Computer Modelling Group Ltd.
TSX : CMG

Computer Modelling Group Ltd.

November 07, 2007 08:00 ET

Computer Modelling Group Announces Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 7, 2007) - Computer Modelling Group Ltd. (TSX:CMG) is pleased to announce our second quarter results for the six months ended September 30, 2007.



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$ thousands, unless otherwise noted September 30, September 30, %
For the three months ended 2006 2007 Change
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Total Revenue $ 6,066 $ 6,100 1
Gross Profit 4,440 4,458 -
Earnings 1,833 1,443 (21)
Earnings per share, basic $ 0.22 $ 0.17 (23)
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$ thousands, unless otherwise noted September 30, September 30, %
For the six months ended 2006 2007 Change
----------------------------------------------------------------------------
Total Revenue $ 10,679 $ 11,654 9
Gross Profit 7,800 8,377 7
Earnings 2,869 2,481 (14)
Earnings per share, basic $ 0.35 $ 0.30 (14)
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While our earnings are lower than the comparative period last year they are not unexpected given the variability of customers requesting perpetual licenses of CMG's technology; the investment that CMG is making in its manpower throughout the entire company; and the weakening in the value of the US dollar against the Canadian dollar which has reduced the value of both our revenue stream and our working capital.

We are pleased with the $2.1 million or 35 percent growth in our annuity/maintenance software license revenue in the six months ended September 30, 2007 compared to the same period last year. The annuity/maintenance software licensing is a growing recurring revenue base for CMG. In addition, as we outlined in our analysis of the "Key Performance Drivers and Capability to Deliver Results" contained in the MD&A to our March 31, 2007 year end results, we identified the need to hire an additional 30 staff members and are pleased to have added 17 new employees to our staff since the beginning of this fiscal year.

Management's Discussion and Analysis

The following discussion and analysis, presented as at November 6, 2007, is management's assessment of the financial and operating results of Computer Modelling Group Ltd. ("CMG" or the "Company") as well as its future opportunities and risks, and should be read in conjunction with the unaudited consolidated financial statements and related notes of the Company for the six months ended September 30, 2007 and the audited consolidated financial statements and MD&A for the years ended March 31, 2007 and 2006 contained in the 2007 annual report for CMG. The reader should be aware that historical results are not necessarily indicative of future performance. 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 Canadian Generally Accepted Accounting Principles ("GAAP"), and unless otherwise indicated, all comments in this report are expressed in Canadian dollars.

Forward Looking Statements

Certain statements in the Management's Discussion and Analysis for CMG may constitute forward-looking statements, which can generally be identified as such because of the context of the statements including words such as the Company believes, anticipates, expects, plans, estimates or words of a similar nature. The forward-looking statements are based on current expectations and are subject to known and unknown risks and uncertainties, certain of which are beyond CMG's control, including: the impact of general economic conditions in the oil and gas industry, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange and country risk in areas in which the Company currently does, or proposes to do, business. CMG's actual results, performance or achievement could differ materially from those expressed in, or implied by these forward looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward looking statements will transpire or occur, or if any of them do so, what benefits CMG will derive therefrom.

Revenues

CMG's revenues are comprised of software license sales, which provide the majority of the Company's revenues, and consulting and contract research fees.



Quarterly Performance

----------------------------------------------------------------------------
Fiscal Fiscal Fiscal
2006 2007 2008
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$Thousands, unless otherwise
stated Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
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Annuity/maintenance
licenses 2,447 2,634 2,805 3,111 3,127 3,752 3,954 4,042
Perpetual licenses 1,067 2,111 941 1,703 1,305 2,313 213 682
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Software licenses 3,514 4,745 3,746 4,814 4,432 6,065 4,167 4,724
Consulting and contract
research 823 859 867 1,252 1,344 1,195 1,387 1,376
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Revenues 4,337 5,604 4,613 6,066 5,776 7,260 5,554 6,100
Gross Profit 3,021 4,336 3,360 4,440 4,397 5,714 3,918 4,458
Gross Profit % 70 77 73 73 76 79 71 73
Earnings before income and
other taxes 1,497 2,589 1,622 2,796 2,819 3,574 1,660 2,247
Income and other taxes 576 911 586 963 975 1,330 622 804
Earnings for the quarter 921 1,678 1,036 1,833 1,844 2,244 1,038 1,443
Cash dividends declared and
paid 403 403 2,449 491 576 828 2,745 1,264
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Per share amounts - $
Earnings per share - basic 0.11 0.21 0.13 0.22 0.22 0.27 0.13 0.17
Earnings per share - diluted 0.11 0.20 0.13 0.22 0.22 0.26 0.12 0.17
Cash dividends declared per
share 0.05 0.05 0.30 0.06 0.07 0.10 0.33 0.15
Book value per share, at
quarter end 1.67 1.84 1.68 1.87 2.04 2.25 2.08 2.12
Trading price per share, at
quarter end 7.30 7.85 7.30 8.45 11.09 13.30 16.75 14.70
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Software Licenses

Software license revenues were $8.9 million for the six months ended September 30, 2007 compared to $8.6 million recorded in the same period last year.

The annuity/maintenance component to our software license stream in the six months ended September 30, 2007 of $8.0 million reflects a 35 percent increase from the $5.9 million recorded in the same period last year. As can be seen in the quarterly performance table, this revenue stream has continued to grow quarter over quarter, and our experience has been that this is a growing recurring revenue stream. Growth in this revenue stream has resulted from increased sales to existing customers and sales to new customers.

Software license revenues under perpetual sales for the six months ended September 30, 2007 were $0.9 million, down from the $2.6 million recorded in the same period last year. Sales of perpetual software licenses are variable and unpredictable in nature and the magnitude thereof will fluctuate between reporting periods as the decision, and the timing thereof, by our customers to acquire our software through either annuity or perpetual licenses is their sole decision.

CMG's software license revenues on a comparative basis between quarters and fiscal periods has been negatively impacted by the weakening of the US dollar against the Canadian dollar as a significant percent of our software license sales are denominated in US dollars.

At September 30, 2007, CMG has pre-sold $6.0 million of software license revenue, $5.0 million of which relates to its current fiscal year ending March 31, 2008.

Consulting and Contract Research Revenues

CMG recorded consulting and contract research revenues of $2.8 million for the six months ended September 30, 2007, up $0.7 million from the $2.1 million recorded for the same period last year. This revenue growth is primarily due to the operator fees and research grants received on our new system development project.

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, 2007, CMG has recorded approximately $0.2 million of pre-sold revenue relating to consulting and contract research revenues for projects to be completed in the fiscal year ending March 31, 2008.

Expenses

CMG realized a gross profit of $8.4 million for the six months ended September 30, 2007, up $0.6 million from the $7.8 million recorded in the same period last year.

CMG's total expenses, excluding depreciation and income and other taxes, amounted to $7.4 million for the six months ended September 30, 2007, up $1.3 million from the $6.1 million expended in the comparable period last year. This increase in total expenses between the two reporting periods is primarily due to the growth in CMG's staff base.

As a technology company, CMG's largest area of expenditure is for its people. Approximately $5.5 million or 74 percent of the total expenses in the six months ended September 30, 2007 related to staff costs. This compares to $4.5 million or 73 percent of the total expenses in the comparative period last year. As stated in CMG's 2007 Annual Report, staffing levels over its 2007 fiscal year grew and the Company's plans for fiscal 2008 are to add 30 new positions throughout the company. During the six months ended September 30, 2007 our staff complement grew by 15 new employees and we have a further 2 positions filled with start dates commencing later in this fiscal year. At September 30, 2007, CMG had a staff complement of 93 employees, up from 69 employees as of September 30, 2006.

Investment in Research and Development

CMG firmly believes that to become the dominant supplier of dynamic reservoir modelling systems in the world that it must be responsive to clients needs today and anticipate their needs in the future. CMG invests a significant amount of resources each year towards advancing the technological dominance of its software product suite.

During the six months ended September 30, 2007, CMG has recorded an investment of $3.0 million (2006 - $2.2 million) in research and development, which includes its proportionate share of joint research and development costs on our new system development project of $0.9 million (2006 - $0.4 million), all of which is expensed to earnings.

Interest income and foreign exchange

Interest income increased to $0.4 million in the six months ended September 30, 2007 from the $0.3 million recorded last year due to both larger cash balances to invest and higher interest rates. During this last quarter, CMG's banker provided a new interest-bearing bank account product offering which, while similar to the interest yield on term deposits, reduced the administrative burden of monitoring term deposits. As existing term deposits matured funds were held as cash in these bank accounts.

CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 61 percent (2006 - 74 percent) of CMG's revenues for the six months ended September 30, 2007 are denominated in US dollars whereas only approximately 20 to 25 percent of CMG's total costs are denominated in US dollars.



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Six month
Canadian dollar to trailing
US dollar At September 30 average
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2005 0.8613 0.8154
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2006 0.8966 0.8899
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2007 1.0037 0.9210
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Given the significant portion of our business that is denominated in US dollars, the strengthening of the Canadian dollar against the US dollar has impacted our financial results in both the valuation of our US dollar working capital net position and current period sales. CMG recorded a foreign exchange loss of $0.4 million for the six months ended September 30, 2007 compared to a loss of $0.2 million in the same period last year.

Income and other taxes

CMG's effective tax rate for the six months ended September 30, 2007 is reflected as 36.5 percent (2006 - 35 percent) whereas the prevailing Canadian statutory tax rate is 31.72 percent. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense, income tax rate differences in other jurisdictions and a valuation adjustment on current period losses incurred in our Venezuelan subsidiary.

The benefit recorded in CMG's books on the federal scientific research and experimental development investment tax credit program impacts future income taxes. The investment tax credit earned in the current fiscal year is utilized by CMG to reduce federal income taxes otherwise payable for the current fiscal year and 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 current future income tax liability and then in the following fiscal year is transferred to income taxes payable.

Liquidity and Capital Resources

Operating activities -

CMG generated $9.3 million from operating activities in the six months ended September 30, 2007, compared to $8.9 million generated in the comparative period last year. The changes in CMG's non-cash working capital for the six months ended September 30, 2007 are reflective of the growth in operations and the timing of customer purchases.

Financing activities -

During the six months ended September 30, 2007, CMG employees and directors exercised options to purchase 183,924 Common Shares, which resulted in $1.0 million in cash proceeds.

In the six months ended September 30, 2007, CMG paid $4.0 million in dividends, representing two quarterly dividends of $0.15 Canadian per share and a special dividend of $0.18 Canadian per share on its Common and Non-Voting Shares. On November 6, 2007, CMG announced the payment of a quarterly dividend of $0.15 Canadian per share on CMG's Common and Non-Voting Shares. The dividend will be paid on December 14, 2007 to shareholders of record at the close of business on December 3, 2007.

On December 14, 2006, CMG announced a Normal Course Issuer Bid ("NCIB") commencing December 20, 2006 to purchase for cancellation up to 335,000 of its Common Shares. During the six months ended September 30, 2007, and cumulatively since adoption of the NCIB, 32,900 Common Shares were repurchased at market price for a total cost of $0.5 million.

Investing activities -

During the six months ended September 30, 2007, CMG expended $0.5 million on property and equipment additions of its $1.2 million capital budget for its fiscal year ending March 31, 2008.

Liquidity and capital resources -

At September 30, 2007, CMG has $19.5 million in cash, no debt and has access to a $1.0 million line of credit with its principal banker.

During the six months ended September 30, 2007, 975,977 shares of CMG's public float were traded on the TSX Stock Exchange. CMG's share prices ranged from $13.23 to $18.17 per share and last traded on September 27, 2007 at $14.70 for a September 30, 2007 market capitalization of $123.9 million.

Commitments, Off Balance Sheet Items and Transactions with Related Parties -

As identified in the notes to the Company's consolidated financial statements for the six months ended September 30, 2007 and 2006, CMG's commitment to the five year research and development project with its industry joint venture partners Shell International Exploration and Production BV and Petroleo Brasileiro S.A. is estimated at $2 million annually once fully staffed.

In conjunction with entering into this project, CMG Reservoir Simulation Foundation ("the Foundation"), the sole holder of CMG's Non-Voting Shares, agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50 percent of the Company's estimated share of the joint venture project costs over the duration of the project. During the six months ended September 30, 2007, CMG has reflected $0.4 million (2006 - $0.2 million) in research grants from the Foundation in revenue with respect to this project. From commencement of the project to September 30, 2007, these research grants are cumulatively $0.9 million.

CMG plans on funding its share of the project costs associated with the development of the newest generation reservoir simulation software system from internal cash and funding from the Foundation.

The Foundation's research grant relative to this new project is in addition to a 2001 research and development commitment by the Foundation, whereby it agreed to provide CMG with research grants valued at $125,000 on a quarterly basis through January 1, 2008. During both the six months ended September 30, 2007 and 2006, the Foundation paid $250,000 to CMG, which is reflected in consulting and contract research revenues.

CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold revenues which are reflected as deferred revenue on its balance sheet. Contractual obligations for office premise leases are not considered to be significant and are estimated to be as follows: 2008 - $375,000; 2009 - $702,000; and 2010 - $481,000.

Outstanding Share Data as at November 6, 2007

CMG's authorized share capital has remained unchanged from September 30, 2007 to November 6, 2007 and subsequent to September 30, 2007 the only share capital transactions were for the exercise of 4,000 stock options to acquire Common Shares of the Company. CMG's issued and outstanding shares at November 6, 2007 are 6,459,393 Common Shares and 1,974,517 Non-Voting Shares.

Critical Accounting Estimates and Business Risks

These remain unchanged from the factors detailed in CMG's 2007 Annual Report.

Changes in Accounting Policies

Effective April 1, 2007, CMG adopted the new Canadian accounting standards with respect to Comprehensive Income, Equity and Financial Instruments. As required by the new standards, prior periods have not been restated. The adoption of these new standards had no material impact on the Company's net earnings or cash flows.

Internal Controls

Management is responsible for establishing and maintaining disclosure controls and procedures as defined under Multilateral Instrument 52-109. At September 30, 2007, the President and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective and that material information relating to the Company, including its subsidiaries, was made known to them and was recorded, processed, summarized and reported within the time periods specified under applicable securities legislation.

Management is responsible for the design of its internal controls over financial reporting as defined under Multilateral Instrument 52-109. At March 31, 2007, the President and the Chief Financial Officer concluded that the design of these internal controls and procedures was effective in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. The President and the Chief Financial Officer have evaluated whether there were changes to internal controls over financial reporting during the interim period ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting. No such changes were identified.

Outlook

CMG has enjoyed sizeable sales of perpetual licenses over the last few years, which in turn has generated an aftermarket for maintenance software license sales as a significant percentage of our perpetual license clients will contract for maintenance after making the perpetual license acquisition. While the perpetual licenses sold have generated significant revenue for CMG, these sales are unpredictable in both their magnitude and timing. We believe that the growth in our annuity and maintenance software license revenue base is the best indicator of the demand for our products in the marketplace as CMG's strength in its revenue base is the stability and growth in sales under annuity and maintenance licenses.

We have invested in our staff complement, both in our new system development team and throughout the organization, to support growth in our client base and for future product offerings. These significant levels of investment are targeted strategies to achieve our vision to become the leading developer and supplier of dynamic reservoir modelling systems in the world.

On behalf of the Board of Directors

Kenneth M. Dedeluk, President and Chief Executive Officer

November 6, 2007




COMPUTER MODELLING GROUP LTD.
Consolidated Balance Sheets
(unaudited)
September 30, March 31,
2007 2007
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Assets

Current assets:
Cash and cash equivalents (note 3) $ 19,454,138 $ 20,778,450
Accounts receivable 4,775,846 7,781,233
Prepaid expenses 552,435 520,461
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24,782,419 29,080,144
Property and equipment (note 4) 1,442,682 1,288,011
Future income taxes (note 6) 40,118 46,014
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$ 26,265,219 $ 30,414,169
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 1,755,972 $ 2,490,352
Income taxes payable 346,955 1,621,047
Deferred revenue 6,232,166 7,584,728
Future income taxes (note 6) 31,435 79,041
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8,366,528 11,775,168
Shareholders' equity:
Share capital (note 7) 13,794,450 12,570,888
Contributed surplus (note 7) 524,268 544,006
Retained earnings 3,579,973 5,524,107
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17,898,691 18,639,001
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$ 26,265,219 $ 30,414,169
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See accompanying notes to consolidated financial statements.



COMPUTER MODELLING GROUP LTD.
Consolidated Statements of Earnings and Retained Earnings
(unaudited)

Three months ended Six months ended
September 30 September 30
2007 2006 2007 2006
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Revenue
Software licenses $ 4,723,880 $ 4,813,544 $ 8,891,154 $ 8,559,690
Consulting and
contract research 1,375,890 1,252,017 2,762,723 2,119,417
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6,099,770 6,065,561 11,653,877 10,679,107
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Cost of Sales
Marketing expenses 1,128,936 1,151,006 2,264,126 1,989,341
Direct consulting
expenses 411,660 408,517 777,149 760,482
Third-party
contract costs 101,047 66,536 235,976 129,556
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1,641,643 1,626,059 3,277,251 2,879,379
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Gross Profit 4,458,127 4,439,502 8,376,626 7,799,728

General and
administrative
expenses 674,287 629,270 1,356,553 1,211,580
Depreciation and
amortization 73,842 63,622 138,321 123,922
Product research
and development
costs (note 5) 1,579,854 1,118,531 2,959,383 2,150,320
Foreign exchange
loss (gain) 90,999 (16,801) 431,307 185,624
Interest and other
income (208,267) (151,587) (416,102) (290,328)
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Earnings before
income and other
taxes 2,247,412 2,796,467 3,907,164 4,418,610
Income and other
taxes (note 6) 804,658 963,835 1,426,219 1,549,336
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Earnings for the
period 1,442,754 1,832,632 2,480,945 2,869,274
Retained earnings,
beginning of period 3,817,586 1,499,425 5,524,107 3,073,397
Dividends paid (1,264,033) (491,490) (4,008,745) (2,940,744)
Common shares
buy-back (note 7) (416,334) - (416,334) (161,360)
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Retained earnings,
end of period $ 3,579,973 $ 2,840,567 $ 3,579,973 $ 2,840,567
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Per share

Weighted average
number of shares
outstanding 8,376,318 8,167,725 8,334,654 8,138,098
Earnings for the
period
Basic $ 0.17 $ 0.22 $ 0.30 $ 0.35
Diluted $ 0.17 $ 0.22 $ 0.29 $ 0.35

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.
Consolidated Statements of Cash Flows
(unaudited)

Three months ended Six months ended
September 30 September 30
2007 2006 2007 2006
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Cash provided by
(used for)

Operating

Earnings for the
period $ 1,442,754 $ 1,832,632 $ 2,480,945 $ 2,869,274
Items not
involving cash:
Depreciation and
amortization 163,502 112,852 298,572 217,047
Future income
taxes (note 6) 18,922 22,118 (41,710) (8,190)
Stock-based
compensation 128,930 82,738 222,624 168,499
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1,754,108 2,050,340 2,960,431 3,246,630
Changes in
non-cash working
capital:
Accounts receivable 856,494 1,855,691 3,005,387 3,494,721
Accounts payable
and accrued
liabilities (25,802) 166,406 (734,380) (551,218)
Income taxes payable 6,976 283,034 (1,274,092) (1,222,157)
Prepaid expenses (99,788) (14,652) (31,974) 51,630
Deferred revenue (1,964,670) (2,217,468) 5,372,265 3,866,119
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527,318 2,123,351 9,297,637 8,885,725
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Financing

Deferred revenue 577,125 223,193 (6,724,827) (5,080,490)
Issue of common
shares 812,963 208,442 1,049,081 511,382
Dividends paid (1,264,033) (491,490) (4,008,745) (2,940,744)
Common shares
buy-back (note 7) (484,215) - (484,215) (218,377)
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(358,160) (59,855) (10,168,706) (7,728,229)
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Investing

Property and
equipment
additions (343,999) (144,070) (453,243) (226,135)
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Increase
(decrease) in cash
and cash equivalents (174,841) 1,919,426 (1,324,312) 931,361
Cash and cash
equivalents,
beginning of period 19,628,979 15,521,408 20,778,450 16,509,473
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Cash and cash
equivalents,
end of period $ 19,454,138 $ 17,440,834 $ 19,454,138 $ 17,440,834
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----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


COMPUTER MODELLING GROUP LTD.
Notes to Consolidated Financial Statements
For the six months ended September 30, 2007 and 2006 and as at March 31,
2007
(unaudited)


1. Significant Accounting Policies:

(a) Basis of Consolidation: These consolidated financial statements include the accounts of the Company and its subsidiaries, all 100% owned. All inter-company transactions have been eliminated.

(b) Revenue Recognition: Software license sales are recognized as revenue upon the fulfillment of all significant obligations under the terms of the license agreements. Any software license fees received relating to a future fiscal period are deferred and recognized in the appropriate future period. Consulting and contract research revenues are recorded on a percentage-of-completion basis whereby revenues and costs are recorded in operations based on work completed.

(c) Cash and Cash Equivalents: Cash and cash equivalents consist of cash and highly liquid investments which have maturities of less than three months at the time of purchase. These cash equivalents consist primarily of term deposits and are stated at cost, which approximates market value.

(d) Property and Equipment: Property and equipment are recorded at cost. Leases that transfer substantially all the benefits and risks of ownership to the Company are accounted for as capital leases whereby the asset values and related obligations are recorded in the consolidated financial statements.

Depreciation is provided using the following annual rates and methods that are expected to amortize the cost of the property and equipment over their estimated useful lives:



Computer equipment 33 1/3% straight-line
Furniture and equipment 20% straight-line
Leasehold improvements Straight-line over the lease term


(e) Product Research and Development Costs: All costs of product research and development are expensed to operations as incurred as the impact of both technological changes and competition require the Company to continually enhance its products on an annual basis.

(f) Joint Research and Development Costs: The Company participates in a joint venture engaged in product research and development and accordingly records its proportionate share of costs incurred as product research and development costs.

(g) Foreign Currency: The Company's subsidiaries are considered to be integrated operations. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date while other consolidated balance sheet items are translated at historic rates.

Revenues and expenses are translated at the rate of exchange in effect on the transaction dates. Realized and unrealized foreign exchange gains and losses are included in operations in the period in which they occur.

(h) Income Taxes: The Company provides for income taxes using the asset and liability method. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year and future income taxes are recognized for temporary differences between the tax and accounting bases of assets and liabilities and for the benefit of losses available to be carried forward for tax purposes that are more likely than not to be realized. Future income tax assets and liabilities are measured using tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. Any change to the net future income tax assets and liabilities is included in operations in the period it occurs.

(i) Per Share Amounts: Basic earnings per share is computed by dividing earnings by the weighted average number of Common and Non-Voting Shares outstanding for the period. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted to Common Shares. The treasury stock method is used to determine the dilutive effect of stock options and other dilutive instruments.

In computing diluted earnings per share, 236,698 shares (2006 - 85,358 shares) and 242,592 shares (2006 - 85,358) were added to the weighted average number of Common and Non-Voting Shares outstanding during the three and six months ended September 30, 2007 for the dilutive effect of employee and directors' stock options.

(j) Stock-Based Compensation Plan: The Company has a stock-based compensation plan that is described in note 7(e). Commencing in the year ended March 31, 2004, the fair value of stock options has been expensed over the vesting period. The fair value of stock options that have been expensed is credited to contributed surplus. When the stock options are exercised for stock, the recorded amount is transferred from contributed surplus to common share capital.

(k) Financial Instruments: Financial assets and financial liabilities "held-for-trading" are measured at fair value with changes in those fair values recognized in net earnings. Financial assets "available-for-sale" are measured at fair value, with changes in those fair values recognized in other comprehensive income. Financial assets "held-to-maturity", "loans and receivables" and "other financial liabilities" are measured at amortized cost. The Company has designated its financial assets and liabilities as follows: cash and cash equivalents are classified as "held-to-maturity"; accounts receivable are classified as "loans and receivables"; and accounts payable and accrued liabilities and income taxes payable are classified as "other financial liabilities".

(l) Use of Estimates and Assumptions: The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect 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. Actual results may differ from such estimates and the differences could be material.

2. Changes in Accounting Policies and Recent Accounting Pronouncements:

Effective April 1, 2007, the Company adopted the new Canadian accounting standards with respect to Comprehensive Income, Equity and Financial Instruments. As required by the new standards, prior periods have not been restated. The adoption of these new standards had no material impact on the Company's net earnings or cash flows.

Comprehensive Income - The new standards introduce comprehensive income, which consists of net earnings and other comprehensive income. The Company does not have any amounts that would be included in other comprehensive income, therefore, comprehensive income is equivalent to net earnings and no statement of comprehensive income is presented.

Financial Instruments - The financial instruments standard establishes the recognition and measurement criteria for financial assets, financial liabilities and derivatives. All financial instruments are required to be measured at fair value on initial recognition of the instrument. Measurement in subsequent periods depends on whether the financial instrument has been classified as "held-for-trading", "available-for-sale", "held-to-maturity", "loans and receivables", or "other financial liabilities" as defined by the standard. The methods used by the Company in determining the fair value of financial instruments is unchanged as a result of implementing the new standard.

Recent accounting pronouncements - New Canadian accounting standards relating to the disclosure of financial instruments and capital have been issued. The new standards have not been applied by the Company. The application of these standards will result in additional disclosure when they become effective for the fiscal period commencing April 1, 2008.



3. Cash and Cash Equivalents:

September 30, 2007 March 31, 2007
----------------------------------------------------------------------------
Cash $ 18,254,138 $ 728,450
Term deposits 1,200,000 20,050,000
----------------------------------------------------------------------------
$ 19,454,138 $ 20,778,450
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4. Property and Equipment:

-------------------------------------------------------------------------
Accumulated Net Book
September 30, 2007 Cost Depreciation Value
-------------------------------------------------------------------------
Computer equipment $ 2,132,362 $ 1,221,536 $ 910,826
Furniture and equipment 588,292 456,506 131,786
Leasehold improvements 965,432 565,362 400,070
-------------------------------------------------------------------------
$ 3,686,086 $ 2,243,404 $ 1,442,682
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Accumulated Net Book
March 31, 2007 Cost Depreciation Value
-------------------------------------------------------------------------
Computer equipment $ 1,733,171 $ 1,031,928 $ 701,243
Furniture and equipment 571,917 435,607 136,310
Leasehold improvements 946,272 495,814 450,458
-------------------------------------------------------------------------
$ 3,251,360 $ 1,963,349 $ 1,288,011
-------------------------------------------------------------------------
-------------------------------------------------------------------------


5. Product Research and Development Costs:

For the six months ended
September 30,
2007 2006
----------------------------------------------------------------------------
Product research and development costs $ 2,902,605 $ 2,169,432
Depreciation 160,251 93,125
Scientific research and experimental development
investment tax credits (103,473) (112,237)
----------------------------------------------------------------------------
$ 2,959,383 $ 2,150,320
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. Income and Other Taxes:

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 earnings before income and other taxes. The reasons for this
difference and the related tax effects are as follows:


For the six months ended
September 30,
2007 2006
----------------------------------------------------------------------------
Statutory tax rate 31.72% 32.12%
----------------------------------------------------------------------------
Expected income tax $ 1,239,352 $ 1,419,258
Non-deductible costs 88,056 62,557
Change in valuation allowance 83,868 67,521
Other 14,943 -
----------------------------------------------------------------------------
$ 1,426,219 $ 1,549,336
----------------------------------------------------------------------------

Represented by:
Current income taxes $ 1,425,660 $ 1,447,922
Future income taxes (reduction) (41,710) (8,190)
Foreign withholding and other taxes 42,269 109,604
----------------------------------------------------------------------------
$ 1,426,219 $ 1,549,336
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The components of the Company's net future income tax liability at September
30, 2007 are as follows:


Canada Other Total
---------------------------------------------------------------------------
Investment tax credits, net of future tax
liabilities $ 412,536 $ - $ 412,536
Property and equipment 40,118 - 40,118
Benefit of operating losses - 123,627 123,627
---------------------------------------------------------------------------
$ 452,654 $ 123,627 $ 576,281
Valuation allowance (567,598)
---------------------------------------------------------------------------
Future income tax asset, net $ 8,683
---------------------------------------------------------------------------

Represented by:
Future income tax liability, current $ (31,435)
Future income tax asset, long-term 40,118
---------------------------------------------------------------------------
Future income tax asset, net $ 8,683
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The operating losses in other countries expire in varying amounts between
fiscal 2008 and 2011.

7. Share Capital:

(a) Authorized: An unlimited number of Common Shares, an unlimited number
of Non-Voting Shares, and an unlimited number of Preferred Shares,
issuable in series.

(b) Issued:


Common Shares
Number Consideration
----------------------------------------------------------------------------
Balance, March 31, 2006 5,218,831 $ 11,017,991
Issued for cash on exercise of stock options 228,880 1,006,026
Common Shares buy-back (28,600) (57,017)
Converted into Common Shares 400,000 51,430
Stock-based compensation:
- current period expense
- stock options exercised 236,190
----------------------------------------------------------------------------
Balance, March 31, 2007 5,819,111 12,254,620
Issued for cash on exercise of stock options 183,924 1,049,081
Common Shares buy-back (32,900) (67,881)
Converted into Common Shares 485,258 62,392
Stock-based compensation:
- current period expense
- stock options exercised 242,362
----------------------------------------------------------------------------
Balance, September 30, 2007 6,455,393 $ 13,540,574
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Non-Voting Shares Contributed
Number Consideration Surplus
----------------------------------------------------------------------------
Balance, March 31, 2006 2,859,775 $ 367,698 $ 430,156
Issued for cash on exercise of
stock options
Common Shares buy-back
Converted into Common Shares (400,000) (51,430)
Stock-based compensation:
- current period expense 350,040
- stock options exercised (236,190)
----------------------------------------------------------------------------
Balance, March 31, 2007 2,459,775 316,268 544,006
Issued for cash on exercise of
stock options
Common Shares buy-back
Converted into Common Shares (485,258) (62,392)
Stock-based compensation:
- current period expense 222,624
- stock options exercised (242,362)
----------------------------------------------------------------------------
Balance, September 30, 2007 1,974,517 $ 253,876 $ 524,268
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Non-Voting Shares are convertible into an equivalent number of Common Shares at any time at the option of the holder.

On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "Plan") whereby the Company will issue one right in respect of each share outstanding at the close of business on May 18, 2006 and for each additional share issued by the Company thereafter. The issuance of the rights is not dilutive and will not affect reported earnings per share until the rights separate from the underlying shares and become exercisable or until the exercise of the rights. The Plan was approved by the Company's shareholders on July 13, 2006.

(c) Common Shares Buy-Back: On November 17, 2005, the Company announced a Normal Course Issuer Bid ("NCIB") commencing November 21, 2005 to purchase for cancellation up to 395,000 of its Common Shares. This NCIB ended on November 20, 2006 and a total of 28,600 Common Shares were repurchased at market price for a total cost of $218,377.

On December 14, 2006, the Company announced a NCIB commencing December 20, 2006 to purchase for cancellation up to 335,000 of its Common Shares. Since commencement of the NCIB through the six months ended September 30, 2007 a total of 32,900 Common Shares were repurchased at market price for a total cost of $484,215.

(d) Non-Voting Shares: On January 30, 2001, the Company and CMG Reservoir Simulation Foundation ("the Foundation"), the sole holder of the Non-Voting Shares, entered into an Amended and Restated Research and Development Agreement ("Agreement"), which was approved by the Company's shareholders on May 25, 2001. The Agreement terms as negotiated resulted in the Company receiving on a quarterly basis commencing as of April 1, 2001 through January 1, 2008: $125,000 cash; or the surrender to the Company of a specified number of shares for cancellation (starting at 108,571 per quarter through fiscal 2002 and declining through the eight years to 57,699 per quarter through fiscal 2008); or a pro-rata combination of cash and shares for cancellation. During both the six months ended September 30, 2007 and 2006, the Foundation paid $125,000 in cash to the Company, which is reflected in consulting and contract research revenues. In October 2007, the Foundation paid its quarterly commitment in cash and the maximum number of shares that could now potentially be surrendered for cancellation through January 1, 2008 pursuant to this Agreement is 57,699 Non-Voting Shares.

(e) Stock-Based Compensation Plan: The Company adopted a rolling stock option plan as of July 13, 2005 which allows it to grant options to acquire Common Shares of up to 10 percent of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at September 30, 2007, the Company could grant up to 842,991 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. These 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. Changes in options in the period from March 31, 2006 were as follows:



For the six months ended For the year ended
September 30, 2007 March 31, 2007
----------------------------------------------------------------------------

Weighted Weighted
Average Average
Options Exercise Options Exercise
Granted Price Granted Price
----------------------------------------------------------------------------
Outstanding at beginning of
period 632,795 $ 6.56 529,175 $ 5.00
Granted 219,500 14.80 332,500 7.55
Exercised (183,924) 5.70 (228,880) 4.40
Cancelled (2,000) 7.36 - -
----------------------------------------------------------------------------
Outstanding at end of period 666,371 $ 9.50 632,795 $ 6.56
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options exercisable at end of
period 222,621 $ 6.27 115,795 $ 4.84
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The weighted average life of all options outstanding at September 30, 2007
is 3.8 years.

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


For the six
months ended For the year
September 30, ended March 31,
2007 2007 2006
----------------------------------------------------------------------------
Weighted-Average Fair Value
($/option) $ 2.54 to $3.54 $ 0.92 to $2.41 $ 1.30 to $2.15
Risk-Free Interest Rate (%) 4.25 4.1 3.0 to 3.2
Estimated Hold Period Prior
to Exercise (years) 2 to 5 2 to 5 1.5 to 5
Volatility in the Price of
Common Shares (%) 33 29 to 32 40
Dividends per Common Share
($/share) 0.60 0.48 to 0.52 0.20
----------------------------------------------------------------------------


The Company recognized a total stock-based compensation expense for the three and six months ended September 30, 2007 of $128,930 (2006 - $82,738) and $222,624 (2006 - $168,499) respectively.

8. Financial Instruments:

(a) Fair Value: The carrying values of all monetary assets and liabilities approximate their fair values due to the relatively short period to maturity of the instruments.

(b) Credit Risk: Accounts receivable include balances from customers operating in the oil and gas industry, both domestically and internationally. The Company assesses the credit worthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Accordingly, the Company views the credit risks on these amounts as normal for the industry.

As at September 30, 2007, the amounts from 4 domestic and international customers who generated 21 percent of revenues in the six months ended September 30, 2007, and represent 18 percent of the deferred revenue on the Company's balance sheet as at September 30, 2007, represent 51 percent of the Company's accounts receivable. Of this amount, 35 percent have been outstanding for over 90 days as at September 30, 2007. These customers have a long-standing history of consistently paying all invoices rendered.

(c) Foreign Currency Risk: The Company is affected by the exchange rate between the Canadian and US dollar as approximately 61 percent of its revenues in the six months ended September 30, 2007 were denominated in US dollars. Approximately 20 to 25 percent of the Company's total costs were also denominated in US dollars and provided a hedge against the fluctuation in the currency exchange. At September 30, 2007, the Company has approximately $2.5 million of its working capital denominated in US dollars.

9. Other Information:

(a) Research Commitments: On May 1, 2006, the Company entered into a two phased joint research and development agreement (the "Agreement"). Phase 1 of this project was completed in fiscal 2007 and work has commenced on Phase 2. It is estimated that the second phase will take 5 years and that the Company's annual expenditures will approximate $2 million for its portion of the aggregate project costs.

During Phase 2, the Agreement provides the participants with withdrawal rights upon the payment of a withdrawal fee to the other participants of an amount equal to one year of the withdrawing party's share of budgeted project costs. In addition to the withdrawal fee, the withdrawing party may be liable for (i) 100 percent of resizing costs if the joint venture is scaled back or (ii) a proportionate share of wind down costs should the other participants decide to terminate the joint venture as a result of the withdrawal of the participant.

In conjunction with entering into this project, the Foundation agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50 percent of the Company's estimated share of the joint venture project costs over the duration of the project. For the six months ended September 30, 2007, the Company has reflected $429,561 (2006 - $197,811) in research grants from the Foundation in revenue with respect to this project. To September 30, 2007, these research grants cumulatively aggregate to $890,188 since commencement of the project.

(b) Lease Commitments: The Company has lease commitments relating to its office premises. The minimum operating lease rental payments pursuant to these contracts are estimated to be 2008 - $375,000; 2009 - $702,000; and 2010 - $481,000.

(c) 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 and/or letters of credit. As at September 30, 2007, US $8,850 had been drawn on this line of credit for performance bonds.



(d) Supplemental Cash Flow Information:

For the six months
ended September 30,
2007 2006
----------------------------------------------------------------------------
Interest received $ 435,766 $ 295,323
Income taxes paid $ 2,596,278 $ 2,557,843
----------------------------------------------------------------------------


10. Segmented Information:

Contract
Research
For the three months Software and
ended September 30, 2007 Licenses Consulting Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 4,723,880 $ 706,766 $ 669,124 $ 6,099,770
----------------------------------------------------------------------------
Gross profit 3,613,476 175,527 669,124 4,458,127
----------------------------------------------------------------------------
General and
administrative
expenses 674,287 674,287
Depreciation and
amortization 20,985 21,261 31,596 73,842
Product research and
development costs 1,579,854 1,579,854
Interest and other
income and foreign
exchange (117,268) (117,268)
Income and other taxes (3,107) (2,702) 810,467 804,658
----------------------------------------------------------------------------
Earnings (loss) for the
period $ 3,595,598 $ 156,968 $ (2,309,812) $ 1,442,754
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Contract
Operating Segments Research
For the three months Software and
ended September 30, 2006 Licenses Consulting(a) Corporate(a) Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 4,813,544 $ 913,364 $ 338,653 $ 6,065,561
----------------------------------------------------------------------------
Gross profit 3,785,600 315,249 338,653 4,439,502
----------------------------------------------------------------------------
General and
administrative
expenses 629,270 629,270
Depreciation and
amortization 21,203 11,199 31,220 63,622
Product research and
development costs 1,118,531 1,118,531
Interest and other
income and foreign
exchange (168,388) (168,388)
Income and other taxes 57,945 40,158 865,732 963,835
----------------------------------------------------------------------------
Earnings (loss) for the
period
$ 3,706,452 $ 263,892 $ (2,137,712) $ 1,832,632
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Contract
Operating Segments Research
For the six months Software and
ended September 30, 2007 Licenses Consulting Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 8,891,154 $ 1,527,201 $ 1,235,522 $ 11,653,877
----------------------------------------------------------------------------
Gross profit 6,723,508 417,596 1,235,522 8,376,626
----------------------------------------------------------------------------
General and
administrative
expenses 1,356,553 1,356,553
Depreciation and
amortization 39,938 35,921 62,462 138,321
Product and
development costs 2,959,383 2,959,383
Interest and other
income and foreign
exchange 15,205 15,205
Income and other taxes 35,082 7,187 1,383,950 1,426,219
----------------------------------------------------------------------------
Earnings (loss)
for the period $ 6,648,488 $ 374,488 $ (4,542,031) $ 2,480,945
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Assets $ 2,358,311 $ 2,055,937 $ 21,850,971 $ 26,265,219
----------------------------------------------------------------------------
Capital
Expenditures $ 37,859 $ 78,571 $ 336,813 $ 453,243
----------------------------------------------------------------------------


Contract
Operating Segments Research
For the six months Software and
ended September 30, 2006 Licenses Consulting(a) Corporate(a) Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 8,559,690 $ 1,405,884 $ 713,533 $ 10,679,107
----------------------------------------------------------------------------
Gross profit 6,722,710 363,485 713,533 7,799,728
----------------------------------------------------------------------------
General and
administrative
expenses 1,211,580 1,211,580
Depreciation and
amortization 39,090 23,813 61,019 123,922
Product and
development costs 2,150,320 2,150,320
Interest and other
income and foreign
exchange (104,704) (104,704)
Income and other taxes 59,262 50,342 1,439,732 1,549,336
----------------------------------------------------------------------------
Earnings (loss)
for the period $ 6,624,358 $ 289,330 $ (4,044,414) $ 2,869,274
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Assets $ 1,418,545 $ 1,334,032 $ 19,281,376 $ 22,033,953
----------------------------------------------------------------------------
Capital
Expenditures $ 51,556 $ 51,689 $ 122,890 $ 226,135
----------------------------------------------------------------------------
(a) Certain amounts have been restated to conform to presentation adopted at
March 31, 2007.


Geographic Segments
For the six months ended
September 30,

2007 2006
------------------------------ ------------------------------
Property and Property and
Revenue Equipment Revenue Equipment
------------------------------ ------------------------------
Canada $ 4,331,646 $ 1,367,365 $ 2,495,557 $ 995,109
United States 2,049,889 19,966 1,648,204 33,240
Venezuela 440,605 34,186 753,943 36,829
Other Foreign 4,831,737 21,165 5,781,403 5,151
------------------------------ ------------------------------
$ 11,653,877 $ 1,442,682 $10,679,107 $ 1,070,329
------------------------------ ------------------------------
------------------------------ ------------------------------


In the six months ended September 30, 2007, the Company derived 14 percent (2006 - 17 percent) in revenue from one customer.

CORPORATE INFORMATION

Computer Modelling Group Ltd. is a computer software technology and consulting company serving the oil and gas industry. The Company, recognized by oil and gas companies worldwide as a leading developer of reservoir modelling software, has sales and technical support services based in Calgary, Houston, London, Caracas and Dubai. CMG is the leading supplier of advanced processes reservoir modelling software in the world with a blue chip client base of international oil companies and technology centers in over 40 countries.

The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information