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Computer Modelling Group Announces First Quarter Results

Aug 13 2013 12:00AM

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CALGARY, ALBERTA -- (Marketwired) -- 08/13/13 -- Computer Modelling Group Ltd. (TSX: CMG) ("CMG" or the "Company") is very pleased to report our first quarter results for the three months ended June 30, 2013.

FIRST QUARTER HIGHLIGHTS

For the three months ended June 30, 2013 2012 $ change % change($ thousands, except per share data)----------------------------------------------------------------------------Annuity/maintenance software licenses 13,958 13,179 779 6%Perpetual software licenses 2,331 2,070 261 13%Total revenue 18,116 16,465 1,651 10%Operating profit 9,350 8,105 1,245 15%Net income 7,081 6,090 991 16%Earnings per share - basic 0.19 0.16 0.03 19%----------------------------------------------------------------------------



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

FORWARD-LOOKING INFORMATION

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

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

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



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

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



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

NON-IFRS FINANCIAL MEASURES

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

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

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

CORPORATE PROFILE

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

QUARTERLY PERFORMANCE

Fiscal 2012(1)($ thousands, unless otherwise stated) Q2 Q3 Q4--------------------------------------------------------Annuity/maintenance licenses 9,308 12,056 12,497Perpetual licenses 1,596 2,321 3,416--------------------------------------------------------Software licenses 10,904 14,377 15,913Professional services 1,078 1,521 1,302--------------------------------------------------------Total revenue 11,982 15,898 17,215Operating profit 5,226 8,093 9,193Operating profit (%) 44 51 53EBITDA(4) 5,508 8,414 9,543Profit before income and other taxes 6,096 8,184 9,104Income and other taxes 1,778 2,394 2,484Net income for the period 4,318 5,790 6,620Cash dividends declared and paid 4,053 4,079 4,848--------------------------------------------------------Per share amounts - ($/share)Earnings per share - basic 0.12 0.16 0.18Earnings per share - diluted 0.11 0.15 0.17Cash dividends declared and paid 0.11 0.11 0.13-------------------------------------------------------- Fiscal Fiscal 2013(2) 2014(3)($ thousands, unless otherwise stated) Q1 Q2 Q3 Q4 Q1----------------------------------------------------------------------------Annuity/maintenance licenses 13,179 12,012 14,004 15,359 13,958Perpetual licenses 2,070 2,671 1,365 2,300 2,331----------------------------------------------------------------------------Software licenses 15,249 14,683 15,369 17,659 16,289Professional services 1,216 1,390 1,433 1,620 1,827----------------------------------------------------------------------------Total revenue 16,465 16,073 16,802 19,279 18,116Operating profit 8,105 8,032 8,276 9,877 9,350Operating profit (%) 49 50 49 51 52EBITDA(4) 8,423 8,425 8,687 10,294 9,725Profit before income and other taxes 8,577 7,703 8,556 10,314 9,999Income and other taxes 2,487 2,342 2,437 3,061 2,918Net income for the period 6,090 5,361 6,119 7,253 7,081Cash dividends declared and paid 9,736 6,020 6,050 6,099 8,841----------------------------------------------------------------------------Per share amounts - ($/share)Earnings per share - basic 0.16 0.14 0.16 0.19 0.19Earnings per share - diluted 0.16 0.14 0.16 0.19 0.18Cash dividends declared and paid 0.26 0.16 0.16 0.16 0.23----------------------------------------------------------------------------(1) Q2, Q3 and Q4 of fiscal 2012 include $0.04 million, $2.6 million and $2.7 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.(2) Q1, Q2, Q3 and Q4 of fiscal 2013 include $2.1 million, $0.2 million, $1.8 million and $2.6 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.(3) Q1 of fiscal 2014 includes $1.2 million 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 three months ended June 30, 2013, as compared to the same period of the prior fiscal year, CMG:

-- Increased annuity/maintenance revenue by 6%-- Increased operating profit by 15%-- Increased spending on research and development by 20%-- Increased EBITDA by 15%-- Realized basic earnings per share of $0.19, representing a 19% increase



Revenue

For the three months ended June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Software licenses 16,289 15,249 1,040 7%Professional services 1,827 1,216 611 50%----------------------------------------------------------------------------Total revenue 18,116 16,465 1,651 10%----------------------------------------------------------------------------Software license revenue - % of total revenue 90% 93%Professional services - % of total revenue 10% 7%----------------------------------------------------------------------------



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 10% for the three months ended June 30, 2013, compared to the same period of the previous fiscal year due to the 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 June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/maintenance licenses 13,958 13,179 779 6%Perpetual licenses 2,331 2,070 261 13%----------------------------------------------------------------------------Total software license revenue 16,289 15,249 1,040 7%----------------------------------------------------------------------------Annuity/maintenance as a % of total software license revenue 86% 86%Perpetual as a % of total software license revenue 14% 14%----------------------------------------------------------------------------



Total software license revenue grew by 7% in the three months ended June 30, 2013, compared to the same period of the previous fiscal year, due to the increases in both annuity/maintenance and perpetual license sales.

CMG's annuity/maintenance license revenue increased by 6% during the three months ended June 30, 2013, compared to the same period of last year. This increase was driven by sales to new and existing customers as well as an increase in maintenance revenue tied to perpetual sales generated in the previous fiscal year.

All of our regions, except South America, experienced growth in annuity/maintenance revenue during the three months ended June 30, 2013, for the reasons described above, but the most significant growth came 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. To provide a normalized comparison, if we were to remove revenue from this one customer from the first quarter of the current and the previous year, we will notice that the annuity/maintenance revenue increased by 14%, instead of 6%. Given our long-term relationship with this customer, and their on-going use of our licenses, we expect to continue to receive payments from them; however, the amount and timing are uncertain and will continue to be recorded on a cash basis, which may introduce some variability in our reported quarterly annuity/maintenance revenue results.

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

Perpetual license sales increased by 13% for the three months ended June 30, 2013, compared to the same period of the previous fiscal year, due to increased perpetual sales in the Eastern Hemisphere. The growth in perpetual sales generated by the Eastern Hemisphere was partially offset by decreases in both Canada and South America.

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 months ended June 30, 2013, compared to the same period of the previous fiscal year, had only a slight positive impact on our reported perpetual license revenue.

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

For the three months ended June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------US dollar annuity/maintenance license sales US$ 9,341 8,638 703 8%Weighted average conversion rate 1.009 0.999----------------------------------------------------------------------------Canadian dollar equivalent CDN$ 9,421 8,626 795 9%----------------------------------------------------------------------------US dollar perpetual license sales US$ 2,011 1,346 665 49%Weighted average conversion rate 1.014 0.995----------------------------------------------------------------------------Canadian dollar equivalent CDN$ 2,040 1,339 701 52%----------------------------------------------------------------------------



The following table quantifies the foreign exchange impact on our software license revenue:

Incremental Foreign Q1 2013 License Exchange Q1 2014($ thousands) Balance Growth Impact Balance----------------------------------------------------------------------------Annuity/Maintenance license sales 13,179 687 92 13,958Perpetual license sales 2,070 222 39 2,331----------------------------------------------------------------------------Total software license revenue 15,249 909 131 16,289----------------------------------------------------------------------------



REVENUE BY GEOGRAPHIC SEGMENT

For the three months ended June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/maintenance revenue Canada 5,430 4,939 491 10% United States 3,164 2,392 772 32% South America 2,332 3,162 (830) -26% Eastern Hemisphere(1) 3,032 2,686 346 13%---------------------------------------------------------------------------- 13,958 13,179 779 6%----------------------------------------------------------------------------Perpetual revenue Canada 291 561 (270) -48% United States 427 404 23 6% South America 76 483 (407) -84% Eastern Hemisphere 1,537 622 915 147%---------------------------------------------------------------------------- 2,331 2,070 261 13%----------------------------------------------------------------------------Total software license revenue Canada 5,721 5,500 221 4% United States 3,591 2,796 795 28% South America 2,408 3,645 (1,237) -34% Eastern Hemisphere 4,569 3,308 1,261 38%---------------------------------------------------------------------------- 16,289 15,249 1,040 7%----------------------------------------------------------------------------(1) Includes Europe, Africa, Asia and Australia.



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 34% during the three months ended June 30, 2013, compared to the same period of the previous fiscal year.

The Canadian market (representing 35% of year-to-date total software revenue) experienced an increase in annuity/maintenance license sales during the three months June 30, 2013, compared to the same period of the previous fiscal year. This increase was supported by the sales to both new and existing customers. Perpetual sales were lower during the first quarter of the current year compared to the same period of the previous year. The Canadian market continues to be the leader in generating total software license revenue and, particularly, in generating the recurring annuity/maintenance revenue as evidenced by the quarterly year-over-year increases of 32%, 37%, 37%, and 38% recorded during Q1 2013, Q2 2013, Q3 2013, and Q4 2013 respectively. During the first quarter of the current fiscal year, we recorded an increase of 10%.

The US market (representing 22% of year-to-date total software revenue) experienced the most significant growth in annuity/maintenance license sales, in comparison to other regions, during the three months ended June 30, 2013, compared to the same period of the previous fiscal year, driven by sales to new and existing customers. Perpetual license sales remained flat between the first quarters of the current and the previous year. Similar to the Canadian market, we have continued to see successive increases in the annuity/maintenance license sales in the US as evidenced by the quarterly year-over-year increases of 20%, 24%, 32%, and 20% recorded during Q1 2013, Q2 2013, Q3 2013, and Q4 2013 respectively. This growth trend has continued into the first quarter of the current fiscal year with the recorded increase of 32%.

South America (representing 15% of year-to-date total software revenue) experienced a decrease of 26% in annuity/maintenance revenue during the three months ended June 30, 2013, compared to the same period of the previous fiscal year. This decrease was caused by the variability of the amount recorded from a customer for which revenue is recognized only when cash is received (see the discussion about revenue earned in the current period that pertains to usage of products in prior quarters above the "Quarterly Software License Revenue" graph). To provide a normalized comparison, if we were to exclude the amounts received from this customer from the annuity/maintenance revenue in the first quarter of the current and the previous fiscal years, we would notice that the annuity/maintenance revenue remained flat between the two periods. South American region also experienced a decrease in perpetual sales during the first quarter of the current year compared to the first quarter of the previous year.

Eastern Hemisphere (representing 28% of the year-to-date total software revenue) grew annuity/maintenance license sales by 13% during the three months ended June 30, 2013, compared to the same period of the previous fiscal year, due to increased license usage by two of our significant customers in the region. Compared to other regions, Eastern Hemisphere achieved the highest growth in perpetual license revenue during the first quarter of the current year compared to the same period of the previous year.

Movements in perpetual sales across regions are indicative of the unpredictable nature of the timing and location of perpetual license sales. Overall, our recurring annuity/maintenance revenue base continues to experience growth. We will continue to focus our efforts on increasing our license sales to both existing and new customers, and we will endeavor to continue expanding our market share globally.

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

QUARTERLY SOFTWARE LICENSE REVENUE ($THOUSANDS)

To view accompanying graph, visit the following link: http://media3.marketwire.com/docs/QuarterlySoftwareLicenseRevenue.jpg

DEFERRED REVENUE

2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Deferred revenue at:March 31 25,289 21,693 3,596 17%June 30 22,014 18,779 3,235 17%----------------------------------------------------------------------------



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

The increase in deferred revenue year-over-year as at June 30 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 (June 30) compared to the fiscal year-end (March 31). Deferred revenue at June 30, 2013 increased compared to the same period of the prior fiscal year due to both renewal of the existing and signing of the new annuity and maintenance contracts in the quarter.

PROFESSIONAL SERVICES REVENUE

CMG recorded professional services revenue of $1.8 million for the three months ended June 30, 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 contribute to the professional services revenue during 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 June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Sales, marketing and professional services 3,649 3,962 (313) -8%Research and development 3,472 2,897 575 20%General and administrative 1,645 1,501 144 10%----------------------------------------------------------------------------Total operating expenses 8,766 8,360 406 5%----------------------------------------------------------------------------Direct employee costs(1) 7,120 6,595 525 8%Other corporate costs 1,646 1,765 (119) -7%---------------------------------------------------------------------------- 8,766 8,360 406 5%---------------------------------------------------------------------------- (1) Includes salaries, bonuses, stock-based compensation, benefits, commissions, and professional development.



CMG's total operating expenses increased by 5% for the three months ended June 30, 2013, compared to the same period of the previous fiscal year, due to an increase in direct employee costs, offset by a decrease in other corporate costs.

DIRECT EMPLOYEE COSTS

As a technology company, CMG's largest area of expenditure is for its people. Approximately 81% of the total operating expenses in the three months ended June 30, 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 June 30, 2013, CMG's staff complement was 186 employees and consultants, up from 164 employees as at June 30, 2012. Direct employee costs increased during the three months ended June 30, 2013, compared to the same periods of the previous fiscal year, due to staff additions, increased levels of compensation, and related benefits.

OTHER CORPORATE COSTS

Other corporate costs decreased by 7% for the three months ended June 30, 2013, compared to the same period of the previous fiscal year, mainly due to including the costs associated with CMG's biennial Technical Symposium in other corporate costs for the three months ended June 30, 2012.

RESEARCH AND DEVELOPMENT

For the three months ended June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Research and development (gross) 4,020 3,385 635 19%SR&ED credits (548) (488) (60) 12%----------------------------------------------------------------------------Research and development 3,472 2,897 575 20%----------------------------------------------------------------------------Research and development as a % of total revenue 19% 18%----------------------------------------------------------------------------



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

The above research and development includes CMG's share of joint research and development costs associated with the DRMS project of $1.1 million for the three months ended June 30, 2013 (2012 - $0.8 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

The increase of 19% in our gross spending on research and development for the three months ended June 30, 2013, demonstrates 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 20% during the three months ended June 30, 2013, compared to the same period of the previous fiscal year, due to increased employee compensation costs, and costs associated with computing resources.

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

DEPRECIATION

For the three months ended June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Depreciation of property and equipment, allocated to: Sales, marketing and professional services 100 98 2 2% Research and development 226 180 46 26% General and administrative 49 40 9 23%----------------------------------------------------------------------------Total depreciation 375 318 57 18%----------------------------------------------------------------------------



The quarterly increase in depreciation, compared to the same period of the previous fiscal year, reflects the increase in our asset base, mainly as a result of increased spending on computing resources.

Finance Income

For the three months ended June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Interest income 157 145 12 8%Net foreign exchange gain 492 327 165 50%----------------------------------------------------------------------------Total finance income 649 472 177 38%----------------------------------------------------------------------------



Interest income increased slightly in the three months ended June 30, 2013, compared to the same period 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 70% (2012 - 68%) of CMG's revenue for the three months ended June 30, 2013 is denominated in US dollars, whereas only approximately 25% (2012 - 23%) of CMG's total costs are denominated in US dollars.

Three month trailingCDN$ to US$ At June 30 average----------------------------------------------------------------------------2011 1.0370 1.04112012 0.9813 0.98612013 0.9513 0.9702----------------------------------------------------------------------------



CMG recorded a net foreign exchange gain of $0.5 million for the three months ended June 30, 2013, compared to a $0.3 million net foreign exchange gain recorded in the three months ended June 30, 2012.

The weakening of the Canadian dollar during the first quarter of the current fiscal year, contributed positively to the valuation of our US-denominated working capital for the three months ended June 30, 2013 compared to the same period of the previous fiscal year.

Income and Other Taxes

CMG's effective tax rate for the three months ended June 30, 2013 is reflected as 29.2% (2012 - 29.0%), whereas the prevailing Canadian statutory tax rate is now 25.0%. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.

The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts 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 June 30, 2013 2012 $ change % change($ thousands, except per share amounts)----------------------------------------------------------------------------Total revenue 18,116 16,465 1,651 10%Operating expenses (8,766) (8,360) (406) 5%----------------------------------------------------------------------------Operating profit 9,350 8,105 1,245 15%Operating profit as a % of total revenue 52% 49%----------------------------------------------------------------------------Net income for the period 7,081 6,090 991 16%Net income for the period as a % of total revenue 39% 37%----------------------------------------------------------------------------Basic earnings per share ($/share) 0.19 0.16 0.03 19%----------------------------------------------------------------------------



Operating profit as a percentage of total revenue for the three months ended June 30, 2013 was at 52% compared to 49% recorded in the same period of the previous fiscal year. While our total revenue grew by 10%, our operating expenses grew by 5%, 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 39% for the three months ended June 30, 2013, compared to 37% recorded in 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 June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Net income for the period 7,081 6,090 991 16%Add (deduct): Depreciation 375 318 57 18% Finance income (649) (472) (177) 38% Finance costs - - - - Income and other taxes 2,918 2,487 431 17%----------------------------------------------------------------------------EBITDA 9,725 8,423 1,302 15%----------------------------------------------------------------------------EBITDA as a % of total revenue 54% 51%----------------------------------------------------------------------------



EBITDA increased by 15% for the three months ended June 30, 2013, compared to the same period of the previous fiscal year. This increase provides further indication of our ability to keep growing our recurring annuity/maintenance license sales while effectively managing costs in relation to this base.

EBITDA as a percent of total revenue for the three months ended June 30, 2013 was at 54% compared to 51% recorded in the same period of the previous fiscal year.

Liquidity and Capital Resources

For the three months ended June 30, 2013 2012 $ change % change($ thousands)----------------------------------------------------------------------------Cash, beginning of period 59,419 55,374 4,045 7%Cash flow from (used in): Operating activities 9,837 6,661 3,176 48% Financing activities (5,919) (10,063) 4,144 -41% Investing activities (225) (437) 212 -49%----------------------------------------------------------------------------Cash, end of period 63,112 51,535 11,577 22%----------------------------------------------------------------------------



OPERATING ACTIVITIES

Cash flow generated from operating activities increased by $3.2 million in the three months ended June 30, 2013, compared to the same period of last year, mainly due to the timing differences of when the sales are made and when the resulting receivables are collected, positive effect on the timing difference of when income taxes are recorded and paid, offset by the change in trade payables and accrued liabilities balance.

FINANCING ACTIVITIES

Cash used in financing activities during the three months ended June 30, 2013 decreased by $4.1 million, compared to the same period of last year, due to receiving higher proceeds from the issuance of Common Shares in the current quarter, and paying less in dividends. In the previous fiscal year, we re-shifted our focus from paying a large special dividend at year end to paying higher quarterly dividends. Consequently, the special dividend paid in the first quarter of the previous year was higher than the special dividend paid in the first quarter of the current year, but this is expected to normalize, on a year-to-date basis due to paying higher quarterly dividends. In addition, in the first quarter of the previous fiscal year, CMG spent $1.6 million on buying back Common Shares.

During the three months ended June 30, 2013, CMG employees and directors exercised options to purchase 355,000 Common Shares, which resulted in cash proceeds of $2.9 million.

In the three months ended June 30, 2013, CMG paid $8.8 million in dividends, representing the following quarterly dividends:

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



In the three months June 30, 2012, CMG paid $9.7 million in dividends, representing the following quarterly dividends:

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



On August 12, 2013, CMG announced the payment of a quarterly dividend of $0.18 per share on CMG's Common Shares. The dividend will be paid on September 13, 2013 to shareholders of record at the close of business on September 6, 2013. On August 12, 2013, the Board of Directors also approved the issuance of 1,150,000 options to purchase CMG's Common Shares in accordance with CMG's stock option plan.

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 of fiscal 2014 compared to $0.16 per share in Q1 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 three months ended June 30, 2013, no Common Shares were purchased.

INVESTING ACTIVITIES

CMG's current needs for capital asset investment relate to computer equipment and office infrastructure costs, all of which will be funded internally. During the three months ended June 30, 2013, CMG expended $0.2 million on property and equipment additions, primarily composed of computing equipment, and has a capital budget of $1.8 million for fiscal 2014.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2013, CMG has $63.1 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 three months ended June 30, 2013, 3,192,000 shares of CMG's public float were traded on the TSX. As at June 30, 2013, CMG's market capitalization based upon its June 30, 2013 closing price of $23.19 was $892.4 million.

Commitments, Off Balance Sheet Items and Transactions with Related Parties

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

CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which are reflected as deferred revenue on its statement of financial position, and contractual obligations for office leases which are estimated as follows: 2014 - $1.5 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:

Standard/Interpretation Nature of impending Impact on CMG's change in accounting financial statements policy--------------------------------------------------------------------------------------------------------------------------------------------------------IFRS 9 Financial IFRS 9 (2009) replaces IFRS 9 (2010) supersedesInstruments the guidance in IAS 39 IFRS 9 (2009) and isIn November 2009 the Financial Instruments: effective for annualIASB issued IFRS 9 Recognition and periods beginning on orFinancial Instruments Measurement, on the after January 1, 2015,(IFRS 9 (2009)), and in classification and with early adoptionOctober 2010 the IASB measurement of financial permitted. For annualpublished amendments to assets. The Standard periods beginning beforeIFRS 9 (IFRS 9 (2010)). eliminates the existing January 1, 2015, eitherOn July 24, 2013 the IAS 39 categories of IFRS 9 (2009) or IFRS 9IASB tentatively decided held to maturity, (2010) may be applied.to defer the mandatory available-for-sale andeffective date of IFRS loans and receivable. The Company does not9. The mandatory expect IFRS 9 (2010) toeffective date will be Financial assets will be have a material impactleft open pending the classified into one of on the financialfinalisation of the two categories on statements. Theimpairment and initial recognition: classification andclassification and measurement of themeasurement financial assets Company's financialrequirements. measured at amortized assets and liabilities cost; or is not expected to financial assets change under IFRS 9 measured at fair value. (2010) because of the nature of the Company's Gains and losses on operations and the types remeasurement of of financial assets that financial assets it holds. measured at fair value will be recognized in profit or loss, except that for an investment in an equity instrument which is not held-for- trading, IFRS 9 provides, on initial recognition, an irrevocable election to present all fair value changes from the investment in other comprehensive income (OCI). The election is available on an individual share-by- share basis. Amounts presented in OCI will not be reclassified to profit or loss at a later date. IFRS 9 (2010) added guidance to IFRS 9 (2009) on the classification and measurement of financial liabilities, and this guidance is consistent with the guidance in IAS 39 expect as described below. Under IFRS 9 (2010), for financial liabilities measured at fair value under the fair value option, changes in fair value attributable to changes in credit risk will be recognized in OCI, with the remainder of the change recognized in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, the entire change in fair value will be recognized in profit or loss. Amounts presented in OCI will not be reclassified to profit or loss at a later date. IFRS 9 (2010) also requires derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument to be measured at fair value, whereas such derivative liabilities are measured at cost under IAS 39. IFRS 9 (2010) also added the requirements of IAS 39 for the derecognition of financial assets and liabilities to IFRS 9 without change.--------------------------------------------------------------------------------------------------------------------------------------------------------Amendments to IAS 32, The amendments to IAS 32 The Company intends toOffsetting Financial clarify that an entity adopt the amendments toAssets and Liabilities currently has a legally IAS 32 in its financial enforceable right to statements for theIn December 2011, the set-off if that right annual period beginningIASB published is: April 1, 2014. TheOffsetting Financial Company does not expectAssets and Financial not contingent on a the amendments to have aLiabilities and issued future event; and material impact on thenew presentation enforceable both in the financial statements.requirements in IAS 32 normal course ofFinancial Instruments: business and in thePresentation. event of default, insolvency or bankruptcyThe effective date for of the entity and allthe amendments to IAS 32 counterparties.is annual periodsbeginning on or after The amendments to IAS 32January 1, 2014. These also clarify when aamendments are to be settlement mechanismapplied retrospectively. provides for net settlement or gross settlement that is equivalent to net settlement.--------------------------------------------------------------------------------------------------------------------------------------------------------



Outstanding Share Data

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

As at August 12, 2013(thousands)----------------------------------------------------------------------------Common Shares 38,511Options 2,492----------------------------------------------------------------------------



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 August 12, 2013, CMG could grant up to 3,851,000 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 three months ended June 30, 2013, there have been no significant changes to the Company's ICFR that have materially affected, or are reasonably likely to materially affect, the company's ICFR.

Outlook

Our annuity/maintenance revenue stream continued to grow during the first quarter of fiscal 2014 with a recorded increase of 6%, compared to the first quarter of the previous fiscal year. Over 80% of our software license revenue is derived from our annuity and maintenance contracts, and with a strong renewal rate, we expect to see continued growth in this revenue base. We will continue to extend our reach globally and focus our efforts on increasing our license sales to both existing and new customers.

Our profit margin continued to hold strong, demonstrating our continuous commitment to effectively manage our corporate costs. For the three months ended June 30, 2013, our EBITDA represented 54% of our total revenue, compared to 51% recorded in 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. 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, hence, increasing the demand for our software. While oil prices continue to fluctuate, they remain at levels that should allow our customers to move forward on projects involving various types of unconventional reserves and advanced recovery processes.

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

CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continued to make progress during the first quarter of the current fiscal year. The most recent beta version of the software was released at the beginning of calendar 2013, and our DRMS team continues to make progress toward the anticipated limited commercial release of the software by the end of calendar 2013. 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

August 12, 2013

COMPUTER MODELLING GROUP LTD.CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONUNAUDITED (thousands of Canadian $) June 30, 2013 March 31, 2013----------------------------------------------------------------------------AssetsCurrent assets: Cash 63,112 59,419 Trade and other receivables 12,017 19,141 Prepaid expenses 1,063 1,216 Prepaid income taxes (note 7) 20 341---------------------------------------------------------------------------- 76,212 80,117Property and equipment 3,154 3,304----------------------------------------------------------------------------Total assets 79,366 83,421--------------------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Shareholders' EquityCurrent liabilities: Trade payables and accrued liabilities 3,632 6,047 Income taxes payable (note 7) 492 296 Deferred revenue 22,014 25,289---------------------------------------------------------------------------- 26,138 31,632Deferred tax liability (note 7) 111 379----------------------------------------------------------------------------Total liabilities 26,249 32,011----------------------------------------------------------------------------Shareholders' equity: Share capital 43,936 40,498 Contributed surplus 4,702 4,673 Retained earnings 4,479 6,239----------------------------------------------------------------------------Total shareholders' equity 53,117 51,410----------------------------------------------------------------------------Total liabilities and shareholders' equity 79,366 83,421--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMEFor the three months ended June 30,UNAUDITED (thousands of Canadian $ except per share amounts) 2013 2012----------------------------------------------------------------------------Revenue (note 4) 18,116 16,465----------------------------------------------------------------------------Operating expenses Sales, marketing and professional services 3,649 3,962 Research and development (note 5) 3,472 2,897 General and administrative 1,645 1,501---------------------------------------------------------------------------- 8,766 8,360----------------------------------------------------------------------------Operating profit 9,350 8,105Finance income (note 6) 649 472----------------------------------------------------------------------------Profit before income and other taxes 9,999 8,577Income and other taxes (note 7) 2,918 2,487----------------------------------------------------------------------------Net and total comprehensive income 7,081 6,090--------------------------------------------------------------------------------------------------------------------------------------------------------Earnings Per ShareBasic (note 8(e)) 0.19 0.16Diluted (note 8(e)) 0.18 0.16--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY CommonUNAUDITED (thousands of Share Contributed Retained Total Canadian $) Capital Surplus Earnings Equity----------------------------------------------------------------------------Balance, April 1, 2012 31,751 3,535 10,793 46,079Total comprehensive income for the period - - 6,090 6,090Dividends paid - - (9,736) (9,736)Shares issued for cash on exercise of stock options (note 8(b)) 1,224 - - 1,224Common shares buy-back (notes 8(b) & (c)) (80) - (1,471) (1,551)Stock-based compensation: Current period expense - 568 - 568 Stock options exercised (note 8(b)) 231 (231) - -----------------------------------------------------------------------------Balance, June 30, 2012 33,126 3,872 5,676 42,674--------------------------------------------------------------------------------------------------------------------------------------------------------Balance, April 1, 2013 40,498 4,673 6,239 51,410Total comprehensive income for the period - - 7,081 7,081Dividends paid - - (8,841) (8,841)Shares issued for cash on exercise of stock options (note 8(b)) 2,922 - - 2,922Common shares buy-back (notes 8(b) & (c)) - - -Stock-based compensation: Current period expense - 545 - 545 Stock options exercised (note 8(b)) 516 (516) - -----------------------------------------------------------------------------Balance, June 30, 2013 43,936 4,702 4,479 53,117--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to condensed consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the three months ended June 30,UNAUDITED (thousands of Canadian $) 2013 2012----------------------------------------------------------------------------Cash flows from operating activities Net income 7,081 6,090Adjustments for: Depreciation 375 318 Income and other taxes (note 7) 2,918 2,487 Stock-based compensation (note 8(d)) 545 568 Interest income (note 6) (157) (145)---------------------------------------------------------------------------- 10,762 9,318Changes in non-cash working capital: Trade and other receivables 7,126 4,562 Trade payables and accrued liabilities (2,415) (909) Prepaid expenses 153 65 Deferred revenue (3,275) (2,914)----------------------------------------------------------------------------Cash generated from operating activities 12,351 10,122 Interest received 155 144 Income taxes paid (2,669) (3,605)----------------------------------------------------------------------------Net cash from operating activities 9,837 6,661----------------------------------------------------------------------------Cash flows from financing activitiesProceeds from issue of common shares 2,922 1,224Dividends paid (8,841) (9,736)Common shares buy-back (note 8(c)) - (1,551)----------------------------------------------------------------------------Net cash used in financing activities (5,919) (10,063)----------------------------------------------------------------------------Cash flows used in investing activitiesProperty and equipment additions (225) (437)----------------------------------------------------------------------------Increase (decrease) in cash 3,693 (3,839)Cash, beginning of period 59,419 55,374----------------------------------------------------------------------------Cash, end of period 63,112 51,535--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to condensed consolidated financial statements.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1. Reporting Entity:

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

2. Basis of Preparation:

(a) STATEMENT OF COMPLIANCE:

These condensed consolidated financial statements have been prepared in accordance with International 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 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.

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

(b) BASIS OF MEASUREMENT:

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

(c) FUNCTIONAL AND PRESENTATION CURRENCY:

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

(d) USE OF ESTIMATES, JUDGMENTS AND ASSUMPTIONS:

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

3. Significant Accounting Policies:

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

NEW STANDARDS AND INTERPRETATIONS ADOPTED:

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

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



4. Revenue:

For the three months ended June 30, 2013 2012(thousands of $)----------------------------------------------------------------------------Software licenses 16,289 15,249Professional services 1,827 1,216---------------------------------------------------------------------------- 18,116 16,465--------------------------------------------------------------------------------------------------------------------------------------------------------



5. Research and Development Costs:

For the three months ended June 30, 2013 2012(thousands of $)----------------------------------------------------------------------------Research and development 4,020 3,385Scientific research and experimental development ("SR&ED") investment tax credits (548) (488)---------------------------------------------------------------------------- 3,472 2,897--------------------------------------------------------------------------------------------------------------------------------------------------------



6. Finance Income:

For the three months ended June 30, 2013 2012(thousands of $)----------------------------------------------------------------------------Interest income 157 145Net foreign exchange gain 492 327----------------------------------------------------------------------------Finance income 649 472--------------------------------------------------------------------------------------------------------------------------------------------------------



7. Income and Other Taxes:

The major components of income tax expense are as follows:

For the three months ended June 30, 2013 2012(thousands of $)----------------------------------------------------------------------------Current year income taxes 2,901 2,412Deferred tax expense (recovery) (268) (213)Foreign withholding and other taxes 285 288---------------------------------------------------------------------------- 2,918 2,487--------------------------------------------------------------------------------------------------------------------------------------------------------



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 three months ended June 30, 2013 2012(thousands of $, unless otherwise stated)----------------------------------------------------------------------------Combined statutory tax rate 25.00% 25.00%----------------------------------------------------------------------------Expected income tax 2,500 2,144Non-deductible costs 143 150Effect of tax rates in foreign jurisdictions 56 5Withholding taxes 213 216Other 6 (28)---------------------------------------------------------------------------- 2,918 2,487--------------------------------------------------------------------------------------------------------------------------------------------------------



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

(thousands of $) June 30, 2013 March 31, 2013----------------------------------------------------------------------------Tax liability on SR&ED investment tax credits (104) (362)Tax liability on property and equipment (7) (17)----------------------------------------------------------------------------Deferred tax liability (111) (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 37,307Issued for cash on exercise of stock options 175Common shares buy-back (91)----------------------------------------------------------------------------Balance, June 30, 2012 37,391----------------------------------------------------------------------------Balance, April 1, 2013 38,129Issued for cash on exercise of stock options 355Common shares buy-back -----------------------------------------------------------------------------Balance, June 30, 2013 38,484--------------------------------------------------------------------------------------------------------------------------------------------------------



Subsequent to June 30, 2013, 27,000 stock options were exercised for cash proceeds of $227,000.

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 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 three months ended June 30, 2013, no Common Shares were purchased.

(d) STOCK-BASED COMPENSATION PLAN:

The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 7, 2011, which allows it to grant options to acquire Common Shares of up to 10% of the outstanding Common Shares at the date of grant. Based upon this calculation, at June 30, 2013, the Company could grant up to 3,848,000 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:

For the three months ended For the year ended(thousands except per share amounts) June 30, 2013 March 31, 2013---------------------------------------------------------------------------- Weighted Weighted Average Average Exercise Exercise Options Price Options Price Granted ($/share) Granted ($/share)----------------------------------------------------------------------------Outstanding at beginning of period 2,938 13.13 2,903 9.85Granted - - 1,006 18.19Exercised (355) 8.23 (913) 8.15Forfeited/cancelled (64) 15.30 (58) 15.09----------------------------------------------------------------------------Outstanding at end of period 2,519 13.77 2,938 13.13----------------------------------------------------------------------------Options exercisable at end of period 855 10.41 1,207 9.75--------------------------------------------------------------------------------------------------------------------------------------------------------



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

Outstanding Exercisable---------------------------------------------------------------------------- Weighted Average Weighted Weighted Remaining Average Average Number of Contractual Exercise Number of ExerciseExercise Price Options Life Price Options Price ($/option) (thousands) (years) ($/option) (thousands) ($/option)----------------------------------------------------------------------------4.52 - 5.63 31 0.2 5.54 31 5.545.64 - 7.80 168 1.1 7.80 168 7.807.81 - 9.07 559 2.1 9.07 320 9.079.08 - 13.43 799 3.1 13.40 326 13.4013.44 - 21.75 962 4.1 18.12 10 14.92---------------------------------------------------------------------------- 2,519 3.1 13.77 855 10.41--------------------------------------------------------------------------------------------------------------------------------------------------------



There were no options granted during the three months ended June 30, 2013. The fair value of stock options granted during the year ended March 31, 2013 was estimated using the Black-Scholes option pricing model under the following assumptions:

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



The Company recognized total stock-based compensation expense for the three months ended June 30, 2013 of $545,000 (2012 - $568,000).

(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 June 30,(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 7,081 38,254 0.19 6,090 37,353 0.16Dilutive effect of stock options - 1,015 - - 1,078 -----------------------------------------------------------------------------Diluted 7,081 39,269 0.18 6,090 38,431 0.16--------------------------------------------------------------------------------------------------------------------------------------------------------



9. Financial Instruments:

(i) Classification of financial instruments

Classification Measurement----------------------------------------------------------------------------Cash Held for trading Fair valueTrade and other Loans and receivables Amortized cost receivablesTrade 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:

Three months ended June 30, 2013 2012(thousands of $)----------------------------------------------------------------------------Less than one year 1,547 1,504Between one and five years 5,084 6,965---------------------------------------------------------------------------- 6,631 8,469--------------------------------------------------------------------------------------------------------------------------------------------------------



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 June 30, 2013, US $165,000 (March 31, 2013 - US $165,000) had been reserved on this line of credit for the letter of credit supporting a performance bond.

12. Segmented Information:

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

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

Property and(thousands of $) Revenue equipment---------------------------------------------------------------------------- For the three months ended June 30, As at June 30, 2013 2012 2013 2012----------------------------------------------------------------------------Canada 6,490 6,118 2,972 2,801United States 3,859 2,887 44 67South America 3,114 3,951 73 58Eastern Hemisphere(1) 4,653 3,509 65 22---------------------------------------------------------------------------- 18,116 16,465 3,154 2,948--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Includes Europe, Africa, Asia and Australia.



In the three months ended June 30, 2013, no customer represented 10% of total revenue, while in the three months ended June 30, 2012, the Company derived 12.4% of its revenue from one customer.

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 months ended June 30, 2013, CMG included $1.1 million (2012 - $0.8 million) 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 during the three months ended June 30, 2013 (2012 - $0.5 million).

14. Subsequent Events:

On August 12, 2013, the Board of Directors declared a quarterly cash dividend of $0.18 per share on its Common Shares, payable on September 13, 2013, to all shareholders of record at the close of business on September 6, 2013.

On August 12, 2013, the Board of Directors also approved the issuance of 1,150,000 options to purchase CMG's Common Shares in accordance with CMG's stock option plan.



Contacts:
Computer Modelling Group Ltd.
Kenneth M. Dedeluk
President & CEO
(403) 531-1300
ken.dedeluk@cmgl.ca

Computer Modelling Group Ltd.
John Kalman
Vice President, Finance & CFO
(403) 531-1300
john.kalman@cmgl.ca
www.cmgl.ca





Source: Marketwire


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