eBet Sells Betting Division

8 September 2003

eBet Ltd. announced last week that it will sell its ACT-based sports and race betting business, Sports Acumen, to Bet Worldwide Pty Ltd. for AU$2.4 million. The deal will enable eBet to focus on its rapidly growing gaming systems division.

The sale, along with the outcome of eBet's recently announced strategic review of operations and intangible asset values, will result in an approximate $2.5 million reduction in depreciation and amortization in 2003/04 contributing to a net profit for the year, the company said.

Mike Hale, chairman of eBet, said the gaming systems division was getting broad acceptance in Australia and has a market potential of $300-400 million, with recurring revenue potential of up to $60 million a year.

Hale felt the offer from Bet Worldwide was acceptable for shareholders considering the state of the industry in Australia and the increasing competition and regulatory restrictions facing sports and race betting operators.

"Whilst our Internet contracts with Penn Gaming in the United States and New Zealand TAB are producing good revenue, our real growth is coming from our gaming systems assets," he said. "This is where shareholder value is building, where we have unique products and where there are high barriers to entry and an expanding marketplace."

eBet acquired Sports Acumen in 2001 to expand its Internet gaming and wagering services. Those plans were thwarted later that year when the Australian government instituted the Interactive Gambling Act, which created numerous restrictions on Internet gaming and wagering.

Since passage of the Act, eBet's gaming systems division has grown from around $3 million a year in revenue to more than $7 million in the last half year alone.

The division develops and markets a range of networked solutions for gaming machines. It is one of the world's largest gaming systems companies with more than 450 customers who collectively operate more than 40,000 gaming machines.

"eBet is now clearly the No. 1 systems company in Australia," Hale said. "We have already made systems sales in New Zealand, Singapore, Greece and the Philippines, and we believe we have significant further overseas potential."

The exact details of the sale are subject to both shareholder and regulatory approval and represent the book value of the asset, according to Hale. eBet will receive approximately $850,000 in cash on completion, with the balance vendor financed on an agreed schedule.

Interest will be at 6 percent a year with security provided by fixed and floating charges over Sports Acumen and Bet Worldwide Pty Ltd.

The sale, and the outcome of the company's previously announced review of operations and intangible asset values, will result in an approximate $2.5 million reduction in depreciation and amortization for FY2004, which the company believes will assist it to a net profit for the year.

Hale said the review was an all-encompassing look at eBet's various business operations and focused on under-performing assets. He said the resulting asset disposal and write-downs of around $7.5 million would ensure that eBet's balance sheet and asset base accurately reflected the evolution of the company.

Hale said a company like Bet Worldwide, with its sole attention given to an operation like Sports Acumen, can make money off the operation, but eBet and its board had to consider the bigger picture.

"The company is now producing positive cash flow from its operations as was evidenced by the EBITDA result of $1.3 million for the 30 June 2003 Half Year," he said. "The board believes it is prudent to ensure that depreciation and amortization is now brought to appropriate levels to set the company for bottom line profitability."

There were key recommendations of the operational and balance sheet review, which was conducted by the eBet board in consultation with the audit committee and the company's auditors PKF. Chief among them was that the company focus on the write-down of the carrying value of goodwill and IP associated with the online division. The recommendation for a write-down was due to the lack of growth for the online division and the increased reliance on gaming systems sales.

The sale of Sports Acumen at near book value was another main recommendation from the review along with cessation, on Oct. 1, 2003, of Internet lottery ticket sales and interactive entertainment operations in hotels and clubs and the write-off of remaining IP associated with these operations.

Officials with Bet Worldwide couldn't be reached for comment.

eBet said that its non-executive director, Gary Gray, is "associated" with Bet Worldwide Pty Ltd. and that Gray was excluded from discussions and negotiations with respect to the sale.

A shareholder meeting to approve the sale is tentatively scheduled for Oct. 9, 2003.