U.S. laws take bite out of gambling company's profits

A Canadian online gambling service provider is the latest company to tighten its belt following the U.S. Internet gambling ban last year.

Three subsidiaries of British Columbia-based ESI Entertainment Systems Inc. - Citadel Commerce Corp., ESI Integrity Inc. and PlayLine Inc. - derive their proceeds from online gambling.

The majority of ESI Entertainment Systems' business came from payment processor Citadel, which transfers money for more than 600,000 Americans, in large part to Internet gaming sites.

Following the arrest of the founders of competitor NETeller last month, Citadel ceased transactions with U.S. customers.

It was a costly move for ESI. Though its revenues were up 35% to $17.5 million for the period ending in late 2006, the company anticipated a net loss of $4.5 million due to October's Unlawful Internet Gambling Enforcement Act.

Layoffs of 22 staff members kicked off the new year and were followed with a recent announcement from ESI of 80 more job cuts. The staff reductions coupled with other efforts are expected to save the company $6 million.

Given the legal instability in the online gaming industry, ESI's stock price has dropped from its initial $3 offering price to 58¢ on the Toronto Stock Exchange.

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