(cont. from previous post...)
StockHouse: Have you seen potential licensees shy away from the company, fearful of complications?
Mark Rivkin: After the Starnet incident, William Hill still negotiated a deal with us. We started negotiating with them in June--actually, probably even before the summer.
StockHouse: Did the issues surrounding Starnet come up in the negotiations?
Mark Rivkin: Absolutely. But they understand that we're two completely different companies. We're not an operator. We're not accepting a wager from anybody, from the US, Canada, or from Japan. We're completely different companies. Nor do we process any of this gaming information here. I can't comment on how Starnet operates their business.
StockHouse: So there is no need, as some have suggested, to simply pick up and move operations to a country such as Antigua, to avoid any potential problems.
Mark Rivkin: We wouldn't do our development out of Antigua. We're going to do our development out of Canada.
StockHouse: Another big issue is the whole concept of the mob infiltration. What does Cryptologic do to prevent criminals laundering money through the software as a licensee?
Mark Rivkin: Our company has an advisor to our board. Norm Inkster is the ex-commissioner of the RCMP. Everybody that we do business with, licensees, some of the employees, are checked out from KPMG investigation and security division. We do full background checks on anybody. If there is a problem we don't do business with them, with those people. We operate as if we're a regulated company -- a regulated supplier to the gaming industry. The same way that if you were supplying software to a casino in Las Vegas, you would be required to do that. To do background checks on everybody. We do that. From our point of view, we do not want to do business with anybody who's iffy. We want to operate like a regular big company. As far as money laundering, KPMG has come in and looked at our company from the point of view of money laundering laws and regulations, and they are comfortable. They are auditors and they are one of the top four firms in the world. We are comfortable with that.
StockHouse: Are there limits for Ecash purchases?
Mark Rivkin: If you're a first time customer it is $400. Then the highest limit possible after you've been a customer for 3 months, 90 days, is about $1500 a week. Those are the limits, if it's on credit card. If you are using another system the limits are different.
StockHouse: How is the Nasdaq listing coming along?
Mark Rivkin: It's coming along very well. We're waiting for approval from the Nasdaq. They are pretty backed up. On August the 26th we filed form 40-F, our application. So it's just a matter of whoever is next in line.
StockHouse: And the company meets all the board's requirements?
Mark Rivkin: We do.
StockHouse: Is there going to be a stock split once the company lists on Nasdaq?
Mark Rivkin: We had talked about a stock split if the stock was in the $30 range. The board will start looking at it again when the stock hits $30. There is nothing planned in the near future. It's something we talked about.
StockHouse: The gambling market is huge, and set to grow much bigger. What is Cryptologic's share of the pie right now?
Mark Rivkin: I don't know. Our licensees probably make up 50% of the industry from a volume perspective. Other companies have 50 to 100 different licensees, whereas we only have 15. It's small, but our licensees are more successful than any of the other companies.
StockHouse: Is that because of the software's edge?
Mark Rivkin: We believe so. We like to say so, but it's hard to say. I think we were first out of the gate because InterCasino has been around for a long time. The Sands has been around for a long time. Our licensees do a great job marketing the product. That's why they signed on with us, and that's why we signed on with them.
StockHouse: How much market share do you expect to gain in the future?
Mark Rivkin: The William Hill deal is one example of where we are going in the future. I think that there are a lot of other opportunities with companies as reputable as William Hill. William Hill has three different businesses. They own about 23% of the UK's physical betting market, which means sport betting. If you want to place a sport bet in the UK it's legal to walk into a shop, a retail outlet and make a bet or a wager on a sporting event. They have about 1,500 of those betting shops sprinkled all over the UK. They also have a telephone betting operation that works out of the Isle of Man, so locally they accept wagers from people by telephone. It's estimated that they control about 42% of the telephone wager market. It's a huge market. The other thing that they do is they have an Internet sports betting. Now they want to add an Internet casino to the sports betting. That's why they came to our organization.
StockHouse: Does Cryptologic have plans to create sportsbook software?
Mark Rivkin: We have a sports betting application but people don't use it. Traditionally they like to use their own sports betting software, if they have it. We try to focus on one area.
StockHouse: How much is the deal with William Hill worth to Cryptologic?
Mark Rivkin: I don't know to be honest with you.
StockHouse: But it is definitely the biggest deal Cryptologic has ever done?
Mark Rivkin: This is the biggest deal that anybody in the industry has, by far. I think it's going to be a very large deal. How large? The sky is the limit.
StockHouse: Back to another deal that you mentioned before, the acquisition of Gamesmania. What does that add to the value of the company?
Mark Rivkin: Gamesmania helps us with content and understanding content on the Internet -- how to develop a content site. It was really something that we were interested in. My brother and I are very interested in that industry as well as the PC industry. It was strategic for us. We want to expand into console--Super Nintendo, Playstation and some of the other more popular video game applications. We want to cover that industry. They would use our Ecash software to sell PC games, Nintendo games through their site. That's the strategic fit that we were thinking of.
StockHouse: The company has great revenues, great earnings and a lot of cash. How much cash is on hand right now?
Mark Rivkin: $36 million US, so about $54 to 55 million Canadian on our last public statement. It's quite a bit more than that now.
StockHouse: You said before there are plans to raise financing for the Ecash software side. If the cash situation is so good, why do you need to raise any?
Mark Rivkin: If you are going to separate out the company, if you are going to separate the names, you are going to have a separate business plan, you're going to take it public on its own. You are going to want to attract new investors to it, not keep the same Cryptologic shareholders. You want to expand.
StockHouse: So how do you plan to raise the money?
Mark Rivkin: Probably number one from existing shareholders and then eventually through an IPO.
StockHouse: One Sprott Securities analyst has a 12-month target price of $38.25 per share. Judging by what the company is doing now, would you say that's undervalued?
Mark Rivkin: I think the stock is extremely undervalued. If you look at our multiples and multiples that other Internet companies get, it's something that we really don't understand. We work hard to try and get our message out there and communicate with the public and tell them what we are doing and how different we are from other companies. People see how well we are doing, but I think that because it's such a young industry, people just don't understand. They don't understand the business. Yet. It's going to take some time for us to convince people that this industry is here to stay. Because it is. It's not going away. We are working with companies in Australia. They've now regulated the industry as if we were operating as a land based casino. So we are working on several deals in Australia right now.
StockHouse: Industry watchers are all saying that Australia will be the next hub of online gaming activity. Mark Rivkin: It will definitely be. So we are going to do some business in Australia.
StockHouse: Are you in talks with the major players over there, such as William Hill is to the UK? Mark Rivkin: We are.
StockHouse: Is there anything that Cryptologic will be announcing soon? Mark Rivkin: I can't give you an idea of time frame, but I can say we are working very aggressively to get our software tested, certified in Australia, because it is about a six-month process to get your software certified. That's the direction we are heading in now. StockHouse: When is the third quarter coming out?
Mark Rivkin: It's usually out by the end of October. StockHouse: Will we see the same kind of growth that the company has charted in previous reports?
Mark Rivkin: There is seasonality in this business. So in the summer months we flatten out quite a bit. I think we are seeing some growth now. In the fall and the winter our business starts to pick up again. It's hard to say.
StockHouse: Thanks for taking the time today to speak with me today, Mark. |
