Inside Asian Gaming

INSIDE ASIAN GAMING | September 2008 28 CryptoLogic Inc “Successful small-cap investorsmust avoid getting caught up in a stock’s story and losing sight of its fundamentals in the process,” wrote Tim Hanson referring to CryptoLogic on The Motley Fool investor website last year. We think that logic still applies. CryptoLogic, a producer and marketer of online gaming software, has taken hits on its share price in the last two years in line with other online gaming firms with a presence in the US market following the Unlawful Internet Gambling Enforcement Act of 2006. The company has seen more sell offs because of concerns about the prospects of the US and European online gaming market during an economic slow down related to the sub-prime housing debt sector. Asia could be the making of CryptoLogic. It recently announced a number of strategic deals to drive revenue growth in that region by next year. If Singapore passes legislation to regulate online gaming. as is widely expected in the industry, then CryptoLogic, which has its Asian headquarters in the city-state, will be one of the first companies to apply for online licensing there. This could give it a significant competitive advantage. As we discuss in this issue’s story on the agent system in Asian betting, many consumers in the region have a cultural resistance to online gaming because of fears of cheating, but Singapore has a wo r l d - leading reputation for probity. CryptoLogic’s Asian base in Singapore also gives the company a footprint that covers India, which arguably has fewer cultural barriers to content and delivery originating from Western companies than does China. Online casino KhelGalli.com signed up as the company’s first major Asian customer in May. It is targeting the high growth Indian market. In August, CryptoLogic announced a strategic investment in Mahjong Time, a provider of software for online Mahjong, and hopes to build a customer base among the 600 million people who play the game across the world. In addition, the company owns a minority interest in South Korea’s Mobilebus Inc., a PC game developer and publisher. CryptoLogic also has a solid financial platform, with revenue up 3.4% to US$16.8 million in Q2 2008 compared with the equivalent quarter in 2007, and working capital of US$63.3 million at the end of Q2 2008. Eight to Watch