RISKS AND CRITICAL ACCOUNTING ESTIMATES

These remain unchanged from the factors detailed in CMG's 2010 Annual Report.

RECENT ACCOUNTING PRONOUNCEMENTS

International Financial Reporting Standards

In February 2008, the AcSB confirmed that all Canadian publicly accountable enterprises will be required to adopt International Financial Reporting Standards ("IFRS") for interim and annual financial reporting purposes for fiscal years beginning on or after January 1, 2011 with comparatives for the prior year. The Company will be required to report financial statements prepared in accordance with IFRS for the fiscal year ending March 31, 2012 with comparatives for fiscal year ending March 31, 2011.

A project team has been set up to manage the transition and ensure successful implementation by April 1, 2011. The changeover plan has been developed and is expected to be carried out in the following phases, subject to modifications as we proceed with transition:

Diagnostic Analysis

Preliminary Assessment

- Initial project plan considering resources, timelines and overall project approach

- Identify key areas of differences between GAAP and IFRS

Detailed Assessment

- Identify and evaluate IFRS 1 elective and mandatory exemptions

- Provide detailed assessment of the available accounting policy alternatives

- Provide recommendations on the adoption of accounting policies

Status: This phase is substantially complete as all IFRS standards having a potential impact on CMG have now been analyzed with the exception of financial statement presentation and disclosure. See the table below for results of our analysis.

Plan and Design

- Evaluate business processes and information requirements

- Develop detailed project plan for the implementation for each specific item

- Develop timelines, resource requirements, status reporting and training programs

- Assess effects on computer systems and internal controls over financial reporting

Status: This phase is ongoing throughout the process. See the table below for further details.

Implement and Monitor

- Implement processes for required information gathering

- Prepare IFRS compliant financial statements and notes

- Implement and test internal controls over financial reporting and any changes to computer systems

- Provide ongoing training and education

- Monitor reporting requirements on an on-going basis

Status: This phase is ongoing throughout the process. See the table below for further details.



Summary of Transition Progress

----------------------------------------------------------------------------
Accounting policies As at the date of this MD&A, we have completed
our detailed analysis of the accounting policy
choices and have drafted preliminary
conclusions and recommendations. All IFRS
standards that we believe could have a
potential impact on us have been analyzed with
the exception of financial statement
presentation and disclosure.

Based on our current assessment, none of the
IFRS standards analyzed will likely have a
material impact and we expect minimum amount
of adjustments to the amounts recorded in our
financial statements prepared under Canadian
GAAP.

We are moving ahead with the analysis of
presentation and disclosure requirements as
well as developing mock financial statements.
We expect to complete this phase in the third
quarter.

Based on the current assessment, we are
expecting changes to the following components:

- Stock based compensation

- Presentation and disclosure of financial
statements

Analysis of accounting policies is ongoing and
may result in further changes. Accordingly, we
will provide updates as they become available.
----------------------------------------------------------------------------
IFRS 1 IFRS 1 provides detailed guidance on the
procedures to follow when adopting IFRS for
the first time. It specifies that, in general,
an entity shall apply the principles under IFRS
retrospectively. Any adjustments which arise on
the convergence to IFRS standards from Canadian
GAAP should be directly recognized in opening
retained earnings on transition.

This Standard outlines optional and mandatory
exemptions and exceptions for the application
of IFRS. We expect to apply the following
optional exemptions:

- Business Combinations -
IFRS 1 allows us to apply IFRS 3, Business
Combinations retrospectively or prospectively
from the date of transition. The retrospective
application would require restatement of all
business combinations that occurred prior to
April 1, 2010 (our transition date). We elected
not to retrospectively apply IFRS 3; hence, we
will not restate any business combinations that
occurred prior to April 1, 2010.


- Share-based Payment Transactions -
IFRS 1 provides the exemption from
retrospective application of IFRS 2,
Share-based Payments to:
- Options granted on or before November 7, 2002
- Options granted after November 7, 2002 that
vested before April 1, 2010

To apply IFRS 2 retrospectively, the following
needs to be met:
- Entity must have had publicly disclosed the
fair value of such awards in accordance with
IFRS 2
- Fair value must have been measured in a
manner consistent with IFRS

CMG will apply the provisions of IFRS 2 to
options granted after November 7, 2002 that
vest after April 1, 2010. We will apply IFRS 1
exemption to all other options.
----------------------------------------------------------------------------
Information Technology Based on our to-date assessment, no significant
changes to our computer systems are necessary.
Any modifications to support the new standards
are insignificant and our current processes
are capable of supporting such changes. We will
continuously monitor any impacts on information
technology resulting from IFRS conversion and
provide updates accordingly.
----------------------------------------------------------------------------
Internal Controls over Based on our to-date assessment, our current
Financial Reporting and control environment is sufficient to support
Disclosure the reporting under IFRS and no significant
changes are required.

In order to satisfy the certification
requirements under National Instrument 52-109,
we are required to update and test all entity
level, information technology, disclosure and
business process controls to reflect changes
which arise as a result of CMG's convergence
to IFRS. Assessment is ongoing in this area,
and we will provide updates accordingly.
----------------------------------------------------------------------------
Financial Expertise A project team has been set up to manage this
transition and ensure successful
implementation. The financial members involved
in IFRS implementation have completed IFRS
training hosted by the Canadian Institute of
Chartered Accountants and will continue with
relevant training throughout the conversion
process.

Prior to the implementation of IFRS, all
accounting staff will be trained to understand
any changes being implemented and understand
how these impact their work.
----------------------------------------------------------------------------
Business Activities As we don't expect significant changes to our
financial results, no changes to our business
activities are expected. We will continuously
monitor this area and provide updates
accordingly.
----------------------------------------------------------------------------



The above analysis should not be regarded as complete or final. We will continue to monitor any changes to IFRS as issued by the International Accounting Standards Board and the AcSB. Any changes to IFRS standards or changes in the business circumstances could influence the Company's ultimate conclusions and decisions. All changes to the Company's accounting policies will be presented to the Audit Committee of the Board of Directors and are subject to its approval.

The quantitative impact of the adoption of IFRS on the consolidated financial statements of the Company cannot be reasonably determined at this time.

OUTSTANDING SHARE DATA AS AT NOVEMBER 9, 2010

CMG's authorized share capital has remained unchanged from September 30, 2010 to November 9, 2010 and subsequent to September 30, 2010 the only share capital transactions were for the exercise of 2,925 stock options to acquire Common Shares of the Company. CMG's issued and outstanding shares at November 9, 2010 are 18,060,262 Common Shares.

On July 13, 2005, CMG adopted a rolling stock option plan which allows the Company to grant options to its employees and directors to acquire Common Shares of up to 10 percent of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at November 9, 2010, CMG could grant up to 1,806,026 stock options, of which 1,580,080 are currently issued and outstanding.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal controls over financial reporting ("ICFR") as defined under National Instrument 52-109. These controls and procedures were reviewed and the effectiveness of their design and operation was evaluated in fiscal 2010 in accordance with the COSO control framework. The evaluation confirmed the effectiveness of DC&P and ICFR at March 31, 2010. During our fiscal year 2011, we continue to monitor and review our controls and procedures.

During the six months ended September 30, 2010, there have been no significant changes to the Company's ICFR that have materially affected, or are reasonably likely to materially affect, the Company's ICFR.

OUTLOOK

CMG continues to be committed to focusing its resources on the development and enhancement of simulation tools relevant to the challenges facing its diverse customer base. It appears that oil prices have stabilized in a range that has allowed our customers to move forward on projects involving various types of unconventional reserves and advanced recovery processes. Conversely, natural gas prices have declined and petroleum producers continue to be faced with uncertainty related to the world wide economic recovery and environmental issues that have come to the forefront.

CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continues to make progress in fiscal 2011. We have tested the first "demonstrator" version of the product on a significant offshore asset jointly owned by our partners and can report that, while not yet of commercial quality, the main components of the system are in place and functioning. CMG and its partners remain committed to funding the ongoing development and to the future success of the project.

The Company remains confident that the value that CMG technology provides to its customers is greater than ever and accordingly we continue to be cautiously optimistic that our software license revenue will remain solid. With our strong working capital position, we are well positioned to continue to invest in all aspects of our business to continue to grow and diversify our revenue base and to ultimately return value to our shareholders in the form of regular quarterly dividend payments and growth in share value.

On behalf of the Board of Directors


Kenneth M. Dedeluk, President and Chief Executive Officer

November 9, 2010



COMPUTER MODELLING GROUP LTD.

CONSOLIDATED BALANCE SHEETS

(unaudited) September 30, 2010 March 31, 2010
----------------------------------------------------------------------------
Assets
Current assets:
Cash $ 32,565,292 $ 28,826,173
Accounts receivable 11,795,764 16,071,989
Prepaid expenses 1,078,661 1,141,793
Prepaid income taxes 746,975 1,432,673
----------------------------------------------------------------------------
46,186,692 47,472,628
Property and equipment (note 3) 2,595,990 2,400,737
Future income taxes (note 5) - 32,645
----------------------------------------------------------------------------
$ 48,782,682 $ 49,906,010
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 3,627,189 $ 5,397,358
Deferred revenue 12,657,895 13,843,201
Future income taxes (note 5) 87,023 222,083
----------------------------------------------------------------------------
16,372,107 19,462,642
Future income taxes (note 5) 141,825 -
----------------------------------------------------------------------------
16,513,932 19,462,642
Shareholders' equity:
Share capital (note 6) 22,811,362 20,390,396
Contributed surplus (note 6) 2,130,232 1,815,948
Retained earnings 7,327,156 8,237,024
----------------------------------------------------------------------------
32,268,750 30,443,368
----------------------------------------------------------------------------
$ 48,782,682 $ 49,906,010
----------------------------------------------------------------------------

Commitments (note 9)

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

Three months ended Six months ended
(unaudited) September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
Revenue
Software licenses $ 10,829,627 $ 7,822,428 $ 20,978,627 $ 17,006,788
Consulting and
contract research 2,502,347 1,261,655 4,407,296 2,311,907
----------------------------------------------------------------------------
13,331,974 9,084,083 25,385,923 19,318,695
----------------------------------------------------------------------------
Cost of Sales
Marketing expenses 2,405,589 1,827,667 4,448,480 3,665,678
Direct consulting
expenses 607,752 482,477 1,171,671 987,288
Third-party contract
costs 52,334 (10,597) 103,429 (1,289)
----------------------------------------------------------------------------
3,065,675 2,299,547 5,723,580 4,651,677
----------------------------------------------------------------------------
Gross Profit 10,266,299 6,784,536 19,662,343 14,667,018
General and
administrative
expenses 1,120,928 1,024,562 2,236,468 2,133,515
Depreciation and
amortization 135,547 86,718 265,003 170,619
Product research and
development costs
(note 4) 2,314,930 1,967,567 4,532,410 4,234,094
Foreign exchange loss
(gain) 184,137 319,619 (25,584) 774,681
Interest and other
income (53,873) (51,079) (88,855) (73,689)
----------------------------------------------------------------------------
Earnings before
income and other
taxes 6,564,630 3,437,149 12,742,901 7,427,798
Income and other taxes
(note 5) 1,999,140 1,023,019 3,947,907 2,324,598
----------------------------------------------------------------------------
Earnings for the
Period 4,565,490 2,414,130 8,794,994 5,103,200
Retained earnings,
beginning of period 6,192,037 6,044,816 8,237,024 10,330,873
Dividends paid (3,430,371) (3,178,749) (9,704,862) (10,153,876)
----------------------------------------------------------------------------
Retained earnings,
end of period $ 7,327,156 $ 5,280,197 $ 7,327,156 $ 5,280,197
----------------------------------------------------------------------------
Earnings Per Share
Basic (note 6(e)) $ 0.25 $ 0.14 $ 0.49 $ 0.29
Diluted (note 6(e))$ 0.25 $ 0.13 $ 0.48 $ 0.29
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended Six months ended
(unaudited) September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
Cash provided by (used for)

Operating
Earnings for the
period $ 4,565,490 $ 2,414,130 $ 8,794,994 $ 5,103,200
Items not involving
cash:
Depreciation and
amortization 248,512 195,027 477,801 365,598
Future income taxes
(note 5) 202,005 55,049 39,410 (97,740)
Stock-based compensation 386,211 285,019 705,930 528,008
----------------------------------------------------------------------------
5,402,218 2,949,225 10,018,135 5,899,066
Changes in non-cash
working capital:
Accounts receivable (3,214,577) (315,593) 4,276,225 3,052,284
Accounts payable and
accrued liabilities (214,341) (684,100) (1,770,169) (1,852,110)
Prepaid income taxes 57,984 (1,250,579) 685,698 (4,596,530)
Prepaid expenses 163,863 (90,452) 63,132 (133,029)
Deferred revenue 162,179 (727,281) (1,185,306) (1,604,412)
----------------------------------------------------------------------------
2,357,326 (118,780) 12,087,715 765,269
----------------------------------------------------------------------------
Financing
Issue of common shares 1,283,448 1,534,726 2,029,320 2,487,390
Dividends paid (3,430,371) (3,178,749) (9,704,862) (10,153,876)
----------------------------------------------------------------------------
(2,146,923) (1,644,023) (7,675,542) (7,666,486)
----------------------------------------------------------------------------
Investing
Property and
equipment additions (266,880) (357,495) (673,054) (646,023)
----------------------------------------------------------------------------
Increase (decrease)
in cash (56,477) (2,120,298) 3,739,119 (7,547,240)
Cash, beginning of
period 32,621,769 29,274,350 28,826,173 34,701,292
----------------------------------------------------------------------------
Cash, end of period $ 32,565,292 $ 27,154,052 $ 32,565,292 $ 27,154,052
----------------------------------------------------------------------------

Supplemental disclosure of cash flow information (note 11)

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2010 and 2009 and as at March 31, 2010 (unaudited).

Computer Modelling Group Ltd. (the "Company") is a computer software technology and consulting firm engaged in the development and licensing of reservoir simulation software.

1. SIGNIFICANT ACCOUNTING POLICIES:

(a) Basis of Consolidation:

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and include the accounts of the Company and its subsidiaries, all 100 percent owned. All intercompany transactions have been eliminated.

(b) Revenue Recognition:

Revenue consists primarily of software license fees and consulting and contract research fees.

Software license revenue is comprised of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less, and perpetual software licensing fees, whereby the customer purchases the-then-current version of the software and has the right to use that version in perpetuity. Software license revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable, and collection of the resulting receivable is probable. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met.

Annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. License fees for perpetual licenses are recognized fully in revenue when all recognition conditions are satisfied.

Consulting and contract research revenues are recorded on a percentage-of-completion basis whereby revenues and costs are recorded based on work completed as determined by hours incurred and/or facility usage as per terms of the agreements.

The Company's deferred revenue consists of amounts for pre-sold annuity and/or maintenance licenses. These amounts are deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time.

(c) Property and Equipment:

Property and equipment are recorded at cost less accumulated depreciation.

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



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


(d) Product Research and Development Costs:

All costs of product research and development are expensed to operations as incurred as the impact of both technological changes and competition require the Company to continually enhance its products on an annual basis. Product research and development costs are recorded net of the related investment tax credits.

(e) Joint Research and Development Costs:

The Company participates in a joint project engaged in product research and development and accordingly records its proportionate share of costs incurred as product research and development costs.

(f) Foreign Currency:

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

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

(g) Income Taxes:

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

(h) Investment Tax Credits:

The Company receives federal and provincial investment tax credits in Canada on qualified scientific research and experimental development expenditures. Investment tax credits are recorded as a deduction against related expenses or capital items provided that reasonable assurance over collection of the tax credits exists.

(i) Earnings Per Share:

Basic earnings per share is computed by dividing earnings by the weighted average number of Common and Non-Voting Shares outstanding for the period. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted to Common Shares. The treasury stock method is used to determine the dilutive effect of stock options. This method assumes that proceeds received from the exercise of in-the-money stock options are used to repurchase Common Shares at the average market price during the period.

(j) Stock-based Compensation Plan:

The Company has a stock-based compensation plan that is described in note 6(d). The fair value of stock options is expensed over the vesting period along with a credit to contributed surplus. When the stock options are exercised for stock, the recorded amount is transferred from contributed surplus to common share capital.

(k) Financial Instruments:

Financial assets and financial liabilities "held-for-trading" are measured at fair value with changes in those fair values recognized in net earnings. Financial assets "available-for-sale" are measured at fair value, with changes in those fair values recognized in other comprehensive income. Financial assets "held-to-maturity," "loans and receivables" and "other financial liabilities" are initially recorded at fair value and subsequently measured at amortized cost.

(l) Use of Estimates and Assumptions:

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

2. CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

Recent accounting pronouncements:

In January 2006, the CICA Accounting Standards Board ("AcSB") adopted a strategic plan for the direction of accounting standards in Canada. As part of that plan, the AcSB confirmed in February 2008 that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP for fiscal years beginning on or after January 1, 2011 for profit-oriented Canadian publicly accountable enterprises. As the Company will be required to report its results in accordance with IFRS for the fiscal year ending March 31, 2012 with comparatives for fiscal year ending March 31, 2011, it has developed a convergence plan to ensure successful transition to IFRS by April 1, 2011. The impact of IFRS on the Consolidated Financial Statements is not reasonably determinable at this time.



3. PROPERTY AND EQUIPMENT:

Accumulated
September 30, 2010 Cost Depreciation Net Book Value
----------------------------------------------------------------------------
Computer equipment $ 3,740,923 $ 2,516,838 $ 1,224,085
Furniture and equipment 1,461,813 713,139 748,674
Leasehold improvements 1,745,228 1,121,997 623,231
----------------------------------------------------------------------------
$ 6,947,964 $ 4,351,974 $ 2,595,990
----------------------------------------------------------------------------

Accumulated
March 31, 2010 Cost Depreciation Net Book Value
----------------------------------------------------------------------------
Computer equipment $ 3,386,237 $ 2,273,787 $ 1,112,450
Furniture and equipment 1,255,942 620,186 635,756
Leasehold improvements 1,699,407 1,046,876 652,531
----------------------------------------------------------------------------
$ 6,341,586 $ 3,940,849 $ 2,400,737
----------------------------------------------------------------------------


4. PRODUCT RESEARCH AND DEVELOPMENT COSTS:

For the three months ended September 30, 2010 2009
----------------------------------------------------------------------------
Product research and development costs $ 2,436,098 $ 2,152,766
Depreciation 112,964 108,309
Scientific research and experimental
development investment tax credits (234,132) (293,508)
----------------------------------------------------------------------------
$ 2,314,930 $ 1,967,567
----------------------------------------------------------------------------

For the six months ended September 30, 2010 2009
----------------------------------------------------------------------------
Product research and development costs $ 4,837,672 $ 4,592,957
Depreciation 212,797 194,979
Scientific research and experimental
development investment tax credits (518,059) (553,842)
----------------------------------------------------------------------------
$ 4,532,410 $ 4,234,094
----------------------------------------------------------------------------


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 six months ended September 30, 2010 2009
----------------------------------------------------------------------------
Statutory tax rate 27.63% 28.75%
----------------------------------------------------------------------------
Expected income tax $ 3,520,864 $ 2,135,492
Non-deductible costs 208,860 160,267
Change in valuation allowance (78,249) 24,820
Withholding taxes 368,671 34,169
Other (72,239) (30,150)
----------------------------------------------------------------------------
$ 3,947,907 $ 2,324,598
----------------------------------------------------------------------------
Represented by:
Current income taxes $ 3,390,284 $ 2,353,286
Future income taxes 39,410 (97,740)
Foreign withholding and other taxes 518,213 69,052
----------------------------------------------------------------------------
$ 3,947,907 $ 2,324,598
----------------------------------------------------------------------------

The components of the Company's net future income tax liability are as
follows:

September 30, 2010 March 31, 2010
----------------------------------------------------------------------------
Net tax liability on investment tax
credits $ (87,023) $ (222,083)
Property and equipment (141,825) 32,645
Benefit of operating losses in a
foreign subsidiary 8,409 86,658
----------------------------------------------------------------------------
(220,439) (102,780)
Valuation allowance (8,409) (86,658)
----------------------------------------------------------------------------
Future income tax liability, net $ (228,848) $ (189,438)
----------------------------------------------------------------------------
Represented by:
Future income tax liability, current $ (87,023) $ (222,083)
Future income tax liability, long-term (141,825) 32,645
----------------------------------------------------------------------------
Future income tax liability, net $ (228,848) $ (189,438)
----------------------------------------------------------------------------


The operating losses in the foreign subsidiary expire over the next three fiscal years.

6. SHARE CAPITAL:

(a) Authorized:

An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.



(b) Issued:

Common Shares Non-Voting Shares Contributed
------------------------------------------------ Surplus
Number Consideration Number Consideration
----------------------------------------------------------------------------
Balance,
March 31,
2009 14,363,572 $ 15,897,624 2,895,946 $ 186,175 $ 1,245,485
Issued for
cash on
exercise
of stock
options 570,525 3,653,785
Converted
into common
shares 624,517 40,149 (624,517) (40,149)
Stock-based
compensation:
Current
period
expense 1,223,275
Stock options
exercised 652,812 (652,812)
----------------------------------------------------------------------------
Balance,
March 31,
2010 15,558,614 $ 20,244,370 2,271,429 $ 146,026 $ 1,815,948
Issued for
cash on
exercise
of stock
options 227,294 2,029,320
Converted
into common
shares 2,271,429 146,026 (2,271,429) (146,026)
Stock-based
compensation:
Current
period
expense 705,930
Stock options
exercised 391,646 (391,646)
----------------------------------------------------------------------------
Balance,
September
30, 2010 18,057,337 $22,811,362 - $ - $ 2,130,232
----------------------------------------------------------------------------


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

Subsequent to September 30, 2010, 2,925 stock options were exercised for cash proceeds of $16,995.

On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "Original Rights Plan"), whereby the Company issued one right in respect of each share outstanding at the close of business on May 18, 2006 and for each additional share issued by the Company thereafter. The issuance of the rights was not dilutive and will not affect reported earnings per share until the rights separate from the underlying shares and become exercisable or until the exercise of the rights. The Original Rights Plan was approved by the Company's shareholders on July 13, 2006.

On May 21, 2009, the Board of Directors reviewed the Original Rights Plan and determined that it was in the best interest of the Company to continue to have a shareholder rights plan in place. The Company, therefore, adopted a new shareholder rights plan (the "Rights Plan") which is identical in all respects to the Original Rights Plan, with the exception of certain minor amendments which have been made to provide for renewal or approval of the Rights Plan every three years (rather than only one three-year period as was set out in the Original Rights Plan) and to update references to statutory provisions now out of date. The Rights Plan was approved by the Company's shareholders on July 9, 2009.

(c) Common Shares Buy-back:

On February 27, 2009, the Company announced a Normal Course Issuer Bid ("NCIB") commencing March 3, 2009 to purchase for cancellation up to 1,114,791 of its Common Shares. No shares were purchased pursuant to this NCIB which expired on March 2, 2010.

On March 22, 2010, the Company announced a NCIB commencing on March 23, 2010 to purchase for cancellation up to 1,314,686 of its Common Shares. No shares have been purchased pursuant to this NCIB through September 30, 2010.

(d) Stock-based Compensation Plan:

The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 10, 2008, which allows it to grant options to acquire Common Shares of up to 10 percent of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at September 30, 2010, the Company could grant up to 1,805,733 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 percent after the first year anniversary, from date of grant, and then vest as to 25 percent of the total options granted after each of the second and third year anniversary dates.



The following table outlines changes in options:

For six months ended For the year ended
September 30, 2010 March 31, 2010
----------------------------------------------------------------------------
Weighted Weighted
Options Average Average
Granted Exercise Price Options Granted Exercise Price
----------------------------------------------------------------------------
Outstanding at
beginning of
period 1,286,049 $ 11.79 1,367,424 $ 8.10
Granted 546,800 18.14 511,900 15.60
Exercised (227,294) 8.93 (570,525) 6.40
Forfeited (22,550) 13.38 (22,750) 10.74
----------------------------------------------------------------------------
Outstanding at
end of period 1,583,005 $ 14.37 1,286,049 $ 11.79
----------------------------------------------------------------------------
Options
exercisable at
end of period 634,855 $ 11.53 368,649 $ 8.49
----------------------------------------------------------------------------


The range of exercise prices of options outstanding and exercisable at September 30, 2010 is as follows:



Outstanding Exercisable
----------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Number of Contractual Life Exercise Price Number of Exercise Price
($/option) Options (Years) ($/option) Options ($/option)
----------------------------------------------------------------------------
3.68-5.62 29,750 0.9 3.68 29,750 3.68
5.63-6.90 4,000 3.1 6.90 - -
6.91-7.40 139,775 1.9 7.39 132,525 7.40
7.41-11.26 393,000 2.9 11.02 248,750 11.01
11.27-15.60 469,680 3.9 15.60 223,830 15.60
15.61-18.14 546,800 4.9 18.14 - -
----------------------------------------------------------------------------
1,583,005 3.7 14.37 634,855 11.53
----------------------------------------------------------------------------


The fair value of stock options granted was estimated using the Black-Scholes option pricing model under the following assumptions:



For six months ended For the year ended For the year ended
September 30, 2010 March 31, 2010 March 31, 2009
----------------------------------------------------------------------------
Weighted-average
fair value ($/option) 3.12 to 3.55 2.82 to 3.16 0.98 to 2.01
Risk-free interest
rate (%) 1.37 to 2.17 1.31 to 2.61 1.50 to 3.10
Estimated hold period
prior to exercise (years) 2 to 5 2 to 5 2 to 5
Volatility in the price
of common shares (%) 35 to 39 37 to 43 31 to 49
Dividend yield per
common share (%) 5.12 5.95 to 6.07 5.37 to 9.93
----------------------------------------------------------------------------


The Company recognized a total stock-based compensation expense for the three and six months ended September 30, 2010 of $386,211 and $705,930 respectively (three and six months ended September 30, 2009 - $285,019 and $528,008 respectively).

(e) Earnings Per Share:

The following table summarizes the earnings and weighted average number of Common and Non-Voting Shares used in calculating basic and diluted earnings per share:



For three months ended
September 30, 2010
----------------------------------------------------------------------------
Weighted
Average
Shares Earnings
Earnings Outstanding Per Share
----------------------------------------------------------------------------
Basic $ 4,565,490 17,986,892 $ 0.25
Dilutive effect of stock options 326,479
----------------------------------------------------------------------------
Diluted $ 4,565,490 18,313,371 $ 0.25
----------------------------------------------------------------------------

For three months ended
September 30, 2009
----------------------------------------------------------------------------
Weighted
Average
Shares Earnings
Earnings Outstanding Per Share
----------------------------------------------------------------------------
Basic $ 2,414,130 17,540,390 $ 0.14
Dilutive effect of stock options 476,061
----------------------------------------------------------------------------
Diluted $ 2,414,130 18,016,451 $ 0.13
----------------------------------------------------------------------------

For six months ended
September 30, 2010
----------------------------------------------------------------------------
Weighted
Average
Shares Earnings
Earnings Outstanding Per Share
----------------------------------------------------------------------------
Basic $ 8,794,994 17,930,227 $ 0.49
Dilutive effect of stock options 349,819
----------------------------------------------------------------------------
Diluted $ 8,794,994 18,280,046 $ 0.48
----------------------------------------------------------------------------

For six months ended
September 30, 2009
----------------------------------------------------------------------------
Weighted
Average
Shares Earnings
Earnings Outstanding Per Share
----------------------------------------------------------------------------
Basic $ 5,103,200 17,432,711 $ 0.29
Dilutive effect of stock options 464,490
----------------------------------------------------------------------------
Diluted $ 5,103,200 17,897,201 $ 0.29
----------------------------------------------------------------------------


During the three and six months ended September 30, 2010, 101,278and 100,071 (three and six months ended September 30, 2009 - 80,938 and 109,007 respectively) options were excluded from the computation of the weighted-average number of diluted shares outstanding because their exercise price was greater than the average market price of the Common Shares during the period.

7. CAPITAL MANAGEMENT:

The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth combined with strategic acquisitions and to maximize the return to its shareholders. The capital structure of the Company consists of cash, credit facilities and shareholders' equity. The Company does not have any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital.

The Company's policy is to pay quarterly dividends based on the Company's overall financial performance and cash flow generation. In addition, since May 2005, the Company has declared a special dividend after review of the completion of the immediately prior fiscal year results. Decisions on dividend payments are made on a quarterly basis by the Board of Directors. There can be no assurance as to the amount or payment of such dividends in the future.

Since November 2002, the Company embarked on a series of normal course issuer bids to buy back its shares. The latest normal course issuer bid is effective from March 23, 2010 to March 22, 2011. Reference is made to note 6(c).

The Company makes adjustments to its capital structure in light of general economic conditions and the Company's working capital requirements. In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may pay dividends, buy back shares or undertake other activities as deemed appropriate under the specific circumstances. The Board of Directors reviews and approves any material transactions not in the ordinary course of business.

There were no changes in the Company's approach to capital management during the period.

8. FINANCIAL INSTRUMENTS:

(i) Classification of financial instruments



Classification Measurement
----------------------------------------------------------------------------
Cash Held for trading Fair value
Accounts receivable Loans and receivables Amortized cost
Accounts payable and accrued
liabilities Other financial liabilities Amortized cost
----------------------------------------------------------------------------


(ii) Fair values of financial instruments

The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments.

Overview:

The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. The main objectives of the Company's risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to those risks. The principal financial risks to which the Company is exposed are described below:

(a) Credit Risk:

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligation and arises principally from the Company's cash and accounts receivable. The amounts reported in the balance sheet for accounts receivable are net of allowances for bad debts, estimated by the Company's management based on prior experience and their assessment of the current economic environment.

The Company's accounts receivable consist primarily of balances from customers operating in the oil and gas industry, both domestically and internationally, as the Company sells its products and services in over 50 countries worldwide. Some of these countries have greater economic and political risk than experienced in North America and as a result there may be greater risk associated with sales in those jurisdictions. The Company manages this risk by invoicing for the full license term in advance for the majority of software license sales and by invoicing as frequently as the contract allows for consulting and contract research services on a percentage-of-completion basis. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met. Historically, the Company has not experienced any significant losses related to individual customers or groups of customers in any particular geographic area; therefore, no allowance for doubtful accounts has been established at September 30, 2010.

As at September 30, 2010, the Company has a concentration of credit risk with eight domestic and international customers who represent 66 percent of accounts receivable. In addition, $1,460,000 of accounts receivable are over 90 days. The Company assesses the creditworthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Accordingly, the Company views the credit risks on these amounts as normal for the industry.

The Company minimizes the credit risk of cash by depositing only with a reputable financial institution in highly liquid interest-bearing cash accounts.

The maximum credit exposure is represented by the carrying amount of cash and accounts receivable.

(b) Market Risk:

Market risk is the risk that changes in market prices of the Company's foreign exchange rates and interest rates will affect the Company's income or the value of its financial instruments.

The Company operates internationally and primarily prices its products in either the Canadian or US dollar. This gives rise to exposure to market risks from changes in the foreign exchange rates between the Canadian and US dollar. Approximately 66 percent of the Company's revenues for the six months ended September 30, 2010 were denominated in US dollars and at September 30, 2010, the Company had approximately $6.2 million of its working capital denominated in US dollars. The Company currently does not use derivative instruments to hedge its exposure to those risks but as approximately 25 percent of the Company's total costs are also denominated in US dollars they provide a partial economic hedge against the fluctuation in this currency exchange. In addition, the Company manages levels of foreign currency held by converting excess US dollars into Canadian dollars at spot rates.

The Canadian operations are exposed to currency risk on US denominated financial assets and liabilities with fluctuations in the rate recognized as foreign exchange gains or losses in the Consolidated Statements of Earnings. It is estimated that a one cent change in the US dollar would result in a net change of approximately $44,000 on net earnings for the six months ended September 30, 2010. A weaker US dollar with respect to the Canadian dollar will result in a negative impact while the reverse would result from a stronger US dollar.

The Company has significant cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in interest-bearing deposits and/or guaranteed investment certificates issued by its principal banker. The Company is exposed to interest cash flow risk from changes in interest rates on its cash balances. Based on the September 30, 2010 cash balance, each one percent change in the interest rate on the Company's cash balance would change net earnings by approximately $236,000.

(c) Liquidity Risk:

Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company manages liquidity risk through the management of its capital structure as outlined in note 7. The Company's growth is financed through a combination of the cash flows from operations and its cash balances on hand. Given the Company's available liquid resources as compared to the timing of the payments of its liabilities, management assesses the Company's liquidity risk to be low. The Company monitors its expenditures by preparing annual budgets which are updated periodically. At September 30, 2010, the Company has significant cash balances in excess of its obligations and over $800,000 of the line of credit (note 10) available for its use.

9. COMMITMENTS:

(a) Research Commitments:

On May 1, 2006, the Company announced that it had entered into a two-phased joint research and development agreement (the "DRMS Agreement"). Phase 1 of this project was completed in fiscal 2007 and work is ongoing on Phase 2. It was originally estimated that the project would take five years to complete and that the Company's initial annual expenditures would approximate $2 million for its portion of the aggregate project cost and escalating annually for the duration of the project. It is now anticipated that the project will continue beyond the initially estimated five-year time period; however, the Company and its partners are committed to continue funding the project with the Company's share of the project costs estimated at $3 million per year.

During Phase 2, the DRMS Agreement provides the participants with withdrawal rights upon the payment of a withdrawal fee to the other participants of an amount equal to one year of the withdrawing party's share of budgeted project costs. In addition to the withdrawal fee, the withdrawing party may be liable for (i) 100 percent of resizing costs if the project is scaled back or (ii) a proportionate share of wind down costs should the other participants decide to terminate the project as a result of the withdrawal of the participant.

In conjunction with entering into this project, CMG Reservoir Simulation Foundation (the "Foundation") agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50 percent of the Company's estimated share of costs over the duration of the project. For the six months ended September 30, 2010, the Company has reflected $708,982 (2009 - $588,029) in research grants from the Foundation in revenue with respect to this project. To September 30, 2010 these research grants aggregate to $4,328,573 since commencement of the project.

(b) Lease Commitments:

The Company has operating lease commitments relating to its office premises with the minimum annual lease rental payments as follows:



($)
----------------------------------------------------------------------------
2011 744,000
2012 1,424,000
2013 1,426,000
2014 1,427,000
2015 1,039,000
----------------------------------------------------------------------------


10. LINE OF CREDIT:

The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility and/or letters of credit. As at September 30, 2010, US $165,000 (2009 - $Nil) had been drawn on this line of credit for performance bonds.



11. SUPPLEMENTAL CASH FLOW INFORMATION

For the three months ended September 30, 2010 2009
----------------------------------------------------------------------------
Interest received $ 50,846 $ 27,523
Income taxes paid $ 1,238,986 $ 1,874,209
----------------------------------------------------------------------------

For the six months ended September 30, 2010 2009
----------------------------------------------------------------------------
Interest received $ 81,496 $ 66,857
Income taxes paid $ 2,462,986 $ 6,395,922
----------------------------------------------------------------------------


12. SEGMENTED INFORMATION:

Operating Segments

For the three months ended Contract
September 30, 2010 Software Research and
Licenses Consulting Corporate Total
----------------------------------------------------------------------------
Revenue $ 10,829,627 $ 1,340,151 $ 1,162,196 $ 13,331,974
----------------------------------------------------------------------------
Gross profit 8,570,111 533,992 1,162,196 10,266,299
----------------------------------------------------------------------------
General and administrative
expenses 1,120,928 1,120,928
Depreciation and
amortization 33,185 38,926 63,436 135,547
Product research and
development costs 2,314,930 2,314,930
Interest and other income
and foreign exchange 130,264 130,264
Income and other taxes 253,880 9,891 1,735,369 1,999,140
----------------------------------------------------------------------------
Earnings (loss)
for the period $ 8,283,046 $ 485,175 $ (4,202,731) $ 4,565,490
----------------------------------------------------------------------------


Contract
For the three months ended Software Research and
September 30, 2009 Licenses Consulting Corporate Total
----------------------------------------------------------------------------
Revenue $ 7,822,428 $ 535,829 $ 725,826 $ 9,084,083
----------------------------------------------------------------------------
Gross profit 6,110,310 (51,046) 725,272 6,784,536
----------------------------------------------------------------------------
General and
administrative expenses 1,024,562 1,024,562
Depreciation and
amortization 29,191 22,164 35,363 86,718
Product research and
development costs 1,967,567 1,967,567
Interest and other
income and foreign
exchange 268,540 268,540
Income and other taxes 47,815 589 974,615 1,023,019
----------------------------------------------------------------------------
Earnings (loss)
for the period $ 6,033,304 $ (73,799)$ (3,545,375)$ 2,414,130
----------------------------------------------------------------------------


For the six months Contract
ended September 30, Software Research and
2010 Licenses Consulting Corporate Total
----------------------------------------------------------------------------
Revenue $ 20,978,627 $ 2,412,293 $ 1,995,003 $ 25,385,923
----------------------------------------------------------------------------
Gross profit 16,765,636 901,704 1,995,003 19,662,343
----------------------------------------------------------------------------
General and
administrative
expenses 2,236,468 2,236,468
Depreciation and
amortization 64,841 79,163 120,999 265,003
Product research
and development
costs 4,532,410 4,532,410
Interest and other
income and foreign
exchange (114,439) (114,439)
Income and other
taxes 496,621 12,804 3,438,482 3,947,907
----------------------------------------------------------------------------
Earnings (loss)
for the period $ 16,204,174 $ 809,737 $ (8,218,917)$ 8,794,994
----------------------------------------------------------------------------
Total assets $ 9,224,743 $ 1,893,648 $ 37,664,291 $ 48,782,682
----------------------------------------------------------------------------
Capital
expenditures $ 96,251 $ 139,398 $ 437,405 $ 673,054
----------------------------------------------------------------------------

For the six months Contract
ended September 30, Software Research and
2009 Licenses Consulting Corporate Total
----------------------------------------------------------------------------
Revenue $ 17,006,788 $ 893,909 $ 1,417,998 $ 19,318,695
----------------------------------------------------------------------------
Gross profit 13,505,635 (256,061) 1,417,444 14,667,018
----------------------------------------------------------------------------
General and
administrative
expenses 2,133,515 2,133,515
Depreciation and
amortization 55,170 45,216 70,233 170,619
Product research
and development
costs 4,234,094 4,234,094
Interest and other
income and foreign
exchange 700,992 700,992
Income and other taxes 47,879 197 2,276,522 2,324,598
----------------------------------------------------------------------------
Earnings (loss)
for the period $ 13,402,586 $ (301,474) $ (7,997,912)$ 5,103,200
----------------------------------------------------------------------------
Total assets $ 7,143,256 $ 1,158,000 $ 30,713,388 $ 39,014,644
----------------------------------------------------------------------------
Capital
expenditures $ 60,325 $ 108,310 $ 477,388 $ 646,023
----------------------------------------------------------------------------

Geographic Segments

For the six months ended September 30, 2010 2009
----------------------------------------------------------------------------
Property and Property and
Revenue Equipment Revenue Equipment
----------------------------------------------------------------------------
Canada $ 8,890,754 $ 2,376,971 $ 6,070,466 $ 1,161,430
United States 4,605,853 124,161 3,756,514 159,593
Other Foreign 11,889,316 94,858 9,491,715 71,505
----------------------------------------------------------------------------
$ 25,385,923 $ 2,595,990 $ 19,318,695 $ 1,392,528
----------------------------------------------------------------------------


In the six months ended September 30, 2010, the Company derived 9.5 percent (2009 - 14.0 percent) of its revenue from one customer.

Contact Information