CryptoLogic Revises Outlook For 2002

20 June 2002

CryptoLogic Inc. (Nasdaq:CRYP; TSX:CRY), a leading supplier of software to the Internet gaming and e-commerce industries, today announced that it will take a charge totaling $9.5 million in the current quarter. In response to changing market conditions, the Company has also updated financial guidance for the second quarter and fiscal year. CryptoLogic now expects a return to sequential earnings growth in the third quarter and year-over-year growth in the fourth quarter of 2002.

This charge includes a 100% write down of the company's investment in Sports.com, past portfolio investments that have been deemed to be permanently impaired and restructuring expenses incurred. Of the $9.5 million, approximately $8.0 million is of a non-cash nature.

The charge primarily relates to a $6.6 million investment in SCG Enterprises (SCG), a wholly-owned subsidiary of U.K.-based sports portal Sports.com Limited and the holder of Sports.com's online gaming businesses. WagerLogic Limited, CryptoLogic's licensing subsidiary, made the investment to secure a long-term casino licensing agreement at a higher revenue share and an option to acquire SCG in the future. The write down is due to Sports.com being placed into Administration in late May, thereby significantly impairing the marketing ability of SCG. Following discussions with the Administrator, management has conservatively decided to write down the full value of the investment.

The Company is taking legal advice with regard to the financial situation of Sports.com. "The rapid deterioration of the financial position of Sports.com, particularly in advance of the World Cup is markedly different from representations made to us and we will pursue all legal options open to us," said Jean Noelting, President & CEO of CryptoLogic.

The balance of the write-down relates to past portfolio investments, which were made by the Company in prior years, and restructuring expenses associated with the consolidation in the U.K. of the Players' Support operation, and various other initiatives undertaken in the second quarter.

"Despite the write-down, CryptoLogic's balance sheet remains sound, and the Company's strategy of expansion outside of North America is unchanged," said Jean Noelting, President and CEO. "The overall trend in the Internet gaming market remains solidly upward, and we expect a return to revenue and earnings growth in the second half as new internationally focused licensee sites ramp up and localized products gain traction."

CryptoLogic's strategy for 2002 is to focus on rapidly growing international markets, principally in Europe, and the Company is pleased with progress made to date. The recent launch of Dukesgaming.com by licensee Dukes Entertainment N.V., the release of localized software for the German, Spanish and Japanese markets, and the pending launches of two brand-name properties in the U.K., are expected to increase international revenue in the second half of the year. The Company's expectation remains that 50% of revenues will be generated by licensees' end-users in non-US markets by the end of 2002.

In the second quarter, revenue will be lower than expected due to continued pressure from U.S. financial institutions on Internet gaming in that country. In late 2001, certain U.S.-based banks began self-regulating the use of their credit cards for Internet gaming transactions. By the end of the first quarter of 2002, CryptoLogic had recovered approximately half of the revenue lost as a result of this decision, through the implementation of third-party payment options and increased marketing of other non-credit card-based forms of payment. During the second quarter, however, several additional US banks opted to self-regulate, resulting in increased rejections for U.S.-based players. To mitigate this impact, CryptoLogic is implementing a restructuring plan to reduce costs in line with revenue, and the associated costs of the restructuring plan have been included in the charge.

As a result, the Company has updated its financial expectations for 2002, excluding the impact of the second quarter charge, as follows:

(US$ millions, except per share amounts) ----------------------------------------------------------- Q2 Q3 ----------------------------------------------------------- Previous Updated Previous Updated ----------------------------------------------------------- Revenue 9.5-10.5 8.8-9.0 N/A 9.5-10 ----------------------------------------------------------- Net Income 2.5-3.0 2.0-2.2 N/A 2.5-3.0 ----------------------------------------------------------- Diluted EPS 0.19-0.22 0.15-0.17 N/A 0.19-0.23 ----------------------------------------------------------- (US$ millions, except per share amounts) ----------------------------------------------------------- Q4 FY 2002 ----------------------------------------------------------- Previous Updated Previous Updated ----------------------------------------------------------- Revenue N/A 11.0-12.0 44.0-46.0 38.0-39.7 ----------------------------------------------------------- Net Income N/A 3.5-4.0 13.5-15.0 10.2-11.4 ----------------------------------------------------------- Diluted EPS N/A 0.27-0.31 1.01-1.12 0.77-0.86 -----------------------------------------------------------

The special charge will decrease diluted earnings per share for the second quarter and fiscal year by $0.67.