Computer Modelling Group Announces Third Quarter Results

Computer Modelling Group Announces Third Quarter Results  CALGARY, ALBERTA -- (Marketwired) -- 02/12/14 --   Computer Modelling Group Ltd. (TSX: CMG) ("CMG" or the "Company") is very pleased to report our third quarter results for the three and nine months ended December 31, 2013.        THIRD QUARTER HIGHLIGHTS                                                     For the three months ended December 31,                                      ($ thousands, except per share data)         2013    2012 $ change % change  ----------------------------------------------------------------------------   Annuity/maintenance software licenses      14,278  14,004      274        2% Perpetual software licenses                 2,942   1,365    1,577      116% Total revenue                              19,227  16,802    2,425       14% Operating profit                            9,575   8,276    1,299       16% Net income                                  7,205   6,119    1,086       18% Earnings per share - basic                   0.19    0.16     0.03       19% ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands, except per share data)         2013    2012 $ change % change  ----------------------------------------------------------------------------   Annuity/maintenance software licenses      41,389  39,196    2,193        6% Perpetual software licenses                 7,102   6,106      996       16% Total revenue                              54,527  49,341    5,186       11% Operating profit                           27,221  24,413    2,808       12% Net income                                 19,894  17,569    2,325       13% Earnings per share - basic                   0.52    0.47     0.05       11% ----------------------------------------------------------------------------  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 February 11, 2014, should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of the Company for the three and nine months ended December 31, 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 ($ thousands, unless otherwise stated)                                        Fiscal                                                                      2012(1)       Fiscal 2013(2)           Fiscal 2014(3)                             Q4     Q1     Q2     Q3     Q4     Q1     Q2     Q3 ----------------------------------------------------------------------------   Annuity/maintenance                                                           licenses            12,497 13,179 12,012 14,004 15,359 13,958 13,153 14,278 Perpetual licenses    3,416  2,070  2,671  1,365  2,300  2,331  1,829  2,942 ---------------------------------------------------------------------------- Software licenses    15,913 15,249 14,683 15,369 17,659 16,289 14,982 17,220 Professional                                                                  services             1,302  1,216  1,390  1,433  1,620  1,827  2,202  2,007 ---------------------------------------------------------------------------- Total revenue        17,215 16,465 16,073 16,802 19,279 18,116 17,184 19,227 Operating profit      9,193  8,105  8,032  8,276  9,877  9,350  8,296  9,575 Operating profit                                                              (%)                     53     49     50     49     51     52     48     50 EBITDA(4)             9,543  8,423  8,425  8,687 10,294  9,725  8,675  9,972 Profit before                                                                 income and other                                                             taxes                9,104  8,577  7,703  8,556 10,314  9,999  8,133 10,249 Income and other                                                              taxes                2,484  2,487  2,342  2,437  3,061  2,918  2,525  3,044 Net income for the                                                            period               6,620  6,090  5,361  6,119  7,253  7,081  5,608  7,205 Cash dividends                                                                declared and paid    4,848  9,736  6,020  6,050  6,099  8,841  6,994  7,020 ---------------------------------------------------------------------------- Per share amounts -                                                           ($/share)                                                                   Earnings per share                                                            - basic               0.18   0.16   0.14   0.16   0.19   0.19   0.15   0.19 Earnings per share                                                            - diluted             0.17   0.16   0.14   0.16   0.19   0.18   0.14   0.18 Cash dividends                                                                declared and paid     0.13   0.26   0.16   0.16   0.16   0.23   0.18   0.18 ---------------------------------------------------------------------------- (1)Q4 of fiscal 2012 includes $2.7 million 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, Q2 and Q3 of fiscal 2014 include $1.2 million, $0.2 million and $0.9     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 nine months ended December 31, 2013, as compared to the same period of the prior fiscal year, CMG:        --  Increased annuity/maintenance revenue by 6%  --  Increased operating profit by 12%  --  Increased spending on research and development by 18%  --  Increased EBITDA by 11%  --  Realized basic earnings per share of $0.52, representing a 11% increase    Revenue                                                                        For the three months ended December 31,                                      ($ thousands)                               2013    2012  $ change % change  ----------------------------------------------------------------------------   Software licenses                         17,220  15,369     1,851       12% Professional services                      2,007   1,433       574       40% ---------------------------------------------------------------------------- Total revenue                             19,227  16,802     2,425       14% ----------------------------------------------------------------------------   Software license revenue - % of total                                         revenue                                      90%     91%                    Professional services - % of total                                            revenue                                      10%      9%                    ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                               2013    2012  $ change % change  ----------------------------------------------------------------------------   Software licenses                         48,491  45,302     3,189        7% Professional services                      6,036   4,039     1,997       49% ---------------------------------------------------------------------------- Total revenue                             54,527  49,341     5,186       11% ----------------------------------------------------------------------------   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 14% for the three months ended December 31, 2013, compared to the same period of the previous fiscal year, due to increases in both software license revenue and professional services.  Similarly, total revenue increased by 11% for the nine months ended December 31, 2013, compared to the same period of the previous fiscal year, 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 December 31,                                      ($ thousands)                               2013    2012  $ change % change  ----------------------------------------------------------------------------   Annuity/maintenance licenses              14,278  14,004       274        2% Perpetual licenses                         2,942   1,365     1,577      116% ---------------------------------------------------------------------------- Total software license revenue            17,220  15,369     1,851       12% ----------------------------------------------------------------------------   Annuity/maintenance as a % of total                                           software license revenue                     83%     91%                    Perpetual as a % of total software                                            license revenue                              17%      9%                    ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                               2013    2012  $ change % change  ----------------------------------------------------------------------------   Annuity/maintenance licenses              41,389  39,196     2,193        6% Perpetual licenses                         7,102   6,106       996       16% ---------------------------------------------------------------------------- Total software license revenue            48,491  45,302     3,189        7% ----------------------------------------------------------------------------   Annuity/maintenance as a % of total                                           software license revenue                     85%     87%                    Perpetual as a % of total software                                            license revenue                              15%     13%                    ----------------------------------------------------------------------------  Total software license revenue grew by 12% in the three months ended December 31, 2013, compared to the same period of the previous fiscal year, mainly due to an increase in perpetual license sales. Total software license revenue grew by 7% in the nine months ended December 31, 2013, compared to the same period of the previous fiscal year, due to increases in both the annuity/maintenance and perpetual license sales.   CMG's annuity/maintenance license revenue increased by 2% and 6% during the three and nine months ended December 31, 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. In addition, annuity/maintenance license revenue for the three and nine months ended December 31, 2013, compared to the same periods of the previous year, was positively affected by the weakening of the Canadian dollar.  All of our regions, except South America, experienced growth in annuity/maintenance revenue during the three and nine months ended December 31, 2013, compared to the same periods of the previous year, with the most significant growth being generated from the US market.  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. To provide a normalized comparison, if we were to remove revenue from this particular customer from the third quarter of the previous year, we will notice that the annuity/maintenance revenue increased by 11%, instead of 2%, as compared to the same period of the previous year. Similarly, if we were to remove revenue from this particular customer from the year-to-date recorded revenue, we will notice that the annuity/maintenance revenue increased by 12%, instead of 6%, 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.  Perpetual license sales increased by 116% for the three months ended December 31, 2013, compared to the same period of the previous fiscal year, due to increases in the US, South America and Eastern Hemisphere.  Perpetual license sales increased by 16% for the nine months ended December 31, 2013, compared to the same period of the previous fiscal year, due to growth in perpetual sales generated by the US, South America and Eastern Hemisphere offset by a decrease in Canada.  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 nine months ended December 31, 2013, compared to the same periods of the previous fiscal year, had a positive impact on our reported 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 December                                           31,                                                                         ($ thousands)                                 2013   2012 $ change % change  ----------------------------------------------------------------------------   US dollar annuity/maintenance license                                         sales                                 US$   9,460  8,785      675        8% Weighted average conversion rate             1.022  1.001                    ---------------------------------------------------------------------------- Canadian dollar equivalent             CDN$  9,671  8,795      876       10% ----------------------------------------------------------------------------   US dollar perpetual license sales      US$   2,665    908    1,757      194% Weighted average conversion rate             1.045  0.994                    ---------------------------------------------------------------------------- Canadian dollar equivalent             CDN$  2,786    903    1,883      209% ----------------------------------------------------------------------------   For the nine months ended December 31,        2013   2012 $ change % change  ($ thousands)                                                                ----------------------------------------------------------------------------   US dollar annuity/maintenance license                                         sales                                 US$  27,568 24,361    3,207       13% Weighted average conversion rate             1.014  1.001                    ---------------------------------------------------------------------------- Canadian dollar equivalent             CDN$ 27,966 24,393    3,573       15% ----------------------------------------------------------------------------   US dollar perpetual license sales      US$   6,426  4,159    2,267       55% Weighted average conversion rate             1.036  1.000                    ---------------------------------------------------------------------------- Canadian dollar equivalent             CDN$  6,655  4,160    2,495       60% ----------------------------------------------------------------------------   The following table quantifies the foreign exchange impact on our software   license revenue:                                                               For the three months ended                      Incremental  Foreign         December 31, 2013                       Q3 2013     License Exchange Q3 2014 ($ thousands)                           Balance      Growth   Impact Balance ----------------------------------------------------------------------------   Annuity/maintenance license sales        14,004          74      200  14,278 Perpetual license sales                   1,365       1,442      135   2,942 ---------------------------------------------------------------------------- Total software license revenue           15,369       1,516      335  17,220 ----------------------------------------------------------------------------   For the nine months ended                       Incremental  Foreign         December 31, 2013                       Q3 2013     License Exchange Q3 2014 ($ thousands)                           Balance      Growth   Impact Balance ----------------------------------------------------------------------------   Annuity/maintenance license sales        39,196       1,832      361  41,389 Perpetual license sales                   6,106         769      227   7,102 ---------------------------------------------------------------------------- Total software license revenue           45,302       2,601      588  48,491 ----------------------------------------------------------------------------        REVENUE BY GEOGRAPHIC SEGMENT                                                  For the three months ended December 31,                                      ($ thousands)                                2013   2012 $ change  % change  ---------------------------------------------------------------------------- Annuity/maintenance revenue                                                    Canada                                    6,013  5,490      523        10%   United States                             3,421  2,818      603        21%   South America                             1,513  2,435     (922)      -38%   Eastern Hemisphere(1)                     3,331  3,261       70         2% ----------------------------------------------------------------------------                                            14,278 14,004      274         2% ---------------------------------------------------------------------------- Perpetual revenue                                                              Canada                                      156    227      (71)      -31%   United States                               427      -      427       100%   South America                               862     26      836      3215%   Eastern Hemisphere                        1,497  1,112      385        35% ----------------------------------------------------------------------------                                             2,942  1,365    1,577       116% ---------------------------------------------------------------------------- Total software license revenue                                                 Canada                                    6,169  5,717      452         8%   United States                             3,848  2,818    1,030        37%   South America                             2,375  2,461      (86)       -3%   Eastern Hemisphere                        4,828  4,373      455        10% ----------------------------------------------------------------------------                                            17,220 15,369    1,851        12% ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                                2013   2012 $ change  % change  ---------------------------------------------------------------------------- Annuity/maintenance revenue                                                    Canada                                   16,895 15,902      993         6%   United States                             9,542  7,759    1,783        23%   South America                             5,411  6,770   (1,359)      -20%   Eastern Hemisphere(1)                     9,541  8,765      776         9% ----------------------------------------------------------------------------                                            41,389 39,196    2,193         6% ---------------------------------------------------------------------------- Perpetual revenue                                                              Canada                                      447  1,541   (1,094)      -71%   United States                               854    662      192        29%   South America                             1,352    509      843       166%   Eastern Hemisphere                        4,449  3,394    1,055        31% ----------------------------------------------------------------------------                                             7,102  6,106      996        16% ---------------------------------------------------------------------------- Total software license revenue                                                 Canada                                   17,342 17,443     (101)       -1%   United States                            10,396  8,421    1,975        23%   South America                             6,763  7,279     (516)       -7%   Eastern Hemisphere                       13,990 12,159    1,831        15% ----------------------------------------------------------------------------                                            48,491 45,302    3,189         7% ---------------------------------------------------------------------------- (1)Includes Europe, Africa, Asia and Australia.                               During the three months ended December 31, 2013, on a geographic basis, total software license sales increased across all regions with the exception of the South American market which experienced an overall decrease of 3%, compared to the same period of the previous fiscal year.  During the nine months ended December 31, 2013, on a geographic basis, total software license sales increased by 23% and 15% in the US and Eastern Hemisphere, respectively, while Canada and South America experienced decreases of 1% and 7%, respectively.   The Canadian market (representing 36% of year-to-date total software revenue) experienced growth in annuity/maintenance revenue during the three and nine months ended December 31, 2013, compared to the same periods of the previous fiscal year. These increases were supported by sales to both new and existing customers. Perpetual sales were lower during the three and nine months ended December 31, 2013, compared to the same periods 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%, 38%, and 10% recorded during Q3 2013, Q4 2013 and Q1 2014, respectively. Annuity/maintenance was relatively flat in Q2 2014, compared to the same period of the previous fiscal year; however, the double digit growth trend returned in the third quarter of the current fiscal year with the recorded increase of 10%.  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 nine months ended December 31, 2013, compared to the same periods of the previous fiscal year, driven by sales to new and existing customers. Perpetual license sales increased during the three and nine months ended December 31, 2013, compared to the same periods 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 32%, 20%, 32% and 16% recorded during Q3 2013, Q4 2013, Q1 2014, and Q2 2014 respectively. This double-digit growth trend has continued into the third quarter of the current fiscal year with the recorded increase of 21%.   South America (representing 14% of year-to-date total software revenue) experienced a decline of 38% and 20% in annuity/maintenance license sales during the three and nine months ended December 31, 2013, respectively, compared to the same periods of the previous fiscal year. These decreases were 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 remove revenue from this particular customer from the third quarter of the previous year, we will notice that the South America annuity/maintenance revenue increased by 20%, instead of a decrease of 38%, as compared to the same period of the previous year. Similarly, if we were to remove revenue from this particular customer from the year-to-date recorded revenue, we will notice that the South America annuity/maintenance revenue increased by 18%, instead of a decrease of 20%, as compared to the same period of the previous year. The South American region experienced increases in perpetual license sales during the three and nine months ended December 31, 2013, compared to the same period of the previous year.   Eastern Hemisphere (representing 29% of the year-to-date total software revenue) grew annuity/maintenance license sales by 2% and 9% during the three and nine months ended December 31, 2013, respectively, compared to the same periods of the previous fiscal year, due to sales to both new and existing customers in the region. Compared to other regions, the Eastern Hemisphere achieved the highest dollar value of growth in perpetual license revenue during the nine months ended December 31, 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.  To view a chart of the Quarterly Software License Revenue, please visit the following link: http://media3.marketwire.com/docs/926056g.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% December 31                                 18,069 15,510    2,559       16% ----------------------------------------------------------------------------  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 December 31, 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, second quarter and third quarter (June 30, September 30 and December 31, respectively) compared to the fiscal year-end (March 31). Deferred revenue at December 31, 2013 increased compared to the same period of the prior fiscal year due to both the renewal of existing and signing of new annuity and maintenance contracts in the quarter.   PROFESSIONAL SERVICES REVENUE   CMG recorded professional services revenue of $2.0 million for the three months ended December 31, 2013, representing an increase of $0.6 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 continue to contribute to the professional services revenue during the current fiscal year. Professional services for the nine months ended December 31, 2013 amounted to $6.0 million, representing an increase of $2.0 million, compared to the same period of the previous fiscal year, which again resulted from entering into a large consulting agreement with one of our clients in the current fiscal year.  Professional services revenue consists of specialized consulting, training, and contract research activities. CMG performs consulting and contract research activities on an ongoing basis, but such activities are not considered to be a core part of our business and are primarily undertaken to increase our knowledge base and hence expand the technological abilities of our simulators in a funded manner, combined with servicing our customers' needs. In addition, these activities are undertaken to market the capabilities of our suite of software products with the ultimate objective to increase software license sales. Our experience is that consulting activities are variable in nature as both the timing and dollar magnitude of work are dependent on activities and budgets within client companies.        Expenses                                                                       For the three months ended December 31,                                      ($ thousands)                                 2013   2012 $ change % change  ----------------------------------------------------------------------------   Sales, marketing and professional services   4,119  3,778      341        9% Research and development                     3,816  3,136      680       22% General and administrative                   1,717  1,612      105        7% ---------------------------------------------------------------------------- Total operating expenses                     9,652  8,526    1,126       13% ----------------------------------------------------------------------------   Direct employee costs(1)                     7,599  6,716      883       13% Other corporate costs                        2,053  1,810      243       13% ----------------------------------------------------------------------------                                              9,652  8,526    1,126       13% ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                                 2013   2012 $ change % change  ----------------------------------------------------------------------------   Sales, marketing and professional services  11,605 11,333      272        2% Research and development                    10,706  9,061    1,645       18% General and administrative                   4,995  4,534      461       10% ---------------------------------------------------------------------------- Total operating expenses                    27,306 24,928    2,378       10% ----------------------------------------------------------------------------   Direct employee costs(1)                    21,907 19,802    2,105       11% Other corporate costs                        5,399  5,126      273        5% ----------------------------------------------------------------------------                                             27,306 24,928    2,378       10% ---------------------------------------------------------------------------- (1)Includes salaries, bonuses, stock-based compensation, benefits and           commissions.                                                               CMG's total operating expenses increased by 13% and 10% for the three and nine months ended December 31, 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 80% of the total operating expenses in the nine months ended December 31, 2013 related to staff costs, compared to 79% 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 December 31, 2013, CMG's staff complement was 189 employees and consultants, up from 166 employees as at December 31, 2012. Direct employee costs increased during the three and nine months ended December 31, 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 13% for the three months ended December 31, 2013, compared to the same period of the previous fiscal year, mainly due to the decrease in the Federal research and experimental development ("SR&ED") input tax credit rate.   Other corporate costs were comparable between the nine months ended December 31, 2013 and 2012 with only a slight increase of 5%, mainly due to increased computing costs offset by the inclusion of the costs associated with CMG's biennial technical symposium in the nine months ended December 31, 2012.         RESEARCH AND DEVELOPMENT                                                       For the three months ended December 31,                                      ($ thousands)                              2013     2012  $ change % change  ----------------------------------------------------------------------------   Research and development (gross)          4,125    3,586       539       15% SR&ED credits                              (309)    (450)      141      -31% ---------------------------------------------------------------------------- Research and development                  3,816    3,136       680       22% ----------------------------------------------------------------------------   Research and development as a % of                                            total revenue                               20%      19%                    ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                              2013     2012  $ change % change  ----------------------------------------------------------------------------   Research and development (gross)         12,080   10,458     1,622       16% SR&ED credits                            (1,374)  (1,397)       23       -2% ---------------------------------------------------------------------------- Research and development                 10,706    9,061     1,645       18% ----------------------------------------------------------------------------   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 $0.9 million and $3.0 million for the three and nine months ended December 31, 2013, respectively (2012 - $1.0 million and $2.8 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."  The increases of 15% and 16% in our gross spending on research and development for the three and nine months ended December 31, 2013, respectively, compared to the same periods of the previous fiscal year, demonstrate our continued commitment to advancement of our technology which is the focal part of our business strategy.  Research and development costs, net of research and experimental development ("SR&ED") credits, increased by 22% and 18% during the three and nine months ended December 31, 2013, respectively, compared to the same periods of the previous fiscal year, due to increased employee compensation costs and costs associated with computing resources.   We also had a decrease in SR&ED credits in the three and nine months ended December 31, 2013, compared to the same period of the previous fiscal year, driven by the decrease in the Federal SR&ED input tax credit rate from 20% to 15% effective January 1, 2014 lowering our average rate for fiscal 2014.         DEPRECIATION                                                                   For the three months ended December 31,                                      ($ thousands)                                 2013  2012 $ change  % change  ----------------------------------------------------------------------------   Depreciation of property and equipment,                                       allocated to:                                                                 Sales, marketing and professional services   102   124      (22)      -18%   Research and development                     240   235        5         2%   General and administrative                    55    52        3         6% ---------------------------------------------------------------------------- Total depreciation                             397   411      (14)       -3% ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                                 2013  2012 $ change  % change  ----------------------------------------------------------------------------   Depreciation of property and equipment,                                       allocated to:                                                                 Sales, marketing and professional services   305   341      (36)      -11%   Research and development                     692   641       51         8%   General and administrative                   154   140       14        10% ---------------------------------------------------------------------------- Total depreciation                           1,151 1,122       29         3% ----------------------------------------------------------------------------   Depreciation in the three and nine months ended December 31, 2013 was        relatively flat as compared to the same periods in the previous fiscal year.   Finance Income                                                                 For the three months ended December 31,                                      ($ thousands)                                  2013  2012 $ change % change  ----------------------------------------------------------------------------   Interest income                                 160   133       27       20% Net foreign exchange gain                       514   147      367      250% ---------------------------------------------------------------------------- Total finance income                            674   280      394      141% ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                                  2013  2012 $ change % change  ----------------------------------------------------------------------------   Interest income                                 479   409       70       17% Net foreign exchange gain                       681    13      668     5138% ---------------------------------------------------------------------------- Total finance income                          1,160   422      738      175% ----------------------------------------------------------------------------  Interest income increased in the three and nine months ended December 31, 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 - 67%) of CMG's revenue for the nine months ended December 31, 2013 is denominated in US dollars, whereas only approximately 25% (2012 - 22%) of CMG's total costs are denominated in US dollars.                                 At              At              At       Nine month CDN$ to US$         June 30    September 30     December 31 trailing average ----------------------------------------------------------------------------   2011                 1.0370          0.9626          0.9833           1.0132 2012                 0.9813          1.0166          1.0051           0.9998 2013                 0.9513          0.9723          0.9402           0.9604 ----------------------------------------------------------------------------  CMG recorded net foreign exchange gains of $0.5 million and $0.7 million for the three and nine months ended December 31, 2013, respectively, compared to net foreign exchange gains of $0.1 million and $0.01 million recorded in the three and nine months ended December 31, 2012, respectively. These gains were a result of a weakening in the Canadian dollar which contributed positively to the valuation of our US-denominated working capital.  Income and Other Taxes   CMG's effective tax rate for the nine months ended December 31, 2013 is reflected as 29.90% (2012 - 29.26%), whereas the prevailing Canadian statutory tax rate is now 25.0%. This difference is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.  The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts deferred income taxes. The investment tax credit earned in the current fiscal year is utilized by CMG to reduce income taxes otherwise payable for the current fiscal year and the federal portion of this benefit bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a non-current deferred tax liability and then, in the following fiscal year, is transferred to income taxes payable.        Operating Profit and Net Income                                                For the three months ended                                                   December 31,                                                                 ($ thousands, except per share                                                amounts)                                 2013     2012  $ change  % change  ----------------------------------------------------------------------------   Total revenue                           19,227   16,802     2,425        14% Operating expenses                      (9,652)  (8,526)   (1,126)       13% ----------------------------------------------------------------------------   Operating profit                         9,575    8,276     1,299        16%   Operating profit as a % of total                                              revenue                                    50%      49%                     ----------------------------------------------------------------------------   Net income for the period                7,205    6,119     1,086        18%   Net income for the period as a % of                                           total revenue                              37%      36%                     ----------------------------------------------------------------------------   Basic earnings per share ($/share)        0.19     0.16      0.03        19% ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands, except per share                                               amounts)                                  2013     2012  $ change  % change  ----------------------------------------------------------------------------   Total revenue                           54,527   49,341     5,186        11% Operating expenses                     (27,306) (24,928)   (2,378)       10% ----------------------------------------------------------------------------   Operating profit                        27,221   24,413     2,808        12%   Operating profit as a % of total                                              revenue                                    50%      49%                     ----------------------------------------------------------------------------   Net income for the period               19,894   17,569     2,325        13%   Net income for the period as a % of                                           total revenue                              36%      36%                     ----------------------------------------------------------------------------   Earnings per share ($/share)              0.52     0.47      0.05        11% ----------------------------------------------------------------------------  Operating profit as a percentage of total revenue for the three and nine months ended December 31, 2013 was at 50% compared to 49% recorded in the same periods of the previous fiscal year. While our total revenue grew by 14% and 11% for the three and nine months ended December 31, 2013, respectively, as compared to the same periods of the previous fiscal year, our operating expenses grew by only 13% and 10%, respectively, having a positive impact on our operating profit. Our high levels of operating profit as a percentage of revenue demonstrate our commitment to continue to effectively manage our costs.  Net income for the period as a percentage of revenue increased to 37% for the three months ended December 31, 2013, compared to 36% for the same period of the previous fiscal year.  Net income for the period as a percentage of revenue was consistent at 36% for the nine months ended December 31, 2013, compared to the same period of the previous fiscal year.  We have continued to maintain our profitability by focusing our efforts on increasing license sales while, at the same time, effectively controlling our operating costs. Managing these variables will continue to be imperative to our future success.        EBITDA                                                                         For the three months ended December 31,                                      ($ thousands)                              2013    2012  $ change  % change  ----------------------------------------------------------------------------   Net income for the period                 7,205   6,119     1,086        18% Add (deduct):                                                                  Depreciation                              397     411       (14)       -3%   Finance income                           (674)   (280)     (394)      141%   Income and other taxes                  3,044   2,437       607        25% ---------------------------------------------------------------------------- EBITDA                                    9,972   8,687     1,285        15% ----------------------------------------------------------------------------   EBITDA as a % of total revenue               52%     52%                     ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                              2013    2012  $ change  % change  ----------------------------------------------------------------------------   Net income for the period                19,894  17,569     2,325        13% Add (deduct):                                                                  Depreciation                            1,151   1,122        29         3%   Finance income                         (1,160)   (422)     (738)      175%   Income and other taxes                  8,487   7,266     1,221        17% ---------------------------------------------------------------------------- EBITDA                                   28,372  25,535     2,837        11% ----------------------------------------------------------------------------   EBITDA as a % of total revenue               52%     52%                     ----------------------------------------------------------------------------  EBITDA increased by 15% and 11% for the three and nine months ended December 31, 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.   EBITDA as a percent of total revenue for the three and nine months ended December 31, 2013 remained consistent at 52% as compared to the same periods of the previous fiscal year.         Liquidity and Capital Resources                                                For the three months ended December 31,                                      ($ thousands)                             2013     2012  $ change  % change  ----------------------------------------------------------------------------   Cash, beginning of period               63,745   50,694    13,051        26% Cash flow from (used in):                                                      Operating activities                   6,724    6,720         4         0%   Financing activities                  (5,545)  (4,777)     (768)       16%   Investing activities                    (216)    (401)      185       -46% ---------------------------------------------------------------------------- Cash, end of period                     64,708   52,236    12,472        24% ----------------------------------------------------------------------------   For the nine months ended December 31,                                       ($ thousands)                             2013     2012  $ change  % change  ----------------------------------------------------------------------------   Cash, beginning of period               59,419   55,374     4,045         7% Cash flow from (used in):                                                      Operating activities                  19,464   16,918     2,546        15%   Financing activities                 (13,706) (18,296)    4,590       -25%   Investing activities                    (469)  (1,760)    1,291       -73% ---------------------------------------------------------------------------- Cash, end of period                     64,708   52,236    12,472        24% ----------------------------------------------------------------------------  OPERATING ACTIVITIES  Cash flow generated from operating activities remained consistent in the three months ended December 31, 2013, compared to the same period of last year.  Cash flow generated from operating activities increased by $2.5 million in the nine months ended December 31, 2013, compared to the same period of last year, mainly due to the increase in net income for the period and the positive effect on the timing difference of when income taxes are recorded and paid offset by the timing difference of when sales are made and when the resulting receivables are collected and the change in the deferred revenue balance.  FINANCING ACTIVITIES  Cash used in financing activities during the three months ended December 31, 2013 increased by $0.8 million, compared to the same period of the previous fiscal year, as a result of paying larger dividends.   During the nine months ended December 31, 2013, cash used in financing activities decreased by $4.6 million, compared to the same period of the previous fiscal year, due to receiving higher proceeds from the issuance of Common Shares offset by paying larger dividends. In addition, in the first quarter of the previous fiscal year, CMG spent $1.6 million on buying back Common Shares.  During the nine months ended December 31, 2013, CMG employees and directors exercised options to purchase 884,000 Common Shares, which resulted in cash proceeds of $9.1 million (2012 - 601,000 options exercised to purchase Common Shares which resulted in cash proceeds of $5.1 million).  In the nine months ended December 31, 2013, CMG paid $22.9 million in dividends, representing the following quarterly dividends:         ($ per share)                                         Q1        Q2        Q3 ----------------------------------------------------------------------------   Dividends declared and paid                         0.18      0.18      0.18 Special dividend declared and paid                  0.05         -         - ---------------------------------------------------------------------------- Total dividends declared and paid                   0.23      0.18      0.18 ----------------------------------------------------------------------------  In the nine months December 31, 2012, CMG paid $21.8 million in dividends, representing the following quarterly dividends:        ($ per share)                                         Q1        Q2        Q3 ----------------------------------------------------------------------------   Dividends declared and paid                         0.16      0.16      0.16 Special dividend declared and paid                  0.10         -         - ---------------------------------------------------------------------------- Total dividends declared and paid                   0.26      0.16      0.16 ----------------------------------------------------------------------------  On February 11, 2014 CMG announced the payment of a quarterly dividend of $0.19 per share on CMG's Common Shares. The dividend will be paid on March 14, 2014 to shareholders of record at the close of business on March 7, 2014.   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, Q2 and Q3 of fiscal 2014 compared to $0.16 per share in Q1, Q2 and Q3 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 nine months ended December 31, 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 nine months ended December 31, 2013, CMG expended $0.5 million on property and equipment additions, primarily composed of computing equipment. CMG has a capital budget of $1.8 million for fiscal 2014.   LIQUIDITY AND CAPITAL RESOURCES  At December 31, 2013, CMG has $64.7 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 nine months ended December 31, 2013, 7,399,000 shares of CMG's public float were traded on the TSX. As at December 31, 2013, CMG's market capitalization based upon its December 31, 2013 closing price of $26.61 was $1.0 billion.  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 - $0.5 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 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 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 IASB Recognition and           (2009), has been left    issued IFRS 9 Financial   Measurement, on the       open by the IASB. Early  Instruments (IFRS 9       classification and        adoption is permitted.   (2009)), and in October   measurement of financial  The Company will         2010 the IASB published   assets. The Standard      determine when to adopt  amendments to IFRS 9      eliminates the existing   IFRS 9 (2010) when the   (IFRS 9 (2010)). On July  IAS 39 categories of held IASB has determined the  24, 2013 the IASB         to maturity, available-   mandatory effective date tentatively decided to    for-sale and loans and    and finalised the        defer the mandatory       receivable.               impairment and           effective date of IFRS 9.                           classification and       The mandatory effective   Financial assets will be  measurement              date will be left open    classified into one of    requirements.            pending the finalisation  two categories on initial                          of the impairment and     recognition:              The Company does not     classification and                                  expect IFRS 9 (2010) to  measurement requirements. - financial assets        have a material impact                             measured at amortized     on the financial                                   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 measured change under IFRS 9                                at fair value will be     (2010) because of the                              recognized in profit or   nature of the Company's                            loss, except that for an  operations and the types                           investment in an equity   of financial assets that                           instrument which is not   it holds.                                          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 set- statements for the       In December 2011, the     off if that right is:     annual period beginning  IASB published Offsetting                           April 1, 2014. The       Financial Assets and      - not contingent on a     Company does not expect  Financial Liabilities and future event; and         the amendments to have a issued new presentation   - enforceable both in the material impact on the   requirements in IAS 32    normal course of business financial statements.    Financial Instruments:    and in the event of                                Presentation.             default, insolvency or                                                       bankruptcy of the entity                           The effective date for    and all counterparties.                            the amendments to IAS 32                                                     is annual periods         The amendments to IAS 32                           beginning on or after     also clarify when a                                January 1, 2014. These    settlement mechanism                               amendments are to be      provides for net                                   applied retrospectively.  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 of financial statements.                              impaired assets when the                           The effective date for    recoverable amount is                              the amendments to IAS 36  based on fair value less                           is annual periods         costs of disposal,                                 beginning on or after     including the discount                             January 1, 2014. These    rate when a present value                          amendments are to be      technique is used to                               applied retrospectively   measure the recoverable                            and earlier adoption is   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 February 11, 2014                                                      (thousands)                                                                  ---------------------------------------------------------------------------- Common Shares                                                         39,030 Options                                                                3,093 ----------------------------------------------------------------------------  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 February 11, 2014, CMG could grant up to 3,903,000 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 nine months ended December 31, 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 nine months of fiscal 2014 with a recorded increase of 6%, compared to the same period of the previous fiscal year, with the most significant growth coming from the US at 23%. 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 continue to experience increased license usage by our existing large clients as well as adding new accounts.   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 $2.0 million in the first nine 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 nine months ended December 31, 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 progress during the third quarter of the current fiscal year. The most recent beta version of the software was released at the beginning of calendar 2013, and the limited commercial release of the software was expected to be delivered to our partner companies, for the purposes of testing it on selected assets, by the end of calendar 2013. The upcoming release achieved its target of successfully simulating a complex integrated asset model; however, an unanticipated additional complexity in the model has delayed the software release to our partners to the fourth quarter of fiscal 2014. 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  February 11, 2014         COMPUTER MODELLING GROUP LTD.                                                CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                        UNAUDITED (thousands of Canadian $)      December 31, 2013    March 31, 2013 ----------------------------------------------------------------------------   Assets                                                                       Current assets:                                                                Cash                                              64,708            59,419   Trade and other receivables                       15,446            19,141   Prepaid expenses                                   1,417             1,216   Prepaid income taxes (note 7)                        122               341 ----------------------------------------------------------------------------                                                     81,693            80,117 Property and equipment                               2,622             3,304 ---------------------------------------------------------------------------- Total assets                                        84,315            83,421 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   Liabilities and Shareholders' Equity                                         Current liabilities:                                                           Trade payables and accrued liabilities             5,311             6,047   Income taxes payable (note 7)                        866               296   Deferred revenue                                  18,069            25,289 ----------------------------------------------------------------------------                                                     24,246            31,632 Deferred tax liability (note 7)                        228               379 ---------------------------------------------------------------------------- Total liabilities                                   24,474            32,011 ----------------------------------------------------------------------------   Shareholders' equity:                                                          Share capital                                     51,251            40,498   Contributed surplus                                5,312             4,673   Retained earnings                                  3,278             6,239 ---------------------------------------------------------------------------- Total shareholders' equity                          59,841            51,410 ---------------------------------------------------------------------------- Total liabilities and shareholders'                                           equity                                             84,315            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  Nine months ended                                            December 31        December 31    UNAUDITED (thousands of Canadian $                                            except per share amounts)                  2013      2012     2013     2012 ----------------------------------------------------------------------------   Revenue (note 4)                          19,227    16,802   54,527   49,341 ----------------------------------------------------------------------------   Operating expenses                                                             Sales, marketing and professional                                             services                                4,119     3,778   11,605   11,333   Research and development (note 5)        3,816     3,136   10,706    9,061   General and administrative               1,717     1,612    4,995    4,534 ----------------------------------------------------------------------------                                            9,652     8,526   27,306   24,928 ---------------------------------------------------------------------------- Operating profit                           9,575     8,276   27,221   24,413   Finance income (note 6)                      674       280    1,160      422 ---------------------------------------------------------------------------- Profit before income and other taxes      10,249     8,556   28,381   24,835 Income and other taxes (note 7)            3,044     2,437    8, 487    7,266 ----------------------------------------------------------------------------   Net and total comprehensive income         7,205     6,119   19,894   17,569 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   Earnings Per Share                                                           Basic (note 8(e))                           0.19      0.16     0.52     0.47 Diluted (note 8(e))                         0.18      0.16     0.50     0.45 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   See accompanying notes to condensed consolidated financial statements.         COMPUTER MODELLING GROUP LTD.                                                CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                         UNAUDITED (thousands of              Common  Contributed  Retained    Total   Canadian $)                  Share Capital      Surplus  Earnings   Equity  ----------------------------------------------------------------------------   Balance, April 1, 2012               31,751        3,535    10,793   46,079  Total comprehensive income                                                    for the period                           -            -    17,569   17,569  Dividends paid                            -            -   (21,806) (21,806) Shares issued for cash on                                                     exercise of stock options                                                    (note 8(b))                          5,061            -         -    5,061  Common shares buy-back (notes                                                 8(b) & (c))                            (80)           -    (1,471)  (1,551) Stock-based compensation:                                                      Current period expense                  -        1,888         -    1, 888    Stock options exercised                                                       (note 8(b))                          973         (973)        -        -  ---------------------------------------------------------------------------- Balance, December 31, 2012           37,705        4,450     5,085   47,240  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   Balance, April 1, 2013               40,498        4,673     6,239   51,410  Total comprehensive income                                                    for the period                           -            -    19,894   19,894  Dividends paid                            -            -   (22,855) (22,855) Shares issued for cash on                                                     exercise of stock options                                                    (note 8(b))                          9,149            -         -    9,149  Stock-based compensation:                                                      Current period expense                  -        2,243         -    2,243    Stock options exercised                                                       (note 8(b))                        1,604       (1,604)        -        -  ---------------------------------------------------------------------------- Balance, December 31, 2013           51,251        5,312     3,278   59,841  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   See accompanying notes to condensed consolidated financial statements.         COMPUTER MODELLING GROUP LTD.                                              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                   Three months ended Nine months ended                                          December 31        December 31     UNAUDITED (thousands of Canadian $)      2013      2012     2013     2012  --------------------------------------------------------------------------   Cash flows from operating activities                                         Net income                            7,205     6,119   19,894   17,569  Adjustments for:                                                             Depreciation                            397       411    1,151    1,122    Income and other taxes (note 7)       3,044     2,437    8,487    7,266    Stock-based compensation (note                                              8(d))                                  940       656    2,243    1,888    Interest income (note 6)               (160)     (133)    (479)    (409) --------------------------------------------------------------------------                                        11,426     9,490   31,296   27,436  Changes in non-cash working capital:                                         Trade and other receivables          (2,256)    1,775    3,698    4,855    Trade payables and accrued                                                  liabilities                          1,428       660     (736)    (549)   Prepaid expenses                       (259)      179     (201)     188    Deferred revenue                     (1,277)   (2,731)  (7,220)  (6,183) -------------------------------------------------------------------------- Cash generated from operating                                               activities                             9,062     9,373   26,837   25,747    Interest received                       160       132      476      412    Income taxes paid                    (2,498)   (2,785)  (7,849)  (9,241) -------------------------------------------------------------------------- Net cash from operating activities      6,724     6,720   19,464   16,918  --------------------------------------------------------------------------   Cash flows from financing activities                                       Proceeds from issue of common shares    1,475     1,273    9,149    5,061  Dividends paid                         (7,020)   (6,050) (22,855) (21,806) Common shares buy-back (note 8(c))          -         -        -   (1,551) -------------------------------------------------------------------------- Net cash used in financing                                                  activities                            (5,545)   (4,777) (13,706) (18,296) --------------------------------------------------------------------------   Cash flows used in investing                                                activities                                                                Property and equipment additions         (216)     (401)    (469)  (1,760) -------------------------------------------------------------------------- Increase (decrease) in cash               963     1,542    5,289   (3,138) Cash, beginning of period              63,745    50,694   59,419   55,374  -------------------------------------------------------------------------- Cash, end of period                    64,708    52,236   64,708   52,236  -------------------------------------------------------------------------- --------------------------------------------------------------------------   See accompanying notes to condensed consolidated financial statements.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  For the three and nine months ended December 31, 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 nine months ended December 31, 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 conjunction 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 nine months ended December 31, 2013 were authorized for issuance by the Board of Directors on February 11, 2014.  (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 December 31,                                      (thousands of $)                                          2013         2012  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Software licenses                                       17,220       15,369  Professional services                                    2,007        1,433  ----------------------------------------------------------------------------                                                         19,227       16,802  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   For the nine months ended December 31,                                       (thousands of $)                                          2013         2012  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Software licenses                                       48,491       45,302  Professional services                                    6,036        4,039  ----------------------------------------------------------------------------                                                         54,527       49,341  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   5. Research and Development Costs:                                             For the three months ended December 31,                                      (thousands of $)                                          2013         2012  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Research and development                                 4,125        3,586  Scientific research and experimental development                              ("SR&ED") investment tax credits                         (309)        (450) ----------------------------------------------------------------------------                                                          3,816        3,136  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   For the nine months ended December 31,                                       (thousands of $)                                          2013         2012  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Research and development                                12,080       10,458  Scientific research and experimental development                              ("SR&ED") investment tax credits                       (1,374)      (1,397) ----------------------------------------------------------------------------                                                         10,706        9,061  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   6. Finance Income and Finance Costs:                                           For the three months ended December 31,                                      (thousands of $)                                          2013         2012  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest income                                            160          133  Net foreign exchange gain                                  514          147  ---------------------------------------------------------------------------- Finance income                                             674          280  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   For the nine months ended December 31,                                       (thousands of $)                                          2013         2012  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest income                                            479          409  Net foreign exchange gain                                  681           13  ---------------------------------------------------------------------------- Finance income                                           1,160          422  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  7. Income and Other Taxes:   The major components of income tax expense are as follows:        For the nine months ended December 31,                                       (thousands of $)                                          2013         2012  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Current year income taxes                                7,727        6,655  Adjustment for prior year                                    6           67  ---------------------------------------------------------------------------- Current income taxes                                     7,733        6,722  Deferred tax expense (recovery)                           (151)         (61) Foreign withholding and other taxes                        905          605  ----------------------------------------------------------------------------                                                          8,487        7,266  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  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 nine months ended December 31,                                       (thousands of $, unless otherwise stated)                 2013         2012  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Combined statutory tax rate                              25.00%       25.00% ---------------------------------------------------------------------------- Expected income tax                                      7,095        6,209  Non-deductible costs                                       582          494  Effect of tax rates in foreign jurisdictions               129           17  Withholding taxes                                          678          454  Adjustment for prior year                                    6           67  Other                                                       (3)          25  ----------------------------------------------------------------------------                                                          8,487        7,266  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  The components of the Company's deferred tax liability are as follows:        (thousands of $)                        December 31, 2013    March 31, 2013  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Tax liability on SR&ED investment tax                                         credits                                             (244)             (362) Tax asset (liability) on property and                                         equipment                                             16               (17) ---------------------------------------------------------------------------- Deferred tax liability                               (228)             (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                            601  Common shares buy-back                                                  (91) ---------------------------------------------------------------------------- Balance, December 31, 2012                                           37,817  ----------------------------------------------------------------------------   Balance, April 1, 2013                                               38,129  Issued for cash on exercise of stock options                            884  ---------------------------------------------------------------------------- Balance, December 31, 2013                                           39,013  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  Subsequent to December 31, 2013, 17,000 stock options were exercised for cash proceeds of $206,000.   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 $1,551,000.  On April 29, 2013, the Company announced a NCIB commencing on May 1, 2013 to purchase for cancellation up to 3,538,000 of its Common Shares. During the nine months ended December 31, 2013, no Common Shares were purchased.  (d) STOCK-BASED COMPENSATION PLAN:   The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 7, 2011, which allows it to grant options to acquire Common Shares of up to 10% of the outstanding Common Shares at the date of grant. Based upon this calculation, at December 31, 2013, the Company could grant up to 3,901,000 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. The outstanding stock options vest as to 50% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates.   The following table outlines changes in stock options:         (thousands except per      For the nine months ended    For the year ended    share amounts)                December 31, 2013          March 31, 2013     ---------------------------------------------------------------------------- ----------------------------------------------------------------------------                                                                     Weighted                                               Weighted               Average                                                Average              Exercise                                 Options Exercise Price  Options        Price                                 Granted      ($/share)   Granted   ($/share) ---------------------------------------------------------------------------- Outstanding at beginning                                                      of period                        2,938          13.13     2,903        9.85 Granted                           1,154          24.41     1,006       18.19 Exercised                          (885)         10.34      (913)       8.15 Forfeited/cancelled                 (87)         16.34       (58)      15.09 ---------------------------------------------------------------------------- Outstanding at end of                                                         period                           3,120          18.00     2,938       13.13 ---------------------------------------------------------------------------- Options exercisable at                                                        end of period                    1,271          13.01     1,207        9.75 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  The range of exercise prices of stock options outstanding and exercisable at December 31, 2013 is as follows:                                    Outstanding                    Exercisable       ---------------------------------------------------------------------------- ----------------------------------------------------------------------------                                 Weighted    Weighted                Weighted                                  Average     Average                 Average                   Number of    Remaining    Exercise   Number of    Exercise Exercise Price      Options  Contractual       Price     Options       Price  ($/option)     (thousands) Life (years)  ($/option) (thousands)  ($/option) ---------------------------------------------------------------------------- 7.80 - 9.07             490          1.4        8.80         490        8.80 9.08 - 13.43            641          2.6       13.39         407       13.38 13.44 - 18.18           836          3.6       18.13         372       18.12 18.19 - 26.19         1,153          4.6       24.39           2       20.00 ----------------------------------------------------------------------------                       3,120          3.4       18.00       1,271       13.01 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  The fair value of stock options granted was estimated using the Black-Scholes option pricing model under the following assumptions:                                        For the nine months ended For the year ended                                         December 31, 2013     March 31, 2013 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Fair value at grant date                                                      ($/option)                                  3.06 to 4.33       2.45 to 3.83 Share price at grant date                                                     ($/share)                                 24.40 to 26.19     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                                               (%)                                         2.96 to 3.21       3.39 to 4.12 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  The Company recognized total stock-based compensation expense for the three and nine months ended December 31, 2013 of $940,000 and $2,243,000 respectively (three and nine months ended December 31, 2012 - $656,000 and $1,888,000 respectively).   (e) EARNINGS PER SHARE:   The following table summarizes the earnings and weighted average number of Common Shares used in calculating basic and diluted earnings per share:        For the three months                                                          ended December 31,                                                          (thousands except per                                                         share amounts)                          2013                           2012 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------                            Weighted                       Weighted                                       Average Earnings               Average  Earnings                Earnings      Shares Per Share Earnings      Shares Per Share                     ($) Outstanding ($/share)      ($) Outstanding ($/share) ---------------------------------------------------------------------------- Basic             7,205      38,939      0.19    6,119      37,754      0.16 Dilutive                                                                      effect of                                                                    stock options                  921                          1,103           ---------------------------------------------------------------------------- Diluted           7,205      39,860      0.18    6,119      38,857      0.16 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   For the nine months                                                          ended December 31,                                                           (thousands except per                                                        share amounts)                           2013                           2012 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------                            Weighted                       Weighted                                       Average Earnings               Average  Earnings                Earnings      Shares Per Share Earnings      Shares Per Share                     ($) Outstanding ($/share)      ($) Outstanding ($/share) ---------------------------------------------------------------------------- Basic            19,894      38,616      0.52   17,569      37,538      0.47 Dilutive                                                                      effect of                                                                    stock options                  975                          1,127           ---------------------------------------------------------------------------- Diluted          19,894      39,591      0.50   17,569      38,665      0.45 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  During the three and nine months ended December 31, 2013, 40,000 and Nil options, respectively (three and nine months ended December 31, 2012 - 31,000, and 118,000 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                    Other financial Amortized cost  liabilities                                      liabilities                ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  (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:         Nine months ended December 31,                                               (thousands of $)                                    2013                2012 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Less than one year                                   518                 499 Between one and five years                         5,170               7,089 ----------------------------------------------------------------------------                                                    5,688               7,588 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  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 credit. As at December 31, 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 nine months ended                                                          December 31,            As at December 31,                                     2013          2012         2013         2012 ----------------------------------------------------------------------------   Canada                        19,610        19,243        2,423        3,323 United States                 11,155         8,736           54           49 South America                  9,411         8,345           83           51 Eastern Hemisphere(1)         14,351        13,017           62           44 ----------------------------------------------------------------------------                               54,527        49,341        2,622        3,467 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1)Includes Europe, Africa, Asia and Australia.                               In the nine months ended December 31, 2013 and 2012, no customer represented 10% or more 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 nine months ended December 31, 2013, CMG included $1.3 million and $3.5 million, respectively (2012 - $1.0 million and $2.8 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 $1.8 million during the three and nine months ended December 31, 2013 (2012 - $0.4 million and $1.3 million, respectively).  14. Subsequent Events:   On February 11, 2014, the Board of Directors declared a quarterly cash dividend of $0.19 per share on its Common Shares, payable on March 14, 2014, to all shareholders of record at the close of business on March 7, 2014.  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