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Cryptologic's official response to the Unlawful Internet Gambling Act

3 Oct 2006

CryptoLogic Inc., a leading software developer to the global Internet gaming industry, announced that effective immediately licensees of WagerLogic Limited, the company's licensing subsidiary, will not take wagers from U.S.-based players. This is a result of new legislation expected to be signed today by President Bush that prohibits financial transaction processing in the U.S. online gaming market. The company has spent five years preparing for this eventuality by shifting its revenue base to fast-growing European markets, and is positioned for long-term profitability and growth.

"Since 2001, CryptoLogic has been shifting its business to Europe, and our record revenue and earnings in 2005 and 2006 to date flow from our success in the markets that embrace Internet gaming," said Lewis Rose, CryptoLogic's President and CEO. "While the new U.S. developments will be a challenge for the whole industry, our company's diversification, strong balance sheet, thriving European customers and potential new business in emerging markets enable us to face the future with confidence."

With more than 70% of its licensees' revenue now coming from outside the U.S., CryptoLogic is one of the industry's most geographically diversified businesses. The company also enjoys a very strong balance sheet. At June 30, 2006, CryptoLogic had $126 million in cash, $91.7 million in net working capital and no long-term debt. Based on historical results, the annualized impact on revenue of today's decision would have been approximately $30 million for the full year 2006, with an estimated effect on earnings of approximately 80% of that amount. In its remaining business, the company continues to maintain its corporate objective of growing revenue by 20%. Continued, strong organic growth, the launch of Playboy's non-U.S. facing Internet casino and Internet poker sites and potential signings of new licensees will help CryptoLogic in this goal.

On the evening of Friday, September 29, the U.S. Congress adopted the Unlawful Internet Gambling Enforcement Act of 2006, which prohibits financial transactions processing for certain types of Internet gaming. Certain types of gaming are exempt, including horse racing, state lotteries and intratribal transactions. The legislation addresses previous uncertainties in the law governing non-sports Internet gaming in the U.S.

The U.S. approach contrasts with that of the United Kingdom and other European markets, which are moving to regulate Internet gaming for fiscal and social benefits.

"We believe Internet gaming can and should be regulated, licensed and taxed. The U.K. model is the right one: create a safe, secure and regulated environment for players to enjoy this form of entertainment," Rose said. "We will continue to advocate regulation as the logical solution for all stakeholders, including players, investors, and governments. In the meantime, we will continue to deepen our existing relationships and attract potential new customers in Europe, Asia and other thriving and emerging markets."

CryptoLogic is proceeding with its plan to locate its global headquarters in Ireland, with continued commitment to its operations in Canada, the United Kingdom, Cyprus and Singapore.

As a global and publicly traded developer and supplier of Internet casino and poker software, CryptoLogic is one of the world's few companies with government-approved Internet gaming software and remains committed to the highest standards of regulatory compliance.

 
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