bob lange, Check out this article, published yesterday in the Vancouver Sun:
vancouversun.com
Starnet investors bet on gambling
Internet gaming-technology firm's stock-market value has
rocketed to an astounding $665 million on OTC trading.
David Baines Vancouver Sun
Stock-market investors are taking a
billion-dollar gamble on Starnet
Communications International Inc., a
Vancouver-based company that hopes to
become the world's leading purveyor of Internet
gaming technology.
On Friday, Starnet's share price climbed 75
cents to $22.25 US on the over-the-counter
bulletin board in the United States. Volume was
a robust 343,400 shares.
With 30 million shares outstanding (assuming
exercise of all options and warrants), the
company's total stock-market value is now
$665 million US, or $1 billion Cdn.
The market capitalization is astounding considering that Starnet's book
value was only $3 million US as of Jan. 31, and earnings for the nine month
period were only $1.2 million or five cents per share.
"If you want to compare us to General Motors and MacMillan Bloedel and
apply real-world [price-earnings] multiples, obviously none of this stuff
makes sense," Starnet chief executive officer Mark Dohlen said in an
interview Friday .
"If you put us into an Internet context, and compare apples to apples, we
still feel that at this stage, we are under-valued in the Internet marketplace."
Starnet has been licensing its gaming technology to dozens of private and
public companies, which pay upfront fees and on-going royalties based on
a percentage of total wagering.
The upfront fees helped boost Starnet's revenues to nearly $6 million
during the nine months ending Jan. 31, but the company is looking to
continuing fees to close the gap between market expectations and actual
performance.
"We estimate that one-time fees will only be two to three per cent of the
over-all value of the contracts," said Dohlen.
Starnet is planning, through its 46 licencees, to ride what they expect will
be a tsunami of bettors washing through the Internet.
However, the list of licencees does not exactly read like a Who's Who in
the gaming world. For the most part, they are newly-minted private
companies registered in offshore jurisdictions such as Antigua or St. Kitts
in the Caribbean.
Dohlen refuses to provide any information on the private licencees, making
it difficult to determine whether they have the financial or managerial
capacity to create viable gaming companies.
A half-dozen of the licencees are public companies that trade on the
loosely-regulated OTC bulletin board or the Vancouver Stock Exchange.
Disclosure documents show they have dubious track records, casting
doubt on their long-term value to Starnet.
Dohlen says he is talking to large Las Vegas gaming operators and some
European lottery operators, including the Dutch government.
"I think over the next six months, you will see some names that you
recognize," he said in an interview from New York.
Dohlen was in New York to try to generate some big-league analyst
coverage, which has been noticeably absent to date. Among his stops
were Deutsche Bank, Morgan Stanley Dean Witter, Goldman Sachs and
Salomon Smith Barney,
"Everybody says get off the bulletin board and we'll cover you," he said.
Starnet applied for a more respectable Nasdaq listing a couple of months
ago, but Dohlen said Nasdaq officials want to see the company's audited
year-end results, to be released Thursday, before they approve the listing.
Meanwhile, he said, Nesbitt Burns in New York has agreed to underwrite
a $30-million private placement. To help market the issue, Starnet will be
conducting a road show during the first two weeks of August.
The rapid rise in the company's share price has been attracting attention
from short-sellers, who view the stock as being wildly over-priced.
Short-sellers borrow stock and sell it into the market. Their bet is that the
share price will decline, so they can replace the borrowed stock at a lower
price.
Because the bulletin board does not track short positions, it is impossible
to quantify the short interest in Starnet.
However, during the past few weeks The Sun has received several calls
from well-known short-sellers in Toronto and New York seeking
information on the company. Several indicated they have sold the stock
short.
One area the short-sellers are delving into is the ownership of Murray
Partners (BVI) Inc., the British Virgin Islands company that owns 10
million of Starnet's nearly 30 million shares.
Starnet has so far disclosed only those officers and/or directors of Starnet
that have an interest in Murray Partners. They are Dohlen and chief
financial officer Jack Carley, and Mitchell White and Jason Bolduc, both of
whom have left the company.
How many shares of Murray Partners they own, or the identity of the other
shareholders, has never been disclosed.
Because Starnet's roots are in Internet porn (it broadcasts live
pay-per-view sex shows from its office on Carrall Street and the No. 5
Orange strip club in Gastown) there have been rumors that some of
Murray Partners' shareholders may be unsavory characters.
During a previous interview, Dohlen said that because some of its
prospective licencees are located in Nevada, all the beneficial owners of
Murray Partners had to be disclosed to the Nevada Gaming Control
Board, "and we all passed the scrutiny."
However, in a written response to one short-seller, the Gaming Control
Board reported on July 9 it had no record of either Starnet or any of its
subsidiaries, or Murray Partners or any of its shareholders.
Dohlen maintained that "the people we were working with said, 'We can
continue our discussions because Nevada said it was okay to work with
you guys.' "
He said the relevant information may be contained in files that the board
maintains on those companies, rather than a file on Starnet. |
