FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
As at April 30, 2003
CryptoLogic Inc.
1867 Yonge Street, 7th Floor
Toronto, Ontario, Canada
M4S 1Y5
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F:
Form 20-F X Form 40-F
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Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
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1
TABLE OF CONTENTS
Documents Included as Part of this Report:
No. Document
--- --------
1. Press Release dated April 30, 2003 "CryptoLogic Outperforms First
Quarter Expectations"
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 30, 2003
CRYPTOLOGIC INC.
/s/ James A. Ryan
By:__________________________
James A. Ryan
Chief Financial Officer
[GRAPHIC OMITTED]
www.cryptologic.com
NEWS FOR IMMEDIATE RELEASE
Symbol: NASDAQ: CRYP; TSX: CRY
ALL DOLLAR AMOUNTS IN US$
CRYPTOLOGIC OUTPERFORMS FIRST QUARTER EXPECTATIONS
Core business stabilizing; International growth & product
expansion fuel positive momentum
April 30, 2003 (Toronto, ON) - CryptoLogic Inc., a leading software developer to
the Internet gaming and e-commerce industries, announced today its financial
results for the first quarter ended March 31, 2003, ahead of the company's
annual meeting scheduled for Thursday, May 1, 2003. Quarterly results exceeded
expectations and reflect encouraging signs that the company's core business is
stabilizing, and seeing growth momentum from international customers and new
products. All financial figures are expressed in U.S. dollars.
"2003 is off to a positive start and continues a favourable trend for
CryptoLogic," said Lewis Rose, CryptoLogic's President and CEO. "CryptoLogic is
executing well, as evidenced by stronger than expected financial performance and
a number of accomplishments in the first quarter. We are pleased with another
solid quarter in light of ongoing industry challenges and we continue to be
cautiously optimistic."
In the first quarter, CryptoLogic achieved promising results towards its 2003
growth objectives. Highlights included:
o Signed two new international, brand name customers - Bingo
Entertainment for the company's poker product, and ukbetting plc for
the company's poker and casino products;
o Extended casino agreement with a major U.K. licensee, William Hill,
and secured a four-year exclusivity for their use of the online poker
product developed by CryptoLogic;
o Received license approval in Alderney, the company's second approval
from a strictly regulated jurisdiction. This extends CryptoLogic's
market advantage as a regulatory leader; and
o Surpassed expectations for new poker and bingo products; these
products are on track to exceed 10% of 2003 revenue.
Solid Q1 Performance and Q2 Outlook
For the 2003 first quarter, CryptoLogic topped expectations by recording $8.9
million in revenue, net income of $1.8 million and diluted earnings per share of
$0.15. Management's first quarter 2003 forecasts were for revenue of $8.0-$8.3
million, net income of $1.2-$1.4 million and $0.10-$0.11 per diluted share. The
first quarter results also compared solidly to revenue of $8.7 million and net
income of $2.2 million or $0.16 per share on a diluted basis from the first
quarter of 2002.
CryptoLogic's better-than-expected performance in this year's first quarter
reflects growth momentum from international customers and new products -
particularly poker - along with broad and growing acceptance of the company's
alternative payment solutions. Licensees' revenue from international sources is
increasing steadily and was approaching 50% by the end of the first quarter of
2003, up from 40% for 2002.
TEL (416) 545-1455 FAX (416) 545-1454
1867 YONGE STREET, 7TH FLOOR, TORONTO, CANADA M4S 1Y5
2
CryptoLogic's balance sheet strength continues to provide a competitive
advantage, especially as the industry experiences consolidation and creates
attractive opportunities for growth. At March 31, 2003, CryptoLogic remained
debt free and total cash reserves grew to $50.7 million (comprising cash and
cash equivalents and restricted cash) or US$4.15 in cash per diluted share. This
cash balance was unusually high due to operating cash flow of $8.4 million
(2002: $2.8 million), which reflected temporary changes in working capital items
in the quarter, and much of which is expected to reverse over the balance of the
year. Cash flow from earnings was $2.1 million during the first quarter,
compared with $2.4 million in the comparable 2002 period.
During the first quarter, CryptoLogic's business continued to stabilize.
Notwithstanding these promising results, the company continues to operate in a
challenging environment. Earnings in the quarter were affected due to higher
investments to support the company's international focus, increasing marketing
activities, regulatory efforts, expanding the range of payment methods and
ongoing innovation, which continue to be vital for long-term growth. Management
forecasts that second quarter revenue will range from $8.8-$9.0 million, with
net income between $1.7-$1.9 million and diluted earnings per share of
$0.14-$0.16.
International, Brand Name Customers Choose CryptoLogic-Developed Products
CryptoLogic continues to build one of the strongest rosters of brand name
customers in the world. In the first quarter, two new international gaming
clients, Bingo Entertainment and ukbetting plc, were signed by the company's
WagerLogic subsidiary. This is halfway towards the goal of securing four new
customers in 2003. As well, WagerLogic expanded its long-standing relationship
with William Hill, one of the UK's top two sports betting operators.
William Hill has established one of the most profitable online casino businesses
using CryptoLogic-developed software. Building on this success, William Hill
reaffirmed its commitment to the relationship by extending the existing casino
contract to 2006, and broadened its game suite by exclusively offering
WagerLogic's new poker technology, also to 2006.
Bingo Entertainment, one of the largest bingo operators on the Internet, chose
the company's market-leading poker software to extend the world's most popular
card game to its 120,000 players. The new poker site, www.pokerplex.com, was
launched as part of the central CryptoLogic-developed poker room on April 14,
2003.
ukbetting plc was another new poker customer announced in the quarter. A
licensed and regulated online sports book and the largest independent Internet
sports content provider in the U.K., ukbetting reaches 145,000 betting customers
and 3.5 million European sports fans each month. By leveraging both WagerLogic's
online casino and poker solutions, ukbetting's sizeable international user
community will add favourably to CryptoLogic's global expansion.
New Growth Products
CryptoLogic's innovative and results-oriented technologies are attracting new
customers and driving organic growth for existing licensees. This is evident
from the early success of the company's latest poker and bingo products. These
products offer considerable upside for licensees and enable them to enter large,
emerging markets that appeal to broader gaming audiences worldwide.
Poker is the Internet's latest big growth market, accounting for just 5% of the
$3.5 billion online gaming industry today and promises considerable upside
potential. CryptoLogic's centralized poker technology offers a key advantage by
streaming multiple operators into a single site for immediate liquidity. Players
gain ready access to live, online poker action with real players from around the
globe. Licensees expand
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into a new, fast-growing game area with an immediate advantage for increased
profitability. In less than six months since launch, CryptoLogic already powers
one of the top 10 poker rooms on the Web.
Regulatory Leadership
CryptoLogic is at the regulatory forefront as one of the few software providers
in the world that comply with the most rigorous requirements for online gaming.
In the first quarter, the company obtained a regulatory license in Alderney, the
second 'tier-one' regulatory jurisdiction for CryptoLogic.
As the global movement to regulate the industry gains momentum, CryptoLogic's
experience and acceptance in highly regulated jurisdictions give the company a
clear lead as more land-based operators migrate to regulated markets for online
gaming. The Ritz Club London Online is now using CryptoLogic-developed software
to achieve certification in Alderney.
Strong Management Team Established
In the quarter, Lewis Rose was confirmed as President and CEO in recognition of
his leadership and the company's achievements since taking the helm of
CryptoLogic. In addition, the company attracted an accomplished senior
technology executive to its leadership team as Chief Technology Officer. Michael
Starzynski has over 20 years of global information technology experience at some
of North America's largest companies. Starzynski complements the other senior
officers added in recent months, which firmly establish a strong,
performance-driven management team to guide CryptoLogic's global leadership in
online gaming.
Annual Meeting of Shareholders
------------------------------
CryptoLogic's Annual Meeting of Shareholders will be held in Room 203, Metro
Toronto Convention Centre, 255 Front Street West, Toronto, Ontario, Canada, on
Thursday, May 1, 2003 at 4:30 p.m., Eastern time.
2003 First Quarter Analyst Call
-------------------------------
A conference call is scheduled for 8:30 a.m. (EST) on Wednesday, April 30, 2003.
Interested parties should call either 1-800-814-4857 or 416-640-4127. Instant
replay will be available until Wednesday, May 7, 2003 by calling 1-877-289-8525
or 416-640-1917, passcode 249535#.
About CryptoLogic (www.cryptologic.com)
Focused on integrity and innovation, CryptoLogic Inc. is the leading software
development company serving the Internet gaming market. The company's
proprietary technologies enable secure, high-speed financial transactions over
the Internet. CryptoLogic, ranked #1 in the Profit 100 listing of Canada's
fastest growing companies, continues to develop state-of-the-art Internet
software applications for both the electronic commerce and Internet gaming
industries. WagerLogic Ltd., a wholly-owned subsidiary of CryptoLogic, is
responsible for the licensing of its gaming software and services to customers
worldwide. For more information on WagerLogic, visit www.wagerlogic.com.
CryptoLogic's common shares trade on the Toronto Stock Exchange under the symbol
CRY and on the Nasdaq National Market under the symbol CRYP. There are currently
12.2 million common shares outstanding (12.2 million shares on a diluted basis,
based on the treasury method).
For more information, please contact:
At CryptoLogic, (416)545-1455
Nancy Chan-Palmateer, Director of Communications
Jim Ryan, Chief Financial Officer
At Argyle Rowland, (416) 968-7311 (media only)
Daniel Tisch, ext. 223/dtisch@argylerowland.com
Aline Nalbandian, ext. 226/aline@argylerowland.com
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CRYPTOLOGIC FORWARD LOOKING STATEMENT DISCLAIMER:
Statements in this press release which are not historical are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements involve risks and uncertainties including, without limitation, risks
associated with the Company's financial condition and prospects, legal risks
associated with Internet gaming and risks of governmental legislation and
regulation, risks associated with market acceptance and technological changes,
risks associated with dependence on licensees and key licensees, risks relating
to international operations, risks associated with competition and other risks
detailed in the Company's filings with securities regulatory authorities. These
risks may cause results to differ materially from those projected in the
forward-looking statements.
CRYPTOLOGIC INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
--------------------------------------------------------------------------------
As at As at
March 31, December 31,
2003 2002
(unaudited) (audited)
--------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $37,383 $17,489
Restricted cash 13,340 15,740
Short term investments -- 10,857
Reserves with processors 317 774
Accounts receivable 358 699
Prepaid expenses and other 948 1,104
Income taxes recoverable 483 583
--------------------------------------------------------------------------------
52,829 47,246
Investment -- 680
Capital assets 2,570 2,713
Intangible assets 197 226
Goodwill 1,665 1,665
--------------------------------------------------------------------------------
$57,261 $52,530
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,768 $5,116
Accrued liabilities 2,919 2,489
Funds held on deposit 4,647 3,829
--------------------------------------------------------------------------------
14,334 11,434
--------------------------------------------------------------------------------
Shareholders' equity:
Capital stock 10,720 10,720
Retained earnings 32,207 30,376
--------------------------------------------------------------------------------
42,927 41,096
--------------------------------------------------------------------------------
$57,261 $52,530
================================================================================
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CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except per share information)
(Unaudited)
For the three months ended
March 31
2003 2002
--------------------------------------------------------------------------------
Revenue $8,901 $8,664
--------------------------------------------------------------------------------
Expenses
Software development and support 5,584 4,791
General and administrative 1,120 1,224
Finance 107 137
Amortization 246 197
--------------------------------------------------------------------------------
7,057 6,349
--------------------------------------------------------------------------------
Income from operations 1,844 2,315
Interest income 161 175
--------------------------------------------------------------------------------
Income before income taxes 2,005 2,490
Income taxes 174 286
--------------------------------------------------------------------------------
Net income $1,831 $2,204
================================================================================
Earnings per common share
Basic $0.15 $0.18
Diluted $0.15 $0.16
Weighted average number of shares ('000s)
Basic 12,206 12,210
Diluted 12,216 13,569
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CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
For the three months ended
March 31
--------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income $1,831 $2,204
Adjustments to reconcile income to
cash provided by (used in)
operating activities:
Amortization 246 197
Gain on sale of investment (31)
Changes in operating assets and liabilities:
Restricted cash 2,400 2,260
Reserves with processors 457 (837)
Accounts receivable 341 (961)
Prepaid expenses and other 156 (444)
Income taxes 100 506
Accounts payable 1,652 (666)
Accrued liabilities 430 (270)
Funds held on deposit 818 780
--------------------------------------------------------------------------------
8,400 2,769
--------------------------------------------------------------------------------
Financing activities:
Issue of capital stock for cash -- 237
Repurchase of common shares -- (19,796)
--------------------------------------------------------------------------------
(19,559)
--------------------------------------------------------------------------------
Investing activities:
Additions to capital assets (74) (284)
Short term investments 10,857 --
Investment -- (5,933)
Sale of investment 711 --
--------------------------------------------------------------------------------
11,494 (6,217)
--------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 19,894 (23,007)
Cash and cash equivalents, beginning of period 17,489 42,822
--------------------------------------------------------------------------------
Cash and cash equivalents, end of period $37,383 $19,815
================================================================================
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CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars)
(Unaudited)
For the three months ended
March 31
------------------------------------------------------------------------------------------------------------------
2003 2002
------------------------------------------------------------------------------------------------------------------
Number of Stated Number of Stated
Shares Value Shares Value
('000s) (`000s)
Common shares:
Balance, beginning of period 12,206 $10,448 13,137 $8,448
Repurchase of shares -- -- (1,170) (367)
Exercise of stock options -- -- 25 237
------------------------------------------------------------------------------------------------------------------
Balance, end of period 12,206 10,448 11,992 8,318
------------------------------------------------------------------------------------------------------------------
Series F warrants:
Balance, beginning of period 30 272 30 272
------------------------------------------------------------------------------------------------------------------
Balance, end of period 30 272 30 272
------------------------------------------------------------------------------------------------------------------
Total capital stock 10,720 8,590
------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance, beginning of period 30,376 52,369
Net income 1,831 2,204
Excess of purchase price of treasury
shares over stated value -- (19,429)
------------------------------------------------------------------------------------------------------------------
Balance, end of period 32,207 35,144
------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $42,927 $43,734
==================================================================================================================
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at March 31, 2003
(All figures are in U.S. dollars, except where otherwise indicated)
(Unaudited)
These consolidated interim financial statements of CryptoLogic Inc. (the
"Company") have been prepared in accordance with Canadian generally accepted
accounting principles using the same accounting policies as were used for the
consolidated financial statements for the year ended December 31, 2002. These
consolidated interim financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2002, as set
out in the 2002 Annual Report.
1. Stock Option Plan
In accordance with the new recommendations adopted in 2002, the Company will
continue its existing policy that no compensation cost is recorded on the grant
of stock options to employees. Consideration paid by employees on the exercise
of stock options is recorded as share capital. However, under the new standard,
the Company is required to provide additional pro forma disclosures for options
granted to employees as if the fair value based accounting method had been used
to account for employee stock options.
The fair value of the options granted was determined using the Black-Scholes
option pricing model using a dividend yield of 0% and the following weighted
assumptions.
2003 2002
---- ----
Risk-free rate 3.0% 2.0%
Expected volatility 75.0% 100.0%
Expected life of options in years 5.0 5.0
Had compensation expense been determined based on the fair value of the employee
stock option awards at the grant dates in accordance with the new
recommendations, the Company's net income and earnings per share would have been
changed to the following pro-forma amounts:
Three months ending Three months ending
March 31, 2003 March 31, 2002
---------------------------------- ---------------------------------
As reported Pro forma As reported Pro forma
(`000) (`000) (`000) (`000)
Net income $1,831 $1,646 $2,204 $2,167
Earnings per share
Basic $0.15 $0.13 $0.18 $0.18
Diluted $0.15 $0.13 $0.16 $0.16
2. Sale of Investment
On February 18, 2003, the Company sold 100% of its investment in HIP Interactive
Corp. (HP-TSX), representing 1,000,000 common shares at Cdn$1.05 per share, net
of transaction charges, for total proceeds of Cdn$1,050,000 (US$711,104), and
resulting in a gain of US$31,258.