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The Group purchases business process outsourcing (“BPO”) services from its subsidiary, IVY Comptech, in Hyderabad. As part of these services, IVY Comptech develops software on behalf of the Company.

Indian state law prohibits gaming and maintaining gaming houses in India. There is, however, no statutory prohibition to the provision of BPO services (i) for gaming conducted outside India or (ii) to a gaming house located outside India that does not offer gaming services to residents of India. Although the law regarding gaming in India does not reference or specifically prohibit online gaming, due to the controversial nature of these activities, there is a risk that allegations could be made that the Group’s BPO services violate Indian law, including the Public Gambling Act, the Andhra Pradesh Gaming Act and a number of other Andhra Pradesh state and central Indian laws and regulations.

Online gaming services are not accessible to any person from India. The Directors have been advised that, as a result, PartyGaming’s operations in India are in accordance with local law. However, there can be no assurance that regulators will not regard PartyGaming’s BPO operation as breaching Indian gaming law.

Any attempt, whether successful or not, by the Indian authorities to bring an action against IVY Comptech for breach of its gaming laws would be likely to require it to take defensive action, resulting in legal and other costs. Any requirement to relocate PartyGaming’s BPO operation from India as a result of any such action could have a material adverse effect on the Group’s operations and financial position.