BIG DATA

Computer Modelling Group Ltd. has announced third quarter record results for both the three months and the nine months ended December 31, 2006. CMG's revenues are comprised of software license sales, which provide the majority of the Company's revenues, and consulting and contract research fees. On an overall basis, CMG's revenues of $16.5 million for the nine months ended December 31, 2006 reflect an increase of $4.9 million, a 42 percent increase, from the $11.6 million recorded in the comparative period last fiscal year, primarily due to increased software license sales in both perpetual and annuity/maintenance revenue streams. Software Licenses - Software license revenues were $13 million for the nine months ended December 31, 2006, up 46 percent or $4.1 million from the $8.9 million recorded in the same period last year. As we stated in our 2006 Annual Report, the growing utilization by the oil and gas industry of enhanced recovery processes and production from unconventional sources of hydrocarbons have generated increased demand for CMG's advanced physics reservoir simulators. In addition, demand for CMG's parallel computing options and flexible gridding features that enable clients to run large highly complex models with reduced computational time has increased. The annuity/maintenance component of these revenues amounted to $9.0 million for the nine months ended December 31, 2006, an increase of 25 percent from the $7.2 million recorded in the same period last year. As the quarterly performance table demonstrates, this component of the software license revenue stream has reflected growth quarter over quarter. Each of the annuity and maintenance components of this revenue stream has grown due to increased sales to existing customers and sales to new customers. CMG has found that a large percentage of its customers who have acquired perpetual software licenses subsequently purchase maintenance licenses to ensure they have access to current versions of CMG software. Software license revenues under perpetual sales amounted to $3.9 million for the nine months ended December 31, 2006, significantly higher than the $1.7 million recorded in the comparable period last year. The decision by our customers to acquire our software through annuity or perpetual licenses is their sole decision; as is the timing of their acquisition once they have decided on their licensing strategy. As a result, perpetual software license sales are variable and unpredictable in nature and the magnitude thereof will fluctuate between reporting periods. On a quarterly comparison, CMG's software license revenue in the three months ended December 31, 2006 was $4.4 million, up $0.9 million from the $3.5 million recorded in the same period last year. Of this increase, $0.7 million is attributable to growth in annuity/maintenance licenses and $0.2 million in perpetual licenses. At December 31, 2006, CMG has pre-sold $5.1 million of software license revenue, $2.5 million of which relates to its current fiscal year ending March 31, 2007. Consulting and Contract Research Revenues - CMG recorded consulting and contract research revenues of $3.5 million for the nine months ended December 31, 2006, up $0.8 million from the $2.7 million recorded in the same period last year. This increase is due to both increased demand for our consulting services and the additional contract research grant monies from CMG Reservoir Simulation Foundation. Expenses - CMG's gross profit margin for the nine months ended December 31, 2006 was 74 percent (2005 - 69 percent) and CMG realized a gross profit of $12.2 million, up $4.2 million from the $8.0 million recorded in the same period last year. This increase in gross profit is primarily attributable to the growth in both categories of software license sales. CMG's total expenses, excluding depreciation and income and other taxes, amounted to $9.3 million for the nine months ended December 31, 2006, up $1.5 million from the $7.8 million expended in the comparable period last year. This increase in total expenses is primarily due to higher staff costs, the occurrence of CMG's biannual technical symposium in July 2006, and additional overhead costs resulting from CMG's additional research endeavors. As a technology service company, CMG's largest area of expenditure is for its people. Approximately $6.9 million (2005 - $5.8 million) expended was directly related to staff costs; with the increased compensation due to a combination of staff additions, general staff increases, and higher variable commissions and bonus compensation that are dependent on CMG's revenue and earnings performance. Liquidity and Capital Resources Operating activities - CMG generated $5.4 million ($0.66 per share) of funds from operations in the nine months ended December 31, 2006, an increase of $2.8 million from the $2.6 million ($0.33 per share) generated in the comparative period last year. The changes in CMG's non-cash working capital for the nine months ended December 31, 2006 are indicative of our increased revenue activity levels and reflect normal operations and the timing of customer purchases. In addition, due to the timing of when CMG became taxable, it was able to defer the payment of a portion of its accrued income tax liability into the first quarter of fiscal 2007. Financing activities - During the nine months ended December 31, 2006, CMG employees and directors exercised options to purchase 182,835 Common Shares, which resulted in $0.7 million in cash proceeds. In the nine months ended December 31, 2006, CMG paid $3.5 million in dividends, representing two quarterly dividends of $0.06 per share each, one quarterly dividend of $0.07 per share and a special dividend of $0.24 on its Common and Non-Voting Shares. On February 8, 2007, CMG announced the payment of a quarterly dividend of $0.10 per share on CMG's Common and Non-Voting Shares. The dividend will be paid on March 15, 2007 to shareholders of record at the close of business on March 1, 2007. On November 17, 2005, CMG announced its intention to purchase for cancellation up to 395,000 of its Common Shares in accordance with the normal course issuer bid ("NCIB") procedures under Canadian securities law during the 12-month period commencing November 21, 2005. During the nine months ended December 31, 2006, and cumulatively since adoption of the NCIB, 28,600 Common Shares were repurchased at market price for a total cost of $218,377. On December 14, 2006, CMG announced a further NCIB commencing December 20, 2006 to purchase for cancellation up to 335,000 of its Common Shares. No shares have been purchased pursuant to this NCIB through February 8, 2007. Investing activities - During the nine months ended December 31, 2006, CMG expended $0.5 million on property and equipment additions of its $0.6 million capital budget for its fiscal year ending March 31, 2007. Liquidity and capital resources- At December 31, 2006, CMG has $17.3 million in cash, no debt and has access to a $1.0 million line of credit with its principal banker, of which US $9,000 has been drawn on for performance bonds. During the nine months ended December 31, 2006, 1,741,342 shares of CMG's public float were traded on the TSX Stock Exchange. CMG's share prices ranged from $6.90 to $11.10 per share and last traded on December 29, 2006 at $11.09 for a December 31, 2006 market capitalization of $91.3 million. Commitments, Off Balance Sheet Items and Transactions with Related Parties - Last quarter we announced that Petroleo Brasileiro S.A. ("Petrobras") had joined CMG and Shell International Exploration and Production BV ("Shell") in the two phased joint research and development project to develop the newest generation reservoir simulation software system. Formal agreement that the first phase has been completed has been received and work has commenced on the second phase of the joint research and development project. CMG estimates that it will increase its staff complement to 25 individuals to meet the project requirements and that this second phase of the project will have a duration of five years, which equates to a development effort of 125 man-years. It is estimated that CMG's annual expenditures will approximate $2 million for its portion of the aggregate project costs. During Phase 2, the research and development 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 also be liable for (i) 100 percent of resizing costs if the joint venture is scaled back or (ii) a proportionate share of wind down costs should the other participants decide to terminate the joint venture as a result of the withdrawal of the participant. In conjunction with entering into this project, a research grant proposal was presented to CMG Reservoir Simulation Foundation ("the Foundation"), the sole holder of CMG's Non-Voting Shares, which agreed to provide $1.0 million in funding to cover 50 percent of the first $2 million of CMG's allocated project costs. CMG has reflected $0.3 million in research grants from the Foundation in consulting and contract research revenue in the nine months ended December 31, 2006 with respect to this project. CMG plans on funding its share of the project costs associated with the development of the newest generation reservoir simulation software system from internal cash and funding from the Foundation. The Foundation's research grant relative to this new project is in addition to a 2001 research and development commitment by the Foundation, whereby it agreed to provide CMG with research grants valued at $125,000 on a quarterly basis through January 1, 2008. During both the nine months ended December 31, 2006 and 2005, the Foundation paid $375,000 to CMG, which is reflected in consulting and contract research revenues. CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold revenues which are reflected as deferred revenue on its balance sheet. Contractual obligations for office premise leases are not considered to be significant and are estimated to be as follows: 2007 - $198,000; 2008 - $526,000; 2009 - $458,000; and 2010 - $329,000. Outstanding Share Data as at February 8, 2007 CMG's authorized and issued share capital has remained unchanged from December 31, 2006 to February 8, 2007. CMG's issued and outstanding shares at February 8, 2007 are 5,773,066 Common Shares and 2,459,775 Non-Voting Shares. Critical Accounting Estimates and Business Risks These remain unchanged from the factors detailed in CMG's 2006 Annual Report. Changes in Accounting Policies CMG's participation in the research and development of the newest generation reservoir simulation software system is by means of a joint venture and the Company has reflected its proportionate share of the project costs in product research and development costs for the nine months ended December 31, 2006, as required by Canadian accounting standards. Outlook A significant element contributing to our current success and our continuing success in the years to come is CMG's investment in leading-edge technology. Our joint venture research project with Shell, a worldwide petroleum company and Petrobras, Brazil's state-owned oil company, contributes more than research monies to CMG. It is providing us with invaluable expertise in operational and subsurface knowledge and highly experienced reservoir simulation development staff. Through our participation in this joint venture CMG will have the commercialization rights to the new technology developed. In today's reservoir simulation market, we continue to see increasing demand for our software products as CMG's software is the market leader in the simulation of difficult hydrocarbon recovery techniques. Our software products present a superior tool to assist today's petroleum industry in their optimization of production from unconventional sources of supply.