MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company,"....." />
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Computer Modelling Group Announces Year End Results

(May 24, 2012)

CALGARY, ALBERTA -- (Marketwire) -- 05/24/12 -- Computer Modelling Group Ltd. ("CMG" or the "Company") (TSX:CMG) is very pleased to report our financial results for the fiscal year ended March 31, 2012.

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 May 23, 2012, should be read in conjunction with the audited consolidated financial statements and related notes of the Company for the years ended March 31, 2012 and 2011. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars and rounded to the nearest thousand.

Effective on the close of business on June 20, 2011, CMG's Common Shares were split on a two-for-one basis. Accordingly, all comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one split.


CORPORATE PROFILE

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

ANNUAL PERFORMANCE

March 31, March 31, March 31, ($ thousands, unless otherwise stated) 2012 2011 2010 ---------------------------------------------------------------------------- Annuity/maintenance licenses 42,858 32,709 29,507 Perpetual licenses 12,724 11,045 10,443 ---------------------------------------------------------------------------- Software licenses 55,582 43,754 39,950 Professional services 5,452 8,073 5,353 ---------------------------------------------------------------------------- Total revenue 61,034 51,827 45,303 Operating profit 31,604 25,677 21,893 Operating profit (%) 52% 50% 48% EBITDA(1) 32,831 26,714 22,780 Net income for the year 23,391 17,166 14,463 Cash dividends declared and paid 20,499 16,971 16,557 Total assets 74,892 58,689 49,906 Total shares outstanding 37,307 36,427 35,660 Trading price per share at March 31 15.90 12.98 8.63 Market capitalization at March 31 593,170 472,820 307,568 ---------------------------------------------------------------------------- Per share amounts - ($/share) Earnings per share - basic 0.63 0.48 0.41 Earnings per share - diluted 0.62 0.47 0.40 Cash dividends declared and paid 0.555 0.47 0.47 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

(1) EBITDA is defined as net income before adjusting for depreciation expense, finance income, finance costs, and income and other taxes. See "Non-IFRS Financial Measures".

QUARTERLY PERFORMANCE

Fiscal 2011(1) ($ thousands, unless otherwise stated) Q1 Q2 Q3 Q4 ---------------------------------------------------------------------------- Annuity/maintenance licenses 8,325 7,855 7,999 8,531 Perpetual licenses 1,824 2,975 2,335 3,911 ---------------------------------------------------------------------------- Software licenses 10,149 10,830 10,333 12,442 Professional services 1,905 2,502 1,730 1,936 ---------------------------------------------------------------------------- Total revenue 12,054 13,332 12,063 14,378 Operating profit 5,933 6,695 5,516 7,532 Operating profit % 49 50 46 52 EBITDA 6,162 6,944 5,789 7,818 Profit before income and other taxes 6,178 6,565 5,278 7,413 Income and other taxes 1,949 1,999 1,715 2,605 Net income for the period 4,229 4,565 3,563 4,808 Cash dividends declared and paid 6,274 3,430 3,623 3,643 ---------------------------------------------------------------------------- Per share amounts - ($/share) Earnings per share - basic 0.12 0.13 0.10 0.13 Earnings per share - diluted 0.12 0.13 0.10 0.13 Cash dividends declared and paid 0.175 0.095 0.10 0.10 ---------------------------------------------------------------------------- Fiscal 2012(2) ($ thousands, unless otherwise stated) Q1 Q2 Q3 Q4 ---------------------------------------------------------------------------- Annuity/maintenance licenses 8,997 9,308 12,056 12,497 Perpetual licenses 5,391 1,596 2,321 3,416 ---------------------------------------------------------------------------- Software licenses 14,388 10,904 14,377 15,913 Professional services 1,551 1,078 1,521 1,302 ---------------------------------------------------------------------------- Total revenue 15,939 11,982 15,898 17,215 Operating profit 9,092 5,226 8,093 9,193 Operating profit % 57 44 51 53 EBITDA 9,366 5,508 8,414 9,543 Profit before income and other taxes 9,240 6,096 8,184 9,104 Income and other taxes 2,577 1,778 2,394 2,484 Net income for the period 6,663 4,318 5,790 6,620 Cash dividends declared and paid 7,519 4,053 4,079 4,848 ---------------------------------------------------------------------------- Per share amounts - ($/share) Earnings per share - basic 0.18 0.12 0.16 0.18 Earnings per share - diluted 0.18 0.11 0.15 0.17 Cash dividends declared and paid 0.205 0.11 0.11 0.13 ----------------------------------------------------------------------------

(1) Q1, Q2, Q3 and Q4 of fiscal 2011 include $1.1 million, $0.2 million, $0.3 million and $0.1 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.

(2) Q1, Q2, Q3 and Q4 of fiscal 2012 include $0.3 million, $0.04 million, $2.6 million and $2.7 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.

Note: all quarterly data contained in the above table has been prepared in accordance with IFRS.

Highlights

During the year ended March 31, 2012, as compared to the prior fiscal year, CMG:

-- Increased annuity/maintenance revenue by 31%; -- Increased perpetual sales by 15%; -- Increased net income by 36%; -- Increased spending on research and development by 14%; -- Realized earnings per share of $0.63, representing a 31% increase.

Revenue

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 15,913 12,442 3,471 28% Professional services 1,302 1,936 (634) -33% ---------------------------------------------------------------------------- Total revenue 17,215 14,378 2,837 20% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Software license revenue - % of total revenue 92% 87% Professional services - % of total revenue 8% 13% ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 55,582 43,754 11,828 27% Professional services 5,452 8,073 (2,621) -32% ---------------------------------------------------------------------------- Total revenue 61,034 51,827 9,207 18% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Software license revenue - % of total revenue 91% 84% Professional services - % of total revenue 9% 16% ----------------------------------------------------------------------------

CMG's revenue is comprised of software license fees, which provide the majority of the Company's revenue, and fees for professional services.

Total revenue increased by 20% and 18% for the three months and year ended March 31, 2012, respectively, driven primarily by our strong annuity/maintenance sales experienced during both the quarter and year-to-date. The increases in software license revenue were partially offset by the decreases in fees earned from professional services.

SOFTWARE LICENSE REVENUE

Software license revenue is made up of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less and perpetual software license fees, 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. The majority of CMG's customers who have acquired perpetual software licenses subsequently purchase our maintenance package to ensure ongoing product support and access to current versions of CMG's software.

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 12,497 8,531 3,966 46% Perpetual licenses 3,416 3,911 (495) -13% ---------------------------------------------------------------------------- Total software license revenue 15,913 12,442 3,471 28% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 79% 69% Perpetual as a % of total software license revenue 21% 31% ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 42,858 32,709 10,149 31% Perpetual licenses 12,724 11,045 1,679 15% ---------------------------------------------------------------------------- Total software license revenue 55,582 43,754 11,828 27% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 77% 75% Perpetual as a % of total software license revenue 23% 25% ----------------------------------------------------------------------------

Total software license revenue increased by 28% and 27% during the three months and year ended March 31, 2012, respectively, compared to the same periods of the previous fiscal year. The increase in our quarterly total software license revenue was driven by the increase in annuity/maintenance license sales while our year-to-date increase was supported by growth in both annuity/maintenance and perpetual license sales.

CMG's annuity/maintenance license revenue increased by 46% and 31% during the three months and year ended March 31, 2012, respectively, compared to the same periods of the previous fiscal year. Part of the growth during both the quarter and year-to-date was driven by strong sales to new and existing clients as well as the increase in maintenance revenue tied to our strong perpetual sales generated in the previous quarters of the current and past fiscal years. Another reason for the increase in both the quarterly and year-to-date annuity/maintenance revenue is the accounting treatment of the payments received from one of our large customers for whom revenue recognition criteria are fulfilled only at the time of the receipt of funds. Payments have been received during the current quarter and fiscal year for the licenses provided in past periods (see the discussion about revenue earned in the current period that pertains to usage of products in prior quarters above the "Quarterly Software License Revenue" graph). Given our long-standing relationship with this client, and the multi-year nature of the contract, we expect to continue receiving payments under this arrangement, however, the amount and timing is uncertain and will continue to be recorded on a cash basis which may introduce some variability in our reported quarterly revenue results. If we were to remove revenue from this particular customer from the quarterly and year-to-date annuity/maintenance revenue amounts in order to provide normalized comparison, we would note that that the annuity/maintenance license sales have grown by 19% and 20% in the three months and year ended March 31, 2012, respectively, compared to the same periods of the previous fiscal year. Our annuity/maintenance license revenue, representing a recurring revenue stream, continues experiencing steady growth quarter-over-quarter as evidenced by consecutive quarterly increases over the past several fiscal years. We expect this trend to continue in the future supported by the market's demand for our highly specialized software, which is further demonstrated by the strong growth in our deferred revenue balance (see discussion under "Deferred Revenue").

The increase in annuity/maintenance revenue as measured in Canadian dollars has been negatively affected by the strengthening of the Canadian dollar relative to the US dollar in the current fiscal year. The table below illustrates revenue generated in US dollars and the rates at which it was converted into Canadian dollars to show the movement in US dollar denominated revenue without the impact of the foreign exchange. Had the exchange rate between the US and Canadian dollars remained constant between the three months and year ended March 31, 2012 and 2011, our fourth quarter annuity/maintenance revenue would have increased by 48% (instead of 46%) and our year-to-date annuity/maintenance revenue would have increased by 35% (instead of 31%).

Perpetual license sales decreased by 13% for the three months ended March 31, 2012 whereas they increased by 15% for the year ended March 31, 2012, compared to the same periods of the previous fiscal year. Software licensing under perpetual sales is a significant part of CMG's business, but may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. For this reason, even though we anticipate achieving a certain level of aggregate perpetual sales on an annual basis, we expect to observe fluctuations in the reported quarterly amounts across different markets. Quarterly perpetual license revenue decreased due to selling fewer licenses, particularly in the North American market, in the last part of the fourth quarter of the current fiscal year compared to the same period of the previous fiscal year.The year-to-date increase was driven by strong perpetual sales achieved in our Eastern Hemisphere, supported in particular by a multi-million perpetual contract closed in the first quarter of the current fiscal year.

We can observe from the table below that our year-to-date perpetual sales in US dollars were negatively affected by the foreign exchange movement between the US and Canadian dollars as a result of the strengthening Canadian dollar in the current fiscal year. Had the exchange rate between the US and Canadian dollars remained constant between the year ended March 31, 2012 and 2011, our year-to-date perpetual license revenue would have increased by 19% (instead of 15%). The foreign exchange rates had a minimum impact on our quarterly perpetual sales.

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

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- US dollar annuity/maintenance license sales US$ 8,986 US$ 5,368 3,618 67% Weighted average conversion rate 0.994 1.012 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 8,934 CDN$ 5,433 3,501 64% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- US dollar perpetual license sales US$ 3,281 US$ 3,502 (221) -6% Weighted average conversion rate 1.001 0.980 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 3,285 CDN$ 3,432 (147) -4% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- US dollar annuity/maintenance license sales US$ 29,146 US$ 21,275 7,871 37% Weighted average conversion rate 0.993 1.040 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 28,954 CDN$ 22,116 6,838 31% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- US dollar perpetual license sales US$ 12,425 US$ 8,120 4,305 53% Weighted average conversion rate 0.977 1.012 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 12,142 CDN$ 8,216 3,926 48% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

REVENUE BY GEOGRAPHIC SEGMENT

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance revenue Canada 4,213 3,608 605 17% United States 2,337 1,857 480 26% South America 3,307 674 2,633 391% Eastern Hemisphere(1) 2,640 2,392 248 10% ---------------------------------------------------------------------------- 12,497 8,531 3,966 46% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Perpetual revenue Canada 204 480 (276) -58% United States 753 879 (126) -14% South America 177 830 (653) -79% Eastern Hemisphere 2,282 1,722 560 33% ---------------------------------------------------------------------------- 3,416 3,911 (495) -13% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total software license revenue Canada 4,417 4,088 329 8% United States 3,090 2,736 354 13% South America 3,484 1,504 1,980 132% Eastern Hemisphere 4,922 4,114 808 20% ---------------------------------------------------------------------------- 15,913 12,442 3,471 28% ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance revenue Canada 15,946 11,620 4,326 37% United States 8,528 7,041 1,487 21% South America 8,536 5,147 3,389 66% Eastern Hemisphere 9,848 8,901 947 11% ---------------------------------------------------------------------------- 42,858 32,709 10,149 31% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Perpetual revenue Canada 655 2,829 (2,174) -77% United States 1,746 2,141 (395) -18% South America 1,468 1,919 (451) -24% Eastern Hemisphere 8,855 4,156 4,699 113% ---------------------------------------------------------------------------- 12,724 11,045 1,679 15% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total software license revenue Canada 16,601 14,449 2,152 15% United States 10,274 9,182 1,092 12% South America 10,004 7,066 2,938 42% Eastern Hemisphere 18,703 13,057 5,646 43% ---------------------------------------------------------------------------- 55,582 43,754 11,828 27% ----------------------------------------------------------------------------

(1) Includes Europe, Africa, Asia and Australia.

On a geographic basis, total software license sales increased across all regions during both the three months and the year ended March 31, 2012. The most significant growth came from our annuity/maintenance license sales, with increases experienced across all regions. While the South American market experienced the highest increase, Canada continues to be the leader in annuity/maintenance revenue generation. While perpetual license sales decreased during the fourth quarter, they increased by 15% on a year-to-date basis. This increase was driven solely by the sales made in the Eastern Hemisphere.

The Canadian market (representing 30% of fiscal 2012 total software revenue) continues to experience consistent growth in the recurring annuity/maintenance revenue stream as evidenced by the increases of 17% and 37% for the three months and year ended March 31, 2012, respectively, compared to the same periods of the previous fiscal year. The increases in the annuity revenue stream were supported by the increase in sales to both existing and new clients. In addition, strong perpetual license sales generated in the past have enabled the Canadian market to maintain increased revenue levels from the maintenance contracts tied to those perpetual licenses. On the other hand, perpetual sales during the current fiscal year did not reach the same level of the perpetual sales made during the previous fiscal year.

The US market (representing 18% of fiscal 2012 total software revenue) also experienced growth in annuity/maintenance revenue with the increases of 26% and 21% recorded for the three months and year ended March 31, 2012, respectively, compared to the same periods of the previous fiscal year, due to increased sales to both existing and new clients. Perpetual sales experienced decreased activity in the current fiscal year compared to the previous fiscal year with the overall year-to-date decrease of 18%.

South America (representing 18% of fiscal 2012 total software revenue) experienced strong growth in annuity/maintenance revenue due to the inclusion of a significant amount on a long-term contract for which revenue is recognized on a cash basis. Similar to the North American market, South America experienced lower perpetual sales, with the overall year-to-date decrease of 24%.

Eastern Hemisphere (representing 34% of fiscal 2012 total software revenue) experienced growth in both annuity/maintenance and perpetual revenue streams. Annuity/maintenance license sales increased by 10% and 11% for the three months and year ended March 31, 2012, respectively, compared to the same periods of the previous fiscal year, driven by increased sales to both new and existing clients. Perpetual license sales increased by 33% and 113% for the three months and year ended March 31, 2012 compared to the same periods of the previous fiscal year. The year-to-date increase was driven by the large perpetual sale made during the first quarter of the current fiscal year. In addition to closing one significant contract, we have seen a general increase in the number of perpetual license sales made to the Eastern Hemisphere market. A significant increase in year-to-date perpetual license sales in the Eastern Hemisphere offset the effects of decreased perpetual sales experienced in all other regions. The movements in perpetual sales across the regions are indicative of the unpredictable nature of the timing and location of perpetual license sales.

Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions with the Canadian market being the leader in this revenue stream. We will continue to extend our reach globally and focus our efforts on increasing our license sales to both existing and new clients. We are confident that the excellent reputation behind our company and its product suite offering along with our customer-oriented approach will enable us to grow and sustain a healthy market share across all regions.

The increases in US-dollar generated revenue from the US and other markets have been negatively affected by the strengthening Canadian dollar compared to the US dollar during the year ended March 31, 2012.

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

2012 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Deferred revenue at: June 30 15,326 12,496 2,830 23% September 30 14,600 12,658 1,942 15% December 31 14,746 11,892 2,854 24% March 31 21,693 16,755 - 4,938 29% ----------------------------------------------------------------------------

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

The increase in deferred revenue year over year as at June 30, September 30, December 31 and March 31 is reflective of the growth in annuity/maintenance license sales. The variation within a year is due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year which explains the increase in deferred revenue balance at fiscal year-end. Our fourth quarter corresponds to the beginning of the fiscal year for most oil and gas companies, representing a time when they enter a new budget year and sign/renew their contracts. Deferred revenue at March 31, 2012 increased compared to the same period of prior fiscal year due to both renewal of the existing and signing of the new software licenses and maintenance contracts in the quarter. Our deferred revenue balance continues to grow at a steady pace as demonstrated in the table above by the consecutive quarterly double-digit growth experienced during the current fiscal year. Significant deferred revenue balance will contribute to our future revenue growth.

PROFESSIONAL SERVICES REVENUE

CMG recorded professional services revenue of $1.3 million and $5.5 million for the three months and year ended March 31, 2012, respectively, representing decreases of $0.6 million and $2.6 million from the amounts recorded for the same periods of previous fiscal year. CMG had been engaged in a few large projects in the previous fiscal year, which are either complete or continue on a smaller scale in the current fiscal year, causing the majority of the decrease in the quarterly and year-to-date professional services revenue. Additionally, the funding commitment for the DRMS project received from the CMG Reservoir Simulation Foundation ("Foundation CMG") was fulfilled in the first quarter of the current fiscal year further contributing to the decrease in the professional services revenue for the year. For the year ended March 31, 2012, the Company has reflected $0.3 million (2011 - $1.3 million) in professional services revenue related to this grant. Refer to the discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

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

At March 31, 2012, approximately $0.04 million (2011 - $0.1 million) is included in deferred revenue relating to professional services.

Expenses

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Sales, marketing and professional services 3,333 3,000 333 11% Research and development 2,994 2,397 597 25% General and administrative 1,695 1,449 246 17% ---------------------------------------------------------------------------- Total operating expenses 8,022 6,846 1,176 17% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Direct employee costs(i) 6,349 5,484 865 16% Other corporate costs 1,673 1,362 311 23% ---------------------------------------------------------------------------- 8,022 6,846 1,176 17% ----------------------------------------------------------------------------

For the year ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Sales, marketing and professional services 13,036 11,704 1,332 11% Research and development 10,629 9,338 1,291 14% General and administrative 5,765 5,108 657 13% ---------------------------------------------------------------------------- Total operating expenses 29,430 26,150 3,280 13% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Direct employee costs(i) 23,376 20,329 3,047 15% Other corporate costs 6,054 5,821 233 4% ---------------------------------------------------------------------------- 29,430 26,150 3,280 13% ----------------------------------------------------------------------------

(i)Includes salaries, bonuses, stock-based compensation, benefits, commissions, and professional development.

CMG's total operating expenses increased by 17% and 13% for the three months and year ended March 31, 2012, respectively, compared to the same periods in the previous fiscal year due to 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 79% of the total operating expenses in the year ended March 31, 2012 related to staff costs compared to 78% recorded in the comparative period of last year. Staffing levels for the current fiscal year grew in comparison to the previous fiscal year to support our continued growth. At March 31, 2012, CMG's staff complement was 149 employees, up from 136 employees as at March 31, 2011. Direct employee costs increased during the three months and year ended March 31, 2012 compared to the same period of the previous fiscal year, due to staff additions, increased levels of compensation, commissions and related benefits.

OTHER CORPORATE COSTS

Other corporate costs increased by 23% for the three months ended March 31, 2012 compared to the same period of previous fiscal year, mainly due to inclusion of the costs associated with the expansion of our office space at the end of calendar 2011. These costs comprise additional office rent, relocation costs, increased computing resources and increased depreciation associated with capital spending on the new space.

Other corporate costs increased by 4% for the year ended March 31, 2012, compared to the same period of the previous fiscal year due to the increase in costs associated with the expanded office space. The previous fiscal year included expenses associated with CMG's biennial technical symposium, hence, offsetting the impact of the increased office space costs in the current fiscal year.

RESEARCH AND DEVELOPMENT

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 3,444 2,707 737 27% SR&ED credits (450) (310) (140) 45% ---------------------------------------------------------------------------- Research and development 2,994 2,397 597 25% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Research and development as a % of total revenue 17% 17% ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 12,100 10,416 1,684 16% SR&ED credits (1,471) (1,078) (393) 36% ---------------------------------------------------------------------------- Research and development 10,629 9,338 1,291 14% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Research and development as a % of total revenue 17% 18% ----------------------------------------------------------------------------

CMG maintains its belief that its strategy of growing long-term value for shareholders can only be achieved through continued investment in research and development. CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes.

The above research and development includes CMG's proportionate share of joint research and development costs on the DRMS system development of $0.7 million and $2.7 million for the three months and year ended March 31, 2012, respectively (2011 - $0.7 million and $2.7 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

The increases of 27% and 16% in our gross spending on research and development for the three months and year ended March 31, 2012, respectively, demonstrate our continued commitment to advancement of our technology which is the focal part of our business strategy. Research and development costs, net of scientific research and experimental development ("SR&ED") credits, increased by 25% and 14% during the three months and year ended March 31, 2012, respectively, compared to the same periods of the previous fiscal year mainly due to increased employee compensation costs, investment in computing resources and facilities costs associated with a newly leased office space.

At the same time, we had an increase in SR&ED credits driven by the increases in our direct employee costs as well as the increase in the eligibility of our expenses for SR&ED credits. Part of the increased eligibility is a direct result of the completion of the grant received from Foundation CMG which had been netted against our research and development expenses for the purposes of calculating SR&ED credits. The funding commitment associated with this grant was fulfilled in the first quarter of the current fiscal year.

DEPRECIATION

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 105 91 14 15% Research and development 200 132 68 52% General and administrative 45 63 (18) -29% ---------------------------------------------------------------------------- Total depreciation 350 286 64 22% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 410 311 99 32% Research and development 583 476 107 22% General and administrative 234 250 (16) -6% ---------------------------------------------------------------------------- Total depreciation 1,227 1,037 190 18% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

The quarterly and year-to-date increases in depreciation reflect the increase in our asset base, mainly as a result of increased spending on computing resources and expansion of the office space at the end of Q3 2012.

FINANCE INCOME AND FINANCE COSTS

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Interest income 131 101 30 30% Net foreign exchange gain - - - - ---------------------------------------------------------------------------- Finance income 131 101 30 30% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Finance costs (represented by net foreign exchange loss) (220) (220) - 0% ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Interest income 472 280 192 69% Net foreign exchange gain 548 - 548 - ---------------------------------------------------------------------------- Finance income 1,020 280 740 264% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Finance costs (represented by net foreign exchange loss) - (523) 523 - ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Interest income increased in the three months and year ended March 31, 2012, compared to the same periods of the prior fiscal year, due to an 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 73% (2011 - 68%) of CMG's revenue for the year ended March 31, 2012 is denominated in US dollars, whereas only approximately 24% (2011 - 25%) of CMG's total costs are denominated in US dollars.

CDN$ to US$ At March 31 Yearly average ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 2010 0.9846 0.8966 2011 1.0290 0.9220 2012 1.0009 1.0106 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

The impact of foreign exchange movement was unchanged between the three months ended March 31, 2012 and the same period of the previous year with a $0.2 million net foreign exchange loss recorded during both periods.

CMG recorded a net foreign exchange gain of $0.5 million during the year ended March 31, 2012 compared to a net foreign exchange loss of $0.5 million recorded for the same period of the previous fiscal year.

The weakening of the Canadian dollar during the third quarter of the current fiscal year, along with the fluctuation in the exchange rates between the Canadian and the US dollars during the current fiscal year, have contributed positively to the valuation of our US-denominated working capital, hence, contributing to the year-to-date foreign exchange gain.

INCOME AND OTHER TAXES

CMG's effective tax rate for the year ended March 31, 2012 is reflected as 28.30% (2011 - 32.5%), whereas the prevailing Canadian statutory tax rate is now 26.13%. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit. In addition, during the fiscal year ended March 31, 2012, we recognized an amount related to previously unclaimed SR&ED investment tax credits.

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

Operating Profit and Net Income

For the three months ended March 31, 2012 2011 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- Total revenue 17,215 14,378 2,837 20% Operating expenses (8,022) (6,846) (1,176) 17% ---------------------------------------------------------------------------- Operating profit 9,193 7,532 1,661 22% Operating profit as a % of total revenue 53% 52% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income for the period 6,620 4,808 1,812 38% Net income for the period as a % of total revenue 38% 33% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings per share ($/share) 0.18 0.13 0.05 38% ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- Total revenue 61,034 51,827 9,207 18% Operating expenses (29,430) (26,150) (3,280) 13% ---------------------------------------------------------------------------- Operating profit 31,604 25,677 5,927 23% Operating profit as a % of total revenue 52% 50% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income for the period 23,391 17,166 6,225 36% Net income for the period as a % of total revenue 38% 33% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings per share ($/share) 0.63 0.48 0.15 31% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Operating profit as a percentage of total revenue increased to 53% and 52% for the three months and year ended March 31, 2012, respectively, compared to 52% and 50% recorded in the same periods of the previous fiscal year. The increases are a result of the increase in our total revenue driven by the growth in our software license sales, and effective management of our corporate costs.

Net income for the period as a percentage of revenue increased to 38% for the three months and year ended March 31, 2012, compared to 33% recorded in the same periods of previous fiscal year mainly as a result of the positive effect of the changes in foreign exchange rates recorded in the current fiscal year compared to the previous fiscal year and incurring less tax expenses as a result of lower withholding taxes, recovery of previously unclaimed SR&ED investment tax credits and a lower statutory tax rate.

The above results demonstrate that we have continued to maintain our profitability by focusing our efforts on increasing license sales while, at the same time, effectively controlling our operating costs. These variables will continue to be imperative to our future success.

EBITDA

For the three months ended March 31, 2012 2011 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- Net income for the period 6,620 4,808 1,812 38% Add (deduct): Depreciation 350 286 64 22% Finance income (131) (101) (30) 30% Finance costs 220 220 - 0% Income and other taxes 2,484 2,605 (121) -5% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA 9,543 7,818 1,725 22% ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income for the period 23,391 17,166 6,225 36% Add (deduct): Depreciation 1,227 1,037 190 18% Finance income (1,020) (280) (740) 264% Finance costs - 523 (523) -100% Income and other taxes 9,233 8,268 965 12% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA 32,831 26,714 6,117 23% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

EBITDA increased by 22% and 23% for the three months and year ended March 31, 2012, respectively, compared to the same periods of the previous fiscal year. Both quarterly and annual increases in EBITDA are driven by strong sales and solid control over corporate expenses, and are consistent with the increases in operating profit.

Liquidity and Capital Resources

For the three months ended March 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Cash, beginning of period 47,615 38,012 9,603 25% Cash flow from (used in) Operating activities 11,512 7,051 4,461 63% Financing activities (3,318) (3,055) (263) 9% Investing activities (435) (255) (180) 71% ---------------------------------------------------------------------------- Cash, end of period 55,374 41,753 13,621 33% ---------------------------------------------------------------------------- For the year ended March 31, 2012 2011 $ change % change ($ thousands) ----------------------------------------------------------------------------
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