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VirtGame Reports Loss Grows

LAS VEGAS – (PRESS RELEASE) -- VirtGame Corp. (OTC Bulletin Board: VGTI), a provider of innovative software solutions to the regulated gaming industry, today reported financial results for its third quarter ended September 30, 2004. The Company reported revenues of $43,575, which compares to $226,575 (restated) for the previous quarter of 2004 and $147,675 for the third quarter of 2003. The Company recorded $25,000 in deferred revenues during the quarter. The Company reported a net loss applicable to common stockholders for the third quarter of $636,689 or $0.02 per share, which compares to a net loss of $307,093 or $0.01 per share in the previous quarter and a loss of $294,227 or $0.01 for the third quarter of 2003.

Operating expenses increased by 9% to $658,153 for the three months ended September 30, 2004 compared to $605,652 during the three months ended September 30, 2003. The increase in operating expenses was due to an increase in payroll, research and development and other operating expenses incurred as a result of the phasing of management changes coupled with the establishment of a permanent Las Vegas office.

Cash and equivalents on September 30, 2004 were $644,337 compared to $2.6 million on December 31, 2003. Working capital as of September 30, 2004 was $710,546, a decrease of $1,786,517 compared to the working capital of $2,497,063 as of December 31, 2003. The change in working capital is attributable to a reduction in cash of approximately $2 million, and an increase in accounts receivable and inventory of approximately $200,000. The Company has no long-term debt as of September 30, 2004.

Interest expense during the quarter totaled $25,575. Equity structure of the Company was streamlined during the quarter as a portion of the Series A preferred shares were converted to 2,296,039 shares of common stock.

Restatement of First and Second Quarter of 2004 In preparation of the September 30, 2004 10-QSB, VirtGame's new management has elected to reverse $481,740 of revenue recognized in the quarter ending March 31, 2004, and $60,217 of revenue recognized in the quarter ending June 30, 2004 relating to a single contract. Certain payables and receivables have also been adjusted accordingly.

During the quarter ended September 30, 2004 the Company recorded $25,000 in deferred revenues, which is included within accrued expenses. This accounting change is not a reflection on the quality of the contracts, but rather a decision by management to more accurately reflect its revenue recognition guidelines. This change has no impact on the cash flow projections of the Company, as payments are being made by the customer as per the agreed contract terms.

Amended versions of the Forms 10-QSB for the quarters ending March 31, 2004, and June 30, 2004, will be re-filed to reflect the changes to those previous filings.

The current quarter's filing reflects the necessary changes and the cumulative amounts presented incorporate the upcoming amendments to the March 31, 2004 and June 30, 2004 10-QSB filings.

Mark Newburg, President and Chief Executive Officer of VirtGame, commented, "Over the past three months, VirtGame has made significant strides in its transition from a research and development entity to a commercialized company with a definitive business plan. We have refined the R&D effort to include plans for continuous version upgrades to the existing Primeline system and put definitive milestones in place to insure we optimize the Virtstation development effort. We have organized the Company with a focus on our three business units; Primeline, SBX/STB, and VirtStation. We have also implemented business metrics to measure our progress against the business plan on a continuing basis for each of the three business units. All activities since September 1, 2004, have followed this business plan developed by our new management group. As evidenced by recent announcements we have begun to experience success in establishing contracts with several of the major gaming industry participants and are encouraged by the warm reception we have received from many other potential customers."

QUARTER HIGHLIGHTS AND RECENT DEVELOPMENTS

VirtGame Appoints New CEO and President

On August 18, the Board of Directors appointed Mark Newburg as its new Chief Executive Officer and President replacing Bruce Merati. Mr. Newburg will also serve as a member of the Board of Directors. Mr. Newburg brings to VirtGame more than 25 years of extensive domestic and international business experience encompassing gaming, computer hardware, software, telecommunications, banking, financial services, and consumer products.

VirtGame Appoints New CFO

Effective November 2, 2004, Arnaldo F. Galassi replaced Bruce Merati as Chief Financial Officer. Mr. Galassi is a seasoned financial professional with in-depth experience in high-level international finance and corporate treasury functions through positions in four Fortune 500 companies, including treasury manager for Asia Pacific for AT&T, head of Asia Pacific treasury operations for Lucent Technologies, and director of corporate finance for NCR Corporation.

VirtGame Filed Two Patents on July 1, 2004

Two provisional patent applications for "Method for Secure Generation of a Random Number in a Gaming System" and "Secure Server-Based Gaming Platform" were filed with the United States Patent and Trademark Office. The first patent application covers a secure methodology for a random number generator within a secure gaming system. The second patent application provides a secure server-based gaming platform that ensures the integrity of a client-based gaming system with real-time auditing of game play, real-time monitoring of system integrity and a remote event system that provides real-time notification of all events originating on a client platform to a game server.

On August 26, 2004 VirtGame's Sports Bet Express Received Nevada Gaming Commission Approval

PrimeLine(TM) Sports Bet Express (SBX), the first sports route network in Nevada, received final approval from the State of Nevada Gaming Commission following a successful field trial conducted at Bally's Las Vegas, a Caesar's Entertainment, Inc. property.

VirtGame Launches First Vegas Style Sports Book in Titan Curise Line's Ocean Jewel

In October 2004, the Ocean Jewel, docked in international waters off St. Petersburg, was the first vessel to carry the PrimeLine Sports Book ("Sports Book") capability aboard its ship. The Sports Book is being operated by International Race & Sports Consultants Inc. and managed by Perry Swanson, a veteran gaming industry executive most recently known for starting the first race and sports book at Terrible's Town in Las Vegas. VirtGame and Mandalay Resort Group Properties Team Up on Sports Bet Express Network The Excalibur Hotel and Casino, a property of the Mandalay Resort Group, has contracted to be included in VirtGame's Sports Bet Express. The agreement grants VirtGame the exclusive right to integrate the Mandalay's Excalibur Hotel and Casino and soon thereafter at Circus Circus Hotel and Casino in Las Vegas, the Edgewater Hotel and Casino in Laughlin, and Circus Circus Hotel and Casino in Reno sports books into VirtGame' Sports Bet Express system.

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