Spielo A Gtech Company

CA

RESEARCH AND DEVELOPMENT Over the past few years, the company has invested significant resources in implementing a product diversification initiative. In collaboration with a government lottery, the company developed the worlds first on-line lottery terminal which is based on open architecture and which uses off-the-shelf hardware capable of running MicroSoft Windows NT or Windows. In addition, in 1999 the company started production of its third generation VLT (video lottery terminal) and soon after perfected its downloading capabilities, another industry first.

Research and Development historical spending:

(% of revenue) 19951996199719981999 Gross R & D7.6%17.9%23.7%12.1%11.5%

Since its founding in 1990, the company has successfully entered new international markets including Sweden, The Netherlands, Belgium and the United States, thanks to its innovative approaches, designs and technology. The company has been successful in setting the standard in creative game development and hardware design through this extensive R & D program in which the company has invested millions of dollars over the past several years. The cost of supporting this level of R & D has been a disproportionate percentage of revenues in the past years, but the leveraging of this successful investment for future years will result in a lower relative cost, while maintaining a creative lead.

As well as entering new markets, the company has expanded its market share though R&D and innovation. Our high-tech expertise, innovation and unequaled customer service ensures return business with existing clients. By meeting and exceeding our clients needs, we sell more product and expand our services to those same clients. The company consistently focuses on key value-added products/services for clients to help them maintain their knowledge capital. This approach allows the company to enter AND grow its markets.

As part of its approach, the company does share new technologies with its suppliers. We offer clients customized product/services, from concept to reality. This consumes a lot of time and resources, so to remain cost effective, the company utilizes suppliers and shares new technology information with them. Patents are pending on many of the companys creative inventions and processes.

The company encourages innovation by consistently bringing our programmers and designers out into the field to research the wants and needs of the market, what our competition is offering, what is working and what is not. Once that is done, their challenge is to develop exciting and innovative new products and services, then return to the field to validate those products/services and gauge their success. Our employees are also challenged by our clients the lotteries. The company maintains a close relationship to each client to ensure that their wants and needs are met and exceeded in every capacity.

Spielos Quality Program has been instrumental in establishing a controlled and monitored process for all of our employees. Our program defines the vital roles and responsibilities in addition to embellishing our company philosophy through documented activities that consistently allows us to accomplish our corporate objectives.

The program allows us to continue our quest to exceed our customer expectations while building relationships and products that fulfill our internal and external needs. Spielo has empowered its employees to relentlessly improve the quality program to allows them to consistently deliver our world class products.

Spielos manufacturing plant in Sainte-Anne-des-Monts, Quebec has obtained ISO9002 certification. Spielo headquarters in Moncton, New Brunswick is currently undergoing the final preparations for ISO certification and is scheduled to complete its ISO9000 certification process in 2002.

Two of Spielos main strengths are product development and client relations. These enables the Company to develop innovative products and help set industry standards.

Examples:

Spielo was the first manufacturer in the world to design a PC-based on-line lottery terminal - Dream Station. Its platform is a combination of hardware and software that makes it the most expandable and adaptable on-line lottery terminal available, as well as being very user friendly and easy to operate and maintain. Dream Station also won the 1999 Editors Choice Award from Design Engineering Magazine.

Spielos PowerStation 5 is the only VLT that provides powerful downloading capabilities, allowing lotteries to install new software on an entire network within hours. PowerStation 5 also has the lowest operating costs of any VLT on the market. This user-friendly terminal is durable and easy to service, and the technology is flexible and enables simple upgrades.

Spielo is the first VLT manufacturer in North America to offer a software module that addresses problem gambling on VLTs. The module, called Safe@Play, was developed in conjunction with our Canadian partner, Game Planit Inc., and is offered to Spielo clients worldwide as part of its overall corporate sales plan.

Atlantic Lottery Corporation Loto-Quebec Svenska Spel (Sweden) Rhode Island Lottery Corporation (USA) SENS and SNS (The Netherlands) Loterie Nationale (Belgium) Belgium

Though Spielo is a young company (it was incorporated in 1990), it is rapidly consolidating its position as a significant player in the global gaming industry. This progress has been exciting, but certainly not easy. There have been a number of obstacles to overcome.

Two of the biggest obstacles Spielo has faced is being young and small. Our Company is competing with some very formidable and well established companies. By and large, they are multi-national companies which are publicly traded and operate with billion dollar budgets. They are also more diversified and have many more years experience in the gaming industry.

Some examples are:

GTECH, in operation since 1981, has three subsidiaries serving over 80 lottery customers in 34 countries on five continents. It has over 4, 000 employees and reported record revenues in 1998 approaching $1 billion. GTECH stock is publicly traded on the New York Stock Exchange under the symbol GTK. Spielo won over GTECH when both companies were short-listed for a major on- line contract in the Netherlands. Spielo video lottery machines also consistently outperform GTECH machines in Rhode Island, home state of GTECH.

IGT employs more than 3, 300 people worldwide and is traded on the New York Stock Exchange under the symbol IGT. In 1998 the company acquired two key manufacturing subsidiaries: Barcrest Ltd. of Great Britain and Olympic Gaming in Australia and realized total revenues of almost $825 million. When the Swedish lottery, Svenska Spel, set up a VLT program and had six manufacturers to choose from, they chose two IGT and Spielo. Spielo currently has the most VLTs in Sweden and they consistently outperform the competition!

Bally Gaming Corp. is a subsidiary of Alliance Gaming Corporation, based out of Las Vegas. The company has been producing gaming products for 65 years. It is traded on the national market system under the NASDAQ symbol ALLY and realized revenues in 1998 of well over $400 million. Spielo competed directly with Bally and 10 (ten) other international companies to supply VLTs to Delaware State Lottery and Spielos bid was judged best technical and best overall. As a result, Spielo won a contract to supply over 70 per cent of the new VLTs to be installed in two venues, more than any other bidder.

When bidding for a contract, Spielo goes head-to- head with the above mentioned companies and others which are just as formidable. The reason we are successful in many of those cases is that we offer our clients innovative, high technology products and services, as well as dedicated and customized client assistance. Our creative games, innovative ideas and unique approaches to their markets win us great contracts and return business. We work harder, work smarter, listen more, and try harder than our competition and that approach is paying off!

'As a lottery, we continue to be impressed by Spielo's customer service and their response to any issue that comes up. Through their approach and dedication to our market, they constantly keep their games fresh and exciting, maintaining the interest of our regular players and attracting new players.' Gunnar Werner, VP, VLT division, Svenska Spel, Sweden

'Two years ago, Spielo asked for our feedback to improve their on-line terminal. They implemented all of our suggestions. It is refreshing to deal with a supplier who listens and responds.' Tjeerd Veenstra, Managing Director, Stichting Nationale Sporttotalisator, The Netherlands

'We have been tracking Spielo's progress in gaming... my staff is impressed with Spielo's movement in the video lottery field and their aggressiveness in creating new games.' Gerry Aubin, Executive Director, Rhode Island Lottery Commission, Rhode Island, USA.

25, 000 square feet

30 - 35

334110

ISO 9002

Belgium, Netherlands, Sweden, Delaware, Rhode Island, West Virginia

United Kingdom, Montana, New Mexico, Oregon