Times are still tough at Cryptologic

Veteran online gambling software developer releases Q2/2010 numbers as CEO resigns

One of the industry's most respected and historically successful software developers, Cryptologic, has released another disappointing set of figures, at the same time announcing the resignation of chief executive officer Brian Hadfield.

The Q2/2010 report from the company notes: "After working with the Board on the restructuring plan, Brian Hadfield, Chief Executive Officer, has decided to leave the Company and resign as a Director. David Gavagan, the Chairman, assumes the role of CEO on an interim basis."

The statement goes on to detail the performance and restructuring ongoing at the software company, noting:

* Total revenues declined to $6.7 million (Q1 2010: $7.6 million) reflecting a change in accounting estimate relating to the amortization of certain pre-paid royalties and continued difficult trading

* Hosted casino revenue at $5.8 million (Q1 2010: $5.8 million) Amortization of royalties and games now reported separately and no longer charged against casino revenues

* Branded games revenue increased to $1.5 million (Q1 2010: $1.3 million)

* Poker and other revenues were down at $700 000 (Q1 2010: $1.3 million)

* Amortization of royalties and games increased to $1.2 million (Q1 2010: $700 000) as a result of a change in accounting estimate relating to the amortization of certain prepaid amounts

* Operating, general & administrative and amortization costs amounted to $12.9 million (Q1 2010: $11.0 million)

* Non-recurring costs of $7.3 million, comprising a non-cash impairment of intangible assets of $3.6 million, impairment of capital assets of $2.1 million and reorganization costs, including an additional provision of $1.7 million for the restructuring plan

* Net loss of $12.7 million (Q1 2010 Loss: $3.2 million)

* Net cash at June 30, 2010: $17.4 million (Q1 2010: $19.7 million)

The company's restructuring includes determined efforts to lower the cost base, reducing the workforce by Q4/2010 and other measures recommended by external consultants regarding Cryptologic's hosted casino business (see previous InfoPowa report)

Management reports that the outlook remains challenging, but that the Board "...continues to pursue avenues to enhance the company's strategy in the interests of stakeholders."

"Q2 2010 results were disappointing as slow progress was made amid continued challenging trading conditions to turn round the Company's performance," the statement advises shareholders.

It adds that some of its licensees experienced a decline in contribution from higher margin slot games and some negative impact from the World Cup. Excluding the impact of the change in accounting estimate for prepaid royalties, revenues from both the hosted casino and branded games licensing business were up sequentially.

Revenue from fully hosted virtual casino rooms provided to online gaming brand operators was unchanged at $5.8 million in Q2 2010 (Q1 2010: $5.8 million), with a multi-year oline casino deal with Betsafe a highlight.

Branded casino games delivered further growth as operators continued the rollout. Revenues from this segment increased to $1.5 million in Q2 2010 (Q1 2010: $1.3 million), despite some licensee sites being impacted by lower wagering activity caused by the World Cup.

51 new branded games were launched in the quarter, taking the total number of games rolled out by licensees and generating revenues to date to 150, with a further backlog of approximately 41 games expected to go live in 2010.

Since June 30, three clients have been signed for CryptoLogic's new casino offering, Instant Click. They are Tain AB, SkillonNet and Nyx Interactive. This product is aimed at expanding the Company's addressable market and shortening the time required to implement these new games on customers' networks.

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