from this morning''s Globe and MailREPORT ON TSX VENTURE 50: PROFILE: TECHNOLOGY SECTOR
Gaming innovator aims for the next level
After going mano-a-mano with financing difficulties, the company is yet to make a profit. But the game's just begun, CEO says
THERESA EBDEN
June 20, 2007
Vikas Gupta is 38 and spends most of his time thinking about computer games.
But no, he doesn't live in his parents' basement.
As president and chief executive officer of TransGaming Inc., Mr. Gupta is hard at work trying to turn a profit from the Ontario company's technology.
The concept is simple: enable computer games written for one computer platform, such as Windows, to run on other machines such as the Sony PlayStation 2 and PSP, Microsoft Xbox, or the Mac or Linux operating systems.
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In short, TransGaming sells a sort of language translator for gamers.
Gaming and entertainment technology is a growing field, as shown in the 2007 TSX Venture 50 ranking list: Four of the top 10 technology companies come from this area, including TransGaming at No. 3.
TransGaming's technology was developed about seven years ago by founder and chief technology officer Gavriel State. Mr. Gupta was hired less than two years later to run the fledgling company.
He describes Mr. State, a 35-year-old former software developer at Corel Corp., as "a visionary who realized there is an opportunity to create the kind of knowledge he created at Corel in the gaming industry." Mr. Gupta's job is to turn the technology into profits.
Together with chief financial officer Dennis Ensing, the trio operates their business from a 5,500-square-foot head office in a 1918 brick-and-beam warehouse in Toronto's historic King and Spadina district. This and their Ottawa office hold about two dozen employees, mostly software developers.
TransGaming's initial main product was Cedega, which runs Windows games on Linux systems. It now has more than 12,000 online subscribers, generating about $1-million in recurring annual revenue, Mr. Gupta says.
The company also licenses its technology to game publishers. "[Companies] give us a Windows game, and we'll enable it on a Mac," Mr. Gupta explains. "We'll do all the testing, we'll give them all the final assets so it's running on Mac, and they will publish a dedicated Mac platform game."
TransGaming, which started with a share price of about 20 cents, is not profitable. As of last November, it had spent $4.6-million on research and development, before credits and recoveries, and had a cumulative deficit of $4.1-million.
But sales are rising and new products are selling well, Mr. Gupta says.
For the fiscal year ending May 31, 2006, total revenue was $1.2-million, with about 75 per cent coming from Cedega. In the most recent fiscal year, the first nine months showed revenue about the same as the previous year, with Cedega accounting for 70 per cent. The rest came from work on consoles such as Xbox and licensing revenues for a new product, Cider, that lets publishers adapt Windows games to sell to Mac owners.
Cider, unveiled last August and already packaged with games such as X3: Reunion, Heroes of Might and Magic V, and Myst Online: Uru Live, "has had amazing traction in a short time," Mr. Gupta says.
And last week, the company's stock hit the 70-cent range after U.S. giants Apple Inc. and Electronic Arts Inc. announced they will use Cider to bring some of the world's most popular games to the Mac. Titles include Harry Potter and the Order of the Phoenix, Tiger Woods PGA Tour '08, and Need for Speed: Carbon.
The agreement "validates our technology and paves the road for many other publishers who have been considering the Mac market," he says.
Over the years, Mr. Gupta has faced challenges ranging from insufficient funding to staff layoffs. "Like with any start-up, emerging company, it's gone up and down."
About 18 months ago, TransGaming had to lay off some employees, a particularly tough period, Mr. Gupta says. It took six months to begin growing again, from 15 employees to the current 26.
He notes that "game development companies in the U.S. are funded to the tune of $20-million or $40-million." TransGaming has seen only a fraction of that kind of support. Initial seed funding came from Toronto-Dominion Bank five years ago, he says; later, the bank and Covington Capital Corp. partnered to invest $750,000.
In 2005, TransGaming had an initial public offering on the TSX Venture Exchange. It hoped to raise $5-million in cash after fees, but the net gain was only about $600,000, Mr. Gupta says. It didn't help, he adds, that tech stocks dropped between the investor road show and commencement of trading, part of the economic slump that came after hurricane Katrina.
Last November, the company also completed a private placement financing for $1-million.
"We really have endured some financially tough times, but we have demonstrated some technological prowess in the industry," Mr. Gupta says. "We're still alive and we have some fantastic global customers, including Turner Broadcasting [System Inc.]"
Theresa Ebden is an associate producer for Business News Network