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This was probably the source of the idea that Simon might buy some of GGP's malls (not the whole thing). It was in the March 19th Kris Hudson story in the WSJ online.
“Simon also could use some of the proceeds to buy distressed malls, according to Jim Sullivan, an analyst with Green Street Advisors Inc.
"Several cash-strapped mall owners are attempting to sell malls to pay their debts. Chief among them is General Growth Properties Inc., which has warned it might file for Chapter 11 bankruptcy protection.”
http://online.wsj.com/article/SB123751246302091161.html
Table of the Notes
Per March 23 PR
Consent Calculated
Interest - - - - - - - - - - - - - - Approx Total Annual
Due % Accepted % Needed % Have Notes Interest
2009 3.625 $ 165,801,000 90 42.0 $ 394,764,286 $ 14,310,205
2009 8.000 134,784,000 90 67.4 199,976,261 15,998,101
2012 7.200 340,058,000 75 85.0 OK 400,068,235 28,804,913
2013 5.373 310,930,000 75 69.1 Close 449,971,056 24,176,945
2013 6.750 625,410,000 75 79.5 OK 786,679,245 53,100,849
- - - - - - - - - - - - - - - - - - - - -
1,576,983,000 2,231,459,084 136,391,013
= = = = = = = = = = = = = = = = = = = =
Per Cent of Total: 70.67% Blended Interest %: 6.11%
OFFER
- - - -
62.5 cents per $1,000 per quarter = .0625% = .000625
Annualized = .0625% x 4 = .25% (1/4 of 1 percent) = .0025
Total to pay annually = $2,231,459,084 x .0025 = $5,578,648
Ackman Bloomberg Interview Transcript
March 20, 2009
Thanks for the link. I’ve bolded the parts that were highlighted by you and loniee.
Q. Talk about being under stress, General Growth Properties is a Real Estate Investment Trust that owns shopping centers. Ackman started buying its stock back in November when it was struggling to stave off bankruptcy.
A. General Growth. What’s interesting is this is a company that had a $9.4 billion equity market cap on September 14th, the day before Lehman Brothers failed. Sixty days later it had a $100 million equity cap, which is kind of a stunning decline. And that’s down from – the equity cap was in the 20s of billions maybe two years ago.
What changed between September 14th and November 15th when the stock had a $100 million value? What changed is the CMBS market completely shut. The market for real estate debt capital is completely closed. So General Growth unfortunately has a debt expiration schedule where beginning in November and over the next several years $20-odd billion of debt comes due. If you can’t refinance your debts, you’re going to file for bankruptcy.
The conventional wisdom is that if a company files for bankruptcy, the equity is wiped out. And that is conventional wisdom because 90% of the time that’s what happens. But most of the time insolvent companies go bankrupt. It’s rare for a solvent company to go bankrupt. This is a solvent company with a liquidity problem.
Q. And how are you – okay – what do you mean by solvency?
A. Solvency. My definition of solvency is that the assets are greater than the liabilities. These malls – now in a fire sale there is no value left to the equity, but in a reorganization where the debt maturities are extended, this is a company that can cover its debts one and a half times, it’s got 1.5+ debt service coverage.
Q. So this is specifically a bankruptcy play.
A. Yes.
Q. With the assumption.
A. Yes, we bought it with the expectation – and we want them to file sooner rather than later. The sooner they go in the sooner they can come out.
Q. Are you putting pressure on manage to do this?
A. Not putting pressure
Q. Have you talked to management?
A. We’ve absolutely talked to management. We’ve been talking to them in detail. You may see me join the Board in the relative short term. And we intend to be a very strong advocate for the shareholders of the company. The stock is 40 cents and …
Q. And what’s management view on bankruptcy?
A. I probably shouldn’t speak to management’s point of view at this point. But I think they understand how we’ve thought about it. They’ve got very good advisors. I don’t see a scenario in which the company can reorganize outside of bankruptcy. So I expect it to file imminently, you know next few days, unless they get some kind of extension. But certainly some time this year. And that’s actually a good thing, interestingly enough.
Now it doesn’t mean you’re not – it depends on the court, depends on the judge, depends on what happens. But there is a bankruptcy plan that we will be an advocate of in which the equity survives intact, all the bondholders, all the mortgage lenders of the company ultimately get paid what they’re owed. So everyone wins.
Whereas if this company is forced to liquidate, it’s a disaster for the equity, it’s a disaster for the unsecured creditors, and it’s a disaster for the entire REIT market. The REIT market is going to be watching very closely General Growth’s bankruptcy. The reason why REIT stocks have been crushed, is not so much because of the operating performance of REITs. Because every REIT in the country has a debt maturity schedule that if you cannot refinance your debts as they come due they will be forced to file for bankruptcy. And if this General Growth bankruptcy does not go well, it will take down the entire REIT industry. If it goes well, it’s going to be very bullish for the REIT industry.
That doesn’t mean there aren’t going to be tenant bankruptcies, and the economy’s going to be a factor, and it’s going to help General – how much money we make is going to be somewhat affected by what happens in the economy. If people just completely stop shopping, if everyone goes bankrupt, we’re all dead. But if – these are some of the best malls in America. They have 200 great assets. And if you look at the performance of regional malls over difficult – early 1990s – other difficult – 70s, early 80s – other difficult recessions, they’ve been the most – the top, the Class A assets are the most resilient, they keep their occupancies at the highest levels and even when they lose tenants they’re the first to lease up. So it’s a great portfolio.
We like management. We think highly of the new CEO and President. Adam Metz and Tom Nolan have been brought it. We think they’re going to do a great job. And I’ve joined zero Boards in five years. I’m an activist shareholder.
Q. And you’re about to join two.
A. I’ll join the Board of Target hopefully. And in the case of General Growth, why would I be interested? Most people want to get off the board of a company when it files for bankruptcy. I want to get on the Board of this company.
+++++++++++
Q. Ackman says the government should use a bankruptcy model as the blueprint for bailouts. Of course that didn’t happen in the case of AIG.
A. We thought AIG was sort of an interesting option based on what we could tell from the public information. We changed our mind pretty quickly. I don’t remember precisely - we put about 1.5% of our capital in AIG and we lost probably 20% of that or a number like that.
If you think about the Pershing portfolio we have some investments we make at very significant scale, Target being one of them, EMC being one of them. You know, businesses where we think they are very robust, they have a capital structure that can withstand a very difficult time, they’re well-managed, they’ve got very strong market position and will do very well. But we’re not going to make 10 – 20 – 30 times our money. General Growth is something we can literally make 20 – 30 – 40 – 50 times our investment in the event that things play out the way that we expect them to. Or lose our entire investment.
[The rest, about AIG and bailouts in general, is very interesting and very disturbing. (Disturbing because he seems to be making sense, and what he suggests is not what the government has done.)]
EGMI Q4 2008 CC Transcript
I hadn’t realized that seekingalpha and Fair Disclosure Wire had published prior CC transcripts, or I wouldn’t have gone to the trouble of doing this one. Hopefully this is the last one I will do. Since neither of those services has posted a transcript yet for Q4, here it is (just completed last night).
Kevin Donovan, CEO
Lee Cole, Board Member, Former Interim CEO
Yvonne Zappulla, IR Representative
YVONNE ZAPPULLA
[Intro and Safe Harbor statement.]
KEVIN DONOVAN
Thank you very much, Yvonne. Well, good afternoon and thank you all for joining our call this afternoon as I present my first earnings call for Electronic Game Card. Before I start to summarize our 2008 financial year and to review the current financial year and company strategy, I wish to introduce myself to you so you have a chance to know me. When the announcement of my appointment was made in December 2008, I was enthused by the opportunities I saw for the company, energized by the vision of Lord Steinberg and the Board, and impatient to start work officially on February 2nd of this year as new CEO.
I was also thrilled to start work that day together with the new Executive Vice President of Sales, Miss Anna Houssels, who was already a Board member of EGC, but has now brought her formidable sales experience and tenacious spirit to develop and leverage our contacts and our international relationships to increase sales revenues and to use our decades of experience and success to add value across the company. I am pleased to say that our energy and visions of opportunities has been reflected by the Chairman, the Board, and the company, but most important, our sales relationships.
My 25 years experience in corporate branding and licensing with prominent entities such as the 2002 Winter Olympics in Salt Lake, professional sports properties, and entertainment media, as well as software application companies, with our technology platform that EGC has developed to create an inflection point for our company, an inflection point that everybody, but especially Anna and I, are determined to make the most of to generate increased revenue and profitability. From that strategy to deliver shareholder value to a stock that we believe is truly undervalued by the markets in comparison to ratios not only on the gaming vertical but against the general performance of the markets.
We both understand the trust and vote of confidence that Lord Steinberg and the other shareholders that I have met with have given to Anna and I [sic], and we are focused to turn that trust into proven results in 2009 and beyond.
However, before we look to the future, let’s not forget the success of the past and present, and review the performance of EGC in 2008. It was definitely a successful year. For the full year 2008, Electronic Game Card generated revenues of 10.6 million, which is an increase of 76% over the prior year revenue of 6 million. This comparison would have been even greater had the British Pound Sterling not fallen by more than 30% during the second half of 2008. Truly an amazing year for Electronic Game Card.
In 2009 we anticipate our business to generate more U.S. revenues, as the contributions from the technology license agreement from Native American Indian promotions and gaming opportunities in the 28 U.S. states and the 423 gaming operations are realized. Equally, the company can generate more revenue from other key and focused product initiatives that extend the product lines already introduced by the new U.S.-based management team.
Electronic Game Card reported an 81% year-over-year growth in net income. Full year 2008 net income totaled $6.3 million, which equates to $.11 per basic share or $.10 per share fully diluted vs. net income of $3.4 million or $.07 per basic share and $.06 per diluted share for the full year of 2007.
As of December 31, 2008 Electronic Game Card had approximately 56.8 million shares of common stock outstanding, with a fully diluted share count totaling 63.1 million as reported applying the Treasury method. The gross profit for the year ended December 31, 2008 was 8.1 million generating a 76% gross margin. The company remains adept and working to provide the optimum in commercial structures. To achieve this we may report future alterations in our gross margin percentage but this would be undertaken to ensure a stronger company with long-ter recurring orders from B2B new client relationships.
The company’s operating expenditures for the year 2008 grew by 35% to 2.1 million. However, as a percentage of revenue, operating expenses did fall 600 basis points over the year to 19.5% of revenue.
As we manage our growing business going forward we may need to increase personnel, but only, and this is important, as we see the need to handle our volumes expeditiously. As we have strengthened and broadened geography of the new client and management of the company, there will be going-forward costs. I and the Board are fully aware of this and I am certain that these relationships will be accretive to the company, and will continue to manage the current strategy of being a tightly-run organization with cost control managed across the company from the Board downwards, and will continue to take advantage of opportunities to outsource manufacturing and the like while maintaining critical IP development, strategy, and sales control in-house. Anna Houssels and I want to maximize our U.S. and global relationships to generate revenues in the most efficient ways possible.
In reviewing the fourth quarter December 31, 2008, Electronic Game Card revenues increased 58% over the prior year to $2.8 million. While our volumes were on target with expectations, the 25% decline in the value of the British Pound Sterling during the fourth quarter 2008 negatively impacted the conversion of our revenues generated in the U.K. as we translated those figures into U.S. dollars.
Had the currency remained constant with 2007 we would have recorded revenues in excess of $3 million for the fourth quarter of 2008. Comprehensive net income applicable to common shareholders was 1.8 million or $.03 per diluted share compared to 1.6 million or $.03 cents per share during the prior year’s fourth quarter on approximately 10% fewer shares in 2007.
Our balance sheet has strengthened materially during the year. Cash and equivalents on December 31, 2008 were $9.2 million, an increase of approximately 4.4 million from year-end December 31, 2007, and an increase of over 1.3 million from the period ended September 30, 2008. It is important to note that our cash balance exceeded our total debt and Convertible Preferred by 3.5 million at year-end 2008.
The company’s investment portfolio increased in value during the year by 3.6 million due to the company’s previous policy of investing in synergistic technologies which enhance the company’s overall product offering. It is the Board’s intention to monetize these investment assets at opportune points over the next two years.
At December 31, 2008, the 6% Convertible Redeemable Preferred stood at 4.5 million, a reduction of 3.1 million from the prior year-end. Two-thirds of the reduction occurred just prior to year-end 2008 as one fund converted its holdings. EGC announced this event in early February 2009 as the company purchased the underlying stock and accompanying warrants for $800,000.
At year-end 2008 Electronic Game Card achieved positive Stockholders Equity of $13.3 million, an increase of over 12 million from the previous year.
In conservatively reviewing our level of business activity, EGC believes that the current contracted backlog gives us visibility and confidence in providing revenue guidance of $17 to $18 million for full year 2009, and Earnings Per Share guidance of $.14 fully diluted EPS.
As first quarter 2009 is concluding in a couple of weeks, we anticipate a continuation of profitable growth as we report the March quarter.
11:30
Let me pause a moment and discuss our business model particularly in context to this year’s expectations. EGC is a consumer goods technology development and licensing company focused on maximizing net profit dollar contribution per card. The business model developed over the past 24 months has been flexible and responsive, designed to grow revenue leveraging the core technology platform through both direct sales with unique vertical market price points reflecting cost variations in packaging, logistics, and security, as well as through distributors and manufacturer/licensor relationships within specific geographies and distinct vertical markets such as gaming, promotion, and education. Contract pricing for distributor and manufacturer/licensor takes into account the ultimate retail price reflecting perceived value of a newly-introduced product as well as costs through the delivery process.
As we look forward to leveraging our existing network relationships with new opportunities in numerous potential markets, within each of these markets as critical mass is established and as controlled technology enhancements are added to create further product feature uniqueness we will have opportunities over time to further increase the profitability per card.
To simplify this structure we have organized the company within three business lines: gaming, promotions, and education.
Lets take the first one, gaming. We define the game section to include gaming, casinos, state and national lotteries, and Native American Indian gaming. In the past, this business has predominantly reflected only a yearly royalty payment of half a million dollars, which we receive from Scientific Games. As CEO, I have started to work to the immediate opportunities globally for Electronic Game Card in state and national lotteries, and Anna and I have already started a number of project bids that we hope will bring positive results in the medium term.
13:50
The reaction to the Instant Win Lottery EGC game cards is very positive from players and I want to insure that all opportunities are explored through the new relationships that the Board and I have started to create.
In 2009 we continue the Sci Games royalty. Additionally, we begin our commencement to receive $1 million of our 5-year $10.25 million guaranteed minimum royalty payment from our Native American Indian gaming contract with Sovereign.
As to additional opportunities with the development of Anna’s contacts and insight in the U.S. and Asian Pacific gaming markets, the company is focused to broaden the U.S. and Asian revenue streams within these areas with new relationships, markets, and verticals.
In addition, our Executive Chairman, Lord Leonard Steinberg, is actively working to leverage his global relationships, his experience and knowledge in gaming, which is a highly unique asset to this company and to the shareholders’ value creation. Importantly, Lord Steinberg maintains his Perpetual President role at the company he launched over 50 years ago and subsequently sold as Stanley Leisure plc, which controls 1,500 betting parlors throughout East and Western Europe. The initial opportunities are potentially in Romania, Poland, and Croatia. The work to enter these highly regulated markets began last year. We have accomplished quite a lot in Romania thus far, where Stanley Betting has over 200 shops.
Another active opportunity is being spearheaded by Anna Houssels within the U.K. and global gaming markets. We’ve had several meetings and are highly hopeful of success utilizing the current product line in Instant Win Lottery EGC game cards, soft gaming, gaming promotions, and especially slot promotions.
The next business line: promotions. This business segment has historically represented a large part of business revenues for EGC. The bulk of our distributor relationships are focused on this market. The new products for 2009 such as the Know-it-All Quiz Card and the sports property opportunities are under this business segment. As I start to introduce these products and the development of new sales relationships, the response to these products is highly positive especially as we start to customize and re-skin the graphic formats to instantly work with new client IP content, consumer brands, and interactive mechanics.
The clear enthusiasm for our new Quiz Card product is strong, as is the opportunity to inexpensively adapt the core technology to present a customized, low-cost consumer proposition but utilizing a robust and reliable core technology. The strength of the base technology platform and the flexibility of the manufacturing process offer many opportunities, and Anna and I are diligently working to identify the most attractive and long-term profitable relationships.
Education. The interactive education technology sector is a $2.2 billion global market based on numbers from In-Stat. It is clear that parents and teachers are looking for toys that stimulate imaginative ways to open the doors of learning to pre-school-age children with some of their favorite characters that they watch on television and the internet.
EGC has a timely and affordable product for parents and families in this present-day economy for under $10 retail, which is adaptable to any branded character with EGC education and general knowledge products. These family on-the-go mobile learning products are highly competitive that can benefit from early stage developmental learning and growth of this market. I truly feel we have a category buster product by early response indication from our B2B network based upon our 2009 release of our Thomas & Friends branded Electronic Education Learning Game Card in the U.K. Again, the contacts that the company and I can leverage in this sector are very strong, with leading educational, gold standard brands, and therefore we see this as a way to help grow the company but also widen the revenue streams.
So therefore to summarize. We’ve had a successful 2008. Our current backlog momentum gives us confidence in our guidance moving forward into 2009. The new management team has hit the ground running and has focused initiatives to close in the areas of gaming, promotions, and education, any one of which could greatly add to the company’s progress and revenue enhancements to the $17 to $18 million 2009 full year earnings per share guidance of $.14 fully diluted EPS.
19:00
In closing, this now concludes the summary of my prepared remarks at this time. I am joined by Lee Cole. Good afternoon, Lee.
LC. Hi, Kevin.
KD. How are you?
LC. Good, thanks.
KD. Good. Good. Well, I will now open this call up for questions. Operator.
Q&A
[Operator Instructions}
TODD EILERS – ROTH CAPITAL PARTNERS
TE. Hi guys, how are you?
LC. Fine, Todd.
TE. I was wondering, can you tell me how many game cards you sold this quarter?
LC. Yes, just north of 1.5 million. Which equates to approximately 5.5 million for the year.
[Operator: caller disconnected…]
TE. Hi guys. Sorry about that. Can you hear me?
LC. Yes.
TE. You guys mentioned a healthy backlog. Can you give that number?
LC. We reckon we’ve got 60% of ‘09.
TE. Okay. And the guidance that you guys gave for fiscal ’09. Can you maybe tell us how much you’re assuming for each of the three business areas, gaming, promotions, and education?
LC. Sure. Obviously we just reclassified it. We’re about 30% for gaming, 25% for education, and 45% for promotions.
TE. Okay. And then, should we expect your tribal agreement with Sovereign, should we expect that to contribute in the first quarter, is that correct?
LC. It will come through ______ slightly in the first quarter, but we really expect it to start really kicking in in Q2.
TE. But will you guys get the minimum royalty?
LC. Yes. Yes. Yes we will.
TE. Okay. Sounds like you think that it could exceed that possibly going forward, is that
LC. There’s a couple of initiatives which if they work out like we expect them to, yes, yes, it could exceed it _____.
TE. Okay. Could you also give the total recurring revenue in the fourth quarter including the Scientific Games royalty?
LC. Total recurring revenue including Scientific Games was approximately $800,000.
TE. Okay. And then, you guys mentioned a gain on investments. Can you maybe tell us what happened there, what led you to increase the valuation there, and maybe which investment specifically that was.
LC. Yeah, that was a software company that we’d invested in, which basically we sold that position and we made a slight gain on that investment. Over the course of the last couple of years we have some inherited investments from previous management and we’d also let you know we increased our investment in a company called PrizeMobile which we’re hoping to get a nice kick from that, during maybe Q2 of this year.
TE. So the gain then in the quarter was unrelated – I was going to ask you the increase on the balance sheet in your investments, so that gain was unrelated to that increase? That was also an investment you guys made in the quarter?
LC. The gain was the sale of an old investment, yeah.
TE. Okay. And then you mentioned a 5% share repurchase authorization. Does that refer to common shares or the Preferred?
LC. Yes, so what happened was during – as we announced, we got authorization from the Preferred shareholders to repurchase the Preferred shares, which we repurchased at the beginning of the quarter. The Board, because of our current share price being significantly below where the company [expects it to trade?] and the Board has authorized us to seek permission of the Preferred _____ to repurchase of up to 5% of our common, which we’re in the process of doing
TE. Okay. And then I guess last question. The education/sports markets. Can you guys maybe talk about what your expectations are for the timing of when we might be able to start to see some of those sales show up in fiscal ’09?
LC. The products on the Quiz Cards should start coming through in May and so Q2, late Q2. And the Thomas and the edu products we’ve got scheduled in in Q3. And obviously the new initiatives which Kevin and Anna are looking at which obviously are not scheduled in revenues for this year at all yet.
TE. Okay. I think that does it for me. Thanks guys.
KD. Thanks very much, Todd.
MICHAEL WEISS – JOSLYNDA CAPITAL
MW. Hi. One part I missed cause I got cut off for a minute was the ’09, your confidence in ’09. Can you give us – I don’t know if you’ve mentioned this already. Have you mentioned how much of this is already contracted or backlogged already?
LC. Yes, 60% Michael.
MW. Oh, 60 percent. Okay. You also mentioned gross margins may be lower going forward on new contracts. Can you give us an idea, is that just because the new contracts are larger or just you’ll not be able to – different kinds of contracts that you’ll have to take a lower gross margin but higher sales?
LC. I think with some of the new products they’re in higher volume mass consumer markets where we won’t get the same high margins we’ve enjoyed previously because they’re different products, different markets, but I think what we can safely say is that although that might affect our gross margins it will definitely enhance our gross revenues considerably, and the bottom line is anything there would be accretive to EPS, so even if gross margin declines, EPS will improve.
KD. May I also add to that?
LC. Sure.
KD. Hi Michael. We’re also working towards the collectability factor, so when we look at the promotions category instead of one-off type of promotions, looking for continuity promotions. And so continuity promotions based on collectability factors would mean higher volumes but more recurring programming over the course of a year or two years.
LC. Yeah, great point.
MW. And can you talk a little about how you’re going to manage increased operating expenses. Is it going to wait til you get the contract or how are you going to manage to keep the operating expense vs. earnings etc.
LC. I think Kevin’s already touched on that. The strategy today is to – as revenues and earnings increase then obviously I think that’s when they’d look at increasing operating expenses.
KD. I think the other thing too to add to that, Lee and Michael, is the fact that with these other larger, gold standard companies here in the U.S., they have a lot of resources. And we want to leverage those resources within their internal teams on a lot of the type of activities that would occur before launch. And so we’re acting in some regards more like a license or approval process. And so we still keep things tightly controlled, tightly managed, and be able to provide – let the other companies in terms of their resources apply towards the project and then we’re still working to produce the cards and get things done in a timely manner.
MW. Okay. and the last question. Can you mention some of the new initiatives either the Indian gaming or some of the others that you’re working on today if possible?
KD. Do you want to start with Indian Gaming, is that okay?
LC. Yes, please.
KD. No, I was offering it to you.
LC. Oh. Sorry Kevin.
KD. No problems.
LC. Okay. No, with Indian gaming as we previously announced, we’re working with Sovereign. We’ve got some initiatives in progress with a variety of tribes which we should see the fruits of in a more significant way in Q2 and Q3. As you know, they got their license at the end of Q3 last year and they’ve been setting up the initial initiatives which always takes a little bit of time, and we should start to see some traction in next quarter. I know Kevin’s been working on some exciting stuff with Anna. Kevin, do you want….?
KD. Yes, absolutely. We have been progressing very nicely, Anna and I, from the national lottery standpoints in Europe, and progressing towards testing and working through the bid processes. We’ve also been working on placement of the Quiz Cards in the U.S. and globally as well with some great brands that have a high appeal for the card across all their various categories, consumer products to licensing, publishing, and other key areas. So we’ve been staying focused on the three core verticals in trying to accomplish the goal of adding to 2009 at least two new accounts from each one of those three categories of gaming, promotions, and education.
MW. Okay. Thank you very much.
KD. Thank you so much, Michael.
JACK CUMMINGS
JC. I guess you may have already answered this question. I’m calling from old Mexico and the connection’s not too good. But I’m reading on the internet your report and it says the Board has authorized the purchase of up to 5% of common shares outstanding. Is that on the open market or one of your institutional investors you’re going to purchase those from?
LC. That will be on the open market, but we have to get Preferred shareholder approval, which we’re currently in the process of getting.
JC. Okay. Sounds like you guys did all right this quarter and for the full year. I’m looking forward to ’09.
LC. Yes, thank you.
KD. So are we, Jack. Thank you very much.
STEVE MAIDEN – MAIDEN CAPITAL
SM. Yeah, hi guys. Congrats on the quarter and the outlook. Question just on the possibility of doing a reverse split to get the stock to a point where you could be listed on a larger exchange and perhaps attract better investors and help to close the valuation gap.
LC. It’s something the Board’s actively looking at, and as you can tell the Board’s instigated a share repurchase as of this quarter, and I’m sure when the Board meets in April that will be high on the agenda.
SM. Okay, great. Thanks guys.
KD. Thank you very much, Steve.
{Operator instructions]
KEVIN DONOVAN
Thank you very much, Kanisha. I would like to thank you all for taking time out of your day to attend this call and TO participate. I am truly honored to have this outstanding opportunity to run Electronic Game Card and to have the trust of Lord Steinberg and the Board members. And the Board, Anna, and I are highly focused to quickly gain the trust of the shareholders to build the value of their investment with a strong, reliable, and robust product technology platform which we feel has only just started to be commercialized.
At a minimum our short term mission is to deliver on the 2009 earnings per share guidance of $.14. Our long term mission is to deliver quality at every level of our organization, to expand the product offering, increase IP, and further our distribution capabilities and reach. I look forward to talking to you when we discuss the first quarter results of 2009. And if you have any questions in the meantime, please don’t hesitate to contact Yvonne Zappulla through the usual phone number and e-mail address. And that is it. And I’d like to thank all my colleagues here and I want to personally thank each and every one of you, from the company. Thank you.
A couple of interesting points in that article.
“Citicorp North America filed a petition Tuesday in the 24th Judicial District Court, seeking the loan payment through the mall's sale.”
This clarifies that the petition was filed on Tuesday, right after the missed payment, which makes more sense.
“The mall's anchor tenants, Dillard's, Sears and JC Penney, own the buildings they occupy, Roberts said.”
This makes it even more sensible for GGP to let the place go, as they probably could not get $95 million for it at this point anyway.
It would be nice to have a better handle on all this.
Could this be a shot over the bow by Citi? What would be the point?
Could it be simply a decision to take out one troubled asset, and essentially has nothing to do with the corporate loans? Then why do it today?
Very confusing.
cliff, thanks for the research.
It does sound like the Bioscrypt software may have been using, or at least could potentially use, the TPM, in which case the Bio-key CEO was mistaken. But as I re-read DePasquale’s statement, I see he was also implying that biometrics companies will have to address the TPM soon if they are not already doing it.
topseeded, yes it crossed my mind that
"other companies that use Trusted Platform Modules" might include Wave….
It’s interesting, if Mike DePasquale is correct, that no other fingerprint companies have addressed using the TPM to safeguard the template they produce. Or maybe it’s that other companies just haven’t patented anything, as I guess Bio-key wouldn’t necessarily be aware of the internal development projects at other companies.
When you think about it, it is hard to believe that a tiny company like Bio-key would be so far ahead of the pack. On the other hand, fingerprints are their sole biometric focus, so maybe, in spite of their size, they do it better than others.
Bio-key (BKYI) CEO on their TPM-related Patent
Bio-key is a tiny company that has issues of its own, but I gather that its fingerprint recording and comparison software is first-class. This is the CEO in their Q4 2008 CC from yesterday.
Question from a private investor.
Q. My question is on the new patent for the Trusted Platform Module. I’m wondering who the customers might be for that and if you could give us some more information on exactly how that might work.
A. In ’08 we were issued a total of four patents. And the one that was issued in the fourth quarter is just kind of another step forward in what we believe the industry will require from any full and complete biometric system. And it’s an end-to-end security solution right from the finger scanner or the reader itself all the way back to the database. And this patent that we’ve been issued in the fourth quarter really provides incremental security techniques and capabilities right at the device level. Ultimately if we’re doing web-based authentication or we’re doing remote, for example, identification, that technology will be critically important to ensure the security of the full and complete solution. So we think it’s important. And it’s not just one single patent but it’s really been for us the iteration of patents that we’ve received over the last two years for our – in our biometrics division.
Q. Have you heard of any other fingerprint algorithm that’s set up to work with Trusted Platform Modules other than yours?
A. At this point in time I’m not aware of any. But TPM, Trusted Platform Modules, are becoming more of a standard part of virtually every notebook computer. And so also understand that finger scanners are also becoming an important part of notebook and tablet computers. So we think, again, that if you want to insure the full and complete security of a solution back to a database, you’re going to need a more sophisticated security infrastructure, so not just on the device but one that travels all the way up the network back to the database. And you know that’s what we _____ are providing. And we see this as a value-add to our enterprise solution customers.
Q. Dell is heavily invested in that. And they use Upek – or Lenovo uses Upek on their laptops and they also have Trusted Platform Modules. Is there any particular customers you designed this for or are interested in this?
A. No, this was something that we started a number of years ago. So it takes almost – today an average of two years to get through the U.S. Patent Office and get a patent no only challenged but approved. So this is something we started a long, long time ago and something that, again, we believe will apply to the industry as we go forward.
Q. Yeah, they’re starting to roll it out big time now, so that’s great news for me ‘cause I invest in other companies that use Trusted Platform Modules. Sounds great to hear that….
CC Comments on Expenses and Employees.
EMPLOYEES
Q1 2008 CC Q&A
Q: All right. And how's the workforce doing? Has it been increasing? Have you been employing more people? I know the last time, it was about a year ago, you had about 100 employees. Has it grown any more?
SKS: The company is at about 130 people today. Predominant growth has been in both the sales and engineering teams, and both in support of real customer accounts….
Q3 2008 CC Q&A
Q. Just a few questions, the number of employees today and in the near future?
Steven Sprague: So we're around 110 employees today. And it will depend on what the ultimate number is, but it is probably in the 85 range that I would say is our general target area. Some of that comes from a consulting perspective. Some of that comes directly in employees. And some of that comes from the Wavexpress transaction where we have about 15 employees within Wavexpress, which we hope to have either acquisition or independently funded.
EXPENSES
Q3 2008 CC OPENING REMARKS
The other piece that we have been very focused on is helping to align our operating expenses and bring them in line with the revenues of the organization. To that end, we have reduced about a $1 million of operating expenses already expected out of Q4. We're on target to increase that number to about $1.5 million in operating expense reduction in Q4.
http://www.unclever.com/wavx/
ambulance, thanks for the report.
1. This presentation from 2007 goes into a lot of detail on the security protection on the cards.
http://www.electronicgamecard.com/sales/pdf/EGC_SecurityPresentation-Jul%2007.pdf
2. How does the Tic Tac Toe card work? Do you just press “play” and it runs? Or do you get to choose where to put the first X or something like that? The Treasure Hunt card, for example, gives the illusion that you can affect the outcome by giving you a choice of which window to use.
http://www.electronicgamecard.com/gamecard_flash_TreasureHunt.htm
Excerpts from DDR’s Q4 CC
http://www.earnings.com/company.asp?client=cb&ticker=ddr#
This is part of the CEO’s opening remarks in the Developers Diversified Realty (DDR) Q4 cc from this afternoon. I have no idea if this fellow’s rather upbeat view of the environment for mall operators is accurate, but it certainly caught my attention. I think that DDR has lower-scale properties than GGP, but what he says would probably still be applicable to GGP.
“While we’re mindful of the fact that some retail companies have struggled and will likely continue to struggle, the reality is that many retailers are using this unprecedented economic environment to reassess their business plans and capture market share from their weaker competitors.
“During 2008 and into 2009 we had numerous meetings with retailers who were dropping their store count out of necessity not because of any flaws in their business platforms or an active desire to scale back expansion plans. Quite simply, for many retailers there are not enough development opportunities in today’s market to support their growth initiatives. You’ve heard me say this before, but it is worth re-iterating: in many cases, if a retailer could open 50 new stores, they would happily do so. As much as the headlines may imply that reduced store openings are another sign of a weakening retail environment, in many cases the reduced store opening plans are more the result of real estate issues than fundamental weakness within the retailers’ operating platforms, and the issue is a lack of viable new supply compared to demand. Even in this environment, retailers look well beyond the current year, typically modeling payback over a 3-to-5 year period, which will work to our benefit as we look to re-tenant our vacancies.
“Along the same lines many in our industry equate the health of retailers to their headline sales number metrics like same store sales. Like 2008, 2009 is going to be a year where retailers look to solidify their margins as opposed to chasing high sales volumes. It would be imprudent for retailers to aggressively stock their shelves with large quantities of inventory and hope the headwinds facing the consumer subside and spending patterns immediately return to the norm. So even though you saw some drops in same store sales in the holiday season and will likely see similar figures as we get further into 2009, that doesn’t necessarily mean that retailers are not achieving their plans. In many cases the opposite may be true, and they may be using this opportunity to enhance their profitability and the quality of their credit.”
Re Value of Assets if Chapter 11 Occurs
I'm fairly new to GGP and just started to read the board.
Per more taxes please in post #1138: “Pershing Square bought 25% of the float and Ackman values it $3/share in Chapter 11.”
Per RonnieD in post #1299: “Ackman says GGP is "at least" 3 billion dollars in assets over liabilities.”
Could someone tell me which is correct? I couldn’t find the answer by googling.
TIA
A Note on Design and Functionality
I was very pleased to see how attractive the Thomas cards are even though they may be a bit light on functionality. I lit up a bit when I first saw them and that is just the reaction you would want from potential customers. This is the math one.
Copyright Electronic Game Card Inc.
The new soccer card is also a good, exciting design.
And on the functionality front, I was really pleased to see the royal family card with its example of fairly small text in a large window. There’s room for plenty of readable text there for the Quiz Cards.
Copyright Electronic Game Card Inc.
“… IF the intrinsic value of Wave's IP (including manifestation thereof; i.e., its TCG related solutions) represents an extremely attractive ROI revenue stream, ANY well-funded player in the TCG field would be frothing at the opportunity to take a financial position in or outright buy Wave [on the cheap].”
I’m still not sure whether Wave will ultimately prosper, and I can’t judge how Wave is viewed because I don’t have enough technical expertise. But I do know that I am constantly amazed that some companies whose value and ultimate success appear obvious are not bought out at an early stage. Intuitive Surgical (ISRG) is one of the clearest examples. I first heard about it in 2005 and I was astonished that a company such as GE (one of those companies which supposedly “owned” the operating room) did not snap it up on the cheap.
In other words, in my experience the lack of investment or buy-out by other companies is not a good indicator of value.
When I said, “So making initial contacts through meetings is what they are doing right now.” I wasn’t implying that they are all talk. I was saying that the CEO’s principal activity right now is contacting the companies in his, Lord Steinberg’s, and Anna Houssels’ networks, so it’s understandable that he would be focusing on that in his presentation.
And it is interesting for us to hear about these meetings. But I don’t think it necessarily gives the best impression to potential new investors, who may have had prior experiences with small companies reporting on wonderful meetings but then not being able to deliver. Document Security Systems popped into my head immediately, and that is not a good association.
And I really do wonder whether Atari, for example, would be delighted to hear revealed in public its idea on using the cards in “six of their various verticals just within their brand alone for distribution.” (whatever that might mean….)
But don't get me wrong. I love this company; it's my biggest investment at this time. So I'm very anxious to see the new CEO show good judgment, whether in his presentations or any other endeavor.
ambulance, I agree with you 99%. I once owned some shares of Document Security Systems, a small company with methods for protecting paper documents from being photocopied. When the Chairman of the Board finally took over, one of the people he forced out was the President who, based upon his stories, was really superb in meetings. But nothing ever seemed to close. As the Board Chairman said, “If success were measured by number of meetings, we’d be General Motors.” (This was a while ago.)
So I noticed the same thing that you did, and I was particularly shaking my head over the “great phone calls and conference calls” line. I am also wondering if it’s proper to name companies before you have an agreement. “Proper” or not, it definitely seems like a bad idea.
Anyway, the reason I say I agree with you 99% and not 100% is that apparently they were waiting for the arrival of the new CEO to really get going on using Lord Steinberg’s contacts, and also they now have the CEO’s contacts to formally approach. So making initial contacts through meetings is what they are doing right now.
Roth Presentation Transcript 2/16/09
KEVIN DONOVAN
Thank you very much. Well, good afternoon. My name is Kevin Donovan. As you had mentioned, the newly-appointed CEO as of two weeks for Electronic Game Card. Our ticker symbol is EGMI. We are – our acronym also for our company is EGC. This is my first public presentation as the CEO for EGC, so please bear with me. I appreciate your patience.
However, it is my great privilege to have this opportunity with EGC to lead this team and this effort with Lord Steinberg, the Chairman of EGC. My vast[?] network has been built for about 25 years in the areas of sports, entertainment, promotional marketing, in the world of the Olympics, and the aspects of marketing and global agencies. And so what I bring to this team, with Miss Anna Houssels, is the ability to take this network and bring it into a very, very small credit-card sized platform in terms of our gaming card platform. And the ability to extend this network into these areas is very exciting for me because of the technology.
So, on this particular slide you’ll notice in the lower right hand corner, Thomas the Tank. Thomas the Tank [Tank Engine, man!] is a new product for the company which is based on both the visual aspect of learning and also the audio aspect of learning in a credit-card-size format. And so children have the ability to listen and learn and interact with a very, very low-cost toy and game item for the market. And especially in these times, these economic times, this provides a category-buster for us in the industry.
So, an overview of EGC. Our initial core technology powers a hand-held game the size of a credit card, as I had mentioned, weighs less than half an ounce. The product is rich in functionality, it’s totally customizable, it can be skinned in graphics to meet any particular brand, distribution partner, and their look and feel. Its electronic software library currently totals 30 games but we’re growing up to 50 games.
The three key vertical markets that we’re focusing on. Number one is our core existing market of gaming. The second is the largest market share opportunity in terms of promotions. And then the third being in the aspect of education.
I, as well as Anna, Lord Steinberg, and our board members including Eugene Christiansen, a master in the gaming and gambling market for over 25 years, along with Lee Cole our previous CEO, our interim CEO. We have significant contacts in these three areas so we counterbalance and complement everyone.
Lee Cole and his team have done a tremendous job over the course of the last three years in turning this company around from bankruptcy to steady profitable growth over seven sequential quarters. So it is our job in the new management team is to continually grow it, build on the momentum, add the new areas, and be very vigilant in terms of our cost control and operational management of our new growth.
Here’s a quick snapshot of our company. Essentially we create, we manufacture, and we distribute recreational electronic software and related chip-based products. Lee Cole led this reorganization in 2006 and it took him only one year to bring the company to profitability. The latest news in terms of our executive team, Chairman Lord Leonard Steinberg, an industry leader of nearly fifty years with Stanley Leisure Plc. He recently sold it for close to $2 billion U.S. dollar, and he is an extremely wealthy, wise, intelligent, and great man to work with. His network in Europe is providing us already, even just in the last two weeks, with some amazing relationships at the very highest level in the gaming industry.
6
We are currently in the phase of launching the American Indian relationship with Sovereign, which we recently announced. And it’s a five-year contract that pays us a guaranteed minimum total of $10.25 million. And 1 million in 2009. And why this becomes important, because of the Indian gaming market in terms of having the ability to have this essentially terminal [?] in your pocket and the ability to drive promotions to that property as well as their on-line activity for their loyal customer base. So we’re very excited about that relationship, and continually working with them to grow into new areas and new avenues to increase their traffic and volume.
We’re also moving our headquarters here to Orange County California. I live in Laguna Niguel. Laguna Niguel as well as Irvine California we feel is the Silicon Valley of Southern California. Great technology talents, great resources, great public companies here and a great overall atmosphere to grow the next generation of our organization.
As you can see by this slide that we feel internally that we’re personally undervalued as a company. But as you’ll learn through this presentation, as well as all of us in our management team are available after this conference to answer any questions that you have. Hopefully you’ll be able to judge and you’ll be able to help us grow with your recommendations.
So our company growth strategy. New areas. And I just want to highlight a few. The company has never ventured into the quick service restaurant category in terms of promotions. And you can only imagine what a very low-cost affordable item that provides both on the children’s side as well the educational side for points of driving additional points for other types of prize offerings within QSRs is an enormous opportunity for us. And we happen to be talking to one of the largest QSRs already even within our first two weeks of us being on board.
7:56
We have new geographic locations throughout the world now with our network. In the U.S., which has been virtually untapped for Electronic Game Card over the past three years and since its inception. As well as in Eastern Europe, and Miss Houssels in Australia, and Southeast Asia. So we intend to grow in those markets now as new financial growth for us.
We also will use this device in terms of the loyalty membership rewards programs. And in this day and age in a depressed economy where consumers are starting to cash in their points, they also want more. So if you think about the hotel, the travel, the casino, American Express, even Jenny Craig and Weight Watchers. A great variety line-up of clients that for the most part we have the network and the ability with our technology to grow in terms of a convenience factor as a platform in their pockets to provide additional points, additional education, whether it’s in their purse or whether they’re sharing it with friends.
So to quickly review the current verticals. In Gaming. A very large market. Roughly half of the addressable market represents the opportunity in lottery alone out of the $577million. This segment represented a very small percentage of our business in 2008 and predominantly via the royalty we received from Sci Games. Significant growth is expected through 2009 via Sovereign Indian Gaming, which I had mentioned previously, and the guaranteed 1 million in first year royalty revenue.
Our Executive Chairman Lord Steinberg is actively working to leverage his global relationships. He maintains a perpetual Presidents role at Stanley Betting, which controls 1,500 betting parlors throughout East and Western Europe, and opportunities in Romania, Poland, Croatia. All of these are prime markets with large volume opportunities and distribution partners.
I would like to highlight briefly our meetings recently to kick off on February 1st when Anna and I were there with the Board and with Lord Steinberg in London. It happened to be the first day of the worst winter storm in London - you may have read about it here – in 18 years. But we had some phenomenal meetings that started off right away with that week and with Camelot. And Camelot controls the UK lottery, as well as they have their plans of extending the Camelot brand across the globe. This is their third term. They’re in their ten-year session now moving forward as of 2-1/2 weeks ago, and they also have an extension of another five years. So meeting with all of their top executives from the Chairman to the CEO, their marketing managers.
As well as we also met with Coral, the Gala Coral Group and their Chairman and marketing executives. They control casinos and betting shops and also bingo.
We met with Atari UK who was fascinated with the product and if you think about the origins of Atari – them starting the gaming business and the gaming factor. They were truly fascinated of how we can insert across six of their various verticals just within their brand alone for distribution.
11:30
Promotions. Promotions vertical market currently represents the majority of our revenues to date. And I kind of started talking about where this market can go for us based on our laser-sharp focus and strategies with QSRs, in the sports industry from my previous network across all teams that are looking for a low-cost, high-value item within the stadiums as well as within collectability, as well as something to do that’s interactive to gain points and also gain additional prizes.
Within the sports, we will be addressing the NFL in New York with their head of technology and innovations for consumer products. Major League Baseball, the NBA, NASCAR to your own personalized driver and the points. All of these sports are statistics-driven, large following of fan-based driven, and they will be skinned in and around those teams as we draw from licenses and their distribution channels. As well as in the European soccer market, there are several teams that are trying to go out in the market, gain additional market share, and provide a value of extended play patterns. So we’re talking with those groups as well.
Within the area of education, the company is developing a range of proprietary educational, knowledge, and fun-based games, and including collectable character trading cards. So if you think about an item that is essentially a $10 price range and below, we really can be the category-buster of that category and still gaining a very high margin net profit on each card.
So let me give you an example. 4Kids Entertainment has one of the largest trading card games available on the market, called Chaotic. And Chaotic is sold at Wal-Mart, over 52 million units in a little bit more than a year. So the current game play pattern is you buy these cards with random number generators preprinted on the cards and you have a base game board. So our game can be inserted into those trading card packs, which actually would enhance the game play. So now you have a go-to-market strategy that accelerates much quicker of changing that game play for these young teens in that demo area and also providing the additional value of the game play and fun without adding another major cost to that game. And it still fits in the same size as those trading card packs, and evolving that industry in a much quicker way.
We have also great phone calls and conference calls with some of the largest companies in education today with bases of over 120,000 schools, book fairs and libraries, major publishing companies in the educational field, which also include the likes of having the #1 kids magazine in the U.S., printed 10 times a year. So please stay tuned for some of these upcoming – the evolutions of those announcements in the field of education as well as the Thomas the Tank card.
So the addressable markets. So within the addressable markets area, this gives a solid breakdown of our goals, where we’re going to go, how we’re going to reach them in five years time.
Our Board of Directors and our leadership team – we’re very, very proud of this team because they are well-seasoned veterans in all the key categories and they’re really a great group of people to work with.
On our revenue from 2006 to 2008 per quarter, you’ll definitely see the upward trend here and also on our earnings to the right. And we look towards sequential growth and increased percentage over what we’ve done in the last three years.
So in summary, Electronic Game Card has successfully turned around its operation, has a great future ahead as we look towards the new products, the new network, and the ability to accretively grow the company in terms of acquiring companies, technologies, and licensing of bringing them into this gaming platform.
So we’re around here. And I really appreciate your time and attention this afternoon. And I hope you have a great time at Roth Capital. And thank you very much.
A few notes from a conversation with IR on Friday:
1. ROTH PRESENTATION. The presentation at Roth on 2/16 WILL be webcast.
2. CEO. It sounds like the company is running on all cylinders. Kevin Donovan was working prior to his official start on Monday and hit the ground running, and he and Anna Houssels are already working well together as a team. Apparently he has quickly conveyed his enthusiasm to the company as a whole, where the energy level and excitement have increased. Everyone sees that the company is ready to move forward with the new products after the recent years where, of necessity, the focus was on getting the company stabilized. Kevin and Anna are in London visiting clients and, as we know, will be in New York with Lord Steinberg after the Roth conference to visit brokers and investors. Both of them have already been in touch with some of their past contacts about the cards, and there are a number of brand-building activities they are working on.
3. LEE COLE. Yvonne is always very complimentary to Lee Cole and his work in stabilizing the company. She noted that the successful Trafelet negotiation was carried out under his watch.
4. TOY CONVENTIONS. The company does not have booths at the toy conventions that happen at this time of year, but EGMI people (my notes aren’t clear about who) are there to do the necessary networking.
5. FUNCTIONALITY. As for functionality of the new cards, it looks like bige2533 was right in post #1351 about the low level of functionality on the current cards being almost entirely due to the need for them to be priced cheaply.
6. NEW LEVEL OF GAME QUALITY. Regarding the ability to jump to a new level of design/game quality, I asked about the designers, as people need to be really delighted with cards they will spend good money on. Yvonne said that the company continues to outsource the bulk of the creative activity, but it is to a group of people who are close to the company. My notes are not clear as to whether she said that customers are very sensitive to cost or whether she was saying customers are very sensitive to all the quality aspects of games, but I think it was the latter. In other words, these games have to be good, which was the point made by GWMAN concerning the Thomas license in post #1339. Those of us who like to see things for ourselves will have to wait a little longer…
Also regarding the new functionality, as new capabilities are developed in the cards, the company is coming across things that they believe can be patented, so we may be seeing “patent pending” notices on new cards.
7. A COUPLE OF QUIZ CARD SUBJECTS. The royal family (obviously for the UK) and world capitals.
8. NASDAQ LISTING & REVERSE SPLIT. Concerning moving to Nasdaq and doing a reverse split to enable it, two points:
a. It would require a shareholder vote to do a reverse split, and apparently there is a very wide range of opinion among large investors as to whether a reverse split is desirable. (In other words – NOT stated by IR – such a vote might not even be successful.) It is still being discussed, but this is not a front burner issue. [Personally, I think that the stock price could get where it needs to be without a reverse split in the same timeframe that would be required to accomplish a reverse split.]
b. The whole listing process, particularly when you have to include the shareholder vote aspect, is a long, expensive process. My impression was that there are many other things that management wants to spend its time, energy, and money on at this point.
9. BUYING BACK SHARES. [My personal opinion is that it was tremendous to buy back the preferreds at an excellent price but that it would be ridiculous for a small company with only a few million dollars in cash to be buying back common shares.] Yvonne pointed out that in the 2007 10K the company still had a going concern qualification. I THINK she said that the going concern qualification may be gone in the 2008 10K, and part of the reason is that the company maintained a sufficient level of cash vs. the level of debt.
Overall I came away with confidence, and bought a few more shares.
It’s Trafelet
See post #584.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=33121074
Trafelet's holdings before his sales last fall
4,517,647 shares of common stock (before the recent sales)
960,000 warrants, each convertible at $.50 to one share of common stock,
expiring 3/24/10
2,851,686 Series A Shares, each convertible at $1.01 per share into about
1.485 shares of common stock. If these shares aren’t converted
prior to March 15, 2010, they are redeemable for $1.50 per
share + unpaid dividends.
(Don’t know if this means the company must redeem them.)
Channel Partners
” The outlook for contractors well-positioned with intelligence agencies is positive”
I’ve been reading over past cc’s to get a better handle on Wave/Government. I see that Wave has put a lot of effort into establishing itself with integrators and getting Wave products on the lists they need to be on for purchase by the government.
This doesn't directly address your question about Wave's consulting contracts, but it means that if the new contract does put things in place for rolling out Wave's software, then Wave has done the work necessary to establish itself with integrators, and through them to be part of the new cybersecurity budget.
For those who are interested in the detail, here are the various excerpts from CC’s where he talks about channel partners and contracts, starting in Q306. (The numbers in brackets are just my reference numbers for where the material came from.)
Q306 [10] There are a bunch of large contracts that have been let. These are IDIQ contracts, indefinite delivery, indefinite quantity. What we try to do is become a subcontractor underneath these contract vehicles, so ADMC is one of those, it's a $5 billion contract. We are a contractor to both Dell and ITG. We’re on TEIS2 with NCI. We're a potential subcontract against ITES-2H, Alliant, Encore and ITES-2S, so the aggregate of those alliances [?] is a $65 billion GSA contract. The reality is these contracts the top line value is almost of no important, the question is whether you get task orders. These are how the server infrastructure would get acquired to support the mass deployment of the client so it is important to have these contract vehicles in place, for us to be part of them. It makes us see all the, gives us the opportunity to see all the task orders and it provides us with the foundation to do business into the federal space. So I think we have done a good job with partnering with a variety of different systems integrators. As those contracts are awarded, if the partners we’re with win, we'll announce that we're on the winning team. If not, in general for a subcontractor like us -- we can then go form relationships with other participants. The way these work, you sign an agreement with an organization to be part of their team to go win the contract, but that contract stops if they don't win, so you can go sign up with somebody else.
These are the various purchasing vehicles he mentions in the Q306 excerpt. He says Wave is a subcontractor on both ADMC and TEIS2. He says Wave is a “potential subcontract” on the rest.
-- ADMC [Army Desktop and Mobile Computing-2 (ADMC-2) contract]
-- TEIS2 [Total Engineering and Integration Services (TEIS) contract awarded to NCI Information Systems, Inc. by the United States Army Information Systems Engineering Command (USAISEC). Under the TEIS contract, NCI Information Systems, Inc. is to provide information systems engineering and information technology support to the USAISEC, and other federal agencies worldwide.]
-- ITES-2H [Information Technology Enterprise Solutions 2 Hardware]
-- ITES-2S [Information Technology Enterprise Solutions 2 Software]
-- Alliant [“The Alliant contract includes Infrastructure, Application and IT Management Services to support federal government agencies' integrated IT solution requirements.”]
-- Encore [“The ENCORE II contracts will provide net-centric solutions, including network engineering, analysis and support for the acquisition, installation, fielding, training, operation and life-cycle management of components and systems in the operational environments of Combatant Commands and their subordinate components, the military services, the Department of Defense and other agencies of Federal government.”]
Q406 [13] Q&A STEVEN SPRAGUE: We have put a ton of work into the government sector and gotten onto a number of contract vehicles, and actually we have a number of systems -- well, it's a number. We have a couple of systems integrators with projects that they are bidding our stuff in on right now, which means that they actually have their contract vehicle already won. They are going back and forth with the actual customer on how they want to use Trusted Platform Modules in their network and pricing our software into their offering, etc. So we will see if they ultimately take it. We haven't closed one of those of any significance yet. We have a few seats that have been deployed, but we have one that we are working on -- we're actually working on it this afternoon -- that is multiple thousands of seats into one of the agencies. So I think we're enthusiastic about that. We would like to see one of those close.
Q406 [16] We have, however, pretty much met up and down the entire channel with how the Army Gold Master gets put together, which is the primary vehicle of how they would buy our client software. So, in essence, they image it on every machine. We know all those players. They know who we are. They are waiting for a network architecture. We would like to see this be sort of early summer kind of decision process, and maybe it takes another quarter after that to actually get funding and purchasing done. But I think it's very possible.
Q107 [21] We have focused predominantly on the Defense Department, because we see them as providing the leadership in government for how strong identity and machine identity is going to be deployed. That's what helped us get the commodity purchasing side.
Q207 [26] But Wave software, which is a management software for the Seagate drive, also doesn't necessarily belong on the blanket purchase agreement infrastructure because we are really a management tool, not an encryption tool. So, we believe the right way that this purchase technology will be purchased broadly across the government is actually through the contracts that are already in existence for buying laptops and desktop machines and selecting a drive as an option. We're working very closely with the channels that we have into the government to ensure that those products, both Seagate's drive and our product, are available as an option for the customer to purchase across those commodity purchase agreements.
Q307 [35] The tools with how they would buy are pretty well understood.
Q407 [42] The other point I would make in government is machine identity, the concept of the TPM turned on to give the machine strong identity is gaining good traction. We have a couple projects underway with the right type of contractors to help specify these pieces. We're working hard to have our technology specified into these contracts, so as ultimately they mature into orders, we're hopefully as broadly written into the contract as is practical. And overall, I would say the progress is solid, but it moves at a government pace.
I haven’t been posting Wave pictures recently. That’s a nice one in your post.
I was reading an article over on the THMR board about a distressed debt investment firm and it occurred to me that if Shep Boone is good at his job (“Specializes in analysis of undervalued securities and distressed debt”) he might be in demand now and may have left Ingalls & Snyder for a better job – which would mean less likelihood of his needing to sell his EGMI shares.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=34553166
From the article:
“In March 2008 Matlin Patterson led a $1.35 billion rescue of Thornburg Mortgage. David Matlin and Mark Patterson, the distressed securities specialists who founded the investment firm, sit on Thornburg’s board.
“Now the buzz is that Flagstar and Thornburg will merge, the TARP-backed bank will finance the troubled mortgage business and Matlin Patterson will sell its cheaply bought shares at an impressive profit. This is a complicated process that can backfire—you have to get on both boards, merge or otherwise link the businesses, have at least one of them obtain cheap government money, and then wait till the stock recovers. But if the model works, Matlin Patterson can do more deals of the same kind.
‘It has the capital, having raised a $5 billion new fund to invest in distressed companies. That was in 2007, but Matlin Patterson did not invest then because distressed securities were not sufficiently discounted. It started to invest in 2008 and will likely find other opportunities in 2009.
“A new report from consulting firm Celent points that since traditional sources of finance are no longer available or too expensive, financial companies may find alternative sources as private equity firms allocate a higher percentage of their funds to such investments.”
Well, that’s an interesting development.
“ Do you have any inkling as to whether Boone was the one mostly responsible for putting Ingalls & Snyder into 3.2 million shares of EGMI?”
I don’t have a clue, except for the information that he was a specialist in undervalued securities. If either he or the firm start selling, that would definitely be a serious drag. Let’s just hope neither of them need money right away. Maybe Steinberg, Donovan, and Houssels will be visiting with these people in February.
FWIW, I find that Boone seems to be a happy man. Maybe he won't have trouble finding another job.
http://www4.colgate.edu/scene/nov2007/notes/default.pl?page=90
“And speaking of mental health, I enjoyed a week of friend therapy at Shep '89 and Jennifer Zachar Boone's incredible island retreat in the McGregor Bay region of Canada along with Chip '89 and Tammy Hopper Cushman and our collective families. Our gracious hosts treated us to an amazing week of hiking, swimming, kayaking, hydrobiking, tubing, fishing, and some of the meanest dodgeball competition I've ever seen. Shep Boone, you are the undisputed King of Dodgeball. We all bow to you. While our combined 7 children bonded over swimming, sports, and frog catching, the adults exercised their minds with hearts, poker, and Canadian beer consumption. It was, hands down, my most favorite week of the summer.”
Are you discounting what Goldstone said in the article posted by wingnut?
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=35166752
“A few weeks ago, it appeared MatlinPatterson Global Advisers, Thornburg's lead investor, had found a solution: A group led by the New York private-equity firm agreed to invest $250 million for a controlling stake in Flagstar Bancorp, a thrift company in Troy, Mich. But Goldstone did not sound optimistic about the widely floated idea that Flagstar's deposit base could be used to finance his company's portfolio. There is "some possibility" that could happen, but "Flagstar would have to raise $4 billion in new deposits pretty much right away and that's not a likely prospect," Goldstone said. "They've already tapped their access to the Federal Home Loan Bank and they've got their own issues."
I was optimistic (for FBC) that they increased deposits in the fourth quarter by about $500 million, but that’s a far cry from $4 billion. “During the fourth quarter, our retail deposits increased to $5.4 billion from $4.9 billion in the third quarter. For the year, retail deposits increased by 5.5% from $5.1 billion at the end of 2007 to $5.4 billion at the end of 2008. We were able to increase core deposits in a difficult market by maintaining our focus on customer service and through our effective advertising efforts.”
http://investors.flagstar.com/phoenix.zhtml?c=91343&p=irol-newsArticle&ID=1250174&highlight=
Also, at this point it looks like they’re not planning to webcast the Roth presentation.
http://wsw.com/webcast/roth20/
EGMI will be presenting at the Roth Conference on February 16th. Also per IR, Steinberg, Donovan, and Houssels will be meeting with institutional investors and brokers Feb 24-26.
http://www.meetmax.com/sched/event_2687/~public/conference_presentations.html?event_id=2687
H. Shepard Boone
http://www.ingalls.net/people.html
H. Shepard Boone
AB Colgate University. Joined firm in 1993 and a Principal since 1997. Formerly, Mabon Nugent & Co. Specializes in analysis of undervalued securities and distressed debt. Principal, MacBay LLC.
Re HR 4040. Roget Holdom in the Q3 2008 cc: We “are working hard with the various children’s groups to ensure that our product is both safe and educational.”
That may be a good site for being alerted to the most recent filings, but for being sure about past holdings, this nasdaq site might be a good place to check.
http://www.nasdaq.com/asp/holdings.asp?symbol=SRZ&selected=SRZ&FormType=Institutional
According to this site, the Penn Davis McFarland holding of 755,880 does appear to be new as of the 12/31/08 reporting period.
This site doesn't show the December filing yet for SAC Capital Advisors. But it does show their position as of the 9/30/08 reporting date. The holdings at that point were 422,699 shares. The change from the previous reporting period was 237,699 shares.
Rawnoc, you have made my point. Things that are given away for free, like promotional cards and message board posts, don’t have to be entertaining to succeed. Things that you want people to buy and play with, like sports or quiz cards, do.
P.S. A little more honey and a little less vinegar would catch more flies (and encourage more DD).
Most flies have very large eyes that allow them to see in all directions.
GWMAN, yes I remember they mentioned in the last CC that there were “some packaging and some demos available” at the Shareholders Meeting.
And it’s a good point about the Thomas & Friends prototype, i.e., looking for indirect evidence that the cards are good. There was a statement in the last CC that Roger Holdom made in his opening remarks: “And as I started with this presentation, I highlighted the growth and success we are making in people contacting us for not only our electronic game cards but also for our other range of products as word is spreading of our work with both Thomas and also with our Quiz Cards.”
I’m still very anxious to see for myself. I went to the web site and played another game, this time Pocket Poker. I find these current cards at best boring, and sometimes downright annoying.
This seems to capture the feeling.
A Big Leap
In the Q2 2007 CC, while talking about toys & games Lee Cole said, “So you are going to see new types of games and more functionality.” I realized that this push toward “new types of games and more functionality” is what makes this a potentially extraordinary investment. The company may continue to grow the promotions business or possibly the lottery business, and that alone might make it a good investment, but if they can get enough functionality into these cards they could enter any number of huge markets. Let’s face it, the current cards, though they probably contain a great deal of technology, are not very interesting.
At the same time I also realized that it’s a tremendous leap from cards that are given away for promotions (or bought as glorified scratch cards) to cards that people will pay good money for, cards they or their children will want to play with over and over. It’s an entirely new type of product that requires not only a leap in technology but a leap in creativity in design.
So the potentially explosive growth depends primarily on
1. How much functionality they can get into the cards
2. Whether they can develop games/quizzes that are fun
3. And, for the collectibles market, whether they can design cards that are attractive enough to be collectible
Not having seen any of the new cards, having no idea what kind of functionality they have or how the cards will look, I feel I’m in the dark here….
But this does make the hiring of a person with a strong interest in design, a person they call a “creative visionary,” an intriguing choice for CEO.
You think Kevin is cute. See Anna.
Anna Houssels Video
From the EGMI PR:
“In addition, Ms. Houssels oversaw VIP sales for CityCenter in Las Vegas, a $9.2 Billion mixed use real estate project developed as a joint venture between MGM Mirage and Dubai World. In this capacity, she focused on expanding the sales network through VIP customers and referrals and liaising with MGM MIRAGE presidents and key executives, plus international and domestic casino marketing teams. Her responsibilities included leading event sales nationally and internationally, and developing new sales leads through business-to-business channels, as well as professional and social personal network associations.”
Here is a video of a presentation she made in that capacity in November 2006.
http://city-center.travel/agent/agent_landing_video.aspx
Click on “Vdara Condo Hotel Overview”
Kevin B. Donovan, new CEO
This is the result of an attempt to get a better understanding of the accomplishments of Kevin Donovan. I realize now I could spend my life on this, as roaming through the internet trying to understand the activities of numerous companies takes you on many twists and turns. (For example, the 1999 article on the All-American SportPark [link 8] makes it sound like a great success. Yet then I find that it was not successful and was sold a couple of years later [link 12]. These two sources also give different accounts of how the park came about.)
So I’m just going to post this as is even though some of the information may not be 100% accurate. Also it includes some conjectures on my part.
Links to sources are at the end, which is what the numbers in brackets refer to.
So it looks like he started out with an interest in graphic/commercial design, as in 1983 he got a degree in Commercial Art from St. Paul College, a community college in St. Paul, MN. Three years later he was Art Director and Creative Director at a Minneapolis company, John Ryan & Co., “which provides design services to retail and banking companies.” [1]
He stayed there about three years, then in 1989 started his own commercial design company in Dallas, Donovan Design Agency. (I believe that this company is the forerunner of U4oria Discovery, as the work in the U4oria portfolio appears to span Donovan’s career. The Chemical Bank design may even date from the time he was at John Ryan & Co. The Pearle Vision stores were done by the Donovan Design Agency [3] and there are also designs for the All-American SportPark, Salt Lake City Olympics, and Smoothie King. [7] U4oria is described as “a strategic marketing and business development firm specializing in sports and entertainment and food service market sectors.”) [5]
In April 1994 he became Vice President of New Business Development at Saint Andrews Golf Corporation in Las Vegas, where he developed the All-American SportPark. His responsibilities on the park included “original concept, design, development, contract negotiations, marketing, sponsorship sales and license agreements with Major League Baseball Properties, NASCAR Licensing, Callaway Golf Company, Delaware North Companies-Sportservice, Jeff Gordon, Inc., Pepsi-Cola, SONY, DirecTV, Sanyo Electric, NAMCO and all other sublease retail, food service tenants and strategic partners.” [3]
Maybe this park is why the EGMI PR calls him a creative visionary: “Leave it to the revolutionaries in the theme park design industry to rescue the beleaguered, hen-pecked masses from a fate worse than housework. On October 9, 1998, after years of planning, the $40-million, 23-acre, state-of-the-art All-American SportPark opened its doors to eager sports enthusiasts. In late December 1998, the All-American SportPark acquired the neighboring Callaway Golf Center and expanded to a sprawling 65 acres. Located within two miles of the Las Vegas strip, the All-American SportPark is the first theme park of its kind in the United States -- if not the world -- to cater exclusively to eager sports enthusiasts. Attractions are intensely interactive. At the NASCAR SpeedPark, participants can whip around on a high performance road course at speeds up to 65 miles per hour in NASCAR-approved NASKART Stock Car replicas. If you don't have a fear of heights, you can rock climb on the 40-foot indoor Rockreation Sport Climbing Walls and then head over to Slugger Stadium to hit a few Out of the park in any one of 16 batting cages. Another enticement is the Boston Garden Experience, a 10,000-square-foot, two-level interactive sports bar and restaurant replicating the famous Boston Garden. Here, one can leisurely lift 12-oz. liquid weights surrounded by decades of sports memorabilia while exchanging viewpoints on the trials and tribulations of professional sports with other couch coaches.” [8]
It may have been the first of its kind, but apparently it was not successful. “The remaining 23 acres was home to the discontinued SportPark that opened for business in October 1998 and was disposed of in May 2001.” [12]
He left that company in late 1998 (just as the park was opening, apparently) to take the high-profile job of Director of Image for the 2002 Winter Olympics in Salt Lake City. Many of the designs for the Olympics are on the U4oria site. [7]
Now he seems to have been going great, and you might think he would focus on commercial design going forward.
But then in August 2000, two years before the Olympics took place, he was wooed by Smoothie King, a private company which at that point had 225 franchises in 22 states, to be their CEO. Per the wife of the founder of Smoothie King, “With the Sydney 2000 Olympic Games around the corner, we knew we had a small window of opportunity before Kevin would begin to take on additional responsibilities in Salt Lake.” The founder of the company described him this way: "Kevin is a multi-dimensional talent with a proven track record of success in creating and building international household brands. We had been looking for his caliber of leadership, experience and strategic alliances for quite awhile and we are thrilled to have Kevin join our team." These are Donovan’s words: "Smoothie King offers a nutritional lifestyle approach that is healthy and very appealing to me personally. Plus the Smoothie King Franchise system is uniquely positioned to go to the next level. [Sounds like EGMI.] Steve and Cindy Kuhnau are high-integrity people with a great passion and commitment for improving lives. This was another very important factor in my decision." [3]
Then sometime between the fall of 2002 and the spring of 2003 he was out of that job. The company had an Executive VP for a while and then the founder was back as CEO. You have to believe that there was some kind of conflict, possibly based on the founder regretting having given up the reins, or it occurs to me that maybe Donovan expected the company to go public.
This set-back may have derailed him a bit, as he then took a short-lived position at Fotoball in June, 2003 a few months before it was acquired, and apparently didn’t stay on after the acquisition. Fotoball manufactured and marketed souvenir and promotional products for sports and entertainment, with licenses from the major sports leagues and entertainment properties such as Blue’s Clues, Spiderman, Barbie, etc. His position there was “VP-Managing Director of Marketing Headquarters (MHQ), the newly created promotional and marketing arm…where he worked with all Major Sports and Entertainment Properties and Licensors.” [5] Per the President and COO: "With Kevin joining the team, we now have the necessary talent and required leadership to successfully grow and expand the company's full service promotional marketing capabilities and capture a sustainable revenue stream with Fortune 500 clientele." [6]
Then in 2004 he started the Planetwide Games online gaming company, where, according to the EGMI PR “he was instrumental in bringing high profile brands into significant partnership deals, including those with Marvel Entertainment, Electronic Arts, National Geographic, NBC Universal Pictures, and Paramount Studios to name a few.” The comic book creation application seems novel and interesting [11] although I don’t know who is responsible for that. Presumably he is out of this company at this point.
His current involvement with Subway in “multiple strategic advisory roles “ [9] is through his U4oria commercial design company. [5]
Sources:
1. http://idea.sec.gov/Archives/edgar/data/930245/0000948830-97-000102.txt
ALL AMERICAN SPORTPARK INC 1996 10K
2. http://www.mnscu.edu/campuses/profiles/stpaulcollege.html
3. August 8, 2000 Smoothie King PR announcing Donovan’s hiring as CEO (See full PR below. I can’t link to it because I found it through my Library’s Pro Quest system.)
4. http://www.spoke.com/info/p6IOLdQ/KevinDonovan
5. http://www.secinfo.com/dsvrp.zb6g.htm
Dirt Motor Sports/Inc • PRE 14C • For 6/30/05
6. http://www.allbusiness.com/retail-trade/miscellaneous-retail-miscellaneous/4459866-1.html
Fotoball Reports "Shortfall" in First Half
Publication: Sporting Goods Business
Date: Wednesday, July 23 2003
7. http://www.u4oria.com/
U4oria Discovery site.
8. http://www.qscaudio.com/press/in_news/aasp1.htm
All-American Sports Park
A Sports Theme Park Requires the Best in Sight and Sound
By Arthur Birling
Reprinted from Sound & Communications magazine, March 15, 1999, p. 42
9. http://www.electronicgamecard.com/press/EGC-Appoints-Prominent-Brand-and-Marketing-Executive-as-Chief-Executive-Officer.htm
EGMI PR
10. http://library.nevada.edu/arch/lasvegas/southlv05.html#005
11. http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/05-18-2005/0003636641&EDATE=
GameFREQ Comic Book Creator Launched by Planetwide Games at E3
12. http://idea.sec.gov/Archives/edgar/data/930245/000126327908000097/aasp10k.txt
12-31-07 All-American Sportpark 10K
3. SMOOTHIE KING CEO PR
Smoothie King Hires Salt Lake 2002 Winter Olympics Director as President Of International Franchise Co.
PR Newswire. New York: Aug 8, 2000. pg. 1
Copyright PR Newswire - NY Aug 8, 2000
NEW ORLEANS, Aug. 8 /PRNewswire/ -- Smoothie King Franchises, Inc. announced today the hiring of Kevin Donovan, Director of Image for the Salt Lake 2002 Winter Olympics, as their new President & CEO. For the past two years, Donovan was directly responsible for developing the "Look and Feel" of the Salt Lake 2002 Olympic Winter Games. He also worked closely with the Olympic family of sponsors, broadcasters, suppliers, licensees and other global strategic partners to leverage the Salt Lake 2002 brand.
"Kevin is a multi-dimensional talent with a proven track record of success in creating and building international household brands," says Stephen Kuhnau, Smoothie King founder. "We had been looking for his caliber of leadership, experience and strategic alliances for quite awhile and we are thrilled to have Kevin join our team."
From the world class Olympic Winter Sports stage in Utah to the world category industry leader Smoothie King, "Original Smoothies", Donovan was asked to comment on his decision to join Smoothie King. "Smoothie King offers a nutritional lifestyle approach that is healthy and very appealing to me personally. Plus the Smoothie King Franchise system is uniquely positioned to go to the next level." Donovan also added, "Steve and Cindy Kuhnau are high-integrity people with a great passion and commitment for improving lives. This was another very important factor in my decision." Cindy Kuhnau, Smoothie King Executive VP also commented, "With the Sydney 2000 Olympic Games around the corner, we knew we had a small window of opportunity before Kevin would begin to take on additional responsibilities in Salt Lake."
Prior to his role with the Salt Lake 2002 Olympic Organizing Committee, Donovan was Vice President of Marketing and Development for five years with Saint Andrews Golf Corporation (SAGC) in Las Vegas, Nevada. Donovan developed the All-American SportPark, a live- action 65-acre, $40M theme park on the "Strip" in Las Vegas and took the parent company public in 1994. His responsibilities included: original concept, design, development, contract negotiations, marketing, sponsorship sales and licensed agreements with Major League Baseball Properties, NASCAR Licensing, Callaway Golf Company, Delaware North Companies-Sportservice, Jeff Gordon, Inc., Pepsi- Cola, SONY, DirecTV, Sanyo Electric, NAMCO and all other sublease retail, food service tenants and strategic partners.
Prior to taking Saint Andrews public in 1994, Donovan enjoyed eight years of entrepreneur success as founder, President & CEO of Donovan Design Agency, Inc., a retail store design and development company with offices based in Minneapolis and Dallas. Donovan created the Pearle Vision 2000 store concept (Won World Best Store Design) and Pearle's new brand identity program. He managed, directed and produced the roll-out/retrofit and installation of 1,200 Pearle Vision outlets in the United States, Europe and Taiwan. Other noteworthy Donovan projects and clients included the new retail development concept and domestic roll-out of 800 Kinko's Copy Centers, the Coca-Cola Company, World Gym Licensing, Las Vegas Golf & Tennis, Gotcha International, Brooks Sports, Zale Corporation, The Associates, KFC South Central, KFC, Scott's Foods Services Canada, Bonjour Bagel Cafes and Word Publishing.
As the new Smoothie King President and CEO, Donovan will be responsible for all day-to-day operational activities, franchise systems, new franchise sales and marketing, public relations, long- term strategic planning, new store concepts, joint ventures and investor relations. Smoothie King is privately owned and is the premier healthy-foods and juice bar convenient store marketplace leader that has over 225 store units operating in 22 states with access of $65 million in total system-wide sales. Entrepreneur magazine has rated Smoothie King as the #1 franchise in their category for the past six years. SOURCE Smoothie King Franchises, Inc.
hnstabe, I appreciate your taking the time to look at the numbers in detail.
I’m trying to do two things:
1. Keep the facts straight concerning past numbers.
2. Make conservative/reasonable projections based on the facts – while trying to keep my desires from interfering with my projections.
UPGRADES
You say, “You project upgrades at 6k and 9k for 4Q and 1Q. If I remember corrrectly, SKS said that upgrades for October almost equalled all of 3Q. That would be about 10,000 for October alone. And he strongly hinted that the pipeline was pretty full of new business.”
I know you want to believe there were 10,000 upgrades in Q3. But 10,000 upgrades would have been 2.5 times as many as the previous quarter, and if they had sold that many, Steven Sprague would have been shouting from the rooftops. From under 2,000 in Q1, to about 3,800 in Q2, to 10,000 in Q3 would have showed real, sustained improvement. I believe that a careful listening to the cc will still show that he said 3,000 – 4,000 upgrades were sold in Q3, which is essentially flat with Q2. No wonder he didn’t want to talk about it.
So, yes, he did say October almost equaled all of Q3, but that makes 3,500 a reasonable estimate for October. If that pace continued for November and December, we would reach 10,000 in Q4, which would be a strong, promising number. I hope that my estimate of 6,000 is low, but as I said in post #173976, “I chose 6,000 for Q4 upgrades in spite of the strong October for two reasons. One, the possibility of softness in spending in November and December, and two, the fact that Q2 also started as strong (relative to Q1) but ended up less than twice Q1’s number.”
As for Steven saying the pipeline is full of new business, I don’t know specifically what you are referring to, but it is true that he said a number of positive things in his opening remarks:
-- average customer order size is going up
-- the number of new customers is going up
-- business is closing in both the U.S. and Europe
-- “we’re seeing continued connection with the enterprise's focus on moving towards hardware”
-- “we're seeing many more customers who are deploying the encrypted drives also deploying some of the features and capabilities of the Trusted Platform Module”
These last two statements are particularly heartening. The next to last one isn’t very clear, but he may be saying that businesses are responding to the Intel push of moving functionality into hardware. If so – if enterprises really are starting to get it – that would give a real boost to hardware-based security over time.
And his last statement implies that the TPM is getting noticed. If one of the large potential customers orders ERAS for their TPMs, then we could see a bump up in orders in any quarter, including Q4. But without a large order, all of his statements would be consistent with an increase of 70% quarter-over-quarter (3,500 to 6,000). I think anything between 6,000 and, say, 12,000 would be a reasonable guess for Q4, assuming no large order for managing TPMs already in place.
FDE DRIVE SALES
You say, “Your 12k and 16k of FDE sales is only 0.05% of the Dell Es sold in both 4Q and 1Q. Do you think Seagate will drop the FDE product line soon? I don't and I look for FDE to spurt to 5% of so by 1Q.”
I think that the slow adoption of FDE drives is totally incomprehensible, so it’s hard to project into the future. Maybe the introduction of the E Series will somehow spur adoption of the drives, maybe the 7200 RPM will make a difference, but I don’t see how those things would be material to the decision of whether or not to start buying FDE drives for your business. Also, we were told last spring that NSA qualification was important for potential buyers, but that has had no effect that I’m aware of.
Or maybe those thousands of companies who are supposedly doing trials will suddenly start to order. I can’t figure out why they haven’t ordered yet, as there were a thousand companies way back in Q1. Where are their orders? I really don’t get it.
So until I see some actual evidence that volume is increasing substantially, I’m projecting very slowly-growing volume, which is what we’ve seen so far.
Possible monthly figures based on Steven’s statements:
Q1 6,000 (SKS: “under 10,000”)
Q2 9,000
- - - - -
Q1 + Q2 15,000 (SKS: “under 20,000” to date, as amended in Q3 cc)
Q3 11,000 (SKS: 3,000 – 4,000 times 3)
- - - - -
26,000
ambulance, yes that’s one of the reasons I did this, to check up on what they had promised regarding announcements. They made a lot of statements like that in the Q1 CC.
They have come through on some of those promises, like Thomas, but it’s a little hard to understand why they continue making these statements. I’m beginning to wonder if they’re even aware of it. My impression is that very few managements review what they’ve said in past conference calls. I’m assuming/hoping that the new CEO will be more careful, as it makes a real bad impression.
I missed another Q&A exchange about the sports cards at the end of the Q3 CC:
Q: When do you start -- when do you think you're going to start launching some of the sports and quiz type products?
LC: It won't be ‘til Q1.
Q: Okay, of '09. So nothing this year?
LC: Yes, no. We’ll have – they’re still in prototype. I mean they weren't in our numbers anyway, but –
Q: And is the sports – do you think it will be launched in both Europe and the US or do you think it will focus in Europe to start?
LC: We've – initially we've been working in Europe but we're – we hope that we're going to launch in the US as well. We should have an announcement out on that pretty soon.
Q: Okay, so you're – and is this something that you – you're contacting – is this like a team type thing or you're going through retail outlets?
LC: We're – initially we're going through some team type – team type things. But we're still in discussions.
Sports Cards in Last Few CCs
I’ve started to go through the last few conference calls to collect statements about different aspects of the company and put them in one place. It’s hard to keep the details straight when there are so many card areas – lotteries, the promotional business, sports, toys and games, gambling, Native American gambling, quiz cards – plus a lot of other things such as management, strategy, distributors, the mobile phone product. This makes it easier to watch areas develop (or not develop).
I don’t know if I will do any more, but here is the info about the sports cards.
SUMMARY
In the Q1 CC
-- I thought Roger Holdom was implying that they had a deal in place with the European Soccer League, a deal they were going to announce before the end of Q2.
-- They described the sports card business as being their traditional model of EGMI providing the cards to the customers.
-- In addition to soccer, they mentioned “the NBA, the NHL, Formula One and NASCAR.”
-- They also imply they will be hiring new management to head the various divisions.
In the Q2 CC
-- RH says they will launch the first sports cards by year-end. Then in the Q&A, Lee Cole says the cards are for next year.
-- They make it clear that they do not yet have a contract (“we continue to work toward sustaining a major contract”).
-- It also sounds like development of the cards is not yet completed and there are a number of different formats (“The sports collectible game card, the sports game cards, or the sports memorabilia game card are all under development”).
-- They’re still talking about the European Soccer League and other sports and add American football, baseball, and golf.
-- They describe the sports card as an example of a Quiz Card.
In the Q3 CC
-- RH says they are making “good progress.”
-- He indicates that they are very concerned about getting out a good product at the right price with the right relationships. He may be implying that it has been harder than they expected.
-- He seems to be implying that they have some distributors lined up.
-- He changed the market size from $300 million to $100 billion.
TRANSCRIPTS
Q1 2008 CC
RH opening remarks:
The sports-card line is a strong market, and we believe this addressable market is in excess of $300 million. The initial product is a game card that incorporates team and individual-player details with an electronic game in an affordable, collectible format, which will retail at around $5 per unit. Again, our margins will be consistent with our current business.
The target markets are sports with large, addressable fan bases, where EGC can sell its collectible, low-cost, handheld, electronic games to groups that are involved in soccer, the NBA, the NHL, Formula One and NASCAR. To succeed in that, we need to build relationships. And our first opportunity is in the European soccer market, and Europe's top 20 soccer teams, including clubs like Manchester United. Manchester United already has over 300 million fans globally, of which 120 million are considered active. We have plans to announce specific details of this product and relationships before the end of this current quarter.
Q&A
Q. Is Q4, typically, going to be the highest quarter in terms of operating expenses, and then the first half of the year is going to be lower? Is that the right way to think about it?
LC: I mean it was a little bit higher last year, but I think, with the new management we've got coming in, and with these new markets, the model, probably, is going to change a little bit -- not significantly, but with the new CEO and with the new heads that we're putting -- that we're getting in for the sports markets and the toy-and-game market -- we're going to have a bit more operating expense.
Q&A
Q: Great. That's terrific. And, then, you mentioned something about the bespoke-type deals you had signed. And -- so that being close to 100% margins, since its basically just a licensing-type deal, do you anticipate these -- anything to do with, maybe, a sports team or anything like that -- to be a similar-type structure? Or is it more of, like, your traditional business of actually providing the cards?
LC: Yes. Now, the sports is our traditional business of providing the cards.
Q2 2008 CC:
RH in opening remarks
During the second half of 2008, EGC expects to see development of additional partnership, distribution, and licensing agreements as well as in the launch of educational toys – in the area there – and by the year-end of sports game cards including the highly-lucrative sports memorabilia sector.
RH later in opening remarks
The sports collectible game card, the sports game cards, or the sports memorabilia game card are all under development. The potential addressable market is over $300 million. Now EGC is already working hard with a number of large sporting franchises to complete an entry into this opportunity. We want to work with teams, say in the European soccer league. Now Europe’s top 20 soccer teams, including clubs like Manchester United, have well over 300 million fans globally of which 120 million are currently active. Plus the other major sports franchises globally, covering all the major sports, from baseball, basketball, soccer, American football, and moving into other areas where we know there is keen interest including motor sports and working on products such as golf.
We believe that it is an incredibly positive outlook and we continue to work toward sustaining a major contract in this area. Now as everyone, when I use the word “contract” I know you’d like me to tell you more about the products and more about the companies involved. But I must say these franchises are incredibly keen on confidentially. Not even when we sign a product contract but also until the actual product is ready for launch. They’re also very keen that they should get the maximum publicity for this particular product especially the distributors and retailers of it, so they’re very keen at the moment. All I can say is that we see a major opportunity that is being reflected in the marketplace and we are working with major teams and major distributors to ensure that we maximize the opportunity with the Quiz Cards in this particular format. So we’re very excited about the educational games.
Q&A
Q. Sure. In terms of those new initiatives can you give us a sense for what your guidance assumes maybe for each of those new growth areas, when it’s going to hit. You know, is it all your existing business for the remainder of this year and then maybe sports and education comes in in the first half of ’09? Maybe just kind of broadly speaking what...
LC. Yes. It’s our existing initiatives for this year and then next year we expect much more influence on the gaming side obviously with again with Lord Steinberg running the company. And that’s when we see the educational and the sports initiatives which we’ve probably got down for 15% of next year’s revenue.
Q&A
LC. Yeah, I mean, again this is subject to change but for the moment, the 14 cents for next year is roughly 50% promotional, 15% lotteries, 15% gaming, and 15% education and sports, and then 5% other.
Q3 2008 CC
RH early in opening remarks
“EGC is in the process of developing additional partnerships for distribution and licensing agreements and further progressing our global sports division as well as the educational toy card, all of which are expected to support further growth and revenue growth.”
RH later in opening remarks
We're also making good progress with our sports products. We continue to build distribution and find the right partners to market these to the various global sports bodies that are so prevalent around the world. Our sports division is targeting a $100 billion market and establishing a good product at the right price with our global partners. Getting sporting relationships correct and ensuring that we deliver the right product is a major part of our activity towards 2008 and into 2009, ensuring that those franchises and also the regulatory bodies that control these sports see that our game cards continue to meet their standards for both customer value but also generating the right licensing revenue. Again we hope to announce more news about how we intend to structure, build and develop this division within 2008 and 2009.
LC Q&A
Yes, sure. For 2009, you know we're expecting the revenue to come from probably about 10% lotteries, these are all approximate, about 15% gaming, somewhere in the region of 15% sports, and approximately on the promotions side that should be about 40% to 50% next year.
cslewis, thanks for responding. But I’m not sure what you are referring to when you say that the Q3 deferred revenue could indicate greater upgrade traction. Steven told us that there were between 3,000 and 4,000 upgrades in Q3, and in your own post #173196 you stated, “Based on relistening to the conference calls, I believe Q1 volume was about 2000, Q2 was under 4000, Q3 was also under 4000 and October was also less than 4000.”
I don’t know for sure what else besides upgrades was in the Q3 deferred revenue increase of $462K, but at least some of it is probably from the new eSign license.
SKS Q3 CC: “…there were a couple of communications during the course of third quarter from our eSign team. And one of the larger projects that we are involved in, we closed a multi-hundred thousand dollar project that is a licensing deal. So it will actually be revenue billed out over time. We should see almost all of that over the course of the next 12 months.”
Also, I chose 6,000 for Q4 upgrades in spite of the strong October for two reasons. One, the possibility of softness in spending in November and December, and two, the fact that Q2 also started as strong (relative to Q1) but ended up less than twice Q1’s number. At some point, I expect to see a jump up in volume, but I'm waiting for evidence.
oclv99, there’s a lot of detail below, probably more than you want. I was fooling around with this and since it addresses your question, I’ve posted it. It shows about $3.7 million net billings in Q4 and $5 million net billings in Q1 leading to cash on hand of approximately minus 400K by the end of Q1 (if no more PPs are done). I calculated this from the bottom up (i.e., I wasn’t trying to come to a particular result) and tried to be realistic on sales.
DELL, FDE, UPGRADES
I showed a decline in Dell computer sales due to the economy, and fairly small improvements in upgrade and FDE sales because so far there is no evidence of traction. The fact that Wave needed to sell stock at $.28 a share near the end of Q4 says to me that there is still no traction in upgrades or FDE sales. I used 6,000 upgrades in Q4 for sales of $360,000. If there had been, say, 20,000 upgrades (even one large customer) that would have equaled sales of $1.2 million – enough to have made the December PP unnecessary.
OPEX, SEVERANCE, A/P
I used Opex for Q4 of $5.725 million, $1.5 million less than Q3. I subtracted another $200K for Q1. I did not take into account any severance payments. I also did not show any paydown of the $ 3 million Accounts Payable build-up during Q2 and Q3.
Q4 NET BILLINGS Q1 NET BILLINGS
Units Price Millions Units Price Millions
Oct D Series 1,500,000 .25 .375 Q1 D 1,500,000 .50 .750
Oct E Series 1,000,000 .45 .450 Q1 E 3,500,000 .90 3.150
Nov D Series 750,000 .50 .375
Nov E Series 750,000 .90 .675
Dec D Series 750,000 .50 .375
Dec E Series 750,000 .90 .675
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
5,500,000 2.925 5,000,000 3.900
FDE 12,000 7.50 .090 16,000 .120
Upgrades 6,000 60.00 .360 9,000 .540
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
.450 .660
Acer 400,000 .20 .080 500,000 .100
NEC 0 0
Bcom, STM, Intel .150 .180
eSign .050 .070
Services .040 .040
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
.320 .390
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
TOTAL NET BILLINGS 3.695 4.950
= = = = = = = = = = = = = = = = = = = = = = = = = = = =
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Q4 CASH Q1 CASH
CASH AVAILABLE
CASH FROM Q4 SALES CASH FROM Q1 SALES
ETS (October + November sales) 1.875 (2/3 Q1 sales) 2.600
FDE (2/3 of Q4 sales) .060 ( “ ) .080
CASH FROM UPGRADES (total Q4) .360 (total Q1) .540
CASH FROM “OTHER” (total Q4) .320 ( “ ) .390
- - - - - - - - - - - - - - - - - - - - - - - -
2.615 3.610
CASH FROM Q3 SALES CASH FROM Q4 SALES
Receivables at 9/30 .933 Rec at 12/31 1.080
CASH NEEDED
COGS 3.695 x .11 ( .406 ) 4.950 x .11 ( .545 )
OPEX Q3 – 1.5 million ( 5.725 ) ( 5.525 )
D&A .100 .100
SBC .500 .500
CAPEX ( .100 ) ( .100 )
- - - - - - - - - - - - - - - - - - - - - - - - -
( 5.631 ) ( 5.570 )
BEGINNING OF QUARTER CASH ON HAND
COH End of Q3 .697 COH End of Q4 .492
PRIVATE PLACEMENTS
PP 10/30 .678
PP 12/26 1.200
- - - - - - - - - - - - - - - - - - - - - - - - -
1.878 0
END OF QUARTER CASH ON HAND
END OF Q4 .492 END OF Q1 ( .388 )
= = = = = = = = = = = = = = = = = = = = = = = = =