SECOND QUARTER HIGHLIGHTS

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Computer Modelling Group Announces Second Quarter Results

(November 09, 2011)

CALGARY, ALBERTA -- (Marketwire) -- 11/09/11 -- Computer Modelling Group Ltd. (TSX:CMG) ("CMG" or the "Company") is very pleased to announce our second quarter results for the three and six months ended September 30, 2011.

SECOND QUARTER HIGHLIGHTS

For the three months ended September 30, 2011 2010 $ change % change ($ thousands, except per share data) ---------------------------------------------------------------------------- Annuity/maintenance software licenses 9,308 7,855 1,453 18% Perpetual software licenses 1,596 2,975 (1,379) -46% Total revenue 11,982 13,332 (1,350) -10% Operating profit 5,226 6,694 (1,468) -22% Net income 4,318 4,565 (247) -5% Earnings per share - basic 0.12 0.13 (0.01) -8% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands, except per share data) ---------------------------------------------------------------------------- Annuity/maintenance software licenses 18,305 16,179 2,126 13% Perpetual software licenses 6,987 4,799 2,188 46% Total revenue 27,921 25,386 2,535 10% Operating profit 14,318 12,628 1,690 13% Net income 10,981 8,795 2,186 25% Earnings per share - basic 0.30 0.25 0.05 20% ----------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS


This Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our"), presented as at November 8, 2011, should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of the Company for the three and six months ended September 30, 2011 and the audited consolidated financial statements and MD&A for the years ended March 31, 2011 and 2010 contained in the 2011 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.

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

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 2011 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 contains the terms "direct employee costs" and "other corporate costs" which are not measures defined by IFRS, do not have standardized meaning prescribed by IFRS and should not be considered an alternative to expenses as determined in accordance with IFRS. Direct employee costs and other corporate costs, as computed by CMG, may differ from similar measures as reported by other issuers. These non-IFRS measures are presented in this MD&A because management considers them to be important in highlighting the quantitative impact of cost management as it relates to corporate and people-related costs. The items constituting direct employee costs are outlined in the table under the "Expenses" heading.

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 approximately 50 countries. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities. CMG has sales and technical support services based in Calgary, Houston, London, Caracas and Dubai. CMG's Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG".

QUARTERLY PERFORMANCE

Fiscal Fiscal 2010((1)) Fiscal 2011((2)) 2012((3)) ($ thousands, unless otherwise stated) Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 ---------------------------------------------------------------------------- Annuity/maint enance licenses 7,406 7,653 8,325 7,855 7,999 8,531 8,997 9,308 Perpetual licenses 2,903 4,982 1,824 2,975 2,335 3,911 5,391 1,596 ---------------------------------------------------------------------------- Software licenses 10,309 12,635 10,149 10,830 10,333 12,442 14,388 10,904 Professional services 1,383 1,657 1,905 2,502 1,730 1,936 1,551 1,078 ---------------------------------------------------------------------------- Total revenue 11,692 14,292 12,054 13,332 12,063 14,378 15,939 11,982 Operating profit 5,920 7,844 5,933 6,695 5,517 7,523 9,092 5,226 Operating profit % 51 55 49 50 46 52 57 44 Profit before income and other taxes 5,708 7,710 6,178 6,565 5,278 7,413 9,240 6,096 Income and other taxes 1,708 2,350 1,949 1,999 1,715 2,605 2,577 1,778 Net income for the period 4,000 5,360 4,229 4,565 3,563 4,808 6,663 4,318 Cash dividends declared and paid 3,194 3,209 6,274 3,430 3,623 3,643 7,519 4,053 ---------------------------------------------------------------------------- Per share amounts - ($/share) Earnings per share - basic 0.12 0.15 0.12 0.13 0.10 0.13 0.18 0.12 Earnings per share - diluted 0.11 0.15 0.12 0.13 0.10 0.13 0.18 0.11 Cash dividends declared and paid 0.09 0.09 0.175 0.095 0.10 0.10 0.205 0.11 ---------------------------------------------------------------------------- 1. Q3 and Q4 of fiscal 2010 include $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 and Q2 of fiscal 2012 include $0.3 million and $0.04 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.

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

Highlights

During the six months ended September 30, 2011, as compared to the same period of prior fiscal year, CMG:

-- Increased annuity/maintenance revenue by 13%; -- Increased perpetual sales by 46%; -- Increased net income by 25%; -- Increased gross spending on research and development by 10%; -- Realized earnings per share of $0.30, representing a 20% increase.

Revenue

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 10,904 10,830 74 1% Professional services 1,078 2,502 (1,424) -57% ---------------------------------------------------------------------------- Total revenue 11,982 13,332 (1,350) -10% ---------------------------------------------------------------------------- Software license revenue - % of total revenue 91% 81% Professional services - % of total revenue 9% 19% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 25,292 20,979 4,313 21% Professional services 2,629 4,407 (1,778) -40% ---------------------------------------------------------------------------- Total revenue 27,921 25,386 2,535 10% ---------------------------------------------------------------------------- Software license revenue - % of total revenue 91% 83% Professional services - % of total revenue 9% 17% ----------------------------------------------------------------------------

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 for the three months ended September 30, 2011 decreased by 10% compared to the same period of previous fiscal year. While revenue generated from software licenses remained at a comparable level between the two periods, fees earned from professional services decreased by $1.4M contributing to the overall decrease in revenue.

A 10% increase in total revenue in the six months ended September 30, 2011, compared to the same period of previous fiscal year, is attributable to an increase in software license sales driven by both a growth in annuity/maintenance license revenue and an increase in perpetual sales. This increase was offset by a decrease in fees for professional services earned during the six months ended September 30, 2011.

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. CMG has found that the majority of its customers who have acquired perpetual software licenses subsequently purchase maintenance licenses to ensure they have access to current versions of CMG's software.

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 9,308 7,855 1,453 18% Perpetual licenses 1,596 2,975 (1,379) -46% ---------------------------------------------------------------------------- Total software license revenue 10,904 10,830 74 1% ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 85% 73% Perpetual as a % of total software license revenue 15% 27% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 18,305 16,179 2,126 13% Perpetual licenses 6,987 4,799 2,188 46% ---------------------------------------------------------------------------- Total software license revenue 25,292 20,979 4,313 21% ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 72% 77% Perpetual as a % of total software license revenue 28% 23% ----------------------------------------------------------------------------

Total software license revenue remained virtually unchanged between the three months ended September 30, 2011 and the same period of previous fiscal year, as an increase in annuity/maintenance license sales has been offset by a decrease in perpetual license sales. The 21% growth in software license revenue in the six months ended September 30, 2011, compared to the same period of previous fiscal year, is attributable to both the increase in annuity/maintenance license revenue related to increased sales to new and existing customers as well as the increase in perpetual sales driven mainly by a large multi-million dollar perpetual sale made during the first quarter of the current fiscal year. As discussed below, this increase was partially offset by the decrease in both annuity/maintenance and perpetual license revenue as a result of the strengthening of the Canadian dollar relative to the US dollar.

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

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- US dollar annuity/maintenance license sales US$ 5,902 US$ 5,062 840 17% Weighted average conversion rate 0.990 1.050 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 5,841 CDN$ 5,332 509 10% ---------------------------------------------------------------------------- US dollar perpetual license sales US$ 1,656 US$ 975 681 70% Weighted average conversion rate 0.964 1.060 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 1,596 CDN$ 1,030 566 55% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- US dollar annuity/maintenance license sales US$ 11,448 US$ 10,746 702 7% Weighted average conversion rate 0.994 1.050 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 11,377 CDN$ 11,293 84 1% ---------------------------------------------------------------------------- US dollar perpetual license sales US$ 7,277 US$ 2,735 4,542 166% Weighted average conversion rate 0.956 1.040 ---------------------------------------------------------------------------- Canadian dollar equivalent CDN$ 6,955 CDN$ 2,854 4,101 144% ----------------------------------------------------------------------------

CMG's annuity/maintenance license revenue increased by 18% and 13% during the three and six months ended September 30, 2011, respectively, compared to the same periods of last year. These increases were driven by sales to new and existing clients as well as the increase in maintenance revenue tied to our strong perpetual sales generated in the previous quarters. It is noteworthy that our annuity/maintenance license revenue, representing a recurring revenue stream, is experiencing steady growth quarter over quarter as evidenced by the 18% increase in the current quarter, 8% increase in the previous quarter, 11% increase in Q4 of fiscal 2011 and 8% increases in each of Q3 and Q2 of fiscal 2011, despite the negative effects of foreign exchange as discussed below. It should also be noted that the annuity/maintenance license revenue recorded in the second quarter of prior year included $0.2 million of revenue that pertained to usage of CMG's products in prior quarters compared to only $0.04 million included in the current quarter's annuity/maintenance revenue that pertains to prior quarters (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 increase in annuity/maintenance revenue as measured in Canadian dollars has been negatively affected by the strengthening of the Canadian dollar relative to the US dollar. The table above illustrates revenue generated in US dollars and the rates at which it was converted into Canadian dollars to show the movement in US dollar denominated revenue without the impact of the foreign exchange. Had the exchange rate between the US and Canadian dollars remained constant between the three and six months ended September 30, 2011 and 2010, our second quarter annuity/maintenance revenue would have increased by 23% (instead of 18%) and our year-to-date annuity/maintenance revenue would have increased by 17% (instead of 13%).

Software license revenue under perpetual sales decreased by 46% or $1.4 million for the three months ended September 30, 2011. Perpetual revenue earned in the second quarter of the previous fiscal year was significantly higher on account of a large perpetual deal closed during the quarter. However, perpetual revenue increased by 46% or $2.2 million between the six months ended September 30, 2011 and the same period of previous fiscal year as a result of the multi-million perpetual sale made during the first quarter of the current fiscal year. Software licensing under perpetual sales is a significant part of CMG's business, but may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. For this reason, we expect to observe fluctuations in the quarterly perpetual revenue amounts throughout the fiscal year.

We can observe from the table above that the perpetual sales in US dollars were negatively affected by the foreign exchange movement between the US and Canadian dollars as a result of the strengthening Canadian dollar in the current fiscal year. Had the exchange rate between the US and Canadian dollars remained constant between the three and six months ended September 30, 2011 and 2010, our second quarter perpetual license revenue would have decreased by 41% (instead of 46%) and our year-to-date perpetual license revenue would have increased by 58% (instead of 46%).

REVENUE BY GEOGRAPHIC SEGMENT

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance revenue Canada 3,998 2,649 1,349 51% United States 2,061 1,727 334 19% Other 3,249 3,479 (230) -7% ---------------------------------------------------------------------------- 9,308 7,855 1,453 18% ---------------------------------------------------------------------------- Perpetual revenue Canada - 1,945 (1,945) -100% United States 141 24 117 488% Other 1,455 1,006 449 45% ---------------------------------------------------------------------------- 1,596 2,975 (1,379) -46% ---------------------------------------------------------------------------- Total software license revenue Canada 3,998 4,595 (597) -13% United States 2,202 1,751 451 26% Other 4,704 4,485 219 5% ---------------------------------------------------------------------------- 10,904 10,830 73 1% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance revenue Canada 7,732 5,154 2,578 50% United States 4,052 3,405 647 19% Other 6,521 7,620 (1,099) -14% ---------------------------------------------------------------------------- 18,305 16,179 2,126 13% ---------------------------------------------------------------------------- Perpetual revenue Canada 32 1,945 (1,913) -98% United States 603 1,015 (412) -41% Other 6,352 1,839 4,513 245% ---------------------------------------------------------------------------- 6,987 4,799 2,188 46% ---------------------------------------------------------------------------- Total software license revenue Canada 7,764 7,099 665 9% United States 4,655 4,420 235 5% Other 12,873 9,460 3,413 36% ---------------------------------------------------------------------------- 25,292 20,979 4,313 21% ----------------------------------------------------------------------------

On a geographic basis, total software license sales increased across all regions with Canada and the United States experiencing increases of 9% and 5%, respectively, for the six months ended September 30, 2011 compared to the same period of previous fiscal year. This growth has been led by the increase in annuity/maintenance revenue stream.

Our other markets grew total software license revenue by 36% in the six months ended September 30, 2011 compared to the same period of previous fiscal year, on account of the increase in perpetual sales.

The Canadian market experienced strong growth in the recurring annuity/maintenance revenue stream as evidenced by the increases of 51% and 50% for the three and six months ended September 30, 2011 compared to the same periods of the previous fiscal year. The increases in the annuity revenue stream were supported by the increase in sales to both existing and new clients. In addition, strong perpetual license sales generated in the past have enabled the Canadian market to maintain increased revenue levels from the maintenance contracts tied to those perpetual licenses. On the other hand, perpetual sales during the current fiscal year did not reach the same levels of the perpetual sales made during the previous fiscal year causing the decrease in our quarterly total software license revenue and offsetting the increase in our year-to-date total software license revenue.

Similar to the Canadian market, the US market also experienced growth in annuity/maintenance revenue with the increases of 19% recorded for both the three and six months ended September 30, 2011 compared to the same periods of previous fiscal year. While perpetual revenue grew by $0.1 in the three months ended September 30, 2011, it decreased by $0.4 million for the six months ended September 30, 2011 offsetting the growth in annuity/maintenance revenue.

The growth in other markets was driven by the increase in perpetual sales with $0.5 million and $4.5 million increases for the three and six months ended September 30, 2011 compared to the same periods of previous fiscal year. The year-to-date growth in perpetual sales was driven solely by the large perpetual sale made during the first quarter of the current fiscal year. The increases in perpetual sales were offset by the decreases in annuity/maintenance revenue of $0.2 million and $1.1 million for the three and six months ended September 30, 2011, respectively, compared to the same periods of previous fiscal year. It should be noted that other markets appear to have experienced a significant decrease in the annuity/maintenance revenue stream for the six months ended September 30, 2011 as a result of the inclusion of a significant contract in the same period of the previous fiscal year that related to usage of CMG's software in prior quarters. For this particular account, revenue recognition criteria were only fulfilled at the time of the receipt of cash in Q1 of fiscal 2011. If we were to adjust Q1 of fiscal 2011 revenue for this amount, the annuity/maintenance revenue derived from other markets in the six months ended September 30, 2011 would have decreased by only 1% (instead of 14%).

The movements in perpetual sales across the regions are indicative of the unpredictable nature of the timing and location of perpetual license sales. Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions.

The increases in US-dollar generated revenue from the US and other markets have been negatively affected by the strengthening Canadian dollar compared to the US dollar during the three and six months ended September 30, 2011.

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

DEFERRED REVENUE

2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Deferred revenue at: March 31 16,755 13,843 2,912 21% June 30 15,326 12,496 2,830 23% September 30 14,600 12,658 1,942 15% ----------------------------------------------------------------------------

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

The increase in deferred revenue year over year as at September 30, June 30 and March 31 is reflective of the growth in annuity/maintenance license sales. The variation within the year is due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year which explains the decreases in deferred revenue balance at the end of the first quarter (June 30) and second quarter (September 30) compared to fiscal year-end (March 31). Deferred revenue at September 30, 2011 increased compared to the same period of prior fiscal year due to both renewal of the existing and signing of the new annuity and maintenance contracts in the quarter. It should be noted that one of our large contracts that was included in deferred revenue at September 30, 2010 has not been included in deferred revenue at September 30, 2011 since it has not been renewed until the beginning of October 2011. Had this amount been included at September 30, 2011, our deferred revenue would have increased by 23% (instead of 15%) which demonstrates that our deferred revenue balance continues to grow at a steady pace.

PROFESSIONAL SERVICES REVENUE

CMG recorded professional services revenue of $1.1 million and $2.6 million for the three and six months ended September 30, 2011, respectively, representing decreases of $1.4 million and $1.8 million from the amounts recorded for the same periods of previous fiscal year. CMG had been engaged in a few large projects in the previous fiscal year, which are either complete or continue on a smaller scale in the current fiscal year, causing the majority of the decrease in the quarterly and year-to-date professional services revenue. Additionally, the funding commitment for the DRMS project received from the CMG Reservoir Simulation Foundation (the "Foundation") was fulfilled in the first quarter of the current fiscal year further contributing to the decrease in the professional services revenue. Refer to the discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

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

At September 30, 2011, approximately $0.07 million (2010 - $0.125 million) is included in deferred revenue relating to professional services.

Expenses

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Sales, marketing and professional services 3,042 3,138 (96) -3% Research and development 2,393 2,315 78 3% General and administrative 1,321 1,185 136 11% ---------------------------------------------------------------------------- Total operating expenses 6,756 6,638 118 2% ---------------------------------------------------------------------------- Direct employee costs(i) 5,402 4,905 497 10% Other corporate costs 1,354 1,733 (379) -22% ---------------------------------------------------------------------------- 6,756 6,638 118 2% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Sales, marketing and professional services 6,167 5,868 299 5% Research and development 4,888 4,533 355 8% General and administrative 2,548 2,357 191 8% ---------------------------------------------------------------------------- Total operating expenses 13,603 12,758 845 7% ---------------------------------------------------------------------------- Direct employee costs(i) 10,965 9,823 1,142 12% Other corporate costs 2,638 2,935 (297) -10% ---------------------------------------------------------------------------- 13,603 12,758 845 7% ----------------------------------------------------------------------------

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

CMG's total expenses increased by 2% and 7% for the three and six months ended September 30, 2011, respectively, compared to the same periods of previous fiscal year as a result of 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 six months ended September 30, 2011 related to staff costs compared to 77% recorded in the comparative period of last year. Staffing levels for the first six months of the current fiscal year grew in comparison to the same period of previous fiscal year to support our continued growth. At September 30, 2011, CMG's staff complement was 143 employees, up from 129 employees as at September 30, 2010. Direct employee costs increased during the three and six months ended September 30, 2011 compared to the same period of previous fiscal year, due to staff additions, increased levels of compensation, commissions and related benefits.

OTHER CORPORATE COSTS

Other corporate costs decreased by 22% and 10% for the three and six months ended September 30, 2011, respectively, compared to the same periods of the previous fiscal year due to a decrease in the use of third party consulting services. In addition, the second quarter of the previous fiscal year included the expenses associated with CMG's biennial technical symposium as well as the expenses associated with the Society of Petroleum Engineer's Annual Technical Conference and Exhibition. The latter event will take place in the third quarter of the current fiscal year.

RESEARCH AND DEVELOPMENT

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 2,753 2,549 204 8% SR&ED credits (360) (234) (126) 54% ---------------------------------------------------------------------------- Research and development 2,393 2,315 78 3% ---------------------------------------------------------------------------- Research and development as a % of total revenue 20% 17% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 5,552 5,051 501 10% SR&ED credits (664) (518) (146) 28% ---------------------------------------------------------------------------- Research and development 4,888 4,533 355 8% ---------------------------------------------------------------------------- Research and development as a % of total revenue 18% 18% ----------------------------------------------------------------------------

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

The above research and development includes CMG's proportionate share of joint research and development costs on the DRMS system development of $0.7 million and $1.4 million for the three and six months ended September 30, 2011, respectively, (2010 - $0.7 million and $1.4 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

The increases of 8% and 10% in our gross spending on research and development for the three and six months ended September 30, 2011, respectively, demonstrate our continued commitment to advancement of our technology. Research and development costs, net of research and experimental development ("SR&ED") credits, increased by 3% and 8% during the three and six months ended September 30, 2011, respectively, compared to the same periods of previous fiscal year mainly due to increased employee-related costs. At the same time, we had an increase in SR&ED credits driven by the increases in our direct employee costs as well as the increase in the eligibility of our expenses for SR&ED credits as a direct result of the completion of the grant received from the Foundation which was netted against our research and development expenses for purposes of calculating SR&ED credits. The funding commitment associated with this grant was fulfilled in the first quarter of the current fiscal year. Refer to the discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."

DEPRECIATION AND AMORTIZATION

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 96 72 24 33% Research and development 120 113 7 6% General and administrative 66 64 2 3% ---------------------------------------------------------------------------- Total depreciation and amortization 282 249 33 13% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 187 144 43 30% Research and development 238 213 25 12% General and administrative 131 121 10 8% ---------------------------------------------------------------------------- Total depreciation and amortization 556 478 78 16% ----------------------------------------------------------------------------

The quarterly and year-to-date increases in depreciation and amortization reflect the increase in our asset base, mainly as a result of increased spending on computing resources.

FINANCE INCOME AND COSTS

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Interest income 111 54 57 106% Foreign exchange gain 759 - 759 - ---------------------------------------------------------------------------- Finance income 870 54 816 1511% ---------------------------------------------------------------------------- Finance costs (represented by foreign exchange loss) - (184) 184 -100% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Interest income 218 89 129 145% Foreign exchange gain 800 26 774 2977% ---------------------------------------------------------------------------- Finance income 1,018 115 903 785% ---------------------------------------------------------------------------- Finance costs (represented by foreign exchange loss) - - - - ----------------------------------------------------------------------------

Interest income increased in the three and six months ended September 30, 2011, compared to the same periods of the prior fiscal year, due to slight improvement in interest rates and investing larger cash balances.

CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 72% (2010 - 66%) of CMG's revenue for the six months ended September 30, 2011 is denominated in US dollars, whereas only approximately 23% (2010 - 25%) of CMG's total costs are denominated in US dollars.

Six month trailing CDN$ to US$ At June 30At September 30 average ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 2009 0.8602 0.9327 0.8955 2010 0.9429 0.9711 0.9614 2011 1.0370 0.9626 1.0252 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

CMG recorded a foreign exchange gain of $0.8 million for the three and six months ended September 30, 2011 compared to a $0.2 million foreign exchange loss recorded in the three months ended September 30, 2010 and a $0.03 gain recorded in the six months ended September 30, 2010.

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

INCOME AND OTHER TAXES

CMG's effective tax rate for the six months ended September 30, 2011 is reflected as 28.4% (2010 - 31.0%), whereas the prevailing Canadian statutory tax rate is now 26.13%. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.

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

Operating Profit and Net Income

For the three months ended September 30, 2011 2010 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- Total revenue 11,982 13,332 (1,350) -10% Operating expenses (6,756) (6,638) (118) 2% ---------------------------------------------------------------------------- Operating profit 5,226 6,694 (1,468) -22% Operating profit as a % of total revenue 44% 50% ---------------------------------------------------------------------------- Net income for the period 4,318 4,565 (247) -5% Net income for the period as a % of total revenue 36% 34% ---------------------------------------------------------------------------- Earnings per share ($/share) 0.12 0.13 (0.01) -8% ---------------------------------------------------------------------------- For the six months ended September 30, 2011 2010 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- Total revenue 27,921 25,386 2,535 10% Operating expenses (13,603) (12,758) (845) 7% ---------------------------------------------------------------------------- Operating profit 14,318 12,628 1,690 13% Operating profit as a % of total revenue 51% 50% ---------------------------------------------------------------------------- Net income for the period 10,981 8,795 2,186 25% Net income for the period as a % of total revenue 39% 35% ---------------------------------------------------------------------------- Earnings per share ($/share) 0.30 0.25 0.05 20% ----------------------------------------------------------------------------

Operating profit as a percentage of total revenue for the three months ended September 30, 2011 was at 44%, compared to 50% recorded in the same period of prior fiscal year. This decrease is a direct result of the decrease in professional services revenue during the current quarter. Despite this decrease, we can observe that our recurring annuity/maintenance revenue base continues to be strong as evidenced by the 18% growth in the current quarter and that our corporate costs continue to be managed effectively as demonstrated by only a 2% increase during the current quarter.

Operating profit as a percentage of revenue for the six months ended September 30, 2011 was at 51% compared to 50% recorded in the same period of prior fiscal year. The year-to-date operating profit margin improved slightly as a result of the increase in revenue and the effective management of corporate costs.

Net income for the period as a percentage of revenue was comparable between the three months ended September 30, 2011 and the same period of previous fiscal year, with only a slight increase experienced in the current quarter.

Net income for the period as a percentage of revenue increased to 39% for the six months ended September 30, 2011, compared to 35% for the same period of previous fiscal year, mainly as a result of the positive effect of recording foreign exchange gain in the six months ended September 30, 2011.

Liquidity and Capital Resources

For the three months ended September 30, 2011 2010 $ change % change ($ thousands) ---------------------------------------------------------------------------- Cash, beginning of period 38,347 32,622 5,725 18% Cash flow from (used in) Operating activities 8,322 2,357 5,965 253% Financing activities (3,259) (2,147) (1,112) 52% Investing activities (100) (267) 167 -63% ---------------------------------------------------------------------------- Cash, end of period
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