CryptoLogic's Q4 & Fiscal 2002 Results Beat Analysts' Estimates, Meet Management's Expectations.Business/High-Tech Editors TORONTO--(BUSINESS WIRE)--Feb. 11, 2003 CryptoLogic Inc CryptoLogic Inc. is a Toronto-based online gambling software supplier, one of the four largest in the industry along with Microgaming, Playtech, and Real Time Gaming. CryptoLogic was founded by brothers Andrew and Mark Rivkin in 1995 from the basement of their parent's house. . (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CRYP CRYP Cheyenne River Youth Project (Eagle Butte, SD) ) (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :CRY.TO) New European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. customers and new games gain momentum; Continuing challenges expected ALL DOLLAR AMOUNTS IN US$ CryptoLogic Inc., a leading supplier of software to the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the gaming and e-commerce e-commerce, commerce conducted over the Internet, most often via the World Wide Web. E-commerce can apply to purchases made through the Web or to business-to-business activities such as inventory transfers. industries, announced today its financial results for the fourth quarter and year ended December December: see month. 31, 2002. Results were ahead of average analysts' estimates, in line with management expectations and reflect another solid quarter. All financial figures are expressed in U.S. dollars. "CryptoLogic cryp·tol·o·gy n. The study of cryptanalysis or cryptography. cryp  to·log closed 2002 on a positive note, beating
analysts' estimates and meeting management's
expectations," said Lewis Rose, interim President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. .
"Both our base business and our new products and customers showed
encouraging progress in the fourth quarter, which positions CryptoLogic
to enter 2003 on solid ground and with positive momentum."Rose projects that 2003 will continue CryptoLogic's track record of profitability and cash generation. The company's financial strength and global growth prospects justify a cautiously cau·tious adj. 1. Showing or practicing caution; careful. 2. Tentative or restrained; guarded: felt a cautious optimism that the offer would be accepted. optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op outlook notwithstanding some lingering lin·ger v. lin·gered, lin·ger·ing, lin·gers v.intr. 1. To be slow in leaving, especially out of reluctance; tarry. See Synonyms at stay1. 2. uncertainty in the U.S. market. CryptoLogic's pro-active pro·ac·tive or pro-ac·tive adj. Acting in advance to deal with an expected difficulty; anticipatory: proactive steps to prevent terrorism. investments in new international customers and products are starting to pay off and are on track to make meaningful contributions in the latter half of 2003. In the second half of 2002, CryptoLogic achieved important initiatives that position the company for international growth going forward. These include: -- A competitive advantage as one of very few companies in the world with gaming software that meets the highest regulatory standards - as evidenced by certification in the strictly regulated Isle of Man; -- New UK customers, Littlewoods Leisure and The Ritz Club Online, which are the company's fastest growing revenue contributors; -- Increasing traction of the new bingo and poker offerings, which are expected to grow from 1% of total revenue in 2002 to more than 10% in 2003; -- New payment options, which provide players with the broadest range of payment solutions; and -- A new corporate culture of discipline and accountability, with clear progress and a reenergized commitment to long-term growth. 2002 Financial Performance and First Quarter 2003 Outlook Fourth quarter results were ahead of analysts' estimates and in line with CryptoLogic's published guidance at $8.9 million in revenue, $2.2 million in net income and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.18. Average analyst expectations were revenue of $8.5 million, net income of $1.7 million and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. of $0.13. This compared with revenue of $11.2 million and net income of $3.7 million or $0.25 per share on a diluted basis for the fourth quarter of 2001. The lower year-over-year revenue and net income reflect ongoing industry-wide challenges. For fiscal 2002, revenue was $34.4 million, net income before the special charge was $7.7 million and diluted EPS of $0.60. Average analyst expectations were revenue of $34.0 million, net income before special charge of $7.0 million and diluted EPS of $0.56. This compares to revenue of $43.6 million and net income of $18.1 million or $1.21 diluted earnings per share in 2001. Including the $9.9 million special charge (net of income tax) taken in the second quarter, the loss for fiscal 2002 was $2.1 million or $0.17 per diluted share. CryptoLogic achieved net margins of 22% and a return on equity from operations of 18% in 2002 (excluding special charge). In response to changing market dynamics and CryptoLogic's international focus, there will be increased expenditure and lower earnings in 2003 due to the ongoing roll out of new cash-funded payment options, commensurate com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. increased processing costs, expansion of the company's U.K. operations and higher marketing activity. Notwithstanding these challenges, management anticipates modest revenue growth in 2003 as new products and new customers gain momentum, and the use of alternative payment methods gain further acceptance, particularly in the second half of the year. In light of these factors, and given the absence of the PayPal A Web payment processing service founded in 1998 and acquired by eBay in late 2002. Operating as an independent brand, PayPal, San Jose, CA (www.paypal.com) is used to shop at PayPal-enabled retail sites as well as to send or request money from anyone with an e-mail address. payment option in 2003, CryptoLogic expects that, based on performance in this quarter to date, first quarter 2003 revenues and net earnings will be lower than 2002. Today, management is providing guidance for the first quarter only, with revenue expected to be in the range of $8.0-8.3 million and net income between $1.2-1.4 million. CryptoLogic continues to have one of the healthiest balance sheets in the industry. Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. was $3.5 million for the fourth quarter and $10.0 million for the fiscal year 2002. As at December 31, 2002, the company's total cash reserves Cash reserves See: Cash investments cash reserves Investment funds that are held in short-term assets such as Treasury bills and certificates of deposit until more permanent investment opportunities are available. (comprising cash and cash equivalents, restricted cash and short term investments) amounted to $44.1 million or a cash value of US$3.61 per diluted share. In 2002, the company repurchased 275,500 shares for a total cost of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $2.5 million at an average price of US$9.08 through its normal course issuer bids, of which 110,000 shares were repurchased at an average price of US$4.26 under the current plan that expires on May 19, 2003. New Products and Customers Gain Momentum Since www.theritzclublondon.com and www.littlewoodscasino.com went live using WagerLogic's software in 2002, the early response validates the company's focus on international, brand name customers and expands its strong presence in the UK. These sites' European players have contributed favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. to WagerLogic's licensees' revenue derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from international markets, which continues to increase. WagerLogic's reputation and premiere casino casino or cassino (both: kəsē`nō). 1 Card game played with a full deck by two to four players. Its origins are obscure though it probably traces back to the Italian game of Scopa. gaming software have allowed the company to quickly gain leading market share across broader and emerging gaming markets that offer significant growth potential. For example, the expansion of WagerLogic's Internet-based product suite into bingo bingo Game of chance played with cards having a grid of numbered squares corresponding to numbered balls drawn at random. When a number on the card is drawn, the players cover that number (should they have it); the game is won by covering a certain number of squares in a row and multi-player poker poker, card game, believed to have originated in Asia and first played in the United States in the 19th cent. A traditional cutthroat gambling game at first, it is now also an internationally popular social pastime. is beginning to pay dividends and represents new higher-margin revenue streams. In January January: see month. 2003, licensees' central poker room ranked among the top 10 on the World Wide Web according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. industry sources. Global Regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. Commitment Two approaches to the future of online gaming See gaming. have crystallized crys·tal·lize also crys·tal·ize v. crys·tal·lized also crys·tal·ized, crys·tal·liz·ing also crys·tal·iz·ing, crys·tal·liz·es also crys·tal·iz·es v.tr. 1. in the U.S. - licensing and regulation versus prohibition prohibition, legal prevention of the manufacture, transportation, and sale of alcoholic beverages, the extreme of the regulatory liquor laws. The modern movement for prohibition had its main growth in the United States and developed largely as a result of the . Because the U.S. regulatory debate is expected to continue for some time, the company will continue to emphasize its growth in the European market, where Internet gaming regulation in imminent Impending; menacingly close at hand; threatening. Imminent peril, for example, is danger that is certain, immediate, and impending, such as the type an individual might be in as a result of a serious illness or accident. . The British government has confirmed its plans to create a regulated reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. and licensed market for Internet gaming. This will create a safe and secure environment for the responsible use of this form of entertainment. WagerLogic has sought software certification by recognized independent third party testing companies to the strictest standards available that are consistent with land-based requirements. The company is actively pursuing certification in Alderney Alderney (ôl`dərnē), Fr. Aurigny (ōrēnyē`), anc. Riduna, island (1991 pop. 2,297), c.3 sq mi (7.7 sq km), in the English Channel, northernmost of the larger Channel Islands. in 2003. This would further distinguish CryptoLogic's leadership in regulatory compliance. "CryptoLogic has always advocated that licensing and regulation is the best option for governments, players and the industry," Rose said. "Safe, secure and regulated online gaming benefits everyone, and that is why it has been embraced Embraced is a Swedish melodic black metal band, formed in Malmö, Sweden in 1993. The band split up in 2000, and reunited in 2004. Line-up
 r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). and other parts of the world."A Strengthened Leadership Team CryptoLogic's senior management team was strengthened further with two results-driven professionals. A.J. Slivinski was appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. Vice President of Business Development. Most recently Director of Emerging Markets at Maple Leaf Foods Maple Leaf Foods TSX: MFI is a major Canadian food processing company. The company was originally known as Maple Leaf. It was founded in 1927 as a merger of several major Toronto meat packers, most prominently William Davies Co. , Slivinski's customer focus and experience in delivering profitable growth will be key to executing CryptoLogic's strategy. As General Counsel, John FitzGerald's Fitzgerald's is one of the oldest and widely recognized live music venues in the Greater Houston area. The club has been at the top of the live music scene in Houston since it opened in 1977. legal and practical business expertise will be an asset as he advances CryptoLogic's global regulatory compliance initiatives. 2003 Strategy CryptoLogic's 2003 strategy will continue to emphasize international expansion with brand name customers, capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. new market-driven products and functionality, and leverage opportunities for organic growth. The company will also consider selective acquisitions to advance growth. CryptoLogic's strong balance sheet will be particularly valuable in an industry that should see increasing consolidation. Analyst Call A conference call is scheduled for 8:30 a.m. (EST EST electroshock therapy. EST abbr. electroshock therapy ) on Tuesday Tuesday: see week. , February February: see month. 11, 2003. Interested parties should call either 1-800-273-9672 or 416-695-5806. Instant replay will be available until February 18, 2003 by calling 1-800-408-3053 or 416-695-5800, passcode 1366507. 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 high-speed adj. 1. Operated or designed for operation at high speed: a high-speed food processor. 2. Taking place at high speed: a high-speed chase. 3. 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 around the world. CryptoLogic's common shares trade on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. under the symbol CRY and on the Nasdaq National Market under the symbol CRYP. There are currently 12.2 million common shares outstanding (12.8 million shares fully diluted, based on treasury method). CRYPTOLOGIC FORWARD LOOKING STATEMENT DISCLAIMER (networking) disclaimer - Statement ritually appended to many Usenet postings (sometimes automatically, by the posting software) reiterating the fact (which should be obvious, but is easily forgotten) that the article reflects its author's opinions and not necessarily those of the : Statements in this press release which are not historical are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. , risks associated with competition and other risks detailed in the Company's filings with securities regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities . These risks may cause results to differ materially from those projected in the forward-looking statements.
CRYPTOLOGIC INC.
CONSOLIDATED BALANCE SHEETS
As at December 31, 2002 and 2001
(In thousands of U.S. dollars)
--------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $17,489 $42,822
Restricted cash 15,740 16,800
Short term investments 10,857 --
Reserves with processors 774 144
Accounts receivable 699 697
Income taxes recoverable 583 408
Prepaid expenses and other 1,104 768
--------------------------------------------------------------------
47,246 61,639
Investments 680 2,480
Capital assets 2,713 2,949
Intangible assets 226 337
Goodwill 1,665 1,040
--------------------------------------------------------------------
$52,530 $68,445
--------------------------------------------------------------------
--------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,116 $2,704
Accrued liabilities 2,489 1,389
Funds held on deposit 3,829 3,263
--------------------------------------------------------------------
11,434 7,356
--------------------------------------------------------------------
Shareholders' equity:
Capital stock 10,720 8,720
Retained earnings 30,376 52,369
--------------------------------------------------------------------
41,096 61,089
--------------------------------------------------------------------
$52,530 $68,445
--------------------------------------------------------------------
CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except per share information)
For the three For the years
months ended ended
December 31 December 31
2002 2001 2002 2001
--------------------------------------------------------------------
--------------------------------------------------------------------
Revenue $8,869 $11,185 $34,427 $43,550
--------------------------------------------------------------------
Expenses
Software development and support 4,858 6,670 19,439 21,978
General and administrative 1,513 1,086 5,914 3,818
Finance 107 106 465 332
Amortization 268 136 986 353
--------------------------------------------------------------------
6,746 7,998 26,804 26,481
--------------------------------------------------------------------
Income before undernoted 2,123 3,187 7,623 17,069
Interest and other income 182 342 672 2,215
Special charge - - (10,506) -
--------------------------------------------------------------------
Income/(loss) before taxes 2,305 3,529 (2,211) 19,284
Income taxes 114 (135) (82) 1,206
--------------------------------------------------------------------
Net income/(loss) $2,191 $3,664 $(2,129)$18,078
--------------------------------------------------------------------
--------------------------------------------------------------------
Earnings/(loss) per share
Basic
Before tax effected special charge $0.18 $0.28 $0.63 $1.33
Net income/(loss) $0.18 $0.28 $(0.17) $1.33
Diluted
Before tax effected special charge $0.18 $0.25 $0.60 $1.21
Net income/(loss) $0.18 $0.25 $(0.17) $1.21
Weighted average number of shares
('000s)
Basic 12,211 13,262 12,257 13,567
Diluted 12,211 14,624 12,879 14,944
Net income before special charge $2,191 $3,664 $7,728 $18,078
--------------------------------------------------------------------
Special charge (10,506)
Tax recovery due to special charge 649
--------------------------------------------------------------------
(9,857)
--------------------------------------------------------------------
Net income/(loss) $2,191 $3,664 $(2,129)$18,078
--------------------------------------------------------------------
--------------------------------------------------------------------
CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
For the three For the years
months ended ended
December 31 December 31
2002 2001 2002 2001
--------------------------------------------------------------------
--------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income/(loss) $2,191 $3,664 $(2,129) $18,078
Adjustments to reconcile
income/(loss) to cash
provided by (used in)
operating activities:
Amortization 268 136 986 353
Writedown of investments - - 7,145 -
Changes in operating assets and liabilities:
Restricted cash - 500 1,060 (2,800)
Reserves with processors 68 445 (630) 1,073
Accounts receivable 70 227 (2) 813
Prepaid expenses and other (148) 1,396 (336) 71
Income taxes 102 (779) (175) (477)
Accounts payable 634 (87) 2,412 499
Accrued liabilities (34) 43 1,100 513
Funds held on deposit 301 399 566 1,449
--------------------------------------------------------------------
3,452 5,944 9,997 19,572
--------------------------------------------------------------------
Cash flows from (used in) financing activities:
Issue of capital stock for cash - 288 2,401 2,415
Repurchase of common shares (140) (3,141)(20,265) (17,286)
--------------------------------------------------------------------
(140) (2,853)(17,864) (14,871)
--------------------------------------------------------------------
Cash flows from (used in) investing activities:
Purchase of domain names (3) (20) (3) (20)
Purchase of capital assets (122) (904) (636) (2,420)
Acquisition, net of cash acquired of
$181 (625) (1,085) (625) (1,085)
Short term investments (10,857) - (10,857) -
Investments - - (6,401) (1,050)
Sale of investment - - 1,056 -
--------------------------------------------------------------------
(11,607) (2,009)(17,466) (4,575)
--------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (8,295) 1,082 (25,333) 126
Cash and cash equivalents, beginning
of period 25,784 41,740 42,822 42,696
--------------------------------------------------------------------
Cash and cash equivalents, end of
period $17,489 $42,822 $17,489 $42,822
--------------------------------------------------------------------
CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars)
For the three months ended
December 31
--------------------------------------------------------------------
2002 2001
Common Shares
--------------------------------------------------------------------
Number of Stated Number of Stated
Shares Value Shares Value
('000s) ('000s)
Balance, beginning of period 12,246 $10,461 13,332 $8,233
Repurchase of shares (40) (13) (229) (73)
Exercise of stock options - - 34 288
Exercise of Series C purchase
warrant - - - -
--------------------------------------------------------------------
Balance, end of period 12,206 10,448 13,137 8,448
--------------------------------------------------------------------
Series C warrants:
Balance, beginning of period - - - -
Exercise of Series C warrants - - - -
--------------------------------------------------------------------
Balance, end of period - - - -
--------------------------------------------------------------------
Series F warrants:
Balance, beginning of period 30 272 - -
Issued during the period - - 30 272
--------------------------------------------------------------------
Balance, end of period 30 272 30 272
--------------------------------------------------------------------
Total capital stock $ 10,720 $ 8,720
--------------------------------------------------------------------
Retained earnings, beginning
of period $ 28,312 $ 51,773
Net income/(loss) 2,191 3,664
--------------------------------------------------------------------
30,503 55,437
--------------------------------------------------------------------
Excess of purchase price of treasury
shares over stated value (127) (3,068)
--------------------------------------------------------------------
Retained earnings, end of period 30,376 52,369
--------------------------------------------------------------------
Total shareholders' equity $ 41,096 $ 61,089
--------------------------------------------------------------------
For the years ended
December 31
--------------------------------------------------------------------
2002 2001
Common Shares
--------------------------------------------------------------------
Number of Stated Number of Stated
Shares Value Shares Value
('000s) ('000s)
Balance, beginning of period 13,137 $8,448 14,079 $6,455
Repurchase of shares (1,281) (401) (1,377) (444)
Exercise of stock options 350 2,401 275 1,908
Exercise of Series C purchase
warrant - - 160 529
--------------------------------------------------------------------
Balance, end of period 12,206 10,448 13,137 8,448
--------------------------------------------------------------------
Series C warrants:
Balance, beginning of period - - 160 22
Exercise of Series C warrants - - (160) (22)
--------------------------------------------------------------------
Balance, end of period - - - -
--------------------------------------------------------------------
Series F warrants:
Balance, beginning of period 30 272 - -
Issued during the period - - 30 272
--------------------------------------------------------------------
Balance, end of period 30 272 30 272
--------------------------------------------------------------------
Total capital stock $ 10,720 $ 8,720
--------------------------------------------------------------------
Retained earnings, beginning of
period $ 52,369 $51,133
Net income/(loss) (2,129) 18,078
--------------------------------------------------------------------
50,240 69,211
--------------------------------------------------------------------
Excess of purchase price of treasury
shares over stated value (19,864) (16,842)
--------------------------------------------------------------------
Retained earnings, end of period 30,376 52,369
--------------------------------------------------------------------
Total shareholders' equity $ 41,096 $61,089
--------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2002
(All figures are in U.S. dollars, except where otherwise indicated)
These consolidated 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, 2001. These consolidated financial statements should be
read in conjunction with the consolidated financial statements for the
year ended December 31, 2001, as set out in the 2001 Annual Report.
Complete notes to consolidated financial statements for the year ended
December 31, 2002 will be set out in the Company's 2002 Annual Report.
1. Stock Options
Effective January 1, 2002, the Company adopted the new
recommendations of the Canadian Institute of Chartered Accountants
with respect to the accounting for stock-based compensation and other
stock-based payments. The new recommendations are applied
prospectively to all stock-based payments to non-employees, and to
employee awards that are direct awards of stock, call for settlement
in cash or other assets, or are stock appreciation rights that call
for settlement by the issuance of equity instruments, granted on or
after January 1, 2002. Outstanding grants as at January 1, 2002 that
call for settlement in cash or other assets or stock appreciation
rights that call for settlement in equity instruments are applied
retroactively, without restatement. The Company does not have any such
grants as at January 1, 2002 and as such will apply the new
recommendations prospectively.
In accordance with the new recommendations, 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 recommendations, 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.
Risk-free rate 2.0%
Expected volatility 100.0%
Expected life of options in years 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:
(In thousands of U.S. Three months ending Year ending
dollars, except per December 31, 2002 December 31, 2002
share information)
--------------------------------------------------------------------
As reported Pro forma As reported Pro forma
Net income / (loss) $2,191 $ 2,013 $(2,129) $(2,520)
Earnings / (loss)
per share
Basic $0.18 $0.17 $ (0.17) $ (0.21)
Diluted $0.18 $0.17 $ (0.17) $ (0.21)
2. Substantial Issuer Bid
In January 2002, the Company repurchased and cancelled 1,004,934
at CDN$28.00 per share for a total cost, including transaction
charges, of CDN$28,353,000 (US$17,763,000).
3. Normal Course Issuer Bid
In May 2001, the Board of Directors approved the repurchase and
cancellation of up to 656,000 of the Company's outstanding common
shares for the period commencing May 18, 2001 and ending May 17, 2002.
Under this plan the Company repurchased and cancelled 440,500 common
shares of which 165,500 common shares were repurchased and cancelled
during the period January 1, 2002 to May 17, 2002 for a total cost,
including transaction charges, of $2,033,000.
In May 2002, the Board of Directors approved the repurchase and
cancellation of up to 603,421 of the Company's outstanding common
shares for the period commencing May 20, 2002 and ending on May 19,
2003. Under this plan the Company has repurchased and cancelled
110,000 common shares during the period May 20, 2002 to December 31,
2002 for a total cost, including transaction charges, of $469,000.
4. Special Charge
During the second quarter, the Company took a one-time special
charge of $10.5 million.
(a) Writedown of Investments
Management has reviewed the Company's investments and other
assets, and determined the value of the investments held had incurred
a decline in value that was other than temporary. Included in the
writedown is a $6.1 million investment in SCG Enterprises Ltd., a
wholly owned subsidiary of Sports.com Limited. Sports.com was placed
into bankruptcy in the U.K. in late May 2002 and has since ceased
operation.
Also included in the writedown of investments is a net gain of
$135,000 recognized on the sale of 100% of the Company's investment in
Dot Com Entertainment Group Inc. (DCEG-OTCBB), representing 1,055,700
common shares for total proceeds of $1,056,000.
(b) Reorganization Costs
Reorganization costs are mainly associated with the consolidation
in the United Kingdom of the players' support operations and severance
costs associated with executive management reorganization.
(c) Other costs
Other costs consist of estimated costs involved with current
disputes and legal costs to defend current litigation.
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