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The thing that kept me in to "the bitter end" was the involvement of Lord Steinberg. To have a guy as Chairman and principle investor who spent his whole career involved in the gambling industry, made his investors billions, had a reputation for high integrity and, given the industry he prospered in, would have had experienced every scam in the book, gave me a lot of confidence that EGMI could not be a scam.
I just could not get my head around the idea that this man, Steinberg, could be involved in such a tawdry little affair.
The other kicker for me was the cash. I still would like to know how the auditors missed that there was no cash. Cash is HARD to fake so either the auditors were grossly incompetent ( my guess) or Cole et al came up with some incredible new way to fake out a thorough audit. I have never heard of an audited public company where the cash was able to be faked completely as is the case here.
What is scary is that if this could happen with EGMI then NO over the counter stock is safe. There is obviously not a high enough audit hurdle to keep scammers out so what can one trust?
Between the auditors and Steinberg estate there are some deep pockets out there that were involved in this snafu. I'd sure like to hear what is going on with the class action lawsuits. These people need to be brought to account if for nothing else as a cautionary lesson.
One last thought. What exactly IS the function of the SEC if not to prosecute frauds like this??? Where THE H are they???
EGMI THE BITTER CONCLUSION
"We all were taken in by this event. If you can't believe the financial statements, the conference calls and the accountants, who are we to believe"...right Yale, who are we to believe? How is it possible that we were so blind and misinformed? Never Again my friend.
The mistakes I made and what I learned
Posted by @stockgod. Mar 18 2010 7:11PM
"It actually took me awhile to understand what I did wrong -- because it's hard to find fault in good numbers, crooks are crooks (assuming they are indeed crooks) - they could just be that stupid".
So as many of you know I bought $EGMI sometime earlier in the year when I saw it dip down below $1.30. I bought it between $1.08 and $1.29, and sold 10% at $1.45. I then watched in horror as the stock dipped to $1.14, I added some, then to $.90, I waited, and to the .80's where I said "okay I'm adding here... " ---
I made so many mistakes in that trade, I don't even know where to begin. My biggest mistake was buying the stock when I knew management was shady from day one. I always said I never trusted the management team, they were incompetent, the pending Poken deal sounded like a joke, etc. The one thing that kept me coming back was the numbers/value, and the hope that management would get their assess kicked and a new team would be formed.
I can't blame @iancassel for me buying the stock. Anyone who blames him is looking for a cop-out for their own loss, rather than owning up to the fact that what we do is risky. We are trading, investing, and collaborating. We need to recognize there's risk in every trade, especially the ones with a shitty management team. Ian was very open and honest with me the entire time, I knew his open market position in the company, and even knew when he took some off the table. He wasn't pulling punches on the management team either. He even supported the stock when it needed support.
First: The tale of the tape and listen to Kunal
Who knew what was about to happen? Well, for one the tape knew. Had I paid more attention to the stupid tape I would have seen the sudden volume bombs near the end. The stock was dropping fast because people were dumping their shares. Obviously someone heard something, and as I understand it one of the ladies on the inside, Anna Houssels, started dumping her shares as low as sub $1. While this lady was dumping I wasn't paying attention. Kunal (kunal00 on twitter) told me to stay away from it, he hated the company in general, but he also didn't trust the "pumper" side of the stock.
Second: Google the insiders
If I knew I was taking a larger position in the company I should have really researched the insiders. Go to Yahoo Finance, look at the insiders, and start to do some Google searches and you'll understand. One of the insiders, Lee Cole, was supposed to be the guy who could save the company. He was the previous CEO and he apparently single handedly created all the business for the company pre the new CEO Kevin Donovan. The problem is Lee Cole has been involved in a number of failed companies, all of them ended up in sub-penny land. Whether it's his fault or not, doesn't matter, his track record isn't exactly solid.
Third: Trust your gut, and always mitigate your risk on a spec stock (don't be a hog!)
The next thing I did wrong, my gut was telling me NOT to add when the stock went under .90. ..but like an idiot I saw people on Twitter buying shares down there, so I decided to double down. I went from a comfortable 50k position to 125k in a matter of two days. My biggest mistake was increasing this position. A position that I had little belief the management knew what they were doing, a position that was a falling knife. I just was completely enamored by the numbers. Now the position was still less than 4% of my daily trading account, but it's still a great deal of money. I know making it back wouldn't be hard.. but no one needs a loss of $125,000 (assuming the stock went to 0).
Fourth: If the numbers are too good to be true, they probably are.
The numbers are actually amazing on this company, assuming they were not fake. When the company got halted by the SEC I could not believe it. I immediately contacted the CEO Kevin Donovan who assured me the company was working on it. Email after email, I received very little back. Come D day when the stock re-launched with NO NEWS I watched as the stock dropped down to .10. I tweeted out that buying EGMI under .15 might be a good gamble (and it was). The stock shot up, and I basically liquidated my entire position at .35 --- but 2 minutes later the stupid company FINALLY launched news saying they are certain the assets won't change. What?! You mean to say you IDIOTS waited for the stock to open, so innocent traders would dump their positions down to .10 and then you'd announce you had the money?
Well that was the final straw for me. The stock went up a little, but now it's back where I sold it. ..and good riddance. As I understand it the only reason the press release was late was because they could NOT find Kevin Donovan to sign the PR. Look at it and you won't see his signature. Want to know where he was? Rumor has it that he was drunk in bed. That's right. The I heard from a reliable source that the CEO of this company let the shareholders lose their shirts while he was drunk in bed. The SEC should have a field day with these guys, and I hope they do.
and the Bitter Conclusion...
Now that's a bunch of shitty circumstances. I took a big loss, roughly 80k --- but considering I thought I lost 125k I say I did pretty good. It hurts to think that I could have bought a 911 Turbo and driven it into a tree, I would have had a much better time than babysitting this bag of paper. A big loss indeed, but again I did do a pretty good job of making it back quickly -- but it did take many large trades, and I also had to lose some of my swing trades to make it happen. It actually took me awhile to understand what I did wrong -- because it's hard to find fault in good numbers, crooks are crooks (assuming they are indeed crooks) - they could just be that stupid.
I don't know.. and while I never like to see anyone lose money, I wish all longs well, I would say there are better ways to repair your trade then to sit in this pool and hope they'll come around --- especially with all of these lawsuits. Either way, never again. I will not invest big positions in speculative stocks unless it meets the criteria above. Tape, Google, Gut, Numbers. TGGN.
Last thing I'd like to say. I feel bad about anyone who followed me blindly into this trade. Although I was clear on the risk, and always made it pretty obvious that I didn't trust the management -- I never wish ill on anyone (not even my haters! - I secretly wish well for them every day).
I am developing a number of strategies that will help make it back. As I said above I already made mine back, even before the stock re-opened. I just hope you learn from my mistakes above!
Funny they even screwed the filing of the paperwork. They did not
list any creditors plus other correct paperwork needed.
They can't even get a bankruptcy filing right. I hope that they are all forced to appear in court as I'm sure that there are plenty of shareholders who want to go to the hearing see who cheated, robbed and stole from us, our friends and our family "up close and personal".
What a bunch of screw ups.
09/29/2010 6 Notice of Incomplete and/or Deficient Filing. (mkp) (Entered: 09/29/2010)
Doc 6 PDF file
http://viewer.zoho.com/docs/aQGHe
Another Pacer update 29 Sep 10 Chapter 7 Bankruptcy Petition #: 10-28366-lbr Electronic Game Card, Inc.
Filing Date # Docket Text
09/29/2010 6 Notice of Incomplete and/or Deficient Filing. (mkp) (Entered: 09/29/2010)
09/29/2010 4 Declaration Re: Electronic Filing Filed by LENARD E. SCHWARTZER on behalf of ELECTRONIC GAME CARD, INC. (SCHWARTZER, LENARD) (Entered: 09/29/2010)
09/28/2010 5 Set Deficient Filing Deadlines. Incomplete Filings due by 10/12/2010. Resolution of Board of Directors Authorizing Bankruptcy Filing due by 10/12/2010. Summary of schedules due by 10/12/2010. Schedule A due by 10/12/2010. Schedule B due by 10/12/2010. Schedule D due by 10/12/2010. Schedule E due by 10/12/2010. Schedule F due by 10/12/2010. Schedule G due by 10/12/2010. Schedule H due by 10/12/2010. Declaration Re: Schedules due by 10/12/2010. Statement of Financial Affairs due by 10/12/2010. Atty Disclosure Statement due by 10/12/2010. (mkp) (Entered: 09/29/2010)
U.S. Bankruptcy Court
District of Nevada (Las Vegas)
Bankruptcy Petition #: 10-28366-lbr
Assigned to: LINDA B. RIEGLE
Chapter 7
Voluntary
No asset
Date filed: 09/28/2010
Debtor
ELECTRONIC GAME CARD, INC.
8581 SANTA MONICA BLVD.
SUITE 418
LOS ANGELES, CA 90069
Tax ID / EIN: 87-0570975
represented by LENARD E. SCHWARTZER
SCHWARTZER & MCPHERSON LAW FIRM
2850 S. JONES BOULEVARD, SUITE 1
LAS VEGAS, NV 89146
(702) 228-7590
Fax : 702-892-0122
Email: bkfilings@s-mlaw.com
Trustee
DAVID A. ROSENBERG
5030 PARADISE ROAD #B-215
LAS VEGAS, NV 89119
(702) 405-7312
U.S. Trustee
U.S. TRUSTEE - LV - 7
300 LAS VEGAS BOULEVARD, SO.
SUITE 4300
LAS VEGAS, NV 89101
https://ecf.nvb.uscourts.gov/cgi-bin/iquery.pl
Well, fortunately I 'only' lost about $10 k. Had made a killing when it ran up and I sold most of my position, then made the painful mistake of buying back because I too was excited especially with the prospect of ChinaLot. So my losses wiped out all of my gains and left me in the hole about 10 k. Nothing compared to the big players like your friend.
I'd also like to know how Timothy Sykes decided to short EGMI when he did. Pure genius or did he know something the rest of us didn't?
There was a lot of share dumping prior to the release of the non-reliance on prior audits 8K.
A few days ago I emailed Kevin Donovan. He had always replied promptly to my emails. Didn't get a response. Guess he was busy packing his bags.
Yes, I was taken in by the huge cash and no debt on the balance sheet. Never thought for a second that cash or ownership of the cash could be faked.
.O1zZz printing?....awwwwwwwwwwwwwwwwwwwwww
~flippers play fo sho my dude!!!====>thats wazzUp!!!!.._LOL!!!
09/29/2010 4 Declaration Re: Electronic Filing Filed by LENARD E. SCHWARTZER on behalf of ELECTRONIC GAME CARD, INC. (SCHWARTZER, LENARD) (Entered: 09/29/2010)
Doc 4 PDF file
http://viewer.zoho.com/docs/doPcK
Pacer update 29 Sep 10 Chapter 7 Bankruptcy Petition #: 10-28366-lbr Electronic Game Card, Inc.
Filing Date # Docket Text
09/29/2010 4 Declaration Re: Electronic Filing Filed by LENARD E. SCHWARTZER on behalf of ELECTRONIC GAME CARD, INC. (SCHWARTZER, LENARD) (Entered: 09/29/2010)
U.S. Bankruptcy Court
District of Nevada (Las Vegas)
Bankruptcy Petition #: 10-28366-lbr
Assigned to: LINDA B. RIEGLE
Chapter 7
Voluntary
No asset
Date filed: 09/28/2010
Debtor
ELECTRONIC GAME CARD, INC.
8581 SANTA MONICA BLVD.
SUITE 418
LOS ANGELES, CA 90069
Tax ID / EIN: 87-0570975
represented by LENARD E. SCHWARTZER
SCHWARTZER & MCPHERSON LAW FIRM
2850 S. JONES BOULEVARD, SUITE 1
LAS VEGAS, NV 89146
(702) 228-7590
Fax : 702-892-0122
Email: bkfilings@s-mlaw.com
Trustee
DAVID A. ROSENBERG
5030 PARADISE ROAD #B-215
LAS VEGAS, NV 89119
(702) 405-7312
U.S. Trustee
U.S. TRUSTEE - LV - 7
300 LAS VEGAS BOULEVARD, SO.
SUITE 4300
LAS VEGAS, NV 89101
https://ecf.nvb.uscourts.gov/cgi-bin/iquery.pl
$500k lost here?? Ouch Ouch Ouch
Pegasus1: We all were taken in by this event. If you can't believe the financial statements, the conference calls and the accountants, who are we to believe.
What is there in the system to protect people like you and me? This was hurtful because I'm sure many of us bought in and shared this incredible story with family and friends.
Have you seen a copy of the class action law suit brought on behalf of the bagholders?
Disgusted over this whole thing. I have a close friend who has over a half million shares tied up in this mess. Sure would love to see some return from the class action suit but not counting on much. Would like to visit Lee Cole and Lyndon Boyne in prison one day. I would travel anywhere to do that.
Pegasus1: We all were taken in by this event. If you can't believe the financial statements, the conference calls and the accountants, who are we to believe.
What is there in the system to protect people like you and me? This was hurtful because I'm sure many of us bought in and shared this incredible story with family and friends.
Have you seen a copy of the class action law suit brought on behalf of the bagholders?
Disgusted over this whole thing. I have a close friend who has over a half million shares tied up in this mess. Sure would love to see some return from the class action suit but not counting on much. Would like to visit Lee Cole and Lyndon Boyne in prison one day. I would travel anywhere to do that.
My gut is they never had it, at least legally anyway. What blows my mind is the fact Boyne and Cole filed statements asserting the cash and assets were there. That makes me wonder if they didn't believe it to be true and maybe they were duped when the subsidiary was first created. If not, then they are truly arrogant fraudsters to be that bold as to make additional false statements after purposely filing false financials for two or three years to boot.
I'd really like to know exactly what happened. I lost a ton of money and I've emotionally moved on from the loss. However, it's like being a hit and run victim. What was I run over with? Who was driving? Was it an accident, or attempted murder? Really, I want to know.
so can we assume now they never had the $11 Million or if they did it was stolen?
The auditors must have believed the company holding the cash was a 100% owned subsidiary of EGMI. Either LC and LB purposely misrepresented it as such (they reported the assets on a consolidated basis, which would be correct if it were a true subsidiary) or they were complete idiots and believed themselves this was a properly structured subsidiary/parent entity and it really wasn't.
Legal snafu, incompetence or fraud, it doesn't really matter because the end result is the same. Shareholders got screwed.
My belief is that Donovan, Christianson, and maybe Houssels were the white hats in all this. When Donovan brought in a legitimate CFO (who turned tail immediately), the issue was brought to light.
Wish we knew the real story.
CASH AND CASH EQUIVALECTS REPORTED JUNE 30, 2009
CONSOLIDATED BALANCE SHEETS
June 30, 2009
December 31, 2008
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$ 11,352,973 $ 8,281,899
Marketable securities
254,768 876,186
Accounts receivable
3,258,938 2,757,685
Deposit on inventory
51,833 51,833
Other receivables
125,967 120,109
VAT receivable
14,304 25,916
Deferred charges
- 38,119
Total current assets
15,058,783 12,151,747
Machinery and equipment
71,575 68,900
Office equipment
61,392 58,078
Furniture and fixtures
1,160 1,017
Less accumulated depreciation
(120,977 ) (106,398 )
Net property, plant and equipment
13,150 21,597
OTHER ASSETS
Patents
268,977 258,321
Investments
7,422,470 6,497,470
Total other assets
7,691,447 6,755,791
Total assets
$ 22,763,380 $ 18,929,135
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$ 624,526 $ 749,118
Accrued liabilities
214,753 268,748
Total current liabilities
839,279 1,017,866
Deferred license fees
29,625 279,625
Total liabilities
868,904 1,297,491
Series A 6% convertible redeemable preferred stock, $.001 par value, 10,000,000 shares authorized; 3,348,823 and 4,464,628 shares issued and outstanding at of June 30, 2009 and December 31, 2008, respectively
3,348,823 4,464,628
Shareholders’ equity
Common stock, $.001 par value, 100,000,000 shares authorized; 60,843,297, and 57,137,661 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively
60,843 57,137
Additional paid in capital
34,954,064 33,318,440
Accumulated deficit
(15,195,839 ) (19,192,706 )
Accumulated other comprehensive loss
(1,273,415 ) (1,015,855 )
Total shareholders’ equity
18,545,653 13,167,016
Total liabilities and shareholders’ equity
$ 22,763,380 $ 18,929,135
The accompanying notes are an integral part of these unaudited financial statements.
4
ELECTRONIC GAME CARD, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended
For the Six Months Ended
June 30, 2009
June 30, 2008
June 30, 2009
June 30, 2008
Revenue
$ 3,056,542 $ 2,485,683 $ 6,007,637 $ 4,780,304
Cost of revenue
600,431 512,589 1,238,942 1,161,589
Gross margin
2,456,111 1,873,094 4,768,695 3,618,715
Operating expenses:
Sales and marketing
7,806 40,564 71,146 41,355
General and administrative
237,770 199,449 363,027 327,598
Professional fees
310,131 125,667 578,649 277,149
Salaries and wages
83,446 86,105 156,681 172,990
Total operating expenses
639,153 451,785 1,169,503 819,092
Income from operations
1,816,958 1,421,309 3,599,192 2,799,623
Other income (expense):
Interest income
94,442 61,669 152,133 123,245
Interest expense
(63,996 ) (147,432 ) (169,085 ) (295,494 )
Gain on sale of investments
- 122,900 415,075 122,900
Total other income (expense)
20,446 37,137 398,123 (49,349 )
Net income
$ 1,837,404 $ 1,458,446 $ 3,997,315 $ 2,750,274
Other comprehensive (loss) gain:
Foreign currency translation (loss) gain
131,622 (114,719 ) 130,450 (119,068 )
Unrealized loss on marketable securities
28,910 - (388,010 ) -
Comprehensive income
$ 1,997,936 $ 1,343,727 $ 3,739,755 $ 2,631,206
Net income per common share (basic)
$ 0.03 $ 0.03 $ 0.06 $ 0.05
Weighted average number of common shares outstanding (basic)
59,616,374 51,439,633 59,637,091 50,031,766
Net income per common share (diluted)
$ 0.03 $ 0.02 $ 0.06 $ 0.04
Weighted average number of common shares outstanding (diluted)
68,579,997 64,871,010 67,830,650 64,091,569
The accompanying notes are an integral part of these unaudited financial statements.
5
ELECTRONIC GAME CARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30, 2009
June 30, 2008
Cash flows from operating activities:
Net income
$ 3,997,315 $ 2,750,274
Adjustments to reconcile net income from continuing operations to net cash used in operating activities
Depreciation and amortization
14,579 10,301
Amortization of deferred charges
38,119 76,238
Deferred license fees
(250,000 ) (250,000 )
Stock issued for services
- 192,000
Gain on sale of investments
(415,075 ) (122,900 )
Redeemable preferred shares issued for interest
74,830 -
Change in assets and liabilities:
Accounts receivable
(501,253 ) (204,662 )
VAT receivable
11,612 16,129
Other receivables
(5,858 ) (78,628 )
Accounts payable
(124,592 ) 59,353
Accrued liabilities and interest payable
(53,995 ) 210,838
Net cash provided by (used in) operating activities
2,785,682 2,658,943
Cash flows from investing activities:
Purchase of patents
(10,656 ) -
Purchase of property and equipment
(6,132 ) -
Purchase of investments
(675,000 ) (841,318 )
Proceeds from sale of investments
675,000 433,754
Proceeds from sale of marketable securities
233,408 -
Net cash provided by (used in) investing activities
216,620 (407,564 )
Cash flows from financing activities:
Cash paid for share buy back
(798,472 ) -
Proceeds from issuance of common stock
736,794 -
Net cash used in financing activities
(61,678 ) -
Foreign currency exchange effect on cash
130,450 (119,068 )
Net increase in cash and cash equivalents
3,071,074 2,132,311
Cash and cash equivalents at beginning of period
8,281,899 4,753,040
Cash and cash equivalents at end of period
$ 11,352,973 $ 6,885,351
Supplemental disclosure of cash flow information:
Cash paid during the period for :
Interest
$ - -
Income Taxes
$ - -
Supplemental disclosure of cash flow information:
Shares issued for investments
$ 500,000 1,083,673
Shares issued for redeemable preference shares
$ 1,201,008 1,032,884
The accompanying notes are an integral part of these unaudited financial statements.
6
ELECTRONIC GAME CARD, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
The Company was incorporated under the laws of the England on April 6, 2000, under the name of Electronic Game Card, Ltd. Until 2002, the Company remained dormant and had no operations until August 8 2002. On May 5, 2003, the Company entered into an agreement whereby it acquired 100% of the outstanding stock of Electronic Game Card Marketing, a Delaware Company.
On December 5, 2003, the Company acquired 100% of the outstanding stock of the Electronic Game Card, Inc. (Nevada) in a reverse acquisition. At this time, a new reporting entity was created and the name of the Company was changed to Electronic Game Card, Inc.
The Company is engaged in the development, marketing, sale and distribution of recreational electronic software which is primarily targeted towards the global sales promotion, gaming and lottery markets. The Company’s patent protected technology was originally conceived for the global sales promotion and lottery industries and marketed under the name of Electronic GameCard™. The shape of a pocket GameCard is flexible to clients’ needs but is currently approximately the size of a credit card, operated electronically by touch and incorporating a microchip and LCD screen showing numbers or icons. Additional markets with considerable potential for the Company's reward based games products are Indian Gaming, general gaming outlets like bingo halls and casinos and private and social lotteries. The Company is launching its technology into new market sectors such as Education, Sports/Hobbies and Celebrations. The Company designs its GameCards to play game types, formats and prize structures as required by its customers. The Company is building a software library of generic game formats of popular, widely recognized and understood themes. The current software library stands at 35 unique games.
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Electronic Game Card, Inc. for the year ended December 31, 2008.
In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For further information, these unaudited consolidated financial statements and the related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2008 included in the Company’s Annual Report on Form 10-K.
Principles of Consolidation
The consolidated financial statements include the accounts of the following companies:
·
Electronic Game Card, Inc. (Nevada Corporation)
·
Electronic Game Card, Ltd. (English Corporation)
·
Electronic Game Card Marketing (A Delaware Corporation)
The results of subsidiaries acquired during the year are consolidated from their effective dates of acquisition. All significant inter-company accounts and transactions have been eliminated.
Certain amounts in the prior periods consolidated financial statements and notes have been reclassified to conform to the current period’s presentation.
7
Foreign Currency Translation
The Company's functional currency for its foreign subsidiary, Electronic Game Card Ltd., is the British (UK) Pound and the reporting currency is the U.S. Dollar. All elements of financial statements are translated using a current exchange rate. For assets and liabilities, the exchange rate at the balance sheet date is used. Stockholders’ Equity is translated using the historical rate. For revenues, expenses, gains and losses the weighted average exchange rate for the period is used. Translation gains and losses are included as a separate component of stockholders’ equity as other comprehensive income or loss. Gain and losses resulting from foreign currency transactions are included in net income or loss from operations.
Pervasiveness of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company’s unaudited consolidated financial statements are based on a number of estimates, including accruals for accounts payable and interest expense, amortization of deferred charges, allowance for doubtful accounts, estimated useful lives of property and equipment, and fair value of investments.
Recent Accounting Pronouncements
SFAS No. 168 – In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). SFAS 168 will become the single source of authoritative non-governmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants ("AICPA"), EITF, and related accounting literature. SFAS 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009, which means July 1, 2009 Electronic Game Card, Inc. We do not expect the adoption of the Codification to have an impact on our financial position or results of operations.
SFAS No. 165 – In May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No.165 “Subsequent Events.” SFAS No. 165 establishes the standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. This Statement also requires the disclosure of the date through which subsequent events have been evaluated. The adoption of SFAS No. 165 did not have a material impact on the consolidated financial statements.
FSP EITF No. 03-6-1 – In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”. FSP 03-6-1 clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method described in SFAS No. 128, “Earnings Per Share”. This FSP was effective for the Company on January 1, 2009 and requires that all prior-period earnings-per-share data that are presented be adjusted retrospectively. The adoption of FSP 03-6-1 did not have a material impact on its earnings per share calculations.
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 157-4 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly . Based on the guidance, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value in accordance with Statement of Financial Accounting Standards (SFAS) No. 157 “Fair Value Measurements”. This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will adopt this FSP for its quarter ending June 30, 2009. The adoption of FAS 157-4 did not have a material impact on the consolidated financial statements.
8
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 Recognition and Presentation of Other-Than-Temporary Impairments. The guidance applies to investments in debt securities for which other-than-temporary impairments may be recorded. If an entity’s management asserts that it does not have the intent to sell a debt security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, then an entity may separate other-than-temporary impairments into two components: 1) the amount related to credit losses (recorded in earnings), and 2) all other amounts (recorded in other comprehensive income). This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will adopt this FSP for its quarter ending June 30, 2009. There is no expected impact on the Consolidated Financial Statements.
In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (APB) 28-1 Interim Disclosures about Fair Value of Financial Instruments . The FSP amends SFAS No. 107 Disclosures about Fair Value of Financial Instruments to require an entity to provide disclosures about fair value of financial instruments in interim financial information. This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will include the required disclosures in its quarter ending June 30, 2009.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ” which became effective January 1, 2009 via prospective application to business combinations. This Statement requires that the acquisition method of accounting be applied to a broader set of business combinations, amends the definition of a business combination, provides a definition of a business, requires an acquirer to recognize an acquired business at its fair value at the acquisition date and requires the assets and liabilities assumed in a business combination to be measured and recognized at their fair values as of the acquisition date (with limited exceptions). The Company adopted this Statement on January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.
In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies . This FSP requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS No. 5, Accounting for Contingencies and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss . Further, the FASB removed the subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS No. 141(R). The requirements of this FSP carry forward without significant revision the guidance on contingencies of SFAS No. 141, “Business Combinations”, which was superseded by SFAS No. 141(R) (see previous paragraph). The FSP also eliminates the requirement to disclose an estimate of the range of possible outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, the FASB requires that entities include only the disclosures required by SFAS No. 5. This FSP was adopted effective January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets . The FSP states that in developing assumptions about renewal or extension options used to determine the useful life of an intangible asset, an entity needs to consider its own historical experience adjusted for entity-specific factors. In the absence of that experience, an entity shall consider the assumptions that market participants would use about renewal or extension options. This FSP is to be applied to intangible assets acquired after January 1, 2009. The adoption of this FSP did not have an impact on the consolidated financial statements.
In November 2008, the FASB ratified EITF Issue 08-7, Accounting for Defensive Intangible Assets . A defensive intangible asset is an asset acquired in a business combination or in an asset acquisition that an entity does not intend to actively use. According to the guidance, defensive intangible assets are considered to be a separate unit of account and valued based on their highest and best use from the perspective of an external market participant. The Company adopted EITF 08-7 on January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of the business combinations subject to this statement.
9
2. Income Taxes
The Company is subject to income taxes in the United States of America and the United Kingdom, As of June 30, 2009, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $8,200,693 in the United States and $5,713,615 in the United Kingdom that may be offset against future taxable income through 2023. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. The Company must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions, both domestic and foreign. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.
A tax benefit has been reported in the financial statements to the extent that it can be utilized to offset current income tax. The remaining potential tax benefits of the loss carry-forwards are offset by a valuation allowance.
For the six months ended June 30, 2009 and 2008 income tax expense was $0 and $0, respectively.
As at June 30,:
2009
Income Tax Provision at Statutory rates
862,000
Adjustment to reconcile to the Income tax provision:
Valuation allowances
(862,000
)
Benefit of Net Operating loss carry forward
Provision for Income Tax
-
SFAS No.109 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities.
The Company implemented FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. For the years ended December 31, 2008 and 2007, the Company’s uncertain tax position includes the informational return filing for certain foreign corporations pursuant to IRC §6038 and §6046. The Company does not expect this uncertainty to have a material impact on its consolidated financial statements.
3. Related Party Transactions
During the three and six months ended June 30, 2009, the Company incurred rent expense of $35,594 and $58,057 for the London office compared with $37,500 and $58,057 for the comparable periods of 2008, respectively, which it rents from an affiliate of the Company.
4. Fair Value of Financial Instruments
Fair Value Measurements
On January 1, 2008, the Company adopted SFAS No. 157 (SFAS 157), Fair Value Measurements . SFAS 157 relates to financial assets and financial liabilities. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, until January 1, 2009 for calendar year-end entities.
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SFAS 157 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in SFAS 13. SFAS 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under SFAS 157 are described below:
·
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
·
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
·
Level 3 - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. (The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.)
The following table presents the Company's fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 and December 31, 2008:
June 30, 2009
December 31, 2008
Level
Fair
Value
Carrying
Amount
Fair
Value
Carrying
Amount
Assets
Cash and cash equivalents
1
$ 11,352,973 $ 11,352,973 $ 8,281,899 $ 8,281,899
Marketable Securities
1
254,768 254,768 876,186 876,186
Other receivables
3
125,967 125,967 120,109 120,109
Investments
3
7,422,470 7,422,470 6,497,470 6,497,470
Fair Value Option
On January 1, 2008, the Company adopted SFAS No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 provides a fair value option election that allows entities to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. Changes in fair value are recognized in earnings as they occur for those assets and liabilities for which the election is made. The election is made on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The adoption of SFAS 159 did not have a material impact on the Company’s financial statements as the Company did not elect the fair value option for any of its financial assets or liabilities.
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5. Stock Options / Warrants
In accordance with the fair value recognition provisions of SFAS 123(R), we estimate the stock-based compensation cost at the grant date based on the fair value of the award and recognize it as an expense on a graded vesting schedule over the requisite service period of the award.
The Company has adopted two stock compensation plans entitled the 2007 Equity Compensation Plan and 2008 Equity Compensation Plan. Pursuant to these Equity Compensation Plans, grants of shares can be made to:
(i)
designated employees of Electronic Game Card Inc. (the “Company”) and its subsidiaries including Electronic Game Card Ltd,
(ii)
certain advisors who perform services for the Company or its subsidiaries, and
(iii)
non-employee members of the Board of Directors of the Company (the “Board”) with the opportunity to receive grants of incentive stock options, nonqualified options, share appreciation rights, restricted shares, dividend equivalent rights and cash awards. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefiting the Company’s shareholders, and will align the economic interests of the participants with those of the shareholders. The both Equity Compensation Plans provide for options equivalent up to 10% of the issued share capital of the Company to be offered to those qualifying under the scheme. On February 6, 2007 the Company issued 2,000,000 options to management and staff at an exercise price of 17.5c per share and 2,000,000 at an exercise price of 25c per share. In September and October 2008 the Company issued 3,000,000 options at an exercise price of $0.52 and in March 2009, 3,000,000 options at an exercise price of $0.355.
The Company has a total of 7,383,368 options and warrants outstanding at June 30, 2009.
The following table sets forth the options outstanding as of June 30, 2009 and 2008 :
Options
Weighted
Average
Exercise
Price
Weighted
Average
Fair Value
Options outstanding, June 30, 2008
566,000 $ 0.52 -
Granted, exercise price more than fair value
4,000,000 $ 0.2125 -
Granted , exercise price more than fair value
2,000,000 $ 0.355
Granted , exercise price more than fair value
4,000,000 $ 0.52
Granted, exercise price less than fair value
- Exercised
(4,000,000 ) $ 0.2125- -
- Cancelled
(1,066000 ) $ 0.462 -
Options outstanding, June 30, 2009
5,500,000 $ 0.484 -
A summary of the options outstanding as of June 30, 2009 by range of exercise prices is shown as follows:
Exercise
Price
Shares /
Warrants
Outstanding
Weighted
Average
Exercise
Price
Shares /
Warrants
Currently
Exercisable
Weighted
Average
Exercise
Price
Currently
Exercisable
Weighted
Average
Contractual
Remaining
Life
$
0.52
3,500,000 $ 0.52 0 $ 0.0
4.25 years
$
0.355
2,000,000 $ 0.355 0 $ 0.0
2.75 years
The following table sets forth the summary of warrants outstanding as of June 30, 2009 by range of exercise price :
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Exercise
Price
Warrants
Outstanding
Weighted
Average
Exercise
Price
Warrants
Currently
Exercisable
Weighted
Average
Exercise
Price
Currently
Exercisable
Weighted
Average
Contractual
Remaining
Life
$
Issued
$ 1.00 3,066,978 $ 1.00 3,066,978 $ 1.00
0.25 years
3,066,978
Issued
$ 0.50 2,658,832 $ 0.50 2,888,667 $ 0.50
2.25 years
1,444,333
Issued
$ 1.25 288,204 $ 1.25 477,723 $ 1.25
2.25 years
883,788
June 30, 2008
6,014,014 6,433,368 $ 0.84
1.58 years
5,395,099
Issued
$ 0.52 375,000 $ 0.52 375,000 $ 0.52
5.0 years
195,000
Expired
$ 1.00 (3,066,978 ) $ 1.00 (3,066,978 ) $ 1.00
Exercised
$ 0.50 283,587 $ 0.50 (283,587 ) -
-
-
June 30, 2009
3,605,623 3,457,803 $ 0.95
3.1 years
5,590,099
6. Series A Preferred Convertible Redeemable Stock
On March 24, and April 6 th , 2005 the Company sold a total of $8,666,000 Convertible Promissory Notes to accredited investors in a private placement of securities. This note was payable upon written demand on or after March 31, 2007, and was converted into Series A Preferred Convertible Redeemable Stock (“Series A”) at the Company’s election on November 29, 2006. Each share of Series A is convertible into one share of Common Stock at no cost by stockholder and is redeemable by the Company not later than March 15, 2010. Series A pays interest at 6% per annum. Dividends payable are included within accrued liabilities on the Company’s balance sheet. Also, the Registrant issued one (1) warrant (a "Warrant") to acquire one (1) share of Series A Preferred Stock for every two shares of Series A stock. The Warrants shall be exercisable to acquire shares of Series A upon the effectiveness of actions by the Registrant's shareholders to authorize the Series A. The Series A Warrants first issued on March 24, 2005 expire on March 24, 2010.
The Warrants are exercisable at $0.50 per share of Series A, subject to adjustment, and are exercisable for a period of 5 years expiring on March 15, 2010 In addition, at the option of the holder, each Warrant is also immediately exercisable directly to acquire, instead of shares of Series A, shares of Common Stock on an as-converted-from-Series-A basis. Unexercised Warrants shall expire earlier upon notice by the Company to the holders of the Warrants following any consecutive 30-day trading period during which the Common Stock trades on its principal market at a price at or above three (3) times the then applicable exercise price with average daily volume of at least 100,000 shares (subject to adjustment of such trading volume threshold in the event of stock splits, reverse stock splits, stock dividends, recapitalizations or similar events).
Currently there are 3,348,823 Series A shares outstanding there were 1,201,008 conversions in the period presented.
7.
Available-for-Sale Securities
Available-for-sale securities consist of the following:
June 30, 2009
Estimated
Fair
Value
Gains in
Accumulated
Other
Comprehensive
Income
Losses in
Accumulated
Other
Comprehensive
Income
Current:
Common Stock
$ 254,768 28,910 $ 416,920
Total current securities
254,768 28,910 416,920
Total available-for-sale securities
$ 254,768 28,910 $ 416,920
During the six months ended the Company sold shares in the amount of $233,407 and the remaining shares were valued at $225,858 resulting in an unrealized loss of $416,920. Net unrealized holding losses on available-for-sale securities in the amount of approximately $388,010 for the six months ended June 30, 2009 have been included in accumulated other comprehensive income
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8. Investments
As of June 30, 2009 and December 31, 2008 the Company had investments in the following entities:
June 30,
2009
December 31,
2008
Prize Mobile Ltd
$ 1,860,235 $ 1,860,235
XOGO Ltd
1,314,735 1,314,735
Rosario Technologies Ltd
3,747,500 2,572,500
Avatar Gateways
500,000 500,000
DG2L Technologies
- 250,000
Total Cost
$ 7,422,470 $ 6,497,470
The Company holds 19.61% of Prize Mobile and less than 10% of each of the respective privately held entities which approximates the Company’s pro rata share of their underlying value. The Company made these investments in technologies which are complimentary to its current technologies or has received stock from sale of other investments. It is not practicable to estimate the fair value of the Company’s investment in the common stock of these entities because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. However, management believes that the carrying amount of $7,422,470 was not impaired as of June 30, 2009.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q.
General
Electronic Game Card, Inc. (referred to as "EGC", "us", "we" or "Company") is a supplier of innovative games to the promotional, gaming and lottery markets worldwide. The Company’s lead product is the EGC GameCard, a unique credit card-sized pocket game combining interactive capability with "instant win" excitement.
The Company
Electronic Game Card, Inc. is an emerging international corporation developing reward based games for the sales promotions, casino and lottery and incentive markets. EGC’s core product is the Electronic GameCard™, a unique and innovative proprietary technology adapted to a platform, with patents pending worldwide and with the technology that can be adapted to other markets. The EGC GameCard was designed by us to be rich in functionality, customizable, portable, and cost efficient. The GameCard platform is currently embedded in a credit card size digital device with an LCD window, touch pad controls and microchip, allowing for many game formats to be programmed to suit a variety of applications in several industry sectors.
EGC’s GameCards are used in the sales promotion market as an incentive or loyalty sales promotion tool to be given away by the brand promoter to the consumer with prizes given as rewards for winning simple fun games designed specially for the brand.
An opportunity exists for the Company to sell GameCards for re-sale to the public as a gaming device in selected areas of the casino market in which blackjack, poker, bingo or similar games may be played. In other areas of the world, however, re-sale is permitted and EGC expects to start marketing its range of game formats as soon as they are developed during the year. EGC also intends to leverage its gaming, manufacturing and technology IP knowledge to the wider market place anticipated from rapidly expanding areas of digital communications offering reward based games opportunities.
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Sales Promotion Market
The sales promotion prize and competition market is one in which the promoter (usually a well known brand) must not be seen to obtain money for entry, and where no purchase of the brand's goods is necessary in order not to fall under the laws by which lotteries are regulated. Our GameCards can be applied to a broad range of potential promotional opportunities although introducing a new product into the sales and promotion marketing arena, despite its demand for novelty products and innovative ideas, takes time and adaptability to market needs.
Within the sales promotion market, the Poker sector has developed into a distinct and vibrant opportunity. In Europe, Australasia and South Africa playing and watching Poker at tournaments and, on-line or on television has moved from a specialist area to mainstream entertainment and gaming in the last 12 months.
The large number of Poker players and viewers form a substantial and dynamic opportunity for the gaming sector, and the profile being generated by marketers is of a vibrant and expanding sector with increased promotional budgets. The Company is currently working on development of specialist GameCards and promotions to extend the interest and impact of Poker to maximize this opportunity.
Lottery Market
Lottery operators currently make use of paper scratch cards to give players an "instant" win or lose reward experience. Over the last several years, scratch cards have become increasingly large and complex to accommodate consumer demand for multiple plays and multiple chances to win. The EGC Electronic GameCard™ offers the potential to simplify the scratch card while giving the opportunity to raise the selling price to consumers and increase sales. Our product has been seen by some leaders in the lottery industry as potentially providing the next contemporary digital evolution of the scratch card, offering multiple plays and multiple chances to win in an entertaining and secure manner while using existing methods of distribution as with scratch cards.
Indian Gaming Market
The Indian Gaming on Native American Tribal Lands covers parts of 28 States within the United States of America and represents a significant portion of the total gaming industry. The NIGC report that the market was over $26 billion dollars in revenue in 2007 with 405 casinos operated by more than 240 tribes across the United States and Canada.
The Company has a legal opinion from the National Indian Gaming Commission (“NIGC”) that the EGC GameCard is a Class II device under IGRA (Indian Gaming Regulatory Act). The Class II designation is significant because it exempts the Company from becoming subject to the state license procedures and requirements.
Business Strategy
The Company has continued to expand its volume production of the Electronic GameCards™. This necessitated the cost effective and secure design of GameCards from the manufacturers, involving quality control practices of an extremely high level. The Company marketed the Electronic GameCard™ in conjunction with Scientific Games International, Inc. through the distribution agreement for North America, Mexico and Italy distribution of Electronic GameCards™ to the lottery industry and directly to sales promotion companies and lotteries in Europe excluding Italy. Staff is responsible for either selling the GameCards direct in the case of sale promotion products or in the case of lotteries, through an exclusive distribution license.
We market our products through agents in the US, Europe and the rest of the World. We currently have outlets in New York and London (U.K.). Our management team has relevant experience in their appropriate markets to contract agents and distributors to sell and increase product.
Indian Gaming appertains solely to the sale of GameCards as gaming devices directly to the public in casinos and reservations owned and operated by Indian Tribes in the USA. The Company has received Class II classification for its products from the National Indian Gaming Council (NIGC).
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Product Development
The Company has a continuous program of product development comprising improvement of existing designs and additions to the suite of games currently on offer to clients. Game design is divided into four stages; concept development, software writing, testing and finally manufacturing. Product development and improvement is generated by in house review and response to specific customer recommendations.
The production team continues to focus on physical and software improvements and this has resulted in sourcing higher specification Chip, more complex LCD display and changes to the depth of the GameCard casing.
This increased depth in the casing will allow us to explore the use of replaceable (AAA alkaline batteries), which will lead to increased product longevity.
The production team is also looking at the advantages of increasing the overall size of the GameCard with a view to refreshing the existing portfolio by offering a larger product with improved LCD visibility.
Additionally a new checksum function, using a Base 16 code will be added to the GameCard software to provide a coded product verification solution for Client’s back office users and Gaming Regulators.
The key focus for the last quarter has been on the Know It All quiz card and Thomas & Friends projects.
Following an intensive week of software testing and technical development in Hong Kong in April, the first variation of the Know It All Quiz Card software has been signed off and full working samples will be available in August 2009.
In the meantime, work on the game script for the 2 nd variation, using an improved 6 x 5 dot matrix STN LCD screen is underway and software testing on this is due to take place by the end of the next quarter.
The GameCard has passed a series of tests by Gaming Laboratories, Inc. (GLI), one of the most respected testing houses in the global gaming industry. These tests proved the GameCard’s ability to resist attempts at manipulating the IC logic or otherwise breaching the numerous security measures incorporated in the GameCard. This formal endorsement by GLI of the GameCard’s effective security defenses demonstrates the Company’s continuing commitment to product development and security.
We are now able to offer customers a library of 35 games most of which can be personalized to their specific design requirements.
Results of Operations
The Company has recorded $3,056,542 of revenues this quarter compared with $2,485,683 in the same period in 2008 and $6,007,637 and $4,780,304 in the comparable six months period to June 30, 2009 and 2008. This represents revenue growth of 22.9% and 25.7% respectively on the comparable periods and has been derived from repeat business, additional licensing and also trial orders of new lines introduced at the end of last year. This may be regarded as volume growth as there have been no price increases compared with the same period last year.
Gross Profit for the three months ended June 30, 2009 was $2,456,111, an increase of 31.1% compared with $1,873,095 in the comparable period in 2008 and for the six months ended June 30, 2009, gross profit was $4,768,695 compared with $3,618,716 in the comparable period in 2008, 31.8% higher. The increase in Gross profit margin reflected the increase in license fees which have minimal associated cost. The Company purchases its manufactured stock in USD and all cost of product is dependent on the strength of the currency at the time of ordering.
Sales and Marketing costs were $7,806 compared with $40,564 in the same period for 2008, the reduction is due primarily to reduced attendances at trade shows in the period ended June 30, 2009. Sales and marketing costs were $71,146 compared with $41,355 in the comparable period six months in 2008. The current staffing levels are expected to increase as our sales and marketing team increase activity in the North America and the Pacific Rim.
16
General and Administration expenses were $237,770, an increase of 19% compared with $199,449 for the same period in 2008. For the six months ended June 30, 2009, general and administration expenses were $363,027 and $327,598, an increase of 10.8% for the comparable period in 2008. The increases reflect the higher staffing levels in administration during the period.
Professional fees were higher at $310,131, an increase of 147% compared with $125,667 for the same period in 2008 and for the six months ended June 30, 2009, professional fees were $578,649 and $277,149 for the comparable period in 2008 an increase of 131%. These increases were largely due to higher costs resulting from the strengthened management team now in place. Salaries and fees related to the new management appointed in this fiscal year total $286,733
Salaries and payroll costs for the three months ended June 30, 2009 were $83,446 compared with $86,105 in 2008 slightly lower than the comparable period and for the six months ended June 30, 2009, salaries and payroll costs were $156,681 and $172,990 for the comparable period in 2008
Operating income excluding the interest charges for the three months to June 30, 2009 was $1,816,958 compared with $1,421,309, an increase of 27.8% on the comparable period of 2008 and for the six months ended June 30, 2009, operating income was $3,599,194 compared with $2,799,623 in the comparable period in 2008 an increase of 28.5%. Higher revenues and lower cost of sales combined to produce this improvement.
Total comprehensive income for the three months to June 30, 2009 was $1,997,836 compared with $1,343,727, an increase of 48.7% on the comparable period of 2008 and for the six months ended June 30, 2009, total comprehensive income was $3,739,755 compared with $2,631,206 in the comparable period in 2008, 42.1% higher. There was a foreign currency gain of $130,450 in the six months.
Basic earnings per share were $0.03 for the three months ended June 30, 2009 compared with $0.03 in the comparable period of 2008 and $0.06 for the six months ended June 30, 2009 compared with $0.05 in the comparable period of 2008. Fully diluted earnings per share were $0.03 for the three months ended June 30, 2009 compared with $0.02 in the comparable period of 2008 and $0.06 for the six months ended June 30, 2009 compared with $0.04 in the comparable period of 2008.
Liquidity and Financial Resources
The Company had cash and cash equivalents of $11,352,973 at June 30, 2009 compared to $6,885,351 at June 30, 2008. Operating expenses were approximately $640,000 for the quarter. As of June 30, 2009, EGC’s current assets were $15,085,783 and current liabilities were $839,279. Stockholders’ equity at June 30, 2009 was $18,552,593. We had net cash provided by (used in) operating activities for the six months ended June 30, 2009 and 2008 of $2,825,585 and $2,785,682, respectively.
Off-Balance Sheet Arrangements
As of the date of this Report, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk since December 31, 2008.
We have Series A Redeemable convertible stock which carries a 6% dividend and is redeemable in May 2010. There are currently 3,348,823 of Series A outstanding. These instruments are not leveraged and are held for purposes other than trading.
17
Interest Rate Risk
We do not engage in trading market risk sensitive instruments or purchasing hedging instruments or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have not purchased options or entered into swaps, or forward or future contracts. We do consider that we have any significant exposure to interest rate variations.
ITEM 4. CONTROLS AND PROCEDURES
At the end of the period covered by this report the Company carried out an evaluation under the supervision and with the participation of the Company’s management including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15e and 15d -15-e under the Securities Exchange Act of 1934 as amended). Based on this evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer the Company concluded that information is recorded, processed, summarized and reported within the time period specified by the Commission’s rules and forms, and that information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our Chief Executive Officer (or acting Chief Executive Officer, as the case may be) and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2009, the end of the period. Following the review by our Chief Executive Officer (or acting Chief Executive Officer, as the case may be) and our Chief Financial Officer, each of them has determined that our disclosure controls and procedures are effective.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included as part of this report:
Exhibit
Description
31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
19
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereby duly authorized.
ELECTRONIC GAME CARD
Date :June14, 2009
By: /s/ Lee Cole
Lee Cole
Executive Officer
Date : June 14, 2009
By: /s/ Linden Boyne
Linden Boyne
Secretary / Treasurer
(Principal Financial Officer)
End of Filing
CASH AND CASH EQUIVALECTS REPORTED JUNE 30, 2009
CONSOLIDATED BALANCE SHEETS
June 30, 2009
December 31, 2008
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$ 11,352,973 $ 8,281,899
Marketable securities
254,768 876,186
Accounts receivable
3,258,938 2,757,685
Deposit on inventory
51,833 51,833
Other receivables
125,967 120,109
VAT receivable
14,304 25,916
Deferred charges
- 38,119
Total current assets
15,058,783 12,151,747
Machinery and equipment
71,575 68,900
Office equipment
61,392 58,078
Furniture and fixtures
1,160 1,017
Less accumulated depreciation
(120,977 ) (106,398 )
Net property, plant and equipment
13,150 21,597
OTHER ASSETS
Patents
268,977 258,321
Investments
7,422,470 6,497,470
Total other assets
7,691,447 6,755,791
Total assets
$ 22,763,380 $ 18,929,135
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$ 624,526 $ 749,118
Accrued liabilities
214,753 268,748
Total current liabilities
839,279 1,017,866
Deferred license fees
29,625 279,625
Total liabilities
868,904 1,297,491
Series A 6% convertible redeemable preferred stock, $.001 par value, 10,000,000 shares authorized; 3,348,823 and 4,464,628 shares issued and outstanding at of June 30, 2009 and December 31, 2008, respectively
3,348,823 4,464,628
Shareholders’ equity
Common stock, $.001 par value, 100,000,000 shares authorized; 60,843,297, and 57,137,661 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively
60,843 57,137
Additional paid in capital
34,954,064 33,318,440
Accumulated deficit
(15,195,839 ) (19,192,706 )
Accumulated other comprehensive loss
(1,273,415 ) (1,015,855 )
Total shareholders’ equity
18,545,653 13,167,016
Total liabilities and shareholders’ equity
$ 22,763,380 $ 18,929,135
The accompanying notes are an integral part of these unaudited financial statements.
4
ELECTRONIC GAME CARD, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended
For the Six Months Ended
June 30, 2009
June 30, 2008
June 30, 2009
June 30, 2008
Revenue
$ 3,056,542 $ 2,485,683 $ 6,007,637 $ 4,780,304
Cost of revenue
600,431 512,589 1,238,942 1,161,589
Gross margin
2,456,111 1,873,094 4,768,695 3,618,715
Operating expenses:
Sales and marketing
7,806 40,564 71,146 41,355
General and administrative
237,770 199,449 363,027 327,598
Professional fees
310,131 125,667 578,649 277,149
Salaries and wages
83,446 86,105 156,681 172,990
Total operating expenses
639,153 451,785 1,169,503 819,092
Income from operations
1,816,958 1,421,309 3,599,192 2,799,623
Other income (expense):
Interest income
94,442 61,669 152,133 123,245
Interest expense
(63,996 ) (147,432 ) (169,085 ) (295,494 )
Gain on sale of investments
- 122,900 415,075 122,900
Total other income (expense)
20,446 37,137 398,123 (49,349 )
Net income
$ 1,837,404 $ 1,458,446 $ 3,997,315 $ 2,750,274
Other comprehensive (loss) gain:
Foreign currency translation (loss) gain
131,622 (114,719 ) 130,450 (119,068 )
Unrealized loss on marketable securities
28,910 - (388,010 ) -
Comprehensive income
$ 1,997,936 $ 1,343,727 $ 3,739,755 $ 2,631,206
Net income per common share (basic)
$ 0.03 $ 0.03 $ 0.06 $ 0.05
Weighted average number of common shares outstanding (basic)
59,616,374 51,439,633 59,637,091 50,031,766
Net income per common share (diluted)
$ 0.03 $ 0.02 $ 0.06 $ 0.04
Weighted average number of common shares outstanding (diluted)
68,579,997 64,871,010 67,830,650 64,091,569
The accompanying notes are an integral part of these unaudited financial statements.
5
ELECTRONIC GAME CARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30, 2009
June 30, 2008
Cash flows from operating activities:
Net income
$ 3,997,315 $ 2,750,274
Adjustments to reconcile net income from continuing operations to net cash used in operating activities
Depreciation and amortization
14,579 10,301
Amortization of deferred charges
38,119 76,238
Deferred license fees
(250,000 ) (250,000 )
Stock issued for services
- 192,000
Gain on sale of investments
(415,075 ) (122,900 )
Redeemable preferred shares issued for interest
74,830 -
Change in assets and liabilities:
Accounts receivable
(501,253 ) (204,662 )
VAT receivable
11,612 16,129
Other receivables
(5,858 ) (78,628 )
Accounts payable
(124,592 ) 59,353
Accrued liabilities and interest payable
(53,995 ) 210,838
Net cash provided by (used in) operating activities
2,785,682 2,658,943
Cash flows from investing activities:
Purchase of patents
(10,656 ) -
Purchase of property and equipment
(6,132 ) -
Purchase of investments
(675,000 ) (841,318 )
Proceeds from sale of investments
675,000 433,754
Proceeds from sale of marketable securities
233,408 -
Net cash provided by (used in) investing activities
216,620 (407,564 )
Cash flows from financing activities:
Cash paid for share buy back
(798,472 ) -
Proceeds from issuance of common stock
736,794 -
Net cash used in financing activities
(61,678 ) -
Foreign currency exchange effect on cash
130,450 (119,068 )
Net increase in cash and cash equivalents
3,071,074 2,132,311
Cash and cash equivalents at beginning of period
8,281,899 4,753,040
Cash and cash equivalents at end of period
$ 11,352,973 $ 6,885,351
Supplemental disclosure of cash flow information:
Cash paid during the period for :
Interest
$ - -
Income Taxes
$ - -
Supplemental disclosure of cash flow information:
Shares issued for investments
$ 500,000 1,083,673
Shares issued for redeemable preference shares
$ 1,201,008 1,032,884
The accompanying notes are an integral part of these unaudited financial statements.
6
ELECTRONIC GAME CARD, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
The Company was incorporated under the laws of the England on April 6, 2000, under the name of Electronic Game Card, Ltd. Until 2002, the Company remained dormant and had no operations until August 8 2002. On May 5, 2003, the Company entered into an agreement whereby it acquired 100% of the outstanding stock of Electronic Game Card Marketing, a Delaware Company.
On December 5, 2003, the Company acquired 100% of the outstanding stock of the Electronic Game Card, Inc. (Nevada) in a reverse acquisition. At this time, a new reporting entity was created and the name of the Company was changed to Electronic Game Card, Inc.
The Company is engaged in the development, marketing, sale and distribution of recreational electronic software which is primarily targeted towards the global sales promotion, gaming and lottery markets. The Company’s patent protected technology was originally conceived for the global sales promotion and lottery industries and marketed under the name of Electronic GameCard™. The shape of a pocket GameCard is flexible to clients’ needs but is currently approximately the size of a credit card, operated electronically by touch and incorporating a microchip and LCD screen showing numbers or icons. Additional markets with considerable potential for the Company's reward based games products are Indian Gaming, general gaming outlets like bingo halls and casinos and private and social lotteries. The Company is launching its technology into new market sectors such as Education, Sports/Hobbies and Celebrations. The Company designs its GameCards to play game types, formats and prize structures as required by its customers. The Company is building a software library of generic game formats of popular, widely recognized and understood themes. The current software library stands at 35 unique games.
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Electronic Game Card, Inc. for the year ended December 31, 2008.
In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For further information, these unaudited consolidated financial statements and the related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2008 included in the Company’s Annual Report on Form 10-K.
Principles of Consolidation
The consolidated financial statements include the accounts of the following companies:
·
Electronic Game Card, Inc. (Nevada Corporation)
·
Electronic Game Card, Ltd. (English Corporation)
·
Electronic Game Card Marketing (A Delaware Corporation)
The results of subsidiaries acquired during the year are consolidated from their effective dates of acquisition. All significant inter-company accounts and transactions have been eliminated.
Certain amounts in the prior periods consolidated financial statements and notes have been reclassified to conform to the current period’s presentation.
7
Foreign Currency Translation
The Company's functional currency for its foreign subsidiary, Electronic Game Card Ltd., is the British (UK) Pound and the reporting currency is the U.S. Dollar. All elements of financial statements are translated using a current exchange rate. For assets and liabilities, the exchange rate at the balance sheet date is used. Stockholders’ Equity is translated using the historical rate. For revenues, expenses, gains and losses the weighted average exchange rate for the period is used. Translation gains and losses are included as a separate component of stockholders’ equity as other comprehensive income or loss. Gain and losses resulting from foreign currency transactions are included in net income or loss from operations.
Pervasiveness of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company’s unaudited consolidated financial statements are based on a number of estimates, including accruals for accounts payable and interest expense, amortization of deferred charges, allowance for doubtful accounts, estimated useful lives of property and equipment, and fair value of investments.
Recent Accounting Pronouncements
SFAS No. 168 – In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). SFAS 168 will become the single source of authoritative non-governmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants ("AICPA"), EITF, and related accounting literature. SFAS 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009, which means July 1, 2009 Electronic Game Card, Inc. We do not expect the adoption of the Codification to have an impact on our financial position or results of operations.
SFAS No. 165 – In May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No.165 “Subsequent Events.” SFAS No. 165 establishes the standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. This Statement also requires the disclosure of the date through which subsequent events have been evaluated. The adoption of SFAS No. 165 did not have a material impact on the consolidated financial statements.
FSP EITF No. 03-6-1 – In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”. FSP 03-6-1 clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method described in SFAS No. 128, “Earnings Per Share”. This FSP was effective for the Company on January 1, 2009 and requires that all prior-period earnings-per-share data that are presented be adjusted retrospectively. The adoption of FSP 03-6-1 did not have a material impact on its earnings per share calculations.
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 157-4 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly . Based on the guidance, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value in accordance with Statement of Financial Accounting Standards (SFAS) No. 157 “Fair Value Measurements”. This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will adopt this FSP for its quarter ending June 30, 2009. The adoption of FAS 157-4 did not have a material impact on the consolidated financial statements.
8
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 Recognition and Presentation of Other-Than-Temporary Impairments. The guidance applies to investments in debt securities for which other-than-temporary impairments may be recorded. If an entity’s management asserts that it does not have the intent to sell a debt security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, then an entity may separate other-than-temporary impairments into two components: 1) the amount related to credit losses (recorded in earnings), and 2) all other amounts (recorded in other comprehensive income). This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will adopt this FSP for its quarter ending June 30, 2009. There is no expected impact on the Consolidated Financial Statements.
In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (APB) 28-1 Interim Disclosures about Fair Value of Financial Instruments . The FSP amends SFAS No. 107 Disclosures about Fair Value of Financial Instruments to require an entity to provide disclosures about fair value of financial instruments in interim financial information. This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will include the required disclosures in its quarter ending June 30, 2009.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ” which became effective January 1, 2009 via prospective application to business combinations. This Statement requires that the acquisition method of accounting be applied to a broader set of business combinations, amends the definition of a business combination, provides a definition of a business, requires an acquirer to recognize an acquired business at its fair value at the acquisition date and requires the assets and liabilities assumed in a business combination to be measured and recognized at their fair values as of the acquisition date (with limited exceptions). The Company adopted this Statement on January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.
In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies . This FSP requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS No. 5, Accounting for Contingencies and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss . Further, the FASB removed the subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS No. 141(R). The requirements of this FSP carry forward without significant revision the guidance on contingencies of SFAS No. 141, “Business Combinations”, which was superseded by SFAS No. 141(R) (see previous paragraph). The FSP also eliminates the requirement to disclose an estimate of the range of possible outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, the FASB requires that entities include only the disclosures required by SFAS No. 5. This FSP was adopted effective January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets . The FSP states that in developing assumptions about renewal or extension options used to determine the useful life of an intangible asset, an entity needs to consider its own historical experience adjusted for entity-specific factors. In the absence of that experience, an entity shall consider the assumptions that market participants would use about renewal or extension options. This FSP is to be applied to intangible assets acquired after January 1, 2009. The adoption of this FSP did not have an impact on the consolidated financial statements.
In November 2008, the FASB ratified EITF Issue 08-7, Accounting for Defensive Intangible Assets . A defensive intangible asset is an asset acquired in a business combination or in an asset acquisition that an entity does not intend to actively use. According to the guidance, defensive intangible assets are considered to be a separate unit of account and valued based on their highest and best use from the perspective of an external market participant. The Company adopted EITF 08-7 on January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of the business combinations subject to this statement.
9
2. Income Taxes
The Company is subject to income taxes in the United States of America and the United Kingdom, As of June 30, 2009, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $8,200,693 in the United States and $5,713,615 in the United Kingdom that may be offset against future taxable income through 2023. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. The Company must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions, both domestic and foreign. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.
A tax benefit has been reported in the financial statements to the extent that it can be utilized to offset current income tax. The remaining potential tax benefits of the loss carry-forwards are offset by a valuation allowance.
For the six months ended June 30, 2009 and 2008 income tax expense was $0 and $0, respectively.
As at June 30,:
2009
Income Tax Provision at Statutory rates
862,000
Adjustment to reconcile to the Income tax provision:
Valuation allowances
(862,000
)
Benefit of Net Operating loss carry forward
Provision for Income Tax
-
SFAS No.109 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities.
The Company implemented FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. For the years ended December 31, 2008 and 2007, the Company’s uncertain tax position includes the informational return filing for certain foreign corporations pursuant to IRC §6038 and §6046. The Company does not expect this uncertainty to have a material impact on its consolidated financial statements.
3. Related Party Transactions
During the three and six months ended June 30, 2009, the Company incurred rent expense of $35,594 and $58,057 for the London office compared with $37,500 and $58,057 for the comparable periods of 2008, respectively, which it rents from an affiliate of the Company.
4. Fair Value of Financial Instruments
Fair Value Measurements
On January 1, 2008, the Company adopted SFAS No. 157 (SFAS 157), Fair Value Measurements . SFAS 157 relates to financial assets and financial liabilities. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, until January 1, 2009 for calendar year-end entities.
10
SFAS 157 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in SFAS 13. SFAS 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under SFAS 157 are described below:
·
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
·
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
·
Level 3 - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. (The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.)
The following table presents the Company's fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 and December 31, 2008:
June 30, 2009
December 31, 2008
Level
Fair
Value
Carrying
Amount
Fair
Value
Carrying
Amount
Assets
Cash and cash equivalents
1
$ 11,352,973 $ 11,352,973 $ 8,281,899 $ 8,281,899
Marketable Securities
1
254,768 254,768 876,186 876,186
Other receivables
3
125,967 125,967 120,109 120,109
Investments
3
7,422,470 7,422,470 6,497,470 6,497,470
Fair Value Option
On January 1, 2008, the Company adopted SFAS No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 provides a fair value option election that allows entities to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. Changes in fair value are recognized in earnings as they occur for those assets and liabilities for which the election is made. The election is made on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The adoption of SFAS 159 did not have a material impact on the Company’s financial statements as the Company did not elect the fair value option for any of its financial assets or liabilities.
11
5. Stock Options / Warrants
In accordance with the fair value recognition provisions of SFAS 123(R), we estimate the stock-based compensation cost at the grant date based on the fair value of the award and recognize it as an expense on a graded vesting schedule over the requisite service period of the award.
The Company has adopted two stock compensation plans entitled the 2007 Equity Compensation Plan and 2008 Equity Compensation Plan. Pursuant to these Equity Compensation Plans, grants of shares can be made to:
(i)
designated employees of Electronic Game Card Inc. (the “Company”) and its subsidiaries including Electronic Game Card Ltd,
(ii)
certain advisors who perform services for the Company or its subsidiaries, and
(iii)
non-employee members of the Board of Directors of the Company (the “Board”) with the opportunity to receive grants of incentive stock options, nonqualified options, share appreciation rights, restricted shares, dividend equivalent rights and cash awards. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefiting the Company’s shareholders, and will align the economic interests of the participants with those of the shareholders. The both Equity Compensation Plans provide for options equivalent up to 10% of the issued share capital of the Company to be offered to those qualifying under the scheme. On February 6, 2007 the Company issued 2,000,000 options to management and staff at an exercise price of 17.5c per share and 2,000,000 at an exercise price of 25c per share. In September and October 2008 the Company issued 3,000,000 options at an exercise price of $0.52 and in March 2009, 3,000,000 options at an exercise price of $0.355.
The Company has a total of 7,383,368 options and warrants outstanding at June 30, 2009.
The following table sets forth the options outstanding as of June 30, 2009 and 2008 :
Options
Weighted
Average
Exercise
Price
Weighted
Average
Fair Value
Options outstanding, June 30, 2008
566,000 $ 0.52 -
Granted, exercise price more than fair value
4,000,000 $ 0.2125 -
Granted , exercise price more than fair value
2,000,000 $ 0.355
Granted , exercise price more than fair value
4,000,000 $ 0.52
Granted, exercise price less than fair value
- Exercised
(4,000,000 ) $ 0.2125- -
- Cancelled
(1,066000 ) $ 0.462 -
Options outstanding, June 30, 2009
5,500,000 $ 0.484 -
A summary of the options outstanding as of June 30, 2009 by range of exercise prices is shown as follows:
Exercise
Price
Shares /
Warrants
Outstanding
Weighted
Average
Exercise
Price
Shares /
Warrants
Currently
Exercisable
Weighted
Average
Exercise
Price
Currently
Exercisable
Weighted
Average
Contractual
Remaining
Life
$
0.52
3,500,000 $ 0.52 0 $ 0.0
4.25 years
$
0.355
2,000,000 $ 0.355 0 $ 0.0
2.75 years
The following table sets forth the summary of warrants outstanding as of June 30, 2009 by range of exercise price :
12
Exercise
Price
Warrants
Outstanding
Weighted
Average
Exercise
Price
Warrants
Currently
Exercisable
Weighted
Average
Exercise
Price
Currently
Exercisable
Weighted
Average
Contractual
Remaining
Life
$
Issued
$ 1.00 3,066,978 $ 1.00 3,066,978 $ 1.00
0.25 years
3,066,978
Issued
$ 0.50 2,658,832 $ 0.50 2,888,667 $ 0.50
2.25 years
1,444,333
Issued
$ 1.25 288,204 $ 1.25 477,723 $ 1.25
2.25 years
883,788
June 30, 2008
6,014,014 6,433,368 $ 0.84
1.58 years
5,395,099
Issued
$ 0.52 375,000 $ 0.52 375,000 $ 0.52
5.0 years
195,000
Expired
$ 1.00 (3,066,978 ) $ 1.00 (3,066,978 ) $ 1.00
Exercised
$ 0.50 283,587 $ 0.50 (283,587 ) -
-
-
June 30, 2009
3,605,623 3,457,803 $ 0.95
3.1 years
5,590,099
6. Series A Preferred Convertible Redeemable Stock
On March 24, and April 6 th , 2005 the Company sold a total of $8,666,000 Convertible Promissory Notes to accredited investors in a private placement of securities. This note was payable upon written demand on or after March 31, 2007, and was converted into Series A Preferred Convertible Redeemable Stock (“Series A”) at the Company’s election on November 29, 2006. Each share of Series A is convertible into one share of Common Stock at no cost by stockholder and is redeemable by the Company not later than March 15, 2010. Series A pays interest at 6% per annum. Dividends payable are included within accrued liabilities on the Company’s balance sheet. Also, the Registrant issued one (1) warrant (a "Warrant") to acquire one (1) share of Series A Preferred Stock for every two shares of Series A stock. The Warrants shall be exercisable to acquire shares of Series A upon the effectiveness of actions by the Registrant's shareholders to authorize the Series A. The Series A Warrants first issued on March 24, 2005 expire on March 24, 2010.
The Warrants are exercisable at $0.50 per share of Series A, subject to adjustment, and are exercisable for a period of 5 years expiring on March 15, 2010 In addition, at the option of the holder, each Warrant is also immediately exercisable directly to acquire, instead of shares of Series A, shares of Common Stock on an as-converted-from-Series-A basis. Unexercised Warrants shall expire earlier upon notice by the Company to the holders of the Warrants following any consecutive 30-day trading period during which the Common Stock trades on its principal market at a price at or above three (3) times the then applicable exercise price with average daily volume of at least 100,000 shares (subject to adjustment of such trading volume threshold in the event of stock splits, reverse stock splits, stock dividends, recapitalizations or similar events).
Currently there are 3,348,823 Series A shares outstanding there were 1,201,008 conversions in the period presented.
7.
Available-for-Sale Securities
Available-for-sale securities consist of the following:
June 30, 2009
Estimated
Fair
Value
Gains in
Accumulated
Other
Comprehensive
Income
Losses in
Accumulated
Other
Comprehensive
Income
Current:
Common Stock
$ 254,768 28,910 $ 416,920
Total current securities
254,768 28,910 416,920
Total available-for-sale securities
$ 254,768 28,910 $ 416,920
During the six months ended the Company sold shares in the amount of $233,407 and the remaining shares were valued at $225,858 resulting in an unrealized loss of $416,920. Net unrealized holding losses on available-for-sale securities in the amount of approximately $388,010 for the six months ended June 30, 2009 have been included in accumulated other comprehensive income
13
8. Investments
As of June 30, 2009 and December 31, 2008 the Company had investments in the following entities:
June 30,
2009
December 31,
2008
Prize Mobile Ltd
$ 1,860,235 $ 1,860,235
XOGO Ltd
1,314,735 1,314,735
Rosario Technologies Ltd
3,747,500 2,572,500
Avatar Gateways
500,000 500,000
DG2L Technologies
- 250,000
Total Cost
$ 7,422,470 $ 6,497,470
The Company holds 19.61% of Prize Mobile and less than 10% of each of the respective privately held entities which approximates the Company’s pro rata share of their underlying value. The Company made these investments in technologies which are complimentary to its current technologies or has received stock from sale of other investments. It is not practicable to estimate the fair value of the Company’s investment in the common stock of these entities because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. However, management believes that the carrying amount of $7,422,470 was not impaired as of June 30, 2009.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q.
General
Electronic Game Card, Inc. (referred to as "EGC", "us", "we" or "Company") is a supplier of innovative games to the promotional, gaming and lottery markets worldwide. The Company’s lead product is the EGC GameCard, a unique credit card-sized pocket game combining interactive capability with "instant win" excitement.
The Company
Electronic Game Card, Inc. is an emerging international corporation developing reward based games for the sales promotions, casino and lottery and incentive markets. EGC’s core product is the Electronic GameCard™, a unique and innovative proprietary technology adapted to a platform, with patents pending worldwide and with the technology that can be adapted to other markets. The EGC GameCard was designed by us to be rich in functionality, customizable, portable, and cost efficient. The GameCard platform is currently embedded in a credit card size digital device with an LCD window, touch pad controls and microchip, allowing for many game formats to be programmed to suit a variety of applications in several industry sectors.
EGC’s GameCards are used in the sales promotion market as an incentive or loyalty sales promotion tool to be given away by the brand promoter to the consumer with prizes given as rewards for winning simple fun games designed specially for the brand.
An opportunity exists for the Company to sell GameCards for re-sale to the public as a gaming device in selected areas of the casino market in which blackjack, poker, bingo or similar games may be played. In other areas of the world, however, re-sale is permitted and EGC expects to start marketing its range of game formats as soon as they are developed during the year. EGC also intends to leverage its gaming, manufacturing and technology IP knowledge to the wider market place anticipated from rapidly expanding areas of digital communications offering reward based games opportunities.
14
Sales Promotion Market
The sales promotion prize and competition market is one in which the promoter (usually a well known brand) must not be seen to obtain money for entry, and where no purchase of the brand's goods is necessary in order not to fall under the laws by which lotteries are regulated. Our GameCards can be applied to a broad range of potential promotional opportunities although introducing a new product into the sales and promotion marketing arena, despite its demand for novelty products and innovative ideas, takes time and adaptability to market needs.
Within the sales promotion market, the Poker sector has developed into a distinct and vibrant opportunity. In Europe, Australasia and South Africa playing and watching Poker at tournaments and, on-line or on television has moved from a specialist area to mainstream entertainment and gaming in the last 12 months.
The large number of Poker players and viewers form a substantial and dynamic opportunity for the gaming sector, and the profile being generated by marketers is of a vibrant and expanding sector with increased promotional budgets. The Company is currently working on development of specialist GameCards and promotions to extend the interest and impact of Poker to maximize this opportunity.
Lottery Market
Lottery operators currently make use of paper scratch cards to give players an "instant" win or lose reward experience. Over the last several years, scratch cards have become increasingly large and complex to accommodate consumer demand for multiple plays and multiple chances to win. The EGC Electronic GameCard™ offers the potential to simplify the scratch card while giving the opportunity to raise the selling price to consumers and increase sales. Our product has been seen by some leaders in the lottery industry as potentially providing the next contemporary digital evolution of the scratch card, offering multiple plays and multiple chances to win in an entertaining and secure manner while using existing methods of distribution as with scratch cards.
Indian Gaming Market
The Indian Gaming on Native American Tribal Lands covers parts of 28 States within the United States of America and represents a significant portion of the total gaming industry. The NIGC report that the market was over $26 billion dollars in revenue in 2007 with 405 casinos operated by more than 240 tribes across the United States and Canada.
The Company has a legal opinion from the National Indian Gaming Commission (“NIGC”) that the EGC GameCard is a Class II device under IGRA (Indian Gaming Regulatory Act). The Class II designation is significant because it exempts the Company from becoming subject to the state license procedures and requirements.
Business Strategy
The Company has continued to expand its volume production of the Electronic GameCards™. This necessitated the cost effective and secure design of GameCards from the manufacturers, involving quality control practices of an extremely high level. The Company marketed the Electronic GameCard™ in conjunction with Scientific Games International, Inc. through the distribution agreement for North America, Mexico and Italy distribution of Electronic GameCards™ to the lottery industry and directly to sales promotion companies and lotteries in Europe excluding Italy. Staff is responsible for either selling the GameCards direct in the case of sale promotion products or in the case of lotteries, through an exclusive distribution license.
We market our products through agents in the US, Europe and the rest of the World. We currently have outlets in New York and London (U.K.). Our management team has relevant experience in their appropriate markets to contract agents and distributors to sell and increase product.
Indian Gaming appertains solely to the sale of GameCards as gaming devices directly to the public in casinos and reservations owned and operated by Indian Tribes in the USA. The Company has received Class II classification for its products from the National Indian Gaming Council (NIGC).
15
Product Development
The Company has a continuous program of product development comprising improvement of existing designs and additions to the suite of games currently on offer to clients. Game design is divided into four stages; concept development, software writing, testing and finally manufacturing. Product development and improvement is generated by in house review and response to specific customer recommendations.
The production team continues to focus on physical and software improvements and this has resulted in sourcing higher specification Chip, more complex LCD display and changes to the depth of the GameCard casing.
This increased depth in the casing will allow us to explore the use of replaceable (AAA alkaline batteries), which will lead to increased product longevity.
The production team is also looking at the advantages of increasing the overall size of the GameCard with a view to refreshing the existing portfolio by offering a larger product with improved LCD visibility.
Additionally a new checksum function, using a Base 16 code will be added to the GameCard software to provide a coded product verification solution for Client’s back office users and Gaming Regulators.
The key focus for the last quarter has been on the Know It All quiz card and Thomas & Friends projects.
Following an intensive week of software testing and technical development in Hong Kong in April, the first variation of the Know It All Quiz Card software has been signed off and full working samples will be available in August 2009.
In the meantime, work on the game script for the 2 nd variation, using an improved 6 x 5 dot matrix STN LCD screen is underway and software testing on this is due to take place by the end of the next quarter.
The GameCard has passed a series of tests by Gaming Laboratories, Inc. (GLI), one of the most respected testing houses in the global gaming industry. These tests proved the GameCard’s ability to resist attempts at manipulating the IC logic or otherwise breaching the numerous security measures incorporated in the GameCard. This formal endorsement by GLI of the GameCard’s effective security defenses demonstrates the Company’s continuing commitment to product development and security.
We are now able to offer customers a library of 35 games most of which can be personalized to their specific design requirements.
Results of Operations
The Company has recorded $3,056,542 of revenues this quarter compared with $2,485,683 in the same period in 2008 and $6,007,637 and $4,780,304 in the comparable six months period to June 30, 2009 and 2008. This represents revenue growth of 22.9% and 25.7% respectively on the comparable periods and has been derived from repeat business, additional licensing and also trial orders of new lines introduced at the end of last year. This may be regarded as volume growth as there have been no price increases compared with the same period last year.
Gross Profit for the three months ended June 30, 2009 was $2,456,111, an increase of 31.1% compared with $1,873,095 in the comparable period in 2008 and for the six months ended June 30, 2009, gross profit was $4,768,695 compared with $3,618,716 in the comparable period in 2008, 31.8% higher. The increase in Gross profit margin reflected the increase in license fees which have minimal associated cost. The Company purchases its manufactured stock in USD and all cost of product is dependent on the strength of the currency at the time of ordering.
Sales and Marketing costs were $7,806 compared with $40,564 in the same period for 2008, the reduction is due primarily to reduced attendances at trade shows in the period ended June 30, 2009. Sales and marketing costs were $71,146 compared with $41,355 in the comparable period six months in 2008. The current staffing levels are expected to increase as our sales and marketing team increase activity in the North America and the Pacific Rim.
16
General and Administration expenses were $237,770, an increase of 19% compared with $199,449 for the same period in 2008. For the six months ended June 30, 2009, general and administration expenses were $363,027 and $327,598, an increase of 10.8% for the comparable period in 2008. The increases reflect the higher staffing levels in administration during the period.
Professional fees were higher at $310,131, an increase of 147% compared with $125,667 for the same period in 2008 and for the six months ended June 30, 2009, professional fees were $578,649 and $277,149 for the comparable period in 2008 an increase of 131%. These increases were largely due to higher costs resulting from the strengthened management team now in place. Salaries and fees related to the new management appointed in this fiscal year total $286,733
Salaries and payroll costs for the three months ended June 30, 2009 were $83,446 compared with $86,105 in 2008 slightly lower than the comparable period and for the six months ended June 30, 2009, salaries and payroll costs were $156,681 and $172,990 for the comparable period in 2008
Operating income excluding the interest charges for the three months to June 30, 2009 was $1,816,958 compared with $1,421,309, an increase of 27.8% on the comparable period of 2008 and for the six months ended June 30, 2009, operating income was $3,599,194 compared with $2,799,623 in the comparable period in 2008 an increase of 28.5%. Higher revenues and lower cost of sales combined to produce this improvement.
Total comprehensive income for the three months to June 30, 2009 was $1,997,836 compared with $1,343,727, an increase of 48.7% on the comparable period of 2008 and for the six months ended June 30, 2009, total comprehensive income was $3,739,755 compared with $2,631,206 in the comparable period in 2008, 42.1% higher. There was a foreign currency gain of $130,450 in the six months.
Basic earnings per share were $0.03 for the three months ended June 30, 2009 compared with $0.03 in the comparable period of 2008 and $0.06 for the six months ended June 30, 2009 compared with $0.05 in the comparable period of 2008. Fully diluted earnings per share were $0.03 for the three months ended June 30, 2009 compared with $0.02 in the comparable period of 2008 and $0.06 for the six months ended June 30, 2009 compared with $0.04 in the comparable period of 2008.
Liquidity and Financial Resources
The Company had cash and cash equivalents of $11,352,973 at June 30, 2009 compared to $6,885,351 at June 30, 2008. Operating expenses were approximately $640,000 for the quarter. As of June 30, 2009, EGC’s current assets were $15,085,783 and current liabilities were $839,279. Stockholders’ equity at June 30, 2009 was $18,552,593. We had net cash provided by (used in) operating activities for the six months ended June 30, 2009 and 2008 of $2,825,585 and $2,785,682, respectively.
Off-Balance Sheet Arrangements
As of the date of this Report, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk since December 31, 2008.
We have Series A Redeemable convertible stock which carries a 6% dividend and is redeemable in May 2010. There are currently 3,348,823 of Series A outstanding. These instruments are not leveraged and are held for purposes other than trading.
17
Interest Rate Risk
We do not engage in trading market risk sensitive instruments or purchasing hedging instruments or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have not purchased options or entered into swaps, or forward or future contracts. We do consider that we have any significant exposure to interest rate variations.
ITEM 4. CONTROLS AND PROCEDURES
At the end of the period covered by this report the Company carried out an evaluation under the supervision and with the participation of the Company’s management including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15e and 15d -15-e under the Securities Exchange Act of 1934 as amended). Based on this evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer the Company concluded that information is recorded, processed, summarized and reported within the time period specified by the Commission’s rules and forms, and that information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our Chief Executive Officer (or acting Chief Executive Officer, as the case may be) and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2009, the end of the period. Following the review by our Chief Executive Officer (or acting Chief Executive Officer, as the case may be) and our Chief Financial Officer, each of them has determined that our disclosure controls and procedures are effective.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included as part of this report:
Exhibit
Description
31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
19
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereby duly authorized.
ELECTRONIC GAME CARD
Date :June14, 2009
By: /s/ Lee Cole
Lee Cole
Executive Officer
Date : June 14, 2009
By: /s/ Linden Boyne
Linden Boyne
Secretary / Treasurer
(Principal Financial Officer)
End of Filing
09/28/2010 1 Chapter 7 Voluntary Petition. Fee Amount $299. Filed by LENARD E. SCHWARTZER on behalf of ELECTRONIC GAME CARD, INC. (SCHWARTZER, LENARD) (Entered: 09/28/2010)
Doc 1 PDF file
http://viewer.zoho.com/docs/xGadOe
Pacer update 28 Sep 10 Chapter 7 Bankruptcy Petition #: 10-28366-lbr Electronic Game Card, Inc.
U.S. Bankruptcy Court
District of Nevada (Las Vegas)
Bankruptcy Petition #: 10-28366-lbr
Assigned to: LINDA B. RIEGLE
Chapter 7
Voluntary
No asset
Date filed: 09/28/2010
Debtor
ELECTRONIC GAME CARD, INC.
8581 SANTA MONICA BLVD.
SUITE 418
LOS ANGELES, CA 90069
Tax ID / EIN: 87-0570975
represented by LENARD E. SCHWARTZER
SCHWARTZER & MCPHERSON LAW FIRM
2850 S. JONES BOULEVARD, SUITE 1
LAS VEGAS, NV 89146
(702) 228-7590
Fax : 702-892-0122
Email: bkfilings@s-mlaw.com
Trustee
DAVID A. ROSENBERG
5030 PARADISE ROAD #B-215
LAS VEGAS, NV 89119
(702) 405-7312
U.S. Trustee
U.S. TRUSTEE - LV - 7
300 LAS VEGAS BOULEVARD, SO.
SUITE 4300
LAS VEGAS, NV 89101
Filing Date # Docket Text
09/28/2010 3 Meeting of Creditors and Notice of Appointment of Trustee DAVID A. ROSENBERG. 341 meeting to be held on 11/05/2010 at 07:30 AM at 341s - Foley Bldg,Rm 1500. (Entered: 09/28/2010)
09/28/2010 2 Receipt of Filing Fee for Voluntary Petition 7(10-28366) [misc,volp7pb] ( 299.00). Receipt number 9451634, fee amount $ 299.00. (U.S. Treasury) (Entered: 09/28/2010)
09/28/2010 1 Chapter 7 Voluntary Petition. Fee Amount $299. Filed by LENARD E. SCHWARTZER on behalf of ELECTRONIC GAME CARD, INC. (SCHWARTZER, LENARD) (Entered: 09/28/2010)
https://ecf.nvb.uscourts.gov/cgi-bin/iquery.pl
_!_>>>this she kould bee BIG!!!!!!!...*watch!*...LOL!!!
nice!~welcome ta Q landddddd..*weeeeeeee
I hope the trustee does a great job in bringing home the money that was put away theoretically by Lee Cole into an account for safe keeping... I hope that the trustee goes to where the deepest pockets are to bring back enough money to satisfy shareholders who were douped by Lee Cole and Linden Boyle into this now obvious FRAUD.
Is it true that all of the funds ever in the EGMI account were secretly owned by another company owned by Cole and Boyle? How could officers have signed financial quarterly and annual reports that were lousy with lies when in light of Sarbaines Oxley should be held legally accountable?
It appears to me that according to court filings this was an obvious scam from the beginning that was perpetrated by Cole and Boyle. There was another company that was formed in 2002 or 2003 who owned all of the assets of EGMI but was never mentioned in any of the filings, web site or anywhere. So when it looked like we were doing business profitably for quarter after quarter the assets belonging to the company and shareholders were actually the assets of another company that only some of our corporate officer knew about. Where were our accountants and auditors and why aren't they named in the court filings?
Hope that our lawyers hit all of the former executives hard especially Lee Cole and Lyndon Boyle. Hope that they interrogate Kevin, Anna and anyone else who may have been party to this travesty.
Ouch! 8k says Ch 7 liquidation
Item 1.03 Bankruptcy or Receivership.
On September 28, 2010, Electronic Game Card, Inc., a Nevada corporation (the “Company”), filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Nevada. It is expected that the court will appoint a Chapter 7 trustee who will be responsible for the liquidation of the business through the bankruptcy case.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On September 28, 2010, Kevin Donovan tendered his resignation from the Board of Directors of the Company and from the Board of Directors of the Company’s subsidiaries. Mr. Donovan also tendered his resignation as Chief Executive Officer and Interim Co-Chairman of the Board of the Company, effective at 11:59 pm PST on September 28, 2010.
On September 28, 2010, Eugene Christiansen tendered his resignation from the Board of Directors of the Company and from the Board of Directors of the Company’s subsidiaries. Mr. Christiansen also tendered his resignation as Interim Co-Chairman of the Board and Secretary of the Company, effective at 11:59 pm PST on September 28, 2010.
With of the resignations of Mr. Donovan and Mr. Christiansen, the Company no longer has any directors or officers. The Company has no employees.
--------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Electronic Game Card, Inc.
By: /s/ Kevin Donovan
Title: Chief Executive Officer
September 28, 2010
WOW man like you have a way wit wurdzzzz..---*BLOOD IN THE WATER?LOL!!!!!*
Bankruptcy filing---looks like it is over!!!!
29-Sep-2010
Bankruptcy or Receivership, Change in Directors or Principal Officers
Item 1.03 Bankruptcy or Receivership.
On September 28, 2010, Electronic Game Card, Inc., a Nevada corporation (the "Company"), filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Nevada. It is expected that the court will appoint a Chapter 7 trustee who will be responsible for the liquidation of the business through the bankruptcy case.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On September 28, 2010, Kevin Donovan tendered his resignation from the Board of Directors of the Company and from the Board of Directors of the Company's subsidiaries. Mr. Donovan also tendered his resignation as Chief Executive Officer and Interim Co-Chairman of the Board of the Company, effective at 11:59 pm PST on September 28, 2010.
On September 28, 2010, Eugene Christiansen tendered his resignation from the Board of Directors of the Company and from the Board of Directors of the Company's subsidiaries. Mr. Christiansen also tendered his resignation as Interim Co-Chairman of the Board and Secretary of the Company, effective at 11:59 pm PST on September 28, 2010.
With of the resignations of Mr. Donovan and Mr. Christiansen, the Company no longer has any directors or officers. The Company has no employees.
On the EGMI.PK site on yhoo, they showed that earnings would be released today, 9/27, under Company Events. As expected, nothing. Surprise, surprise....
Peg, beer makes me hop-py ...
and malty ... but not Puerto Rican ... .
EGMI 30-day moving average has ...
removed both its sigma and its beta and is now
running naked thru the streets of NYC, shouting
"You can't catch me; I'm the GingerBread man."
I report, you decide ... .
Film at 11:00 ... .
Thanks for the info, might try next week. Very doubtful he'll
talk to any stockholder.
Eugene Christiansen contact info--Board member
Might be worth a try to see if someone can get an update from him.
Eugene Christiansen
cca-ny@verizon.net
Christiansen Capital Advisors LLC
250 West 57th Street
Suite 432
New York, NY 10107
(212)779-9797
fax (212)779-9809
Isn't EGMI supposed to receive a royalty payment--that is the wrong word--but a payment not to compete or sell game cards in Europe this year. It seems like this contract is still in force for another couple of years. Does anyone know what I'm talking about?
That is funny. Thanks for laugh. Wow, you talk aout blind chart reading.
Anybody up for a good chuckle?
barchart.com now showing support at -0.0100
Curious about who is picking up all these shares. Had a large gtc/buy in that went unfilled/traded around for over a month. Seems like somebody knows something that us little guys don't.
Posted back to him too, but it was deleted.
Grampie says move on, but the saga of LC and LB is too interesting
in itself.
peg, I try to bring insight and ...
gravitous to this Board ... but the "Ruling Class"
wants DD and intelligence comments ... I says
the bar is being set toooo high for a poor, fat
Black woman like myself ... . Where are Johnny
Cockran when I's really needs him ... ???
Hamburger. That's about what my investment in EGMI is currently worth. A single. No cheese.
move along, folks; no rubber-necking ...
make sure your kids don't see the blood
and gore ... there's been a bad accident
here ... a large heavy train just ran over
several thousand naked people ... move
along ... you've all seen red, raw piles of
hamburger before ... there's nothing new
here ... move along ... NO rubber-necking.
My take? Move along... Nothing to see here.
Grampie
Maybe I should have that reporter pay me for doing all his research for him, as I was the first one here to connect EGC to First London, First London Asset Mgmt., etc. Other posters tried to say my DD was a stretch. Betcha there's lots of dinero stashed offshore that LC and LB gonna suddenly "find" so they don't end up with outstanding warrants (not stock related) on two continents.
jmho
hmmm, two days late.
The City Diary: First London tests the patience of its investors
Slackbelly exposes the good, the bad, and the ugly of the Square Mile
Sunday, 5 September 2010
First London, the investment bank that attracted attention last year for its links to a convicted fraudster and its role in the short-lived takeover of Notts County Football Club, has gone into administration.
The move, triggered by angry creditors, has spooked shareholders in the former public company, as they wait for the overdue payment of £173m of "special dividends" pledged when the bank sold its First London Asset Management (Flam) to the mysterious Swiss Commodity Holding (SCH) in October.
None of the three promised staged payments – £115m of which is now five months overdue – have arrived with the investment bank. Flam, however, is held by a British Virgin Island registered company called Coremin. I'm told it is the new holding company of SCH, which had connections to insurance fraudster Russell King, who was also linked with First London. Sitting on Coremin's board is Andrew Cosentino, a former First London director and a US lawyer.
That may seem overly complex, but fear not. Andrew Turner, First London's last remaining director, confirms my story and insists that shareholders "will not be waiting much longer" for their cash. I suspect they might not share his confidence, however.
A small world
On a completely separate matter, Turner confirms that one Lee Cole and one Linden Boyne have been assisting First London as advisers. Could this be the same pair who are currently on a joint ticket defending a class action law suit in the US?
There, the duo are accused of ramping the shares in a public company called Electronic Game Card in a case that was launched earlier this year. EGC was also a major shareholder in a company called Prize Mobile Group. Its corporate adviser? First London.
The full story and link can be found on the yhoo msg board for egmi.pk.
Thanks. I already own an oil/gas penny. No gold though. Owned AGT for awhile, looking at it again but I have quite a few penny holdings as it is. CKGT and ALIF are the largest.
peg, since I like you ...
I recommend you add some gold pennies and
some oil pennies to your portfolio. here are
two very good boards to guide your picks:
http://investorshub.advfn.com/boards/board.aspx?board_id=9329
http://investorshub.advfn.com/boards/board.aspx?board_id=5834
Put that in the email to KD...somethin' like, "Yup, them sneaky critters kin run n' hide but before too long, they're ...hangin' n' twitchin'."
Real subtle like...
LOL
p.s. Coupla my penny positions went down rabbit hole, too. Other than buying some here, gonna stay away from the "Wild West" (no law, no rules...too many outlaws and too easy to get killed.)
Hey Pontiac...like the hunting analogy. Here in ND we like our hunting and our guns. Just kidding (sort of).
Everything's fine. Hubby's doing well at sergeant major school. Will be home over labor day so looking forward to having some family time.
Was tempted to jump in and buy more EGMI but short on cash. Been taking a beating on some of my other China pennies. Good long term holds so I don't want to sell right now.
The increase in volume is interesting. I think there's news coming or maybe just speculators trading. Been thinking about sending KD an email but I know he can't say anything so seems pointless.
Got a feeling that's who may be buying. And yes, think their IP (patents) might have some worth...
and if maybe some hungry griz digging up nuts just happens to come across a cache of notes...gets shot before he can eat it...and the hunter turns in the notes looking for a reward...
hmmmm....maybe we'll have to go back to the forest and see if all the folks in the mailbox still in hibernation. lol
So, how's it going? Hope you and family well.
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Electronic Game Card, Inc., through its subsidiaries, engages in the development, marketing, sale, and distribution of recreational electronic software to the lottery, casino, and promotional industry worldwide. It offers Electronic Gamecard, a credit card-sized pocket game, which is equipped with a microprocessor, random number generator, liquid crystal display, and power source to suit various gaming and promotion applications. The company was founded in 1981 and is based in New York, New York.
Web Site
http://www.electronicgamecard.com/
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