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Kevin Smith Putting on a Happy Face

19 August 2002

Despite reports of the imminent demise of, the company's CEO reassured analysts and reporters on Thursday that although the company has yet to turn a profit, it does have plenty of things to be positive about.

David Marshall addressed issues of the company's reported troubles and said published reports had been exaggerated. But he did say the company was in the process of trying to secure additional funding to help pay off loans and various debts.

Concerns were raised earlier this week when the company released its third-quarter filing with the U.S. Securities and Exchange Commission. As part of the report, the company stated that it may be forced to "consider a formal or informal restructuring or reorganization, severely curtail, or cease operations," if it was unable to secure additional capital to fund operations and pay down liabilities.

In the SEC filing, reported it had negative net working capital of $1,845,661 as of June 30, compared with net working capital of $805,542 as of Dec. 31, 2001. The company said its efforts to reduce costs and operate more efficiently, combined with the opening of a wagering hub in Oregon in September 2001 and obtaining licensing in California earlier this year, will improve cash flow.

Marshall said the company experienced a 46-percent increase in handle in the first quarter of 2002, a 30 percent reduction in EBITDA from the first quarter to the second quarter of this year and a 60 percent improvement of EBITDA compared to the second quarter of last year.

"However, the company will require additional capital to fund operations and pay down its liabilities, as well as to fund its expansion plans consistent with's anticipated changes in operations and infrastructure," the report to the SEC stated, noting that had raised $750,000 in debt financing in March of this year.

Marshall said the new management team is focused solely on EBITDA and revenue and therefore won’t be releasing subscriber status figures to the public.

"They clearly aren't an accurate measure of our success and bottom line," he said.

Marshall's return to was a co-founder of the site--as CEO came as part of a loan he made to the company for $750,000. In addition to the loan, Marshall announced intentions to secure additional funding as soon as possible. He said part of the process also includes cost-saving measures and revenue improvement tactics that could result in a significant decrease in monthly EBITDA loses. EBITDA loses were decreased from $521,000 in March to $193,000 in June.

"We have kept the company in a strong cash position," he said. "We are continuing to seek additional capital in a structure that best benefits shareholders and are currently evaluating several offers."

Marshall said some people's gloom about the future of is attributable to those people being unfamiliar with the SEC's process. Since operates as a cash-flow-negative company, its auditors and accountants are required by law to include wording in the SEC filings that the company doesn't have a good long-term outlook.

"Since we have a negative working capital, we have a legal requirement for our accountants to put in the legal language of 'ongoing concern,' which is what that paragraph is all about," he said. "It is a requirement that doesn't indicate from our perspective where the company is headed and the performance that we have had."

The release of the second-quarter report comes just weeks after the stock was moved to the Nasdaq SmallCap Market. Marshall said the move was done because the stock was trading under $1 a share for a long period of time.

A large part of the increase in revenue for for the second quarter was due to record weekends in betting turnover. Triple Crown races throughout the month of June set records for turnover for the site. Marshall said the most positive sign, though, came over the July 4 holiday weekend when the site had another record-setting weekend of handle, despite there being no major stakes races in the United States. reported that betting handle increased during the second quarter of fiscal 2002 to a record $39.6 million, up 39 percent from $28.4 million in the second quarter of 2001 and, sequentially, up 46 percent from $27.1 million from the first quarter of 2002. Handle increased month-over-month throughout the second quarter of the year, and has continued to increase since then, according to the report. In the six weeks following June 30, 2002, handle has averaged $3.6 million a week, up from a weekly average of $3.1 million per week in the second quarter. Putting on a Happy Face is republished from
Kevin Smith
Kevin Smith