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Computer Modelling Group Announces Second Quarter Results


Computer Modelling Group Announces Second Quarter Results

CALGARY, ALBERTA -- (Marketwired) -- 11/13/13 -- Computer Modelling Group Ltd. ("CMG" or the "Company") (TSX:CMG) is very pleased to report our second quarter results for the three and six months ended September 30, 2013.


 
SECOND QUARTER HIGHLIGHTS                                                   
                                                                            
For the three months ended                                                  
 September 30,                                                              
($ thousands, except per share                                              
 data)                                  2013      2012  $ change   % change 
----------------------------------------------------------------------------
Annuity/maintenance software                                                
 licenses                             13,153    12,012     1,141          9%
Perpetual software licenses            1,829     2,671      (842)       -32%
Total revenue                         17,184    16,073     1,111          7%
Operating profit                       8,296     8,032       264          3%
Net income                             5,608     5,361       247          5%
Earnings per share - basic              0.15      0.14      0.01          7%
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September                                          
 30,                                                                        
($ thousands, except per share                                              
 data)                                  2013      2012  $ change   % change 
----------------------------------------------------------------------------
Annuity/maintenance software                                                
 licenses                             27,111    25,192     1,919          8%
Perpetual software licenses            4,160     4,741      (581)       -12%
Total revenue                         35,300    32,539     2,761          8%
Operating profit                      17,646    16,137     1,509          9%
Net income                            12,689    11,451     1,238         11%
Earnings per share - basic              0.33      0.31      0.02          6%
----------------------------------------------------------------------------

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 12, 2013, should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of the Company for the three and six months ended September 30, 2013 and the audited consolidated financial statements and MD&A for the years ended March 31, 2013 and 2012 contained in the 2013 Annual Report for CMG. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars and rounded to the nearest thousand.

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 the Company's partners
    in the DRMS project and it being completed in a timely manner 
--  Ability to enter into additional software license agreements 
--  Ability to continue current research and new product development 
--  Ability to recruit and retain qualified staff 

Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties, only some of which are described herein. Many factors could cause the Company's actual results, performance or achievements, or future events or developments, to differ materially from those expressed or implied by the forward-looking information including, without limitation, the following factors which are described in the MD&A of CMG's 2013 Annual Report under the heading "Business Risks":


 
--  Economic conditions in the oil and gas industry 
--  Reliance on key clients 
--  Foreign exchange 
--  Economic and political risks in countries where the Company currently
    does or proposes to do business 
--  Increased competition 
--  Reliance on employees with specialized skills or knowledge 
--  Protection of proprietary rights 

Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievement may vary materially from those expressed or implied by the forward-looking information contained in this MD&A. These factors should be carefully considered and readers are cautioned not to place undue reliance on forward-looking information, which speaks only as of the date of this MD&A. All subsequent forward-looking information attributable to the Company herein is expressly qualified in its entirety by the cautionary statements contained in or referred to herein. The Company does not undertake any obligation to release publicly any revisions to forward-looking information contained in this MD&A to reflect events or circumstances that occur after the date of this MD&A or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

NON-IFRS FINANCIAL MEASURES

This MD&A includes certain measures which have not been prepared in accordance with IFRS such as "EBITDA", "direct employee costs" and "other corporate costs." Since these measures do not have a standard meaning prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other issuers. Management believes that these indicators nevertheless provide useful measures in evaluating the Company's performance.

"Direct employee costs" include salaries, bonuses, stock-based compensation, benefits, commission expenses, and professional development. "Other corporate costs" include facility-related expenses, corporate reporting, professional services, marketing and promotion, computer expenses, travel, and other office-related expenses. Direct employee costs and other corporate costs should not be considered an alternative to total operating expenses as determined in accordance with IFRS. People-related costs represent the Company's largest area of expenditure; hence, management considers highlighting separately corporate and people-related costs to be important in evaluating the quantitative impact of cost management of these two major expenditure pools. See "Expenses" heading for a reconciliation of direct employee costs and other corporate costs to total operating expenses.

"EBITDA" refers to net income before adjusting for depreciation expense, finance income, finance costs, and income and other taxes. EBITDA should not be construed as an alternative to net income as determined by IFRS. The Company believes that EBITDA is useful supplemental information as it provides an indication of the results generated by the Company's main business activities prior to consideration of how those activities are amortized, financed or taxed. See "EBITDA" heading for a reconciliation of EBITDA to net income.

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, Dubai, Bogota and Kuala Lumpur. CMG's Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG".


 
QUARTERLY PERFORMANCE                                                       
                                                                            
                    Fiscal 2012(1)        Fiscal 2013(2)      Fiscal 2014(3)
($ thousands, unless                                                        
 otherwise stated)       Q3     Q4     Q1     Q2     Q3     Q4     Q1     Q2
----------------------------------------------------------------------------
Annuity/maintenance                                                         
 licenses            12,056 12,497 13,179 12,012 14,004 15,359 13,958 13,153
Perpetual licenses    2,321  3,416  2,070  2,671  1,365  2,300  2,331  1,829
----------------------------------------------------------------------------
Software licenses    14,377 15,913 15,249 14,683 15,369 17,659 16,289 14,982
Professional                                                                
 services             1,521  1,302  1,216  1,390  1,433  1,620  1,827  2,202
----------------------------------------------------------------------------
Total revenue        15,898 17,215 16,465 16,073 16,802 19,279 18,116 17,184
Operating profit      8,093  9,193  8,105  8,032  8,276  9,877  9,350  8,296
Operating profit (%)     51     53     49     50     49     51     52     48
EBITDA(4)             8,414  9,543  8,423  8,425  8,687 10,294  9,725  8,675
Profit before income                                                        
 and other taxes      8,184  9,104  8,577  7,703  8,556 10,314  9,999  8,133
Income and other                                                            
 taxes                2,394  2,484  2,487  2,342  2,437  3,061  2,918  2,525
Net income for the                                                          
 period               5,790  6,620  6,090  5,361  6,119  7,253  7,081  5,608
Cash dividends                                                              
 declared and paid    4,079  4,848  9,736  6,020  6,050  6,099  8,841  6,994
----------------------------------------------------------------------------
Per share amounts -                                                         
 ($/share)                                                                  
Earnings per share -                                                        
 basic                 0.16   0.18   0.16   0.14   0.16   0.19   0.19   0.15
Earnings per share -                                                        
 diluted               0.15   0.17   0.16   0.14   0.16   0.19   0.18   0.14
Cash dividends                                                              
 declared and paid     0.11   0.13   0.26   0.16   0.16   0.16   0.23   0.18
----------------------------------------------------------------------------
(1) Q3 and Q4 of fiscal 2012 include $2.6 million and $2.7 million,         
    respectively, in revenue that pertains to usage of CMG's products in    
    prior quarters.                                                         
(2) Q1, Q2, Q3 and Q4 of fiscal 2013 include $2.1 million, $0.2 million,    
    $1.8 million and $2.6 million, respectively, in revenue that pertains to
    usage of CMG's products in prior quarters.                              
(3) Q1 and Q2 of fiscal 2014 include $1.2 million and $0.2 million,         
    respectively, in revenue that pertains to usage of CMG's products in    
    prior quarters.                                                         
(4) 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".                                          

Highlights

During the six months ended September 30, 2013, as compared to the same period of the prior fiscal year, CMG:


 
--  Increased annuity/maintenance revenue by 8% 
--  Increased operating profit by 9% 
--  Increased spending on research and development by 16% 
--  Increased EBITDA by 9% 
--  Realized basic earnings per share of $0.33, representing a 6% increase 
 
Revenue                                                                     
                                                                            
For the three months ended September 30,                           $      % 
($ thousands)                                   2013    2012  change change 
----------------------------------------------------------------------------
Software licenses                             14,982  14,683     299      2%
Professional services                          2,202   1,390     812     58%
----------------------------------------------------------------------------
Total revenue                                 17,184  16,073   1,111      7%
----------------------------------------------------------------------------
                                                                            
Software license revenue - % of total revenue     87%     91%               
Professional services - % of total revenue        13%      9%               
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                             $      % 
($ thousands)                                   2013    2012  change change 
----------------------------------------------------------------------------
Software licenses                             31,271  29,933   1,338      4%
Professional services                          4,029   2,606   1,423     55%
----------------------------------------------------------------------------
Total revenue                                 35,300  32,539   2,761      8%
----------------------------------------------------------------------------
                                                                            
Software license revenue - % of total revenue     89%     92%               
Professional services - % of total revenue        11%      8%               
----------------------------------------------------------------------------

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

Total revenue increased by 7% for the three months ended September 30, 2013, compared to the same period of the previous fiscal year, primarily due to an increase in professional services.

Total revenue increased by 8% for the six months ended September 30, 2013, compared to the same period of the previous fiscal years, as a result of increases in both software license revenue and professional services.

SOFTWARE LICENSE REVENUE

Software license revenue is made up of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less and perpetual software license sales, whereby the customer purchases the 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 September 30,                          $       % 
($ thousands)                                  2013    2012  change  change 
----------------------------------------------------------------------------
Annuity/maintenance licenses                 13,153  12,012   1,141       9%
Perpetual licenses                            1,829   2,671    (842)    -32%
----------------------------------------------------------------------------
Total software license revenue               14,982  14,683     299       2%
----------------------------------------------------------------------------
                                                                            
Annuity/maintenance as a % of total software                                
 license revenue                                 88%     82%                
Perpetual as a % of total software license                                  
 revenue                                         12%     18%                
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                            $       % 
($ thousands)                                  2013    2012  change  change 
----------------------------------------------------------------------------
Annuity/maintenance licenses                 27,111  25,192   1,919       8%
Perpetual licenses                            4,160   4,741    (581)    -12%
----------------------------------------------------------------------------
Total software license revenue               31,271  29,933   1,338       4%
----------------------------------------------------------------------------
                                                                            
Annuity/maintenance as a % of total software                                
 license revenue                                 87%     84%                
Perpetual as a % of total software license                                  
 revenue                                         13%     16%                
----------------------------------------------------------------------------

Total software license revenue grew by 2% and 4% in the three and six months ended September 30, 2013, respectively, compared to the same periods of the previous fiscal year due to increases in the annuity/maintenance revenue offset by decreases in perpetual license sales.

CMG's annuity/maintenance license revenue increased by 9% and 8% during the three and six months ended September 30, 2013, respectively, compared to the same periods of the previous year. This increase was driven by annuity sales to new and existing customers as well as an increase in maintenance revenue tied to perpetual sales generated in the previous fiscal year.

During the three months ended September 30, 2013, all of our regions experienced growth in annuity/maintenance revenue with the exception of Canada which remained flat. All of our regions, except South America, experienced growth in annuity/maintenance revenue during the six months ended September 30, 2013, but the most significant growth during this period came from the US region.

Our annuity/maintenance revenue is impacted by the revenue recognition from a long-standing customer for which revenue recognition criteria are fulfilled only at the time of the receipt of funds (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). The variability of the amounts of the payments received and the timing of such payments may skew the comparison of the recorded annuity/maintenance revenue amounts between periods. During the current quarter no payments have been received or recorded for this arrangement which is consistent with the same quarter of the previous year. To provide a normalized comparison, if we were to remove revenue from this one customer from the year-to-date recorded revenue, we will notice that the annuity/maintenance revenue increased by 12%, instead of 8% as compared to the same period of the previous year. Given our long-term relationship with this customer, and their on-going use of our licenses, we expect to continue to receive payments from them; however, the amount and timing are uncertain and will continue to be recorded on a cash basis, which may introduce some variability in our reported quarterly annuity/maintenance revenue results.

We can observe from the table below that the exchange rates between the US and Canadian dollars during the three and six months ended September 30, 2013, compared to the same periods of the previous fiscal year, had only a slight positive impact on our reported annuity/maintenance revenue.

Perpetual license sales decreased by 32% for the three months ended September 30, 2013, compared to the same period of the previous fiscal year, due to decreases in Canada, the US and the Eastern Hemisphere offset by growth in perpetual sales generated by South America.

Perpetual license sales decreased by 12% for the six months ended September 30, 2013, compared to the same period of the previous fiscal year, due to decreases in Canada and the US offset by growth in perpetual sales generated by the Eastern Hemisphere.

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 expect to achieve a certain level of aggregate perpetual sales on an annual basis, we expect to observe fluctuations in the quarterly perpetual revenue amounts throughout the fiscal year.

We can observe from the table below that the exchange rates between the US and Canadian dollars during the three and six months ended September 30, 2013, compared to the same periods of the previous fiscal year, had only a slight positive impact on our reported perpetual license revenue.

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,                            $      %
($ thousands)                                     2013    2012 change change
----------------------------------------------------------------------------
US dollar annuity/maintenance license                                       
 sales                                   US$     8,767   6,938  1,829    26%
Weighted average conversion rate                 1.012   1.005              
----------------------------------------------------------------------------
Canadian dollar equivalent               CDN$    8,874   6,972  1,902    27%
----------------------------------------------------------------------------
                                                                            
US dollar perpetual license sales        US$     1,750   1,905  (155)    -8%
Weighted average conversion rate                 1.045   1.007              
----------------------------------------------------------------------------
Canadian dollar equivalent               CDN$    1,829   1,918   (89)    -5%
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                              $      %
($ thousands)                                     2013    2012 change change
----------------------------------------------------------------------------
US dollar annuity/maintenance license                                       
 sales                                   US$    18,108  15,576  2,532    16%
Weighted average conversion rate                 1.010   1.001              
----------------------------------------------------------------------------
Canadian dollar equivalent               CDN$   18,295  15,598  2,697    17%
----------------------------------------------------------------------------
                                                                            
US dollar perpetual license sales        US$     3,761   3,251    510    16%
Weighted average conversion rate                 1.029   1.002              
----------------------------------------------------------------------------
Canadian dollar equivalent               CDN$    3,869   3,257    612    19%
----------------------------------------------------------------------------
                                                                            
                                                                            
The following table quantifies the foreign exchange impact on our software  
 license revenue:                                                           
                                                                            
For the three months ended September           Incremental   Foreign        
 30, 2013                              Q2 2013     License  Exchange Q2 2014
($ thousands)                          Balance      Growth    Impact Balance
----------------------------------------------------------------------------
Annuity/maintenance license sales       12,012       1,077        64  13,153
Perpetual license sales                  2,671        (910)       68   1,829
----------------------------------------------------------------------------
Total software license revenue          14,683         167       132  14,982
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,         Incremental   Foreign        
 2013                                  Q2 2013     License  Exchange Q2 2014
($ thousands)                          Balance      Growth    Impact Balance
----------------------------------------------------------------------------
Annuity/maintenance license sales       25,192       1,758       161  27,111
Perpetual license sales                  4,741        (682)      101   4,160
----------------------------------------------------------------------------
Total software license revenue          29,933       1,076       262  31,271
----------------------------------------------------------------------------
                                                                            
                                                                            
REVENUE BY GEOGRAPHIC SEGMENT                                               
                                                                            
For the three months ended September 30,                          $       % 
($ thousands)                                   2013    2012 change  change 
----------------------------------------------------------------------------
Annuity/maintenance revenue                                                 
  Canada                                       5,452   5,473    (21)      0%
  United States                                2,957   2,549    408      16%
  South America                                1,566   1,172    394      34%
  Eastern Hemisphere(1)                        3,178   2,818    360      13%
----------------------------------------------------------------------------
                                              13,153  12,012  1,141       9%
----------------------------------------------------------------------------
Perpetual revenue                                                           
  Canada                                           -     753   (753)   -100%
  United States                                    -     258   (258)   -100%
  South America                                  414       -    414     100%
  Eastern Hemisphere                           1,415   1,660   (245)    -15%
----------------------------------------------------------------------------
                                               1,829   2,671   (842)    -32%
----------------------------------------------------------------------------
Total software license revenue                                              
  Canada                                       5,452   6,226   (774)    -12%
  United States                                2,957   2,807    150       5%
  South America                                1,980   1,172    808      69%
  Eastern Hemisphere                           4,593   4,478    115       3%
----------------------------------------------------------------------------
                                              14,982  14,683    299       2%
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                            $       % 
($ thousands)                                   2013    2012 change  change 
----------------------------------------------------------------------------
Annuity/maintenance revenue                                                 
  Canada                                      10,882  10,413    469       5%
  United States                                6,121   4,942  1,179      24%
  South America                                3,898   4,334   (436)    -10%
  Eastern Hemisphere(1)                        6,210   5,503    707      13%
----------------------------------------------------------------------------
                                              27,111  25,192  1,919       8%
----------------------------------------------------------------------------
Perpetual revenue                                                           
  Canada                                         291   1,314 (1,023)    -78%
  United States                                  427     662   (235)    -35%
  South America                                  490     483      7       1%
  Eastern Hemisphere                           2,952   2,282    670      29%
----------------------------------------------------------------------------
                                               4,160   4,741   (581)    -12%
----------------------------------------------------------------------------
Total software license revenue                                              
  Canada                                      11,173  11,727   (554)     -5%
  United States                                6,548   5,604    944      17%
  South America                                4,388   4,817   (429)     -9%
  Eastern Hemisphere                           9,162   7,785  1,377      18%
----------------------------------------------------------------------------
                                              31,271  29,933  1,338       4%
----------------------------------------------------------------------------
(1) Includes Europe, Africa, Asia and Australia.                            

During the three months ended September 30, 2013, on a geographic basis, total software license sales increased across all regions with the exception of the Canadian market which experienced an overall decrease of 12%, compared to the same period of the previous fiscal year.

During the six months ended September 30, 2013, on a geographic basis, total software license sales increased by 17% and 18% in the US and South America, respectively, while Canada and South America experienced decreases of 5% and 9%, respectively.

The Canadian market (representing 36% of year-to-date total software revenue) remained flat in annuity/maintenance revenue during the three months ended September 30, 2013. Even though we have experienced revenue growth during the quarter due to increased license usage by our existing large clients, and due to the addition of several new accounts, these increases have been offset due to a few clients cancelling their projects or experiencing financial difficulties which has reduced or eliminated their need for licenses. However, our diversified geographic profile enables us to take advantage of opportunities internationally which offsets the impact of market softening in any particular region. On a year-to-date basis, annuity/maintenance revenue in Canada experienced a 5% growth, compared to the same period of the previous year, and our expectation is that our existing and, in particular, our large clients will continue renewing and increasing their usage of our products. Perpetual sales were lower during the three and six months ended September 30, 2013, compared to the same period of the previous year, due to the fluctuations inherent in the perpetual revenue stream. Historically, the Canadian market has been strong in generating recurring annuity/maintenance revenue as evidenced by the quarterly year-over-year increases of 37%, 37%, 38% and 10% recorded during Q2 2013, Q3 2013, Q4 2013, and Q1 2014, respectively. During the second quarter of the current fiscal year, we recorded comparable revenue to the second quarter of the previous fiscal year due to the reasons described above.

The US market (representing 21% of year-to-date total software revenue) experienced significant growth in annuity/maintenance license sales, in comparison to other regions, during the three and six months ended September 30, 2013, compared to the same periods of the previous fiscal year, driven by sales to new and existing customers. Perpetual license sales were lower during the three and six months ended September 30, 2013, compared to the same period of the previous year. We continue to experience successive increases in the annuity/maintenance license sales in the US as evidenced by the quarterly year-over-year increases of 24%, 32%, 20% and 32% recorded during Q2 2013, Q3 2013, Q4 2013, and Q1 2014 respectively. This double-digit growth trend has continued into the second quarter of the current fiscal year with the recorded increase of 16%.

South America (representing 14% of year-to-date total software revenue) experienced an increase of 34% in annuity/maintenance license sales during the three months ended September 30, 2013, compared to the same period of the previous fiscal year, mainly due to increased sales to existing clients. South America experienced a decrease of 10% in annuity/maintenance license sales during the six months ended September 30, 2013, compared to the same period of the previous fiscal year; however, the decrease was caused by the variability of the amounts recorded from a customer for which revenue is recognized only when cash is received (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). To provide a normalized comparison, if we were to exclude the amounts received from this customer from the year-to-date annuity/maintenance revenue of the current and the previous fiscal years, we would notice that the annuity/maintenance revenue grew by 17% in the six months ended September 30, 2013. The South American region also experienced an increase in perpetual sales during the second quarter of the current year compared to the second quarter of the previous year while perpetual license sales remained relatively flat for the six months ended September 30, 2013, as compared to the same period of the previous fiscal year.

Eastern Hemisphere (representing 29% of the year-to-date total software revenue) grew annuity/maintenance license sales by 13% during both the three and six months ended September 30, 2013, compared to the same periods of the previous fiscal year, due to increased license usage by our significant customers in the region. Compared to other regions, Eastern Hemisphere achieved the highest growth in perpetual license revenue during the six months ended September 30, 2013, compared to the same period of the previous year.

Movements in perpetual sales across 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 experience growth. We will continue to focus our efforts on increasing our license sales to both existing and new customers, and we will endeavor to continue expanding our market share globally.

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.

QUARTERLY SOFTWARE LICENSE REVENUE ($THOUSANDS)

To view accompanying graph, visit the following link: http://media3.marketwire.com/docs/CMG-Q2-2013-License-Revenue.pdf.


 
DEFERRED REVENUE                                                            
                                                                            
                                                                   $      % 
($ thousands)                                    2013    2012 change change 
----------------------------------------------------------------------------
Deferred revenue at:                                                        
March 31                                       25,289  21,693  3,596     17%
June 30                                        22,014  18,779  3,235     17%
September 30                                   19,346  18,241  1,105      6%
----------------------------------------------------------------------------

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 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 which explains the decrease in deferred revenue balance at the end of the first quarter and second quarter (June 30 and September 30, respectively) compared to the fiscal year-end (March 31).

Deferred revenue at September 30, 2013 increased by 6% compared to the same period of the prior fiscal year. This increase is lower than the increases of 17% recorded in the previous two quarters due to the timing of the renewal of one significant contract. In the previous fiscal year, this contract was renewed and included in our second quarter's deferred revenue balance, whereas in the current fiscal year, the renewal is expected to be completed during the third quarter. To provide a normalized comparison, if we were to include this renewal in the current quarter's deferred revenue balance, we would notice that the deferred revenue would have increased by 12% at September 30, 2013 compared to the same period of the previous fiscal year.

PROFESSIONAL SERVICES REVENUE

CMG recorded professional services revenue of $2.2 million for the three months ended September 30, 2013, representing an increase of $0.8 million, compared to the same period of the previous fiscal year, due to both an increase in project activities by our clients and due to entering into a large consulting agreement with one of our clients which, we expect, will contribute to the professional services revenue during the current fiscal year. Professional services for the six months ended September 30, 2013 amounted to $4.0 million, representing an increase of $1.4 million, compared to the same period of the previous fiscal year, which again resulted from entering into a large consulting agreement with one of our clients in the current fiscal year.

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.


 
Expenses                                                                    
                                                                            
For the three months ended September 30,                          $       % 
($ thousands)                                   2013    2012 change  change 
----------------------------------------------------------------------------
Sales, marketing and professional services     3,837   3,592    245       7%
Research and development                       3,418   3,028    390      13%
General and administrative                     1,633   1,421    212      15%
----------------------------------------------------------------------------
Total operating expenses                       8,888   8,041    847      11%
----------------------------------------------------------------------------
Direct employee costs(1)                       7,188   6,491    697      11%
Other corporate costs                          1,700   1,550    150      10%
----------------------------------------------------------------------------
                                               8,888   8,041    847      11%
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                            $       % 
($ thousands)                                   2013    2012 change  change 
----------------------------------------------------------------------------
Sales, marketing and professional services     7,486   7,555    (69)     -1%
Research and development                       6,890   5,925    965      16%
General and administrative                     3,278   2,922    356      12%
----------------------------------------------------------------------------
Total operating expenses                      17,654  16,402  1,252       8%
----------------------------------------------------------------------------
Direct employee costs(1)                      14,308  13,086  1,222       9%
Other corporate costs                          3,346   3,316     30       1%
----------------------------------------------------------------------------
                                              17,654  16,402  1,252       8%
----------------------------------------------------------------------------
(1) Includes salaries, bonuses, stock-based compensation, benefits and      
    commissions.                                                            

CMG's total operating expenses increased by 11% and 8% for the three and six months ended September 30, 2013, respectively, compared to the same periods of the previous fiscal year, due to increases in both direct employee costs and other corporate costs.

DIRECT EMPLOYEE COSTS

As a technology company, CMG's largest area of expenditure is for its people. Approximately 81% of the total operating expenses in the six months ended September 30, 2013 related to staff costs, compared to 80% 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 September 30, 2013, CMG's staff complement was 185 employees and consultants, up from 167 employees as at September 30, 2012. Direct employee costs increased during the three and six months ended September 30, 2013, compared to the same periods of the previous fiscal year, due to staff additions, increased levels of compensation, and related benefits.

OTHER CORPORATE COSTS

Other corporate costs increased by 10% for the three months ended September 30, 2013, compared to the same period of the previous fiscal year, mainly due to increased computing costs.

Other corporate costs increased by 1% for the six months ended September 30, 2013, compared with the same period of the previous fiscal year, mainly due to increased computing costs in the six months ended September 30, 2013 offset by the inclusion of the costs associated with CMG's biennial technical symposium in the six months ended September 30, 2012.


 
RESEARCH AND DEVELOPMENT                                                    
                                                                            
For the three months ended September 30,                          $       % 
($ thousands)                                 2013     2012  change  change 
----------------------------------------------------------------------------
Research and development (gross)             3,935    3,487     448      13%
SR&ED credits                                 (517)    (459)    (58)     13%
----------------------------------------------------------------------------
Research and development                     3,418    3,028     390      13%
----------------------------------------------------------------------------
Research and development as a % of total                                    
 revenue                                        20%      19%                
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                            $       % 
($ thousands)                                 2013     2012  change  change 
----------------------------------------------------------------------------
Research and development (gross)             7,955    6,872   1,083      16%
SR&ED credits                               (1,065)    (947)   (118)     12%
----------------------------------------------------------------------------
Research and development                     6,890    5,925     965      16%
----------------------------------------------------------------------------
Research and development as a % of total                                    
 revenue                                        20%      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 costs include CMG's share of joint research and development costs associated with the DRMS project of $1.0 million and $2.1 million for the three and six months ended September 30, 2013, respectively (2012 - $0.7 million and $1.5 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

The increases of 13% and 16% in our gross spending on research and development for the three and six months ended September 30, 2013, 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 research and experimental development ("SR&ED") credits, increased by 13% and 16% during the three and six months ended September 30, 2013, respectively, compared to the same periods of the previous fiscal year, due to increased employee compensation costs and costs associated with computing resources.

We also had an increase in SR&ED credits driven mainly by the increases in our direct employee costs as well as the increase in hours spent on projects eligible for SR&ED credits.


 
DEPRECIATION                                                                
                                                                            
For the three months ended September 30,                          $       % 
($ thousands)                                    2013   2012 change  change 
----------------------------------------------------------------------------
Depreciation of property and equipment,                                     
 allocated to:                                                              
  Sales, marketing and professional services      103    119    (16)    -13%
  Research and development                        226    226      -       0%
  General and administrative                       50     48      2       4%
----------------------------------------------------------------------------
Total depreciation                                379    393    (14)     -4%
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                            $       % 
($ thousands)                                    2013   2012 change  change 
----------------------------------------------------------------------------
Depreciation of property and equipment,                                     
 allocated to:                                                              
  Sales, marketing and professional services      203    217    (14)     -6%
  Research and development                        452    406     46      11%
  General and administrative                       99     88     11      13%
----------------------------------------------------------------------------
Total depreciation                                754    711     43       6%
----------------------------------------------------------------------------

Depreciation in the three and six months ended September 30, 2013 was relatively flat as compared to the same periods in the previous fiscal year.


 
Finance Income and Costs                                                    
                                                                            
For the three months ended September 30,                           $      % 
($ thousands)                                   2013    2012  change change 
----------------------------------------------------------------------------
Interest income                                  162     131      31     24%
----------------------------------------------------------------------------
Finance income                                   162     131      31     24%
----------------------------------------------------------------------------
                                                                            
Net foreign exchange loss                       (325)   (460)    135    -29%
----------------------------------------------------------------------------
Finance costs                                   (325)   (460)    135    -29%
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                             $      % 
($ thousands)                                   2013    2012  change change 
----------------------------------------------------------------------------
Interest income                                  319     276      43     16%
Net foreign exchange gain                        167       -     167    100%
----------------------------------------------------------------------------
Total finance income                             486     276     210     76%
----------------------------------------------------------------------------
                                                                            
Net foreign exchange loss                          -    (133)    133   -100%
----------------------------------------------------------------------------
Finance costs                                      -    (133)    133   -100%
----------------------------------------------------------------------------

Interest income increased in the three and six months ended September 30, 2013, compared to the same periods of the prior fiscal year, mainly due to investing larger cash balances.

CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 71% (2012 - 65%) of CMG's revenue for the six months ended September 30, 2013 is denominated in US dollars, whereas only approximately 25% (2012 - 23%) of CMG's total costs are denominated in US dollars.


 
CDN$ to US$     At June 30     At September 30    Six month trailing average
----------------------------------------------------------------------------
2011                1.0370              0.9626                        1.0252
2012                0.9813              1.0166                        0.9977
2013                0.9513              0.9723                        0.9670
----------------------------------------------------------------------------

CMG recorded a net foreign exchange loss of $0.3 million for the three months ended September 30, 2013, compared to a $0.5 million foreign exchange loss recorded in the same period of the previous fiscal year, due to a strengthening of the Canadian dollar during the quarter which contributed negatively to the valuation of our US-denominated working capital.

CMG recorded a net foreign exchange gain of $0.2 million for the six months ended September 30, 2013, compared to a $0.1 million foreign exchange loss recorded in the same period of the previous fiscal year, as the net foreign exchange loss recorded in the three months ended September 30, 2013 was offset by the $0.5 million foreign exchange gain recorded in the three months ended June 30, 2013.

Income and Other Taxes

CMG's effective tax rate for the six months ended September 30, 2013 is reflected as 30.0% (2012 - 29.7%), whereas the prevailing Canadian statutory tax rate is now 25.0%. This difference is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.

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


 
Operating Profit and Net Income                                             
                                                                            
For the three months ended September 30,                          $       % 
($ thousands, except per share amounts)       2013     2012  change  change 
----------------------------------------------------------------------------
Total revenue                               17,184   16,073   1,111       7%
Operating expenses                          (8,888)  (8,041)   (847)     11%
----------------------------------------------------------------------------
Operating profit                             8,296    8,032     264       3%
Operating profit as a % of total revenue        48%      50%                
----------------------------------------------------------------------------
Net income for the period                    5,608    5,361     247       5%
Net income for the period as a % of total                                   
 revenue                                        33%      33%                
----------------------------------------------------------------------------
Basic earnings per share ($/share)            0.15     0.14    0.01       7%
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                            $       % 
($ thousands, except per share amounts)       2013     2012  change  change 
----------------------------------------------------------------------------
Total revenue                               35,300   32,539   2,761       8%
Operating expenses                         (17,654) (16,402) (1,252)      8%
----------------------------------------------------------------------------
Operating profit                            17,646   16,137   1,509       9%
Operating profit as a % of total revenue        50%      50%                
----------------------------------------------------------------------------
Net income for the period                   12,689   11,451   1,238      11%
Net income for the period as a % of total                                   
 revenue                                        36%      35%                
----------------------------------------------------------------------------
Earnings per share ($/share)                  0.33     0.31    0.02       6%
----------------------------------------------------------------------------

Operating profit as a percentage of total revenue for the three months ended September 30, 2013 was at 48% compared to 50% recorded in the same period of the previous fiscal year. While our total revenue grew by 7% during this period of time, our operating expenses grew by 11%, having a negative impact on our operating profit. The slight decrease in operating profit as a percentage of total revenue is due to the fluctuations inherent in our perpetual revenue stream given that more perpetual license revenue was recorded during the second quarter of the previous year, compared to the same quarter of the current year.

Operating profit as a percentage of revenue for the six months ended September 30, 2013 remained flat at 50% as compared to the same period of the previous fiscal year.

Net income for the period as a percentage of revenue was consistent at 33% for the three months ended September 30, 2013, compared to the same period of the previous fiscal year.

Net income for the period as a percentage of revenue increased to 36% for the six months ended September 30, 2013, compared to 35% for the same period of the previous fiscal year.

We have continued to maintain our profitability by focusing our efforts on increasing effectively controlling our operating costs. Managing these variables will continue to license sales while, at the same time, be imperative to our future success.


 
EBITDA                                                                      
                                                                            
For the three months ended September 30,                          $       % 
($ thousands)                                 2013     2012  change  change 
----------------------------------------------------------------------------
Net income for the period                    5,608    5,361     247       5%
Add (deduct):                                                               
  Depreciation                                 379      393     (14)     -4%
  Finance income                              (162)    (131)    (31)     24%
  Finance costs                                325      460    (135)    -29%
  Income and other taxes                     2,525    2,342     183       8%
----------------------------------------------------------------------------
EBITDA                                       8,675    8,425     250       3%
----------------------------------------------------------------------------
EBITDA as a % of total revenue                  50%      52%                
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                            $       % 
($ thousands)                                 2013     2012  change  change 
----------------------------------------------------------------------------
Net income for the period                   12,689   11,451   1,238      11%
Add (deduct):                                                               
  Depreciation                                 754      711      43       6%
  Finance income                              (486)    (276)   (210)     76%
  Finance costs                                  -      133    (133)   -100%
  Income and other taxes                     5,443    4,829     614      13%
----------------------------------------------------------------------------
EBITDA                                      18,400   16,848   1,552       9%
----------------------------------------------------------------------------
EBITDA as a % of total revenue                  52%      52%                
----------------------------------------------------------------------------

EBITDA increased by 3% and 9% for the three and six months ended September 30, 2013, compared to the same periods of the previous fiscal year. This increase provides further indication of our ability to keep growing our license sales while effectively managing costs in relation to this base.

EBITDA as a percent of total revenue for the three months ended September 30, 2013 decreased to 50% as compared to 52% recorded in the same period of the previous fiscal year. This slight decrease is due to the fluctuations inherent in our perpetual revenue stream.

EBITDA as a percent of total revenue for the six months ended September 30, 2013 remained consistent with the same period of the previous fiscal year at 52%.


 
Liquidity and Capital Resources                                             
                                                                            
For the three months ended September 30,                          $       % 
($ thousands)                                 2013     2012  change  change 
----------------------------------------------------------------------------
Cash, beginning of period                   63,112   51,535  11,577      22%
Cash flow from (used in):                                                   
  Operating activities                       2,903    3,537    (634)    -18%
  Financing activities                      (2,242)  (3,456)  1,214     -35%
  Investing activities                         (28)    (922)   
 894     -97%
----------------------------------------------------------------------------
Cash, end of period                         63,745   50,694  13,051      26%
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                            $       % 
($ thousands)                                 2013     2012  change  change 
----------------------------------------------------------------------------
Cash, beginning of period                   59,419   55,374   4,045       7%
Cash flow from (used in):                                                   
  Operating activities                      12,740   10,198   2,542      25%
  Financing activities                      (8,161) (13,519)  5,358     -40%
  Investing activities                        (253)  (1,359)  1,106     -
81%
----------------------------------------------------------------------------
Cash, end of period                         63,745   50,694  13,051      26%
----------------------------------------------------------------------------

OPERATING ACTIVITIES

Cash flow generated from operating activities decreased by $0.6 million in the three months ended September 30, 2013, compared to the same period of last year, mainly as a result of an increase in the deferred revenue balance offset by the positive effect on the timing difference of when trade payables and accrued liabilities are recorded and paid.

Cash flow generated from operating activities increased by $2.5 million in the six months ended September 30, 2013, compared to the same period of last year, mainly due to the increase in net income for the period, the timing difference of when the sales are made and when the resulting receivables are collected, the positive effect on the timing difference of when income taxes are recorded and paid offset by the change in trade payables and accrued liabilities and deferred revenue balances.

FINANCING ACTIVITIES

Cash used in financing activities during the three and six months ended September 30, 2013 decreased by $1.2 million and $5.4 million, respectively, compared to the same period of last year, due to receiving higher proceeds from the issuance of Common Shares. In addition, in the first quarter of the previous fiscal year, CMG spent $1.6 million on buying back Common Shares.

During the six months ended September 30, 2013, CMG employees and directors exercised options to purchase 755,000 Common Shares, which resulted in cash proceeds of $7.7 million (2012 - 459,000 options exercised to purchase Common Shares which resulted in cash proceeds of $3.8 million).

In the six months ended September 30, 2013, CMG paid $15.8 million in dividends, representing the following quarterly dividends:


 
($ per share)                                                   Q1        Q2
----------------------------------------------------------------------------
Dividends declared and paid                                   0.18      0.18
Special dividend declared and paid                            0.05         -
----------------------------------------------------------------------------
Total dividends declared and paid                             0.23      0.18
----------------------------------------------------------------------------

In the six months September 30, 2012, CMG paid $15.8 million in dividends, representing the following quarterly dividends:


 
($ per share)                                                   Q1        Q2
----------------------------------------------------------------------------
Dividends declared and paid                                   0.16      0.16
Special dividend declared and paid                            0.10         -
----------------------------------------------------------------------------
Total dividends declared and paid                             0.26      0.16
----------------------------------------------------------------------------

On November 12, 2013, CMG announced the payment of a quarterly dividend of $0.18 per share on CMG's Common Shares. The dividend will be paid on December 13, 2013 to shareholders of record at the close of business on December 6, 2013.

Over the past 10 years, we have consistently raised our total annual dividend and paid out a special dividend at the end of each fiscal year as determined by our corporate performance. In recognition of the importance of a more regular income stream to our shareholders, as reported in fiscal 2012 Management's Discussion and Analysis, we decided to increase the relative proportion of dividends paid quarterly and lower the amount paid as a special annual dividend beginning in fiscal 2013. The above table demonstrates this increase in the regular quarterly dividend which amounted to $0.18 per share in Q1 and Q2 of fiscal 201 4 compared to $0.16 per share in Q1 and Q2 of fiscal 2013.

Based on our expectation of solid profitability and cash-generating ability driven by the predictability of our software revenue base and effective management of costs, we are cautiously optimistic that the company is well positioned for future growth which will enable us to continue to pay quarterly dividends.

On April 16, 2012, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on April 18, 2012 to purchase for cancellation up to 3,416,000 of its Common Shares. During the year ended March 31, 2013, a total of 91,000 Common Shares were purchased at market price for a total cost of $1,551,000.

On April 29, 2013, the Company announced a NCIB commencing on May 1, 2013 to purchase for cancellation up to 3,538,000 of its Common Shares. During the six months ended September 30, 2013, no Common Shares were purchased.

INVESTING ACTIVITIES

CMG's current needs for capital asset investment relate to computer equipment and office infrastructure costs, all of which will be funded internally. During the six months ended September 30, 2013, CMG expended $0.3 million on property and equipment additions, primarily composed of computing equipment, and has a capital budget of $1.8 million for fiscal 2014.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2013, CMG has $63.7 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, 2013, 4,838,000 shares of CMG's public float were traded on the TSX. As at September 30, 2013, CMG's market capitalization based upon its September 30, 2013 closing price of $24.10 was $937.1 million.

Commitments, Off Balance Sheet Items and Transactions with Related Parties

The Company is the operator of the DRMS research and development project (the "DRMS Project"), a collaborative effort with its partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras"), to jointly develop the newest generation of reservoir and production system simulation software. The project has been underway since 2006 and, with the ongoing support of the participants, it is expected to continue until ultimate delivery of the software. The Company's share of costs associated with the project is estimated to be $5.5 million ($2.6 million net of overhead recoveries) for fiscal 2014. CMG plans to continue funding its share of the project costs associated with the development of the newest generation reservoir simulation software system from internally generated cash flows.

CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which are reflected as deferred revenue on its statement of financial position, and contractual obligations for office leases which are estimated as follows: 2014 - $1.0 million; 2015 to 2016 - $2.0 million per year; and 2017 - $1.0 million.

Business Risks and Critical Accounting Estimates

These remain unchanged from the factors detailed in CMG's 2013 Annual Report.

Changes in Accounting Policies

Except as disclosed below, the accounting policies, presentation and methods of computation remain unchanged from those detailed in CMG's 2013 Annual Report. The following new standards and interpretations have been adopted as detailed below:


 
--  IFRS 10 Consolidated Financial Statements
    Replaces the guidance in IAS 27 Cons
olidated and Separate Financial
    Statements and SIC-12 Consolidation - Special Purpose Entities, and
    provides a single model to be applied in the control analysis for all
    investees, including entities that currently are special purpose
    entities in the scope of SIC-12. The Company adopted IFRS 10 for the
    annual period beginning on April 1, 2013. The adoption of IFRS 10 did
    not have a material impact on the condensed consolidated interim
    financial statements. 
    
--  IFRS 11 Joint Arrangements
    Under IFRS 11, joint arrangements are classified as either joint
    operations or joint ventures. IFRS 11 replaces the guidance in IAS 31
    Interest in Joint Ventures, and essentially carves out of previous
    jointly controlled entities, those arrangements which although
    structured through a separate vehicle, such separation is ineffective
    and the parties to the arrangement have rights to the assets and
    obligations for the liabilities and are accounted for as joint
    operations in a fashion consistent with jointly controlled
    assets/operations under IAS 31. In addition, under IFRS 11, joint
    ventures must now use the equity method of accounting. The Company
    adopted IFRS 11 for the annual period beginning on April 1, 2013. The
    adoption of IFRS 11 did not have a material impact on the condensed
    consolidated interim financial statements. 
    
--  IFRS 12 Disclosure of Interests in Other Entities
    Contains the disclosure requirements for entities that have interests in
    subsidiaries, joint arrangements, associates and/or unconsolidated
    structured entities. The Company adopted IFRS 12 for the annual period
    beginning on April 1, 2013. The adoption of IFRS 12 did not have a
    material impact on the condensed consolidated interim financial
    statements. 
    
--  IFRS 13 Fair Value Measurement
    Replaces the fair value measurement guidance contained in individual
    IFRSs with a single source of fair value measurement guidance. It
    defines fair value as the price that would be received to sell an asset
    or paid to transfer a liability in an orderly transaction between market
    participants at the measurement date, i.e. an exit price. The standard
    also establishes a framework for measuring fair value and sets out
    disclosure requirements for fair value measurement to provide
    information that enables financial statement users to assess the methods
    and inputs used to develop fair value measurements and, for recurring
    fair value measurements that use significant unobservable inputs (Level
    3), the effect of the measurements on profit or loss or other. The
    Company adopted IFRS 13 prospectively for the interim and annual periods
    beginning on April 1, 2013. The adoption of IFRS 13 did not have a
    material impact on the condensed consolidated interim financial
    statements other than the inclusion of certain fair value disclosures
    which were previously applicable to annual financial statements only. 
    
--  Amendments to IAS 1 Presentation of Financial Statements
    Require an entity present separately the items of other comprehensive
    income that may be reclassified to profit or loss in the future from
    those that would never be reclassified to profit or loss. The Company
    adopted the amendments for the annual period beginning on April 1, 2013.
    As the amendments only required changes in the presentation of items in
    other comprehensive income, the new standard did not have a material
    impact on the condensed consolidated interim financial statements. 
    
--  Amendments to IFRS 7 Offsetting Financial Assets and Liabilities
    Contains new disclosure requirements for offset financial assets and
    liabilities and netting arrangements. The Company adopted the amendments
    for the interim and annual periods beginning on April 1, 2013. The
    amendments to IFRS 7 did not have a material impact on the condensed
    consolidated interim financial statements. 

Accounting Standards and Interpretations Issued But Not Yet Effective

The following standards and interpretations have not been adopted by the Company as they apply to future periods:


 
         
                 Nature of impending                               
                          change in accounting      Impact on CMG's         
Standard/Interpretation   policy                    financial statements    
----------------------------------------------------------------------------
                                                                            
IFRS 9 Financial          IFRS 9 (2009) replaces    The mandatory effective 
Instruments               the guidance in IAS 39    date of IFRS 9 (2010),  
                          Financial Instruments:    which supersedes IFRS 9 
In November 2009 the      Recognition and           (2009), has been left   
IASB issued IFRS 9        Measurement, on the       open by the IASB. Early 
Financial Instruments     classification and        adoption is permitted.  
(IFRS 9 (2009)), and in   measurement of financial  The Company will        
October 2010 the IASB     assets. The Standard      determine when to adopt 
published amendments to   eliminates the existing   IFRS 9 (2010) when the  
IFRS 9 (IFRS 9 (2010)).   IAS 39 categories of      IASB has determined the 
On July 24, 2013 the      held to maturity,         mandatory effective date
IASB tentatively decided  available-for-sale and    and finalised the       
to defer the mandatory    loans and receivable.     impairment and          
effective date of IFRS                              classification and      
9. The mandatory          Financial assets will be  measurement             
effective date will be    classified into one of    requirements.           
left open pending the     two categories on                                 
finalisation of the       initial recognition:      The Company does not    
impairment and                                      expect IFRS 9 (2010) to 
classification and        - financial assets        have a material impact  
measurement               measured at amortized     on the financial        
requirements.             cost; or                  statements. The         
                          - financial assets        classification and      
                          measured at fair value.   measurement of the      
                                                    Company's financial     
                          Gains and losses on       assets and liabilities  
                          remeasurement of          is not expected to      
                          financial assets          change under IFRS 9     
                          measured at fair value    (2010) because of the   
                          will be recognized in     nature of the Company's 
                          profit or loss, except    operations and the types
                          that for an investment    of financial assets that
                          in an equity instrument   it holds.               
                          which is not held-for-                            
                          trading, IFRS 9                                   
                          provides, on initial                              
                          recognition, an                                   
                          irrevocable election to                           
                          present all fair value                            
                          changes from the                                  
                          investment in other                               
                          comprehensive income                              
                          (OCI). The election is                            
                          available on an                                   
                          individual share-by-                              
                          share basis. Amounts                     
         
                          presented in OCI will                             
                          not be reclassified to                            
                          profit or loss at a                               
                          later date.                                       
                                                                            
                          IFRS 9 (2010) added                               
                          guidance to IFRS 9                                
                          (2009) on the                                     
                          classification and                                
                          measurement of financial                          
                          liabilities, and this                             
                          guidance is consistent                            
                          with the guidance in IAS                          
                          39 expect as described                            
                          below.                                            
                                                                            
                          Under IFRS 9 (2010), for                          
                          financial liabilities                             
                          measured at fair value                            
                          under the fair value                              
                          option, changes in fair                           
                          value attributable to                             
                          changes in credit risk                            
                          will be recognized in                             
                          OCI, with the remainder                           
                          of the change recognized                          
                          in profit or loss.                                
                          However, if this                                  
                          requirement creates or                            
                          enlarges an accounting                            
                          mismatch in profit or                             
                          loss, the entire change                           
                          in fair value will be                             
                          recognized in profit or                           
                          loss. Amounts presented                           
                          in OCI will not be                                
                          reclassified to profit                            
                          or loss at a later date.                          
                                                                            
                          IFRS 9 (2010) also                                
                          requires derivative                               
                          liabilities that are                              
                          linked to and must be                             
                          settled by delivery of                            
                          an unquoted equity                                
                          instrument to be                                  
                          measured at fair value,                           
                          whereas such derivative                           
                          liabilities are measured                          
                          at cost under IAS 39.                             
                          IFRS 9 (2010) also added                          
                          the requirements of IAS                           
                          39 for the derecognition                          
                          of financial assets and                           
                          liabilities to IFRS 9                             
                          without change.                                   
                                                                            
----------------------------------------------------------------------------
                                                                            
Amendments to IAS 32,     The amendments to IAS 32  The Company intends to  
Offsetting Financial      clarify that an entity    adopt the amendments to 
Assets and Liabilities    currently has a legally   IAS 32 in its financial 
                          enforceable right to      statements for the      
In December 2011, the     set-off if that right     annual period beginning 
IASB published            is:                       April 1, 2014. The      
Offsetting Financial                                Company does not expect 
Assets and Financial      - not contingent on a     the amendments to have a
Liabilities and issued    future event; and         material impact on the  
new presentation          - enforceable both in     financial statements.   
requirements in IAS 32    the normal course of                              
Financial Instruments:    business and in the                               
Presentation.             event of default,                                 
                          insolvency or bankruptcy                          
The effective date for    of the entity and all                             
the amendments to IAS 32  counterparties.                                   
is annual periods                                                           
beginning on or after     The amendments to IAS 32                          
January 1, 2014. These    also clarify when a                               
amendments are to be      settlement mechanism                              
applied retrospectively.  provides for net                                  
                          settlement or gross                               
                          settlement that is                                
                          equivalent to net                                 
                          settlement.                                       
                                                                            
----------------------------------------------------------------------------
                                                  
                          
Amendments to IAS 36,     The amendments to IAS 36  The Company intends to  
Impairment of Assets      clarify IASB's original   adopt the amendments to 
                          intention to require:     IAS 36 in its financial 
In May 2013, the IASB                               statements for the      
published Recoverable     - the disclosure of the   annual period beginning 
Amount Disclosures for    recoverable amount of     April 1, 2014. The      
Non-Financial Assets      impaired assets; and      Company does not expect 
detailing narrow scope    - additional disclosures  the amendments to have a
amendments to IAS 36      about the measurement of  material impact on the  
Impairment of Assets.     the recoverable amount    financial statements.   
                          of impaired assets when                           
The effective date for    the recoverable amount                            
the amendments to IAS 36  is based on fair value                            
is annual periods         less costs of disposal,                           
beginning on or after     including the discount                            
January 1, 2014. These    rate when a present                               
amendments are to be      value technique is used                           
applied retrospectively   to measure the                                    
and earlier adoption is   recoverable amount.                               
permitted for periods                                                       
when IFRS 13 is applied.                                                    
                                                                            
----------------------------------------------------------------------------

Outstanding Share Data

The following table represents the number of Common Shares and options outstanding:


 
As at November 12, 2013                                                     
(thousands)                                                                 
----------------------------------------------------------------------------
Common Shares                                                         38,901
Options                                                                3,227
----------------------------------------------------------------------------

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% of the outstanding Common Shares at the date of grant. Based upon this calculation, at November 12, 2013, CMG could grant up to 3,890,000 stock options.

Disclosure Controls and Procedures and Internal Control over Financial Reporting

Management is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR") as defined under National Instrument 52-109. These controls and procedures were reviewed and the effectiveness of their design and operation was evaluated in fiscal 2013 in accordance with the COSO control framework. The evaluation confirmed the effectiveness of DC&P and ICFR at March 31, 2013. During our fiscal year 2014, we continue to monitor and review our controls and procedures.

During the six months ended September 30, 2013, 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

Our annuity/maintenance revenue stream continued to grow during the first six months of fiscal 2014 with a recorded increase of 8%, compared to the same period of the previous fiscal year. Over 80% of our software license revenue is derived from our annuity and maintenance contracts, and with a strong renewal rate, we expect to see continued growth in this revenue base. We have experienced increased usage by our existing large clients as well as added new accounts during the quarter. Year-to-date, the most notable growth was experienced in the US and the Eastern Hemisphere.

Our geographical diversification allows us to take advantage of opportunities internationally, and we will continue to extend our reach globally and focus our efforts on sustaining high renewal rates as well as increasing the number of licenses sold to both existing and new customers.

Although professional services are not the primary source of our revenue, we were able to grow this business by $1.4 million in the first six months of fiscal 2014 as compared to the same period of the prior fiscal year.

Our profit margin continued to hold strong, demonstrating our continuous commitment to effectively manage our corporate costs. For the six months ended September 30, 2013, our EBITDA represented 52% of our total revenue, remaining consistent with the same period of the previous fiscal year.

CMG continues to focus its resources on the development, enhancement and deployment of simulation software tools relevant to the challenges and opportunities facing its diverse customer base. We strive to invest 20% of our top line towards continuous improvement of our product features as well as development of new capabilities in order to maintain our technological distinction and take advantage of new opportunities. We will continue fostering value-based, long-term relationships with our clients while helping them solve problems associated with hydrocarbon recovery, with an emphasis on the advanced recovery processes, which are increasing in complexity and where our products continue to gain increasing importance. With the growth in unconventional hydrocarbon and enhanced oil recovery ("EOR") projects around the globe, we are seeing an increase in the use of reservoir simulation software by reservoir engineers. This growth in simulation use has been reflected in the number and types of projects being simulated and the amount of simulation done on each project. More recently, the North American market is seeing an increased opportunity in shale gas and liquids which use complex recovery processes that necessitate the use of simulation.

One of the instrumental parts of our success includes training programs which we offer to our customers to enable them to become more efficient and effective users of our software. We continue to see strong class attendance across all the regions.

CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continued to make progress during the second quarter of the current fiscal year. The most recent beta version of the software was released at the beginning of calendar 2013, and our DRMS team continues to make progress toward the anticipated limited commercial release of the software scheduled for the end of calendar 2013. The new release will be distributed only to our partner companies for the purpose of testing it on selected assets. CMG and its partners remain committed to funding the ongoing development and to the future success of the project.

The excellent reputation behind our Company and its product suite offering will continue to enable us to grow and sustain a healthy market share while generating solid software license revenue. With our strong working capital position, we are well positioned to continue to invest in all aspects of our business in order to continue to grow and diversify our revenue base and to ultimately return value to our shareholders in the form of regular quarterly dividend payments and growth in share value.


 
Kenneth M. Dedeluk                                                          
President and Chief Executive Officer                                       
November 12, 2013                                                           
                                                                            
                                                         
                   
                                                                            
                                                                            
COMPUTER MODELLING GROUP LTD.                                               
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                     
                                                                            
                                                September 30,      March 31,
UNAUDITED (thousands of Canadian $)                      2013           2013
----------------------------------------------------------------------------
Assets                                                                      
Current assets:                                                             
  Cash                                                 63,745         59,419
  Trade and other receivables                          13,190         19,141
  Prepaid expenses                                      1,158          1,216
  Prepaid income taxes (note 7)                           218            341
----------------------------------------------------------------------------
                                                       78,311         80,117
Property and equipment                                  2,803          3,304
----------------------------------------------------------------------------
Total assets                                           81,114         83,421
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Liabilities and Shareholders' Equity                                        
Current liabilities:                                                        
  Trade payables and accrued liabilities                3,883          6,047
  Income taxes payable (note 7)                           444            296
  Deferred revenue                                     19,346         25,289
----------------------------------------------------------------------------
                                                       23,673         31,632
Deferred tax liability (note 7)                           200            379
----------------------------------------------------------------------------
Total liabilities                                      23,873         32,011
----------------------------------------------------------------------------
                                                                            
Shareholders' equity:                                                       
  Share capital                                        49,520         40,498
  Contributed surplus                                   4,628          4,673
  Retained earnings                                     3,093          6,239
----------------------------------------------------------------------------
Total shareholders' equity                             57,241         51,410
----------------------------------------------------------------------------
Total liabilities and shareholders' equity             81,114         83,421
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
See accompanying notes to condensed consolidated financial statements.      
                                                                            
                                                                            
COMPUTER MODELLING GROUP LTD.                                               
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME    
                                                                            
                                   Three months ended      Six months ended 
                                         September 30          September 30 
UNAUDITED (thousands of Canadian                                            
 $ except per share amounts)          2013       2012       2013       2012 
----------------------------------------------------------------------------
Revenue (note 4)                    17,184     16,073     35,300     32,539 
----------------------------------------------------------------------------
                                                                            
Operating expenses                                                          
  Sales, marketing and                                                      
   professional services             3,837      3,592      7,486      7,555 
  Research and development (note                                            
   5)                                3,418      3,028      6,890      5,925 
  General and administrative         1,633      1,421      3,278      2,922 
----------------------------------------------------------------------------
                                     8,888      8,041     17,654     16,402 
----------------------------------------------------------------------------
Operating profit                     8,296      8,032     17,646     16,137 
                                                                            
Finance income (note 6)                162        131        486        276 
Finance costs (note 6)                (325)      (460)         -       (133)
----------------------------------------------------------------------------
Profit before income and other                                              
 taxes                               8,133      7,703     18,132     16,280 
Income and other taxes (note 7)      2,525      2,342      5,443      4,829 
----------------------------------------------------------------------------
                                                                            
Net and total comprehensive                                                 
 income                              5,608      5,361     12,689     11,451 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Earnings Per Share                                                          
Basic (note 8(e))                     0.15       0.14       0.33       0.31 
Diluted (note 8(e))                   0.14       0.14       0.32       0.30 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
See accompanying notes to condensed consolidated financial sta
tements.      
                                                                            
                                                                            
COMPUTER MODELLING GROUP LTD.                                               
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                      
                                                                            
                                    Common                                  
UNAUDITED                            Share  Contributed  Retained     Total 
(thousands of Canadian $)          Capital      Surplus  Earnings    Equity 
----------------------------------------------------------------------------
Balance, April 1, 2012              31,751        3,535    10,793    46,079 
Total comprehensive income for                                              
 the period                              -            -    11,451    11,451 
Dividends paid                           -            -   (15,756)  (15,756)
Shares issued for cash on                                                   
 exercise of stock options (note                                            
 8(b))                               3,788            -         -     3,788 
Common shares buy-back (notes                                               
 8(b) & (c))                           (80)           -    (1,471)   (1,551)
Stock-based compensation:                                                   
  Current period expense                 -        1,232         -     1,232 
  Stock options exercised (note                                             
   8(b))                               723         (723)        -         - 
----------------------------------------------------------------------------
Balance, September 30, 2012         36,182        4,044     5,017    45,243 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Balance, April 1, 2013              40,498        4,673     6,239    51,410 
Total comprehensive income for                                              
 the period                              -            -    12,689    12,689 
Dividends paid                           -            -   (15,835)  (15,835)
Shares issued for cash on                                                   
 exercise of stock options (note                                            
 8(b))                               7,674            -         -     7,674 
Stock-based compensation:                                                   
  Current period expense                 -        1,303         -     1,303 
  Stock options exercised (note                                             
   8(b))                             1,348       (1,348)        -         - 
----------------------------------------------------------------------------
Balance, Septe
mber 30, 2013         49,520        4,628     3,093    57,241 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
See accompanying notes to condensed consolidated financial statements.      
                                                                            
                                                                            
COMPUTER MODELLING GROUP LTD.                                               
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                             
                                                                            
                                     Three months ended    Six months ended 
                                           September 30        September 30 
UNAUDITED                                                                   
(thousands of Canadian $)                2013      2012      2013      2012 
----------------------------------------------------------------------------
Cash flows from operating activities                                        
  Net income                            5,608     5,361    12,689    11,451 
Adjustments for:                                                            
  Depreciation                            379       393       754       711 
  Income and other taxes (note 7)       2,525     2,342     5,443     4,829 
  Stock-based compensation (note                                            
   8(d))                                  758       664     1,303     1,232 
  Interest income (note 6)               (162)     (131)     (319)     (276)
----------------------------------------------------------------------------
                                        9,108     8,629    19,870    17,947 
Changes in non-cash working capital:                                        
  Trade and other receivables          (1,172)   (1,483)    5,954     3,079 
  Trade payables and accrued                                                
   liabilities                            251      (300)   (2,164)   (1,209)
  Prepaid expenses                        (95)      (56)       58         9 
  Deferred revenue                     (2,668)     (538)   (5,943)   (3,452)
----------------------------------------------------------------------------
Cash generated from operating                                               
 activities                             5,424     6,252    17,775    16,374 
  Interest received                       161       136       316       280 
  Income taxes paid                    (2,682)   (2,851)   (5,351)   (6,456)
----------------------------------------------------------------------------
Net cash from operating activities      2,903     3,537    12,740    10,198 
----------------------------------------------------------------------------
                                                                            
Cash flows from financing activities                                        
Proceeds from issue of common shares    4,752     2,564     7,674     3,788 
Dividends paid                         (6,994)   (6,020)  (15,835)  (15,756)
Common shares buy-back (note 8(c))          -         -         -    (1,551)
----------------------------------------------------------------------------
Net cash used in financing                                                  
 activities                            (2,242)   (3,456)   (8,161)  (13,519)
----------------------------------------------------------------------------
                                                                            
Cash flows used in investing                                                
 activities                                                                 
Property and equipment additions          (28)     (922)     (253)   (1,359)
----------------------------------------------------------------------------
Increase (decrease) in cash               633      (841)    4,326    (4,680)
Cash, beginning of period              63,112    51,535    59,419    55,374 
----------------------------------------------------------------------------
Cash, end of period                    63,745    50,694    63,745    50,694 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
See accompanying notes to condensed consolidated financial statements.      

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended September 30, 2013 and 2012 (unaudited).

1. Reporting Entity:

Computer Modelling Group Ltd. ("CMG") is a company domiciled in Alberta, Canada and is incorporated pursuant to the Alberta Business Corporations Act, with its Common Shares listed on the Toronto Stock Exchange under the symbol "CMG". The address of CMG's registered office is Suite 200, 1824 Crowchild Trail N.W., Calgary, Alberta, Canada, T2M 3Y7. The condensed consolidated financial statements as at and for the three and six months ended September 30, 2013 comprise CMG and its subsidiaries (together referred to as the "Company"). The Company is a computer software technology company engaged in the development and licensing of reservoir simulation software. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities.

2. Basis of Preparation:

(a) STATEMENT OF COMPLIANCE:

These condensed consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting. Accordingly, the condensed consolidated financial statements do not include all of the information required for full annual financial statements, and should be read in conju nction with the Company's most recent annual consolidated financial statements as at and for the year ended March 31, 2013 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and using the accounting policies disclosed in note 3 of the Company's annual consolidated financial statements as at and for the year ended March 31, 2013.

These unaudited condensed consolidated financial statements as at and for the three and six months ended September 30, 2013 were authorized for issuance by the Board of Directors on November 12, 2013.

(b) BASIS OF MEASUREMENT:

The condensed consolidated financial statements have been prepared on the historical cost basis, which is based on the fair value of the consideration at the time of the transaction.

(c) FUNCTIONAL AND PRESENTATION CURRENCY:

The condensed consolidated financial statements are presented in Canadian dollars, which is the functional currency of CMG and its subsidiaries. All financial information presented in Canadian dollars has been rounded to the nearest thousand.

(d) USE OF ESTIMATES, JUDGMENTS AND ASSUMPTIONS:

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses for the period. Estimates and underlying assumptions are based on historical experience and other assumptions that are considered reasonable in the circumstances and are reviewed on an on-going basis. Actual results may differ from such estimates and it is possible that the differences could be material. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In preparing these condensed consolidated financial statements, the significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty are the same as those applied in the annual IFRS consolidated financial statements for the year ended March 31, 2013.

3. Significant Accounting Policies:

The condensed consolidated financial statements should be read in conjunction with the Company's annual financial statements for the year ended March 31, 2013 prepared in accordance with IFRS applicable to those annual consolidated financial statements. Except as disclosed below, the same accounting policies, presentation and methods of computation have been followed in these condensed consolidated financial statements as were applied in the Company's consolidated financial statements for the year ended March 31, 2013.

NEW STANDARDS AND INTERPRETATIONS ADOPTED:

The Company has adopted the following new standards and amendments to standards, with a date of initial application of April 1, 2013:


 
--  IFRS 10 Consolidated Financial Statements
    Replaces the guidance in IAS 27 Consolidated and Separate Financial
    Statements and SIC-12 Consolidation - Special Purpose Entities, and
    provides a single model to be applied in the control analysis for all
    investees, including entities that currently are special purpose
    entities in the scope of SIC-12. The adoption of IFRS 10 did not have a
    material impact on the condensed consolidated interim financial
    statements. 
    
--  IFRS 11 Joint Arrangements
    Under IFRS 11, joint arrangements are classified as either joint
    operations or joint ventures. IFRS 11 replaces the guidance in IAS 31
    Interest in Joint Ventures, and essentially carves out of previous
    jointly controlled entities, those arrangements which although
    structured through a separate vehicle, such separation is ineffective
    and the parties to the arrangement have rights to the assets and
    obligations for the liabilities and are accounted for as joint
    operations in a fashion consistent with jointly controlled
    assets/operations under IAS 31. In addition, under IFRS 11, joint
    ventures must now use the equity method of accounting. The adoption of
    IFRS 11 did not have a material impact on the condensed consolidated
    interim financial statements. 
    
--  IFRS 12 Disclosure of Interests in Other Entities
    Contains the disclosure requirements for entities that have interests in
    subsidiaries, joint arrangements, associates and/or unconsolidated
    structured entities. The adoption of IFRS 12 did not have a material
    impact on the condensed consolidated interim financial statements. 
    
--  IFRS 13 Fair Value Measurement
    Replaces the fair value measurement guidance contained in individual
    IFRSs with a single source of fair value measurement guidance. It
    defines fair value as the price that would be received to sell an asset
    or paid to transfer a liability in an orderly transaction between market
    participants at the measurement date, i.e. an exit price. The standard
    also establishes a framework for measuring fair value and sets out
    disclosure requirements for fair value measurement to provide
    information that enables financial statement users to assess the methods
    and inputs used to develop fair value measurements and, for recurring
    fair value measurements that use significant unobservable inputs (Level
    3), the effect of the measurements on profit or loss or other. Due to
    the nature of the Company's financial assets and liabilities, the
    adoption of IFRS 13 did not have a material impact on the condensed
    consolidated interim financial statements. It only resulted in the
    inclusion of certain fair value disclosures which were previously
    applicable to annual financial statements only (refer to note 9). 
    
--  Amendments to IAS 1 Presentation of Financial Statements
    Requires an entity to present separately the items of other
    comprehensive income that may be reclassified to profit or loss in the
    future from those that would never be reclassified to profit or loss. As
    the amendments only required changes in the presentation of items in
    other comprehensive income, the new standard did not have a material
    impact on the condensed consolidated interim financial statements. 
    
--  Amendments to IFRS 7 Offsetting Financial Assets and Liabilities
    Contains new disclosure requirements for offset financial assets and
    liabilities and netting arrangements. The amendments to IFRS 7 did not
    have a material impact on the condensed consolidated interim financial
    statements. 

4. Revenue:


 
                                                                            
For the three months ended September 30,                                    
(thousands of $)                                   
           2013      2012
----------------------------------------------------------------------------
Software licenses                                           14,982    14,683
Professional services                                        2,202     1,390
----------------------------------------------------------------------------
                                                            17,184    16,073
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                                      
(thousands of $)                                              2013      2012
----------------------------------------------------------------------------
Software licenses                                           31,271    29,933
Professional services                                        4,029     2,606
----------------------------------------------------------------------------
                                                            35,300    32,539
----------------------------------------------------------------------------

5. Research and Development Costs:


 
For the three months ended September 30,                                    
(thousands of $)                                            2013       2012 
----------------------------------------------------------------------------
Research and development                                   3,935      3,487 
Scientific research and experimental development                            
 ("SR&ED") investment tax credits                           (517)      (459)
----------------------------------------------------------------------------
                                                           3,418      3,028 
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                                      
(thousands of $)                                            2013       2012 
----------------------------------------------------------------------------
Research and development                                   7,955      6,872 
Scientific research and experimental development                            
 ("SR&ED") investment tax credits                         (1,065)      (947)
----------------------------------------------------------------------------
                                                           6,890      5,925 
----------------------------------------------------------------------------

6. Finance Income and Finance Costs:


 
For the three months ended September 30,                                    
(thousands of $)                                            2013       2012 
----------------------------------------------------------------------------
Interest income                                              162        131 
----------------------------------------------------------------------------
Finance income                                               162        131 
----------------------------------------------------------------------------
                                                                            
Net foreign exchange loss                                   (325)      (460)
----------------------------------------------------------------------------
Finance costs                                               (325)      (460)
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                                      
(thousands of $)                                            2013       2012 
----------------------------------------------------------------------------
Interest income                                              319        276 
Net foreign exchange gain                                    167          - 
----------------------------------------------------------------------------
Finance income                                               486        276 
----------------------------------------------------------------------------
                                                                            
Net foreign exchange loss                                      -       (133)
----------------------------------------------------------------------------
Finance costs                                                  -       (133)
----------------------------------------------------------------------------

7. Income and Other Taxes:

The major components of income tax expense are as follows:


 
For the six months ended September 30,                                      
(thousands of $)                                            2013       2012 
----------------------------------------------------------------------------
Current year income taxes                                  4,966      4,416 
Adjustment for prior year                                      8         68 
----------------------------------------------------------------------------
Current income taxes                                       4,974      4,484 
                                                                            
Deferred tax expense (recovery)                             (179)      (157)
Foreign withholding and other taxes                          648        502 
----------------------------------------------------------------------------
                                                           5,443      4,829 
----------------------------------------------------------------------------

The provision for income and other taxes reported differs from the amount computed by applying the combined Canadian Federal and Provincial statutory rate to the profit before income and other taxes.

The reasons for this difference and the related tax effects are as follows:


 
For the six months ended September 30,                                      
(thousands of $, unless otherwise stated)                   2013       2012 
----------------------------------------------------------------------------
Combined statutory tax rate                                25.00%     25.00%
----------------------------------------------------------------------------
Expected income tax                                        4,533      4,070 
Non-deductible costs                                         337        320 
Effect of tax rates in foreign jurisdictions                  73         24 
Withholding taxes                                            486        377 
Adjustment for prior year                                      8         68 
Other                                                          6        (30)
----------------------------------------------------------------------------
                                                           5,443      4,829 
----------------------------------------------------------------------------

The components of the Company's deferred tax liability are as follows:


 
                                                 September 30,    March 31, 
(thousands of $)                                          2013         2013 
----------------------------------------------------------------------------
Tax liability on SR&ED investment tax credits             (203)        (362)
Tax asset (liability) on property and equipment              3          (17)
----------------------------------------------------------------------------
Deferred tax liability                                    (200)        (379)
 
----------------------------------------------------------------------------

All movement in deferred tax assets and liabilities is recognized through net income of the respective period.

Prepaid income taxes and current income taxes payable have not been offset as the amounts relate to income taxes levied by different tax authorities to different taxable entities.

8. 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:


 
(thousands of shares)                                         Common Shares 
----------------------------------------------------------------------------
Balance, April 1, 2012                                               37,307 
Issued for cash on exercise of stock options                            459 
Common shares buy-back                                                  (91)
----------------------------------------------------------------------------
Balance, September 30, 2012                                          37,675 
----------------------------------------------------------------------------
                                                                            
Balance, April 1, 2013                                               38,129 
Issued for cash on exercise of stock options                            755 
Common shares buy-back                                                    - 
----------------------------------------------------------------------------
Balance, September 30, 2013                                          38,884 
----------------------------------------------------------------------------

Subsequent to September 30, 2013, 17,000 stock options were exercised for cash proceeds of $252,000.

On May 23, 2012, the Board of Directors considered the merits of renewing the Company's shareholder rights plan on or before the third-year anniversary of shareholder approval of the plan and determined that it was in the best interest of the Company to continue to have a shareholder rights plan in place. Upon careful review, the Board of Directors agreed to approve an amended and restated rights plan (the "Amended and Restated Rights Plan") between the Company and Valiant Trust Company, which is similar in all respects to the existing shareholder rights plan, with the exception of certain minor amendments. The Amended and Restated Rights Plan was approved by the Company's shareholders on July 12, 2012.

(C) COMMON SHARES BUY-BACK:

On April 16, 2012, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on April 18, 2012 to purchase for cancellation up to 3,416,000 of its Common Shares. During the year ended March 31, 2013, a total of 91,000 Common Shares were purchased at market price for a total cost of $1,551,000.

On April 29, 2013, the Company announced a NCIB commencing on May 1, 2013 to purchase for cancellation up to 3,538,000 of its Common Shares. During the six months ended September 30, 2013, no Common Shares were purchased.

(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 7, 2011, which allows it to grant options to acquire Common Shares of up to 10% of the outstanding Common Shares at the date of grant. Based upon this calculation, at September 30, 2013, the Company could grant up to 3,888,000 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. The outstanding stock options vest as to 50% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates.

The following table outlines changes in stock options:


 
(thousands except per share    For the six months ended   For the year ended
 amounts)                            September 30, 2013       March 31, 2013
----------------------------------------------------------------------------
                                               Weighted             Weighted
                                                Average              Average
                                               Exercise             Exercise
                                   Options        Price   Options      Price
                                   Granted    ($/share)   Granted  ($/share)
----------------------------------------------------------------------------
Outstanding at beginning of                                                 
 period                              2,938        13.13     2,903       9.85
Granted                              1,149        24.40     1,006      18.19
Exercised                             (755)       10.16      (913)      8.15
Forfeited/cancelled                    (87)       16.34       (58)     15.09
----------------------------------------------------------------------------
Outstanding at end of period         3,245        17.73     2,938      13.13
----------------------------------------------------------------------------
Options exercisable at end of                                               
 period                              1,397        12.85     1,207       9.75
----------------------------------------------------------------------------

The range of exercise prices of stock options outstanding and exercisable at September 30, 2013 is as follows:


 
                                          Outstanding            Exercisable
----------------------------------------------------------------------------
                                  Weighted                                  
                                   Average   Weighted               Weighted
                                 Remaining    Average                Average
                     Number of Contractual   Exercise   Number of   Exercise
Exercise Price         Options        Life      Price     Options      Price
 ($/option)        (thousands)     (years) ($/option) (thousands) ($/option)
----------------------------------------------------------------------------
4.52 - 7.80                150         0.9       7.75         150       7.75
7.81 - 9.07                408         1.9       9.07         408       9.07
9.08 - 13.43               682         2.9      13.39         448      13.39
13.44 - 18.18              858         3.8      18.13         391      18.14
18.19 - 24.40            1,147         4.9      24.38           -          -
----------------------------------------------------------------------------
                         3,245         3.6      17.73       1,397      12.85
----------------------------------------------------------------------------

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


 
                                For the six months ended  For the year ended
                                      September 30, 2013      March 31, 2013
----------------------------------------------------------------------------
Fair value at grant date                                                    
 ($/option)                                 3.06 to 3.93        2.45 to 3.83
Share price at grant date                                                   
 ($/share)                                         24.40      17.90 to 21.75
Risk-free interest rate (%)                 1.21 to 1.64        1.13 to 1.33
Estimated hold period prior to                                              
 exercise (years)                                 2 to 4              2 to 4
Volatility in the price of                                                  
 common shares (%)                              26 to 28            27 to 36
Dividend yield per common share                                             
 (%)                                                3.21        3.39 to 4.12
----------------------------------------------------------------------------

The Company recognized total stock-based compensation expense for the three and six months ended September 30, 2013 of $758,000 and $1,303,000 respectively (three and six months ended September 30, 2012 - $664,000 and $1,232,000 respectively).

(E) EARNINGS PER SHARE:

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


 
For the three months ended September 30,                                    
(thousands except per share amounts)                                        
                                                                        2013
                                                     Weighted               
                                                      Average       Earnings
                                      
                 Shares      Per Share
                                  Earnings ($)    Outstanding      ($/share)
----------------------------------------------------------------------------
Basic                                    5,608         38,650           0.15
Dilutive effect of stock                                                    
 options                                                  987               
----------------------------------------------------------------------------
Diluted                                  5,608         39,637           0.14
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                                      
(thousands except per share amounts)                                        
                                                                        2013
                                                     Weighted               
                                                      Average       Earnings
                                                       Shares      Per Share
                                  Earnings ($)    Outstanding      ($/share)
----------------------------------------------------------------------------
Basic                                   12,689         38,454           0.33
Dilutive effect of stock                                                    
 options                                                  980               
----------------------------------------------------------------------------
Diluted                                 12,689         39,434           0.32
----------------------------------------------------------------------------
 
For the three months ended September 30,                                    
(thousands except per share amounts)                                        
                                                                        2012
                                                     Weighted               
                                                      Average       Earnings
                                                       Shares      Per Share
                                  Earnings ($)    Outstanding      ($/share)
----------------------------------------------------------------------------
Basic                                    5,361         37,504           0.14
Dilutive effect of stock                                                    
 options                                     -          1,099              -
----------------------------------------------------------------------------
Diluted                                  5,361         38,603           0.14
----------------------------------------------------------------------------
                                                                            
                                                                            
For the six months ended September 30,                                      
(thousands except per share amounts)                                        
                                                                        2012
                                                     Weighted               
                                                      Average       Earnings
                                                       Shares      Per Share
                                  Earnings ($)    Outstanding      ($/share)
----------------------------------------------------------------------------
Basic                                   11,451         37,429           0.31
Dilutive effect of stock                                                    
 options                                     -          1,086              -
----------------------------------------------------------------------------
Diluted                                 11,451         38,515           0.30
----------------------------------------------------------------------------

During the three and six months ended September 30, 2013, 150,000 and Nil options respectively (three and six months ended September 30, 2012 - 147,000, and Nil respectively) were excluded from the computation of the weighted-average number of diluted shares outstanding because their effect was not dilutive.

9. Financial Instruments:

(i) Classification of financial instruments


 
                                            Classification      Measurement 
----------------------------------------------------------------------------
Cash                                      Held for trading       Fair value 
Trade and other receivables          Loans and receivables   Amortized cost 
Trade payables and accrued                                                  
 liabilities                   Other financial liabilities   Amortized cost 
----------------------------------------------------------------------------

(ii) Fair values of financial instruments

The carrying values of cash, trade and other receivables, trade payables and accrued liabilities approximate their fair values due to the short-term nature of these instruments.

10. Commitments:

(a) RESEARCH COMMITMENTS:

The Company is the operator of the DRMS research and development project (the "DRMS project"), a collaborative effort with its partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras"), to jointly develop the newest generation of reservoir and production system simulation software. The project has been underway since 2006 and, with the ongoing support of the participants, it is expected to continue until ultimate delivery of the software. The Company's share of costs associated with the project is estimated to be $5.5 million ($2.6 million net of overhead recoveries) for fiscal 2014.

(b) LEASE COMMITMENTS:

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


 
Six months ended September 30,                                              
(thousands of $)                                              2013      2012
----------------------------------------------------------------------------
Less than one year                                           1,028       995
Between one and five years                                   5,084     6,960
----------------------------------------------------------------------------
                                                             6,112     7,955
----------------------------------------------------------------------------

11. Line Of Credit:

The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility or may be used to support letters of credi t. As at September 30, 2013, US $165,000 (March 31, 2013 - US $165,000) had been reserved on this line of credit for the letter of credit supporting a performance bond.

12. Segmented Information:

The Company is organized into one operating segment represented by the development and licensing of reservoir simulation software. The Company provides professional services, consisting of support, training, consulting and contract research activities, to promote the use and development of its software; however, these activities are not evaluated as a separate business segment.

Revenues and property and equipment of the Company arise in the following geographic regions:


 
(thousands of $)                           Revenue    Property and equipment
----------------------------------------------------------------------------
                          For the six months ended                          
                                     September 30,       As at September 30,
                                  2013        2012          2013        2012
----------------------------------------------------------------------------
Canada                          12,701      12,958         2,626       3,332
United States                    7,085       5,830            52          64
South America                    6,147       5,501            63          54
Eastern Hemisphere(1)            9,367       8,250            62          27
----------------------------------------------------------------------------
                                35,300      32,539         2,803       3,477
----------------------------------------------------------------------------
(1) Includes Europe, Africa, Asia and Australia.                            

In the six months ended September 30, 2013 and 2012, no customer represented 10% of total revenue.

13. Joint Operation:

The Company is the operator of a joint software development project, the DRMS project, which gives the Company exclusive rights to commercialize the jointly developed software while the other partners will have unlimited software access for their internal use. Accordingly, the Company records its proportionate share of costs incurred on the project (37.04%) as research and development costs within the condensed consolidated statements of operations and comprehensive income.

For the three and six months ended September 30, 2013, CMG included $1.1 million and $2.2 million, respectively (2012 - $0.9 million and $1.8 million, respectively) of costs in its condensed consolidated statements of operations and comprehensive income related to this joint project.

Additionally, the Company is entitled to charge the project for various services provided as operator, which were recorded in revenue as professional services and amounted to $0.6 million and $1.2 million during the three and six months ended September 30, 2013 (2012 - $0.4 million and $0.9 million, respectively).

14. Subsequent Events:

On November 12, 2013, the Board of Directors declared a quarterly cash dividend of $0.18 per share on its Common Shares, payable on December 13, 2013, to all shareholders of record at the close of business on December 6, 2013. Contacts: Computer Modelling Group Ltd. Kenneth M. Dedeluk President & CEO (403) 531-1300 ken.dedeluk@cmgl.ca

Computer Modelling Group Ltd. Sandra Balic Vice President, Finance & CFO (403) 531-1300 (403) 289-8502 (FAX) sandra.balic@cmgl.ca www.cmgl.ca

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