News Column

Computer Modelling Group Announces First Quarter Results

August 13, 2014

CALGARY, ALBERTA--(Marketwired - Aug. 13, 2014) - Computer Modelling Group Ltd. ("CMG" or the "Company") is very pleased to report our first quarter results for the three months ended June 30, 2014.

FIRST QUARTER HIGHLIGHTS

Three months ended June 30, 2014 2013 $ change % change ($ thousands, except per share data) ---------------------------------------------------------------------------- Annuity/maintenance software licenses 15,966 13,958 2,008 14% Perpetual software licenses 1,432 2,331 (899) -39% Total revenue 19,552 18,116 1,436 8% Operating profit 9,121 9,350 (229) -2% Net income 6,244 7,081 (837) -12% Earnings per share - basic 0.08 0.09 (0.01) -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 August 12, 2014, 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, 2014 and the audited consolidated financial statements and MD&A for the years ended March 31, 2014 and 2013 contained in the 2014 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.

On May 21, 2014, the Board of Directors of the Company approved a two-for-one stock split of the Company's issued and outstanding Common Shares. The Common Shares were traded on a "due bill" basis from the opening on June 23, 2014 to July 2, 2014, inclusively. The stock split record date was June 25, 2014. Accordingly, all comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one split.

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 2014 Annual Report under the heading "Business Risks":

-- Economic conditions in the oil and gas industry -- Reliance on key customers -- 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 customer base of international oil companies and technology centers in more than 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 Fiscal 2013(1) Fiscal 2014(2) 2015(3) ($ thousands, unless otherwise stated) Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 ---------------------------------------------------------------------------- Annuity/ maintenance licenses 12,012 14,004 15,359 13,958 13,153 14,278 15,750 15,966 Perpetual licenses 2,671 1,365 2,300 2,331 1,829 2,942 1,972 1,432 ---------------------------------------------------------------------------- Software licenses 14,683 15,369 17,659 16,289 14,982 17,220 17,722 17,398 Professional services 1,390 1,433 1,620 1,827 2,202 2,007 2,254 2,154 ---------------------------------------------------------------------------- Total revenue 16,073 16,802 19,279 18,116 17,184 19,227 19,976 19,552 Operating profit 8,032 8,276 9,877 9,350 8,296 9,575 9,561 9,121 Operating profit (%) 50 49 51 52 48 50 48 47 EBITDA(4) 8,425 8,687 10,294 9,725 8,675 9,972 10,001 9,488 Profit before income and other taxes 7,703 8,556 10,314 9,999 8,133 10,249 10,761 8,733 Income and other taxes 2,342 2,437 3,061 2,918 2,525 3,044 3,025 2,489 Net income for the period 5,361 6,119 7,253 7,081 5,608 7,205 7,736 6,244 Cash dividends declared and paid 6,020 6,050 6,099 8,841 6,994 7,020 7,449 7,872 ---------------------------------------------------------------------------- Per share amounts - ($/share) Earnings per share - basic 0.07 0.08 0.10 0.09 0.07 0.09 0.10 0.08 Earnings per share - diluted 0.07 0.08 0.09 0.09 0.07 0.09 0.10 0.08 Cash dividends declared and paid 0.08 0.08 0.08 0.115 0.09 0.09 0.095 0.10 ---------------------------------------------------------------------------- (1) Q2, Q3 and Q4 of fiscal 2013 include $0.2 million, $1.8 million and $2.6 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. (2) Q1, Q2, Q3 and Q4 of fiscal 2014 include $1.2 million, $0.2 million, $0.9 million and $1.8 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. (3) Q1 of fiscal 2015 includes $1.5 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, 2014, as compared to the same period of the prior fiscal year, CMG:

-- Increased annuity/maintenance revenue by 14% -- Increased total revenue by 8% -- Increased spending on research and development by 21% -- Increased regular dividends per share declared and paid by 11% -- Realized basic earnings per share of $0.08



Revenue

Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 17,398 16,289 1,109 7% Professional services 2,154 1,827 327 18% ---------------------------------------------------------------------------- Total revenue 19,552 18,116 1,436 8% ---------------------------------------------------------------------------- Software license revenue - % of total revenue 89% 90% Professional services - % of total revenue 11% 10% ----------------------------------------------------------------------------



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 8% for the three months ended June 30, 2014, compared to the same period of the previous fiscal year, due to 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-then-current version of the software and has the right to use that version in perpetuity. Annuity/maintenance license fees have historically had a high renewal rate and, accordingly, provide a reliable revenue stream while perpetual license sales are more variable and unpredictable in nature as the purchase decision and its timing fluctuate with the customers' needs and budgets. The majority of CMG's customers who have acquired perpetual software licenses subsequently purchase our maintenance package to ensure ongoing product support and access to current versions of CMG's software.

Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 15,966 13,958 2,008 14% Perpetual licenses 1,432 2,331 (899) -39% ---------------------------------------------------------------------------- Total software license revenue 17,398 16,289 1,109 7% ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 92% 86% Perpetual as a % of total software license revenue 8% 14% ----------------------------------------------------------------------------



Total software license revenue grew by 7% in the three months ended June 30, 2014, compared to the same period of the previous fiscal year, due to an increase in annuity/maintenance revenue partially offset by a decrease in perpetual license sales.

CMG's annuity/maintenance license revenue increased by 14% during the three months ended June 30, 2014, compared to the same period of the previous year. This increase was driven by 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 months ended June 30, 2014, compared to the same period of the previous year, was positively affected by the weakening of the Canadian dollar.

All of our regions experienced growth in annuity/maintenance revenue during the three months ended June 30, 2014, compared to the same period of the previous year, with the most significant dollar growth being generated from our Canadian 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. The amounts received from this particular customer and recognized during the three months ended June 30, 2014 were comparable to the amounts received and recognized in the same period of the previous fiscal 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 decreased by 39% for the three months ended June 30, 2014, compared to the same period of the previous fiscal year, due to fewer perpetual sales being realized in the US and Eastern Hemisphere partially offset by increases in South America and Canada.

Software licensing under perpetual sales 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 tables below that the exchange rates between the US and Canadian dollars during the three months ended June 30, 2014, compared to the same period 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:

Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- US dollar annuity/maintenance US$ license sales 10,950 9,341 1,609 17% Weighted average conversion rate 1.074 1.009 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 11,758 9,421 2,337 25% ---------------------------------------------------------------------------- US dollar perpetual license US$ sales 955 2,011 (1,056) -53% Weighted average conversion rate 1.088 1.014 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 1,039 2,040 (1,001) -49% ----------------------------------------------------------------------------



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

Incremental Foreign Q1 2014 License Exchange Q1 2015 ($ thousands) Balance Growth Impact Balance ---------------------------------------------------------------------------- Annuity/maintenance license sales 13,958 1,294 714 15,966 Perpetual license sales 2,331 (970) 71 1,432 ---------------------------------------------------------------------------- Total software license revenue 16,289 324 785 17,398 ----------------------------------------------------------------------------



REVENUE BY GEOGRAPHIC SEGMENT

Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance revenue Canada 6,201 5,430 771 14% United States 3,655 3,164 491 16% South America 2,736 2,332 404 17% Eastern Hemisphere(1) 3,374 3,032 342 11% ---------------------------------------------------------------------------- 15,966 13,958 2,008 14% ---------------------------------------------------------------------------- Perpetual revenue Canada 393 291 102 35% United States - 427 (427) -100% South America 850 76 774 1018% Eastern Hemisphere 189 1,537 (1,348) -88% ---------------------------------------------------------------------------- 1,432 2,331 (899) -39% ---------------------------------------------------------------------------- Total software license revenue Canada 6,594 5,721 873 15% United States 3,655 3,591 64 2% South America 3,586 2,408 1,178 49% Eastern Hemisphere 3,563 4,569 (1,006) -22% ---------------------------------------------------------------------------- 17,398 16,289 1,109 7% ---------------------------------------------------------------------------- (1) Includes Europe, Africa, Asia and Australia.



During the three months ended June 30, 2014, on a geographic basis, total software license sales increased across all regions with the exception of the Eastern Hemisphere which experienced an overall decrease of 22%, compared to the same period of the previous fiscal year, mainly due to lower perpetual sales.

The Canadian market (representing 38% of year-to-date total software revenue) experienced a double-digit growth rate in annuity/maintenance license sales during the three months ended June 30, 2014. This increase was mainly supported by sales to existing customers. Perpetual sales also increased during the three months ended June 30, 2014, compared to the same period of the previous fiscal year.

The US market (representing 21% of year-to-date total software revenue) also grew annuity/maintenance license sales during the three months ended June 30, 2014, compared to the same period of the previous fiscal year, driven by sales to new and existing customers. No perpetual license sales were made during the three months ended June 30, 2014. 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%, 16%, 21%, and 16% recorded during Q1 2014, Q2 2014, Q3 2014, and Q4 2014, respectively. This double-digit growth trend has continued into the first quarter of the current fiscal year with the recorded increase of 16%.

South America (representing 21% of year-to-date total software revenue) experienced growth of 17% in annuity/maintenance license sales during the three months ended June 30, 2014, compared to the same period of the previous fiscal year, mainly due to sales to existing customers. The revenue in our South American region can be impacted 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). The amounts received from this particular customer and recognized during the three months ended June 30, 2014 were comparable to the amounts received and recognized in the same period of the previous fiscal year. The South American region experienced an increase in perpetual license sales during the three months ended June 30, 2014, compared to the same period of the previous year.

The Eastern Hemisphere (representing 20% of the year-to-date total software revenue) grew annuity/maintenance license sales by 11% during the three months ended June 30, 2014, compared to the same period of the previous fiscal year, mainly due to sales to existing customers. Fewer perpetual license sales were realized in the three months ended June 30, 2014, compared to the same period of the previous fiscal 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 be strong and is growing across all regions. We will continue to focus our efforts on increasing our license sales to both existing and new customers and, supported by our product suite offering and our customer-oriented approach, 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 the 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 the figure associated with this release, please visit the following link: http://media3.marketwire.com/docs/961824.png.

1. Q2, Q3 and Q4 of fiscal 2010 include $0.4 million, $0.3 million and $0.4 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. 2. Q1, Q2, Q3 and Q4 of fiscal 2011 include $1.1 million, $0.2 million, $0.3 million and $0.1 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. 3. Q1, Q2, Q3 and Q4 of fiscal 2012 include $0.3 million, $0.04 million, $2.6 million, and $2.7 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. 4. 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. 5. Q1, Q2, Q3 and Q4 of fiscal 2014 include $1.2 million, $0.2 million, $0.9 million, and $1.8 million respectively, in revenue that pertains to usage of CMG's products in prior quarters. 6. Q1 of fiscal 2015 includes $1.5 million in revenue that pertains to usage of CMG's products in prior quarters.



DEFERRED REVENUE

Fiscal Fiscal Fiscal 2015 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Deferred revenue at: Q1 (June 30) 26,628 22,014 4,614 21% Q2 (September 30) 19,346 18,241 1,105 6% Q3 (December 31) 18,069 15,510 2,559 16% Q4 (March 31) 29,531 25,289 4,242 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.

Deferred revenue as at Q1 of fiscal 2015 increased by 21%, compared to Q1 of fiscal 2014, due to both the renewal of existing and signing of new annuity and maintenance contracts in the quarter. As expected, the balance decreased from Q4 of fiscal 2014 to Q1 of fiscal 2015 due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year (which corresponds with Q4 of our fiscal year). The above table illustrates the normal trend in the deferred revenue balance from the beginning of the calendar year (which corresponds with Q4 of our fiscal year), when most renewals occur, to the end of the calendar year (which corresponds with Q3 of our fiscal year).

PROFESSIONAL SERVICES REVENUE

CMG recorded professional services revenue of $2.2 million for the three months ended June 30, 2014, representing an increase of $0.3 million, compared to the same period of the previous fiscal year, due to an increase in project activities by our customers.

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 customer companies. Expenses Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Sales, marketing and professional services 4,491 3,649 842 23% Research and development 4,210 3,472 738 21% General and administrative 1,730 1,645 85 5% ---------------------------------------------------------------------------- Total operating expenses 10,431 8,766 1,665 19% ---------------------------------------------------------------------------- Direct employee costs(1) 8,263 7,120 1,143 16% Other corporate costs 2,168 1,646 522 32% ---------------------------------------------------------------------------- 10,431 8,766 1,665 19% ---------------------------------------------------------------------------- (1) Includes salaries, bonuses, stock-based compensation, benefits, commissions, and professional development.



CMG's total operating expenses increased by 19% for the three months ended June 30, 2014, compared to the same period 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 its people. Approximately 79% of the total operating expenses in the three months ended June 30, 2014 related to direct employee costs, which is consistent with 81% recorded in the comparative period of the previous fiscal year. Staffing levels for the current fiscal year grew in comparison to the previous fiscal year to support our continued growth. At June 30, 2014, CMG's staff complement was 205 employees and consultants, up from 186 employees as at June 30, 2013. Direct employee costs increased during the three months ended June 30, 2014, compared to the same period of the previous fiscal year, due to staff additions, increased levels of compensation, and related benefits.

OTHER CORPORATE COSTS

Other corporate costs increased by 32% for the three months ended June 30, 2014, compared to the same period of the previous fiscal year, largely due to the inclusion of the costs associated with CMG's biennial technical symposium which took place during the current quarter. Exclusive of the technical symposium costs, other corporate costs would have increased by approximately 15%. The remainder of the increase is mainly attributable to a decrease in research and experimental development ("SR&ED") credits and increases in third party software and other office costs.

RESEARCH AND DEVELOPMENT

Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 4,566 4,020 546 14% SR&ED credits (356) (548) 192 -35% ---------------------------------------------------------------------------- Research and development 4,210 3,472 738 21% ---------------------------------------------------------------------------- Research and development as a % of total revenue 22% 19% ----------------------------------------------------------------------------



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

The above research and development costs include CMG's share of joint research and development costs associated with the DRMS project of $1.2 million for the three months ended June 30, 2014 (2013 - $1.1 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

The increase of 14% in our gross spending on research and development for the three months ended June 30, 2014, compared to the same period of the previous fiscal year, demonstrates our continued commitment to the advancement of our technology which is the focal point of our business strategy.

Research and development costs, net of SR&ED credits, increased by 21% during the three months ended June 30, 2014, compared to the same period of the previous fiscal year, due to increases in employee compensation costs and costs associated with computing resources and a decrease in SR&ED credits.

SR&ED credits decreased for the three months ended June 30, 2014, compared to the same period of the previous fiscal year, due to both a decrease in the Federal SR&ED input tax credit rate (from 20% to 15% effective January 1, 2014) and a decrease in SR&ED eligible expenditures associated with the DRMS project. DEPRECIATION Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 109 100 9 9% Research and development 206 226 (20) -9% General and administrative 52 49 3 6% ---------------------------------------------------------------------------- Total depreciation 367 375 (8) -2% ----------------------------------------------------------------------------



Depreciation in the three months ended June 30, 2014 was relatively flat as compared to the same period in the previous fiscal year.

Finance Income and Finance Costs

Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Interest income 193 157 36 23% Net foreign exchange gain - 492 (492) -100% ---------------------------------------------------------------------------- Total finance income 193 649 (456) -70% ---------------------------------------------------------------------------- Net foreign exchange loss (581) - (581) 100% ---------------------------------------------------------------------------- Total finance costs (581) - (581) 100% ----------------------------------------------------------------------------



Interest income increased in the three months ended June 30, 2014, compared to the same period of the previous 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% (2013 - 70%) of CMG's revenue for the three months ended June 30, 2014 is denominated in US dollars, whereas only approximately 24% (2013 - 25%) of CMG's total costs are denominated in US dollars.

The following chart shows the exchange rates used to translate CMG's US dollar denominated working capital at June 30, 2014, 2013 and 2012 and the average exchange rates used to translate income statement items during the three months ended June 30, 2014, 2013 and 2012:

Three month trailing CDN$ to US$ At June 30 average ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 2012 0.9813 0.9861 2013 0.9513 0.9702 2014 0.9367 0.9231 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



CMG recorded a net foreign exchange loss of $0.6 million for the three months ended June 30, 2014, compared to a net foreign exchange gain of $0.5 million recorded in the three months ended June 30, 2013.

The strengthening of the Canadian dollar during the first quarter of the current fiscal year contributed negatively to the valuation of our US-denominated working capital for the three months ended June 30, 2014, 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, 2014 is reflected as 28.5% (2013 - 29.2%), whereas the prevailing Canadian statutory tax rate is now 25.0%. This difference is primarily due to the non-tax deductibility of stock-based compensation expense.

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

Three months ended June 30, 2014 2013 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- Total revenue 19,552 18,116 1,436 8% Operating expenses (10,431) (8,766) (1,665) 19% ---------------------------------------------------------------------------- Operating profit 9,121 9,350 (229) -2% Operating profit as a % of total revenue 47% 52% ---------------------------------------------------------------------------- Net income for the period 6,244 7,081 (837) -12% Net income for the period as a % of total revenue 32% 39% ---------------------------------------------------------------------------- Basic earnings per share ($/share) 0.08 0.09 (0.01) -11% ----------------------------------------------------------------------------



Operating profit as a percentage of total revenue for the three months ended June 30, 2014 was at 47% compared to 52% recorded in the same period of the previous fiscal year. While our total revenue grew by 8% for the three months ended June 30, 2014, as compared to the same period of the previous fiscal year, our operating expenses grew by 19% having a negative impact on our operating profit. If we were to exclude the costs associated with CMG's biennial technical symposium which took place during the current quarter, we would observe that operating profit for the three months ended June 30, 2014 was consistent with the same period in the previous fiscal year. The fluctuations inherent in our perpetual revenue stream and the decrease in SR&ED credits for the three months ended June 30, 2014, as compared to the same period of the previous fiscal year, also had a negative impact on operating profit as a % of total revenue.

Net income for the period as a percentage of revenue decreased to 32% for the three months ended June 30, 2014, compared to 39% for the same period of the previous fiscal year, mainly as a result of the changes discussed above and recording a net foreign exchange loss of $0.6 million during the three months ended June 30, 2014, compared to recording a net foreign exchange gain of $0.5 million for 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

Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Net income for the period 6,244 7,081 (837) -12% Add (deduct): Depreciation 367 375 (8) -2% Finance income (193) (649) 456 -70% Finance costs 581 - 581 100% Income and other taxes 2,489 2,918 (429) -15% ---------------------------------------------------------------------------- EBITDA 9,488 9,725 (237) -2% ---------------------------------------------------------------------------- EBITDA as a % of total revenue 49% 54% ----------------------------------------------------------------------------



EBITDA decreased by 2% for the three months ended June 30, 2014, compared to the same period of the previous fiscal year. If we were to exclude the technical symposium costs incurred during the current quarter, we would observe that EBITDA for the three months ended June 20, 2014 was consistent with the same period in the previous fiscal year. The fluctuations inherent in our perpetual revenue stream and the decrease in SR&ED credits for the three months ended June 30, 2014, as compared to the same period of the previous fiscal year, also had a negative impact on EBITDA as a % of total revenue which decreased to 49% for the three months ended June 30, 2014, compared to 54% for the same period of the previous fiscal year.

Liquidity and Capital Resources

Three months ended June 30, 2014 2013 $ change % change ($ thousands) ---------------------------------------------------------------------------- Cash, beginning of period 72,410 59,419 12,991 22% Cash flow from (used in): Operating activities 7,177 9,837 (2,660) -27% Financing activities (6,183) (5,919) (264) 4% Investing activities (227) (225) (2) 1% ---------------------------------------------------------------------------- Cash, end of period 73,177 63,112 10,065 16% ----------------------------------------------------------------------------



OPERATING ACTIVITIES

Cash flow generated from operating activities decreased by $2.7 million in the three months ended June 30, 2014, compared to the same period of the previous fiscal year, mainly due to the decrease in net income for the period, the negative effect on the timing difference of when income taxes are recorded and paid and the timing difference of when sales are made and when the resulting receivables are collected partially offset by the decrease in the deferred revenue balance and the positive effect of the timing difference of when trade payables and accrued liabilities are recorded and paid.

FINANCING ACTIVITIES

Cash used in financing activities during the three months ended June 30, 2014 increased by $0.3 million, compared to the same period of the previous fiscal year, due to receiving lower proceeds from the issuance of Common Shares partially offset by paying lower dividends (due to the payment of a special dividend in the three months ended June 30, 2013).

During the three months ended June 30, 2014, CMG employees and directors exercised options to purchase 324,000 Common Shares, which resulted in cash proceeds of $1.7 million (2013 - 710,000 options exercised to purchase Common Shares which resulted in cash proceeds of $2.9 million).

In the three months ended June 30, 2014, CMG paid $7.9 million in dividends, representing the following quarterly dividends:

($ per share) Q1 ---------------------------------------------------------------------------- Total dividends declared and paid 0.10 ----------------------------------------------------------------------------



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

($ per share) Q1 ---------------------------------------------------------------------------- Dividends declared and paid 0.09 Special dividend declared and paid 0.025 ---------------------------------------------------------------------------- Total dividends declared and paid 0.115 ----------------------------------------------------------------------------



On August 12, 2014, CMG announced the payment of a quarterly dividend of $0.10 per share on CMG's Common Shares. The dividend will be paid on September 15, 2014 to shareholders of record at the close of business on September 5, 2014. On August 12, 2014, the Board of Directors also approved the issuance of 2,110,000 options to purchase CMG's Common Shares in accordance with CMG's stock option plan.

In the fiscal 2012 Management's Discussion and Analysis, we reported that, beginning in fiscal 2013, we would increase the relative proportion of dividends paid quarterly and lower the amount paid as a special dividend at the end of the fiscal year, in order to provide a more regular income stream to our shareholders throughout the year. The above tables demonstrate an increase in the regular quarterly dividend from $0.09 per share in Q1 of fiscal 2014 to $0.10 per share in Q1 of fiscal 2015 and the elimination of the special dividend in Q1 of fiscal 2015. The special dividend, if any, will continue to be determined annually based on the Company's performance; however, our focus will remain on a sustainable dividend paid quarterly.

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 29, 2013, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on May 1, 2013 to purchase for cancellation up to 7,076,000 of its Common Shares. This NCIB finished on April 30, 2014 and no Common Shares were purchased.

On May 5, 2014, the Company announced a NCIB commencing on May 5, 2014 to purchase for cancellation up to 7,440,000 of its Common Shares. During the three months ended June 30, 2014, 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, 2014, CMG expended $0.2 million on property and equipment additions, primarily composed of computing equipment. CMG has a capital budget of $2.3 million for fiscal 2015.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2014, CMG has $73.2 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, 2014, 3,552,000 shares of CMG's public float were traded on the TSX. As at June 30, 2014, CMG's market capitalization based upon its June 30, 2014 closing price of $14.81 was $1.2 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 $5.9 million ($3.1 million net of overhead recoveries) for fiscal 2015. 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: 2015 - $1.7 million; 2016 - $2.2 million; 2017 - $1.2 million; 2018 and 2019 - $0.2 million per year.

The leases for our Calgary offices expire in fiscal 2017 and we are currently in the process of negotiating the lease of new premises.

Business Risks and Critical Accounting Estimates

These remain unchanged from the factors detailed in CMG's 2014 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 2014 Annual Report. The following amendments to standards have been adopted with an initial application date of April 1, 2014:

-- Amendments to IAS 32 Offsetting Financial Assets and Liabilities Clarify when an entity has a legally enforceable right to set-off and net versus gross settlement mechanisms. The adoption of the amendments did not have a material impact on the condensed consolidated financial statements. -- Amendments to IAS 36 Impairment of Assets Clarify IASB's original intention to require the disclosure of the recoverable amount of impaired assets as well as additional disclosures about the measurement of the recoverable amount of impaired assets. The adoption of the amendments did not have a material impact on the condensed consolidated 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) introduces The Company intends to Instruments new requirements for the early adopt IFRS 9 In November 2009 the IASB classification and (2009), IFRS 9 (2010) issued IFRS 9, Financial measurement of financial and IFRS 9 (2013) in its Instruments (IFRS 9 assets. Under IFRS 9 consolidated financial (2009)), and in October (2009), financial assets statements for the 2010, the IASB published are classified and annual period beginning amendments to IFRS 9 measured based on the on April 1, 2015. The (IFRS 9 (2010)). business model in which Company does not expect In November 2013, the they are held and the IFRS 9 (2009), IFRS 9 IASB issued a new general characteristics of their (2010) and IFRS 9 (2013) hedge accounting contractual cash flows. to have a material standard, which forms IFRS 9 (2010) introduces impact on the part of IFRS 9 Financial additional changes consolidated financial Instruments (2013). The relating to financial statements because of new standard removes the liabilities. the nature of the January 1, 2015 effective IFRS 9 (2013) includes a Company's operations and date of IFRS 9. The new new general hedge the types of financial mandatory effective date accounting standard which assets that it holds. will be determined once will align hedge the classification and accounting more closely measurement and with risk management. impairment phases of IFRS This new standard does 9 are finalized; however, not fundamentally change in its February 2014 the types of hedging meeting, the IASB relationships or the tentatively decided that requirement to measure IFRS 9 would be and recognize mandatorily effective for ineffectiveness; however, annual periods beginning it will provide more on or after January 1, hedging strategies that 2018. are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. Special transitional requirements have been set for the application of the new general hedging model. ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- IFRS 15, Revenue from IFRS 15 contains a single The Company intends to Contracts with Customers model that applies to adopt IFRS 15 in its In May 2014 the IASB contracts with customers consolidated financial issued IFRS 15 Revenue and two approaches to statements for the from Contracts with recognizing revenue: at a annual period beginning Customers. The new point in time or over April 1, 2017. The standard is effective for time. The model features extent of the impact of fiscal years ending on or a contract-based five- adoption of the standard after December 31, 2017 step analysis of has not yet been and is available for transactions to determine determined. early adoption. whether, how much and IFRS 15 will replace IAS when revenue is 11 Construction recognized. New estimates Contracts, IAS 18 and judgmental thresholds Revenue, IFRIC 13 have been introduced, Customer Loyalty which may affect the Programmes, IFRIC 15 amount and/or timing of Agreements for the revenue recognized. Construction of Real The new standard applies Estate, IFRIC 18 Transfer to contracts with of Assets from Customers, customers. It does not and SIC 31 Revenue - apply to insurance Barter Transactions contracts, financial Involving Advertising instruments or lease Services. contracts, which fall in the scope of other IFRSs ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Outstanding Share Data

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

As at August 12, 2014 (thousands) ---------------------------------------------------------------------------- Common Shares 78,789 Options 5,492 ----------------------------------------------------------------------------



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, 2014, CMG could grant up to 7,879,000 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 2014 in accordance with the COSO control framework (1992). The evaluation confirmed the effectiveness of DC&P and ICFR at March 31, 2014. During our fiscal year 2015, we continue to monitor and review our controls and procedures.

During the three months ended June 30, 2014, 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 three months of fiscal 2015 with a recorded increase of 14%, compared to the same period of the previous fiscal year. More than 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 customers 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.

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 customers 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. The North American market continues to see an increased focus on the development of unconventional gas plays, consisting of shale gas and tight gas reservoirs, with emphasis on liquids-rich areas. These types of reservoirs use complex recovery processes that necessitate the use of simulation. In the Middle East region we are seeing an increased focus on the development of unconventional oil and gas resources and the initiation of challenging hydrocarbon projects, which presents new opportunities for the use of our software.

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 current quarter. The most recent version of the software was released to our partners during the fourth quarter of fiscal 2014, for the purposes of testing it on selected assets. This release achieved its target of successfully simulating a complex integrated asset model. The DRMS team is now focusing its efforts on the next software release. 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 to ultimately return value to our shareholders in the form of regular quarterly dividend payments and growth in share value. During the current quarter, the regular dividend per share paid increased by 11% as compared to the first quarter of the previous fiscal year.

Kenneth M. Dedeluk

President and Chief Executive Officer

August 12, 2014

Condensed Consolidated Statements of Financial Position

March 31, UNAUDITED (thousands of Canadian $) June 30, 2014 2014 ---------------------------------------------------------------------------- Assets Current assets: Cash 73,177 72,410 Trade and other receivables 18,955 24,025 Prepaid expenses 1,063 1,153 Prepaid income taxes (note 7) 114 128 ---------------------------------------------------------------------------- 93,309 97,716 Property and equipment 2,412 2,552 ---------------------------------------------------------------------------- Total assets 95,721 100,268 ---------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Trade payables and accrued liabilities 4,127 5,947 Income taxes payable (note 7) 783 1,287 Deferred revenue 26,628 29,531 ---------------------------------------------------------------------------- 31,538 36,765 Deferred tax liability (note 7) 16 335 ---------------------------------------------------------------------------- Total liabilities 31,554 37,100 ---------------------------------------------------------------------------- Shareholders' equity: Share capital 55,755 53,750 Contributed surplus 6,475 5,853 Retained earnings 1,937 3,565 ---------------------------------------------------------------------------- Total shareholders' equity 64,167 63,168 ---------------------------------------------------------------------------- Total liabilities and shareholders' equity 95,721 100,268 ----------------------------------------------------------------------------



Subsequent events (note 14)

See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Operations and Comprehensive Income

Three months ended June 30, UNAUDITED (thousands of Canadian $ except per share amounts) 2014 2013 ---------------------------------------------------------------------------- Revenue (note 4) 19,552 18,116 ---------------------------------------------------------------------------- Operating expenses Sales, marketing and professional services 4,491 3,649 Research and development (note 5) 4,210 3,472 General and administrative 1,730 1,645 ---------------------------------------------------------------------------- 10,431 8,766 ---------------------------------------------------------------------------- Operating profit 9,121 9,350 Finance income (note 6) 193 649 Finance costs (note 6) (581) - ---------------------------------------------------------------------------- Profit before income and other taxes 8,733 9,999 Income and other taxes (note 7) 2,489 2,918 ---------------------------------------------------------------------------- Net and total comprehensive income 6,244 7,081 ---------------------------------------------------------------------------- Earnings Per Share Basic (note 8(e)) 0.08 0.09 Diluted (note 8(e)) 0.08 0.09 ----------------------------------------------------------------------------



See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Changes in Equity

UNAUDITED (thousands of Common Contributed Retained Total Canadian $) Share Capital Surplus Earnings Equity ---------------------------------------------------------------------------- Balance, April 1, 2013 40,498 4,673 6,239 51,410 Total comprehensive income for the period - - 7,081 7,081 Dividends paid - - (8,841) (8,841) Shares issued for cash on exercise of stock options (note 8(b)) 2,922 - - 2,922 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 ---------------------------------------------------------------------------- Balance, April 1, 2014 53,750 5,853 3,565 63,168 Total comprehensive income for the period - - 6,244 6,244 Dividends paid - - (7,872) (7,872) Shares issued for cash on exercise of stock options (note 8(b)) 1,689 - - 1,689 Stock-based compensation: Current period expense - 938 - 938 Stock options exercised (note 8(b)) 316 (316) - - ---------------------------------------------------------------------------- Balance, June 30, 2014 55,755 6,475 1,937 64,167 ----------------------------------------------------------------------------



See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flows

Three months ended June 30, UNAUDITED (thousands of Canadian $) 2014 2013 ---------------------------------------------------------------------------- Cash flows from operating activities Net income 6,244 7,081 Adjustments for: Depreciation 367 375 Income and other taxes (note 7) 2,489 2,918 Stock-based compensation (note 8(d)) 938 545 Interest income (note 6) (193) (157) ---------------------------------------------------------------------------- 9,845 10,762 Changes in non-cash working capital: Trade and other receivables 5,074 7,126 Trade payables and accrued liabilities (1,820) (2,415) Prepaid expenses 90 153 Deferred revenue (2,903) (3,275) ---------------------------------------------------------------------------- Cash generated from operating activities 10,286 12,351 Interest received 189 155 Income taxes paid (3,298) (2,669) ---------------------------------------------------------------------------- Net cash from operating activities 7,177 9,837 ---------------------------------------------------------------------------- Cash flows used in financing activities Proceeds from issue of common shares 1,689 2,922 Dividends paid (7,872) (8,841) ---------------------------------------------------------------------------- Net cash used in financing activities (6,183) (5,919) ---------------------------------------------------------------------------- Cash flows used in investing activities Property and equipment additions (227) (225) ---------------------------------------------------------------------------- Increase in cash 767 3,693 Cash, beginning of period 72,410 59,419 ---------------------------------------------------------------------------- Cash, end of period 73,177 63,112 ----------------------------------------------------------------------------



See accompanying notes to condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

For the three months ended June 30, 2014 and 2013 (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, 2014 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, 2014 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, 2014.

These unaudited condensed consolidated financial statements as at and for the three months ended June 30, 2014 were authorized for issuance by the Board of Directors on August 12, 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, 2014.

3. Significant Accounting Policies:



The condensed consolidated financial statements should be read in conjunction with the Company's annual consolidated financial statements for the year ended March 31, 2014 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, 2014.

NEW STANDARDS AND INTERPRETATIONS ADOPTED:

The Company has adopted the following amendments to standards, with a date of initial application of April 1, 2014:

-- Amendments to IAS 32 Offsetting Financial Assets and Liabilities Clarify when an entity has a legally enforceable right to set-off and net versus gross settlement mechanisms. The adoption of the amendments did not have a material impact on the condensed consolidated financial statements. -- Amendments to IAS 36 Impairment of Assets Clarify IASB's original intention to require the disclosure of the recoverable amount of impaired assets as well as additional disclosures about the measurement of the recoverable amount of impaired assets. The adoption of the amendments did not have a material impact on the condensed consolidated financial statements. 4. Revenue: Three months ended June 30, 2014 2013 (thousands of $) ---------------------------------------------------------------------------- Software licenses 17,398 16,289 Professional services 2,154 1,827 ---------------------------------------------------------------------------- 19,552 18,116 ---------------------------------------------------------------------------- 5. Research and Development: Three months ended June 30, 2014 2013 (thousands of $) ---------------------------------------------------------------------------- Research and development 4,566 4,020 Scientific research and experimental development ("SR&ED") investment tax credits (356) (548) ---------------------------------------------------------------------------- 4,210 3,472 ---------------------------------------------------------------------------- 6. Finance Income and Finance Costs: Three months ended June 30, 2014 2013 (thousands of $) ---------------------------------------------------------------------------- Interest income 193 157 Net foreign exchange gain - 492 ---------------------------------------------------------------------------- Finance income 193 649 ---------------------------------------------------------------------------- Net foreign exchange loss (581) - ---------------------------------------------------------------------------- Finance costs (581) - ---------------------------------------------------------------------------- 7. Income and Other Taxes:



The major components of income tax expense are as follows:

Three months ended June 30, 2014 2013 (thousands of $) ---------------------------------------------------------------------------- Current year income taxes 2,739 2,901 Deferred tax expense (recovery) (319) (268) Foreign withholding and other taxes 69 285 ---------------------------------------------------------------------------- 2,489 2,918 ----------------------------------------------------------------------------



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:

Three months ended June 30, 2014 2013 (thousands of $, unless otherwise stated) ---------------------------------------------------------------------------- Combined statutory tax rate 25.00% 25.00% ---------------------------------------------------------------------------- Expected income tax 2,183 2,500 Non-deductible costs 244 143 Effect of tax rates in foreign jurisdictions 17 56 Withholding taxes 38 213 Other 7 6 ---------------------------------------------------------------------------- 2,489 2,918 ----------------------------------------------------------------------------



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

June 30, March 31, (thousands of $) 2014 2014 ---------------------------------------------------------------------------- Tax liability on SR&ED investment tax credits (51) (354) Tax asset on property and equipment 35 19 ---------------------------------------------------------------------------- Net deferred tax liability (16) (335) ----------------------------------------------------------------------------



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.

On May 21, 2014, the Board of Directors of the Company approved a two-for-one stock split of the Company's issued and outstanding Common Shares. The Common Shares were traded on a "due bill" basis from the opening on June 23, 2014 to July 2, 2014, inclusively. The stock split record date was June 25, 2014. Accordingly, the comparative number of shares and per share amounts have been retroactively adjusted to reflect the two-for-one adjustment.

b. ISSUED: (thousands of shares) Common Shares ---------------------------------------------------------------------------- Balance, April 1, 2013 76,258 Issued for cash on exercise of stock options 710 ---------------------------------------------------------------------------- Balance, June 30, 2013 76,968 ---------------------------------------------------------------------------- Balance, April 1, 2014 78,419 Issued for cash on exercise of stock options 324 ---------------------------------------------------------------------------- Balance, June 30, 2014 78,743 ----------------------------------------------------------------------------



Subsequent to June 30, 2014, 46,000 stock options were exercised for cash proceeds of $214,000.

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 29, 2013, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on May 1, 2013 to purchase for cancellation up to 7,076,000 of its Common Shares. This NCIB ended on April 30, 2014 and no Common Shares were purchased.

On May 5, 2014, the Company announced a NCIB commencing on May 5, 2014 to purchase for cancellation up to 7,440,000 of its Common Shares. During the three months ended June 30, 2014, 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 10, 2014, 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, 2014, the Company could grant up to 7,874,000 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:

Three months ended Year ended June 30, 2014 March 31, 2014 ---------------------------------------------------------------------------- Weighted Weighted Average Average Number of Exercise Number of Exercise Options Price Options Price (thousands) ($/share) (thousands) ($/share) ---------------------------------------------------------------------------- Outstanding at beginning of period 5,858 9.25 5,876 6.56 Granted 16 14.97 2,328 12.22 Exercised (324) 5.22 (2,162) 5.20 Forfeited (12) 10.79 (184) 8.49 ---------------------------------------------------------------------------- Outstanding at end of period 5,538 9.50 5,858 9.25 ---------------------------------------------------------------------------- Options exercisable at end of period 1,848 6.98 2,166 6.72 ----------------------------------------------------------------------------



The range of exercise prices of stock options outstanding and exercisable at June 30, 2014 is as follows:

Outstanding Exercisable ---------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Number of Remaining Exercise Number of Exercise Price Options Contractual Price Options Price ($/option) (thousands) Life (years) ($/option) (thousands) ($/option) ---------------------------------------------------------------------------- 3.90 - 4.53 488 1.0 4.46 488 4.46 4.54 - 6.71 1,139 2.1 6.69 673 6.68 6.72 - 9.09 1,596 3.1 9.07 685 9.05 9.10 - 14.97 2,315 4.1 12.24 2 10.87 ---------------------------------------------------------------------------- 5,538 3.2 9.50 1,848 6.98 ----------------------------------------------------------------------------



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

Three months ended Year ended June 30, 2014 March 31, 2014 ---------------------------------------------------------------------------- Fair value at grant date ($/option) 2.39 to 2.50 1.53 to 2.47 Share price at grant date ($/share) 14.97 12.20 to 14.57 Risk-free interest rate (%) 1.14 to 1.36 1.21 to 1.64 Estimated hold period prior to exercise (years) 3 to 4 2 to 4 Volatility in the price of common shares (%) 26 to 28 26 to 28 Dividend yield per common share (%) 2.67 2.78 to 3.21 ----------------------------------------------------------------------------



The Company recognized total stock-based compensation expense for the three months ended June 30, 2014 of $938,000 (2013 - $545,000).

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:

Three months ended June 30, (thousands except per share amounts) 2014 2013 ---------------------------------------------------------------------------- Weighted Weighted Average Earnings Average Earnings Earnings Shares Per Share Earnings Shares Per Share ($) Outstanding ($/share) ($) Outstanding ($/share) ---------------------------------------------------------------------------- Basic 6,244 78,590 0.08 7,081 76,509 0.09 Dilutive effect of stock options 1,976 2,032 ---------------------------------------------------------------------------- Diluted 6,244 80,566 0.08 7,081 78,541 0.09 ----------------------------------------------------------------------------



During the three months ended June 30, 2014, 5,000 options (2013 - nil), were excluded from the computation of the weighted-average number of diluted shares outstanding because their effect was not dilutive.

9. Financial Instruments:



Financial assets include cash and trade and other receivables which are classified as loans and receivables and are measured at amortized cost which approximates their fair values.

Financial liabilities include trade payables and accrued liabilities which are classified as other financial liabilities and are measured at amortized cost which approximates their fair values.

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 $5.9 million ($3.1 million net of overhead recoveries) for fiscal 2015.

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, 2014 2013 (thousands of $) ---------------------------------------------------------------------------- Less than one year 2,224 2,054 Between one and five years 3,275 4,577 ---------------------------------------------------------------------------- 5,499 6,631 ----------------------------------------------------------------------------

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, 2014, US $165,000 (March 31, 2014 - 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 ---------------------------------------------------------------------------- Three months ended June 30, As at June 30, 2014 2013 2014 2013 ---------------------------------------------------------------------------- Canada 7,358 6,490 2,227 2,972 United States 3,783 3,859 61 44 South America 4,356 3,114 69 73 Eastern Hemisphere(1) 4,055 4,653 55 65 ---------------------------------------------------------------------------- 19,552 18,116 2,412 3,154 ---------------------------------------------------------------------------- (1) Includes Europe, Africa, Asia and Australia.



In the three months ended June 30, 2014 and 2013, 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 months ended June 30, 2014, CMG included $1.4 million (2013 - $1.1 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 $0.7 million during the three months ended June 30, 2014 (2013 - $0.6 million).

14. Subsequent Events:



On August 12, 2014, the Board of Directors declared a quarterly cash dividend of $0.10 per share on its Common Shares, payable on September 15, 2014, to all shareholders of record at the close of business on September 5, 2014.

On August 12, 2014, the Board of Directors also approved the issuance of 2,110,000 options to purchase CMG's Common Shares in accordance with CMG's stock option plan.

FOR FURTHER INFORMATION PLEASE CONTACT: Computer Modelling Group Ltd.Kenneth M. Dedeluk President & CEO (403) 531-1300 ken.dedeluk@cmgl.caComputer Modelling Group Ltd.Sandra Balic Vice President, Finance & CFO (403) 531-1300 sandra.balic@cmgl.cawww.cmgl.ca Source: Computer Modelling Group Ltd.


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Source: Marketwire (Canada)


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