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Cryptologic Limited
2000 1st Quarter Results Conference Call

Operator: Good morning ladies and gentlemen and welcome to the CryptoLogic first quarter, year 2000 conference call. I would now like to turn the meeting over to Mr. Andrew Rivkin, President and Chief Executive Officer of Cryptologic Limited Please go ahead Mr. Rivkin.

Andrew Rivkin: Thank you. Welcome to our first quarter 2000 conference call. I'm Andrew Rivkin, President and CEO of CryptoLogic. I'm joined today by Mark Rivkin, COO and Executive Vice President; Harvey Solursh, Chief Financial Officer; Jenny Solursh, Senior Vice President; Nelson Lee, Director of Finance; and Nancy Chan-Palmateer, Director of Communications.

We wish to review today with you, our financial results for the first quarter of 2000, which were consistent with our preliminary estimates announced on April the 5th. Afterwards we would be happy to answer any questions.

For the first quarter ended March 31st, 2000, total revenues were $8.9 million, an increase of 8% over $8.3 million in the same, 1999 first quarter. Please note all figures are in U.S. dollars. Our net income was $4.2 million, compared with $5.4 million in 1999. This translates into earnings per share of approximately $0.38 in the first quarter of 2000 compared with $0.64 in 1999. On a fully diluted basis, earnings per share were $0.27 for the first quarter of 2000, compared with $0.35 in 1999.

CryptoLogic continues to be very well capitalized with almost $53 million in cash. During the first quarter, the company increased its restricted cash position $10.5 million, compared with $4.9 million in the same quarter of 1999. The restricted cash level is expected to continue to reflect our higher processing volumes. Our credit card processors require that we maintain a percentage of processing level as reserves. Restricted cash represents letters of credits in favour of our processors as an alternative to maintaining cash reserves.

Although CryptoLogic experienced only modest revenue growth and a decline in earnings in the first quarter of 2000, we remain a highly profitable organization with strong growth prospects. As indicated earlier this month, a number of factors impacted our revenue and earnings during the first quarter of 2000 including:

• the slow down in marketing initiatives in anticipation of the release of Version 4.0 which typically drives revenue growth. Version 4.0 is now planned for commercial release and marketing in the latter half of the second quarter;
• the benefits of William Hill's casino did not begin to contribute significantly until the end of the first quarter; and
• increased expenditures in key areas including development of Version 4.0, new and expanded facilities in Toronto, Antigua, and the U.K. to support a larger employee base and growing licensee base, as well as NASDAQ associated cost and increasing business development activities.

During the first quarter, CryptoLogic continued to make great strides to expand our global reach with the launch of William Hill's virtual casino and the addition of Jupiters, and International Thunderbird as our newest licensees. Our growing base of leading licensees is enabling CryptoLogic to increase its international penetration and opens new horizons for us, particularly in the major markets of the U.K., Europe, Asia, Australia and Latin America. During the first quarter, our international revenues increased to approximately 38% compared to 35% percent in 1999.

We believe our recent listing on NASDAQ will help CryptoLogic enhance our global profile, widen our investor base and give access to major U.S. capital markets. We are encouraged by the increase in our shareholder base, which has tripled to almost 7,000 since a year ago. Upcoming public relation plans and a U.S. road show in May will further help to increase awareness of CryptoLogic as an attractive investment opportunity.

As a high growth Internet company, ongoing investments and critical junctures in our growth are important to maintain our leadership status. As a result, CryptoLogic is ideally positioned as a leader in our industry with the best technology, a strong profit model and some of the world's leading gaming organizations among our licensees. We would now be pleased to take any questions.

Question and Answer Session

Chad Swayer: Andrew, how are you doing, it's Chad.

Andrew Rivkin: Good thank you.

Chad Swayer: Good. Question, I know CryptoLogic's making some great strides into the global markets. What is your strategy as a company to try to decrease the time that it takes to get the pin number letters in the hands of customers in the global markets, for example, Australia, South America, China, etc.

Andrew Rivkin: We've reorganized our focus on the international marketplace. We have opened a facility in the United Kingdom very recently. That facility is going to be used to support our international licensee base and also support our existing licensees to help them service the international markets better. We've, in addition to that, opened a facility in Antigua, so I think with three facilities to provide e-commerce services, we'll be able to get our pin letters and things like that in the hands of the customers much quicker.

Chad Swayer: Now, when you said you're opening an office in England, can you . . .

Andrew Rivkin: Sorry Chad, in addition to that, we are in the process of opening a facility in Australia and I think that will also radically increase penetration in the Asia Pacific market as well.

Chad Swayer: Andrew, when you say you're opening a facility in Australia and England, what services will be provided by those offices?

Andrew Rivkin: Marketing, licensee support, in the future, e-commerce support, actual e-commerce servers, so virtually all the services that are being provided in our other facilities in Antigua and Toronto will be provided out of our facilities in U.K. and ultimately in Australia as well.

Chad Swayer: I've got a second question. With your new Version 4.0 coming out, I know there's going to be a lot of enhancements, a lot of new games, progressive jackpots, etc., etc. I think it's going to be outstanding. My one question for you, does CryptoLogic as a company think that they will ever enter into the Java game market in addition to the downloadable casino software.

Andrew Rivkin: Absolutely, we will be commencing work on that. I think, you may have even seen a pre-release version of Version 4.0. We're very excited about that technology. As soon as that's completed, we're going to be starting work on a number of games based on our Version 4.0 technology for Java and for wireless applications as well. I think we previously released on our conference call in April that we were starting work on WAP (wireless application protocol) for e-commerce. We are going to be implementing applications for Java and for wireless protocols as well. So we're excited about that. We feel that with the platform we're operating on now, there are big opportunities for us in those markets.

Chad Swayer: And I have been lucky enough to see a sneak peak of Version 4.0. The slot machine games especially, we want to really applaud you guys on that, it's terrific. The last question I have for you, just in general, in your opinion as one of the people that would know, what do you think that actual size of the on-line gaming market is, as of, for figures for 1999?

Andrew Rivkin: Bear Stearns numbers were US$1.65 billion for 1999.

Chad Swayer: For the on-line wagering market?

Andrew Rivkin: For on-line gaming. We're looking at US$3 billion for 2001 and you know that those may be the most accurate estimates that are out there. You know as well as we do that it's very difficult to measure. Companies are reporting numbers differently as well as there are a number of private companies in the industry and there are a number of people who feel that it's, from a competitive perspective, better to keep those numbers quiet. So I think that the Bear Stearns estimates are the best that we have to go on right now.

Chad Swayer: All right, thank you.

Operator: Thank you. Once again, if anyone else does have a question, please press one on your touch tone telephone. Our next question will come from Alex Faigel of IDC. Please go ahead.

Alex Faigel: Hello, can you hear me?

Andrew Rivkin: Yes.

Alex Faigel: Mr. Rivkin, I applaud you as well. I've had a chance to see a sneak peak of the software and my question to you sir, your stock I believe has been somewhat battered in the past while. It's been driven quite a bit down. Can you speak about that a little bit, maybe other than the general trend of the market? Do you have any other feelings of why I've heard you say that it's undervalued. Can you give me an idea of why you believe it's been driven down the way it has?

Andrew Rivkin: Well I think our stock has suffered similar declines as most technology companies. Many technology stocks have lost between 50-90% of their value from the 52-week high. We continue to be highly undervalued. We're trading right now at about 12x this year's estimates. Our shares remain 35% percent ahead of what they were trading last year so we're happy about that. And with the return to quality of stocks, we believe that CryptoLogic is an excellent investment with upside potential of an Internet company and the fundamentals of a blue chip stock. So we're very encouraged about what we've been able to accomplish and feel strongly about the future. The other comment that I can make is our issuer bid is continuing and through the decline, we've continued to become more and more aggressive as we think it's good value as well.

Alex Faigel: Thank you for that answer. Would you talk a little bit about the road show that you plan on doing in May.

Andrew Rivkin: Sure, I'm going to let Nancy answer that question.

Nancy Chan-Palmateer: We actually have planned, in the third week of May, we're doing a cross country road show, mainly targeting some new as well as existing U.S. institutional investors. So we'll be going out to San Francisco, Boston, Chicago as well as New York. I think that will certainly be the first major opportunity for us to get out there and tell our story. We certainly plan to continue to do regular visits out to the U.S. because that's an important part of our strategy.

Alex Faigel: Okay, and my last question, I understand that this industry, the industry as a whole relies a lot on legislation, some of the legislative decisions that may be made in the future. How significant, do you believe that that will affect? I understand you're globalizing as rapidly as you can. How do you feel that will reflect your stock price, reflect your company as a whole if some very hard decisions were to come down in the near future?

Andrew Rivkin: Well I think it's impossible to really predict. I think that the outcome of the bill is still uncertain. It's difficult for anybody to anticipate what impact it may have on the industry. There's still some fluidity in the bill, there's a number of carve outs being looked at, there are a number of things that they're looking at adding back. It's just really impossible for us to determine what kind of impact it's going to have on the industry in general or on our company. The good news is, as we mentioned, we have been attracting some international licensees as you know, recently. Our international revenue base has been growing as well, throughout time, since we started in November of 1996 so I think those are very encouraging. But as to what might happen if some bad decisions come out of the U.S., it's impossible for anybody to predict.

Alex Faigel: I think you guys are making great strides from someone who's been following this since 1995. You guys are by far the market leaders and hope the market and the stock market will recognize that for you.

Andrew Rivkin: Thank you.

Operator: Thank you Mr. Faigel. Our next question is from Janny Wagner who's a private investor. Please go ahead.

Janny Wagner: Yes, good morning. I have a couple of questions here. A few weeks ago, your company made a statement that it's not being undervalued and had repurchased shares. Could you tell me how many and for what price, and what the book value of the shares are right now.

Andrew Rivkin: We've purchased approximately 20,000 shares over the last short period. We're continuing to purchase our shares back. I can't tell you what the prices are, they're varying prices. In terms of the book value of the shares, effectively the cash value is about $6 Canadian, $4 U.S.

Janny Wagner: Okay, thank you very much.

Operator: Thank you Ms. Wagner. Once again, if anyone else does have a question, please press one on your touch tone telephone. And our next question will come from Brian Lafleur from Scotia McLeod. Please go ahead.

Brian Lafleur: Yes, hi Andrew. You indicated that your Version 4.0 will probably be released in the latter part of the second quarter. I'm just wondering if we can look for the bottom line numbers to be of the same magnitude. I mean, do you think that the increased revenue from William Hill activity will offset the spending, you're likely to continue spending right through the first half of the second quarter.

Andrew Rivkin: I think bottom line revenue is something that probably will continue to suffer in the second quarter and perhaps even the third. We're really strong believers in the industry. We are making investments that I think will benefit the company in the long term and we'll continue to do that as we continue to feel that those kinds of investments are going to pay off big dividends in the future. So I think it's a good thing that we've begun to focus our attention on growth and have started to spend real dollars on future prospects.

Brian Lafleur: Now we've asked this question, I guess, each quarter in the subsequent quarter, the roll out of the e-commerce or the Internet prototype. Any decisions yet, are we getting closer?

Andrew Rivkin:We continue to get closer. We're currently looking at a number of proposals from investment bankers. Let's see where we are here. We hope to make the decision over the next month as to which capital group we'll be working with and once we've chosen our financial advisor, we'll be in a better position to give you a final update on what we plan to do.

Brian Lafleur: Okay, thanks a lot.

Operator: Thank you Mr. Lafleur. Once again, if anyone else does have a final question, please press one on your touch tone telephone. And at this time Mr. Rivkin, it appears that we have no further questions from the phone lines sir.

Andrew Rivkin: Thanks very much. I look forward to having everybody join us at our annual meeting, which is May the 25th and I look forward to hearing from everybody on our conference on the second quarter. Thanks very much.

End of the Conference Call