Saturday, May 16, 2009 2:46:55 PM
EGMI Q1 2009 CC Transcript
May 14, 2009
Kevin Donovan, CEO
Lee Cole, Former Interim CEO, Current Board Member
Yvonne Zappulla, IR Representative
KEVIN DONOVAN
Well, thank you very much Yvonne. And thank you all for joining us this morning. Those of you who do know Yvonne Zappulla, I’m sure you can support my compliments to Yvonne for doing an outstanding job of balancing both the company and also the IR daily activities. And she just does an amazing job.
I want to thank all of you again for spending your time with us today because these are very, very exciting times for the company and our shareholders. It is truly a privilege for me to report to all of you today our achievements during our first quarter of this year.
And for the first quarter of 2009 Electronic Game Card generated revenues of $3 million, an increase of approximately 29% over the prior year first quarter revenue of $2.3 million, and 5% above fourth quarter 2008 of $2.8 million. The first quarter increase was diluted by a 40% increase in the value of the U.S. Dollar over the British Pound Sterling.
Our revenue growth during the quarter was predominantly driven by our further penetration of Electronic Game Card into the promotional market, additional licensing revenue in the Native American gaming market, and interest in the new lines introduced. Electronic Game Card reported comprehensive net income of $1.7 million, which equates to $.03 cents per diluted share. This was slightly above expectations and compares to a net income of $1.3 million or $.02 per diluted share during the same period last year, and income of 1.4 million excluding the $419,000 investment sale for the fourth quarter 2008. Importantly, first quarter 2009 income from operations totaled $1.8 million. This is a record level for the company compared to operating income of 1.4 million for the first quarter and 1.5 million for the fourth quarter of 2008.
As of March 31, 2009, Electronic Game Card had approximately 60 million shares of common stock outstanding with a weighted fully diluted share count totaling 67.8 million. The aggregate proceeds if all options and warrants were to be exercised would generate over $5 million into the company. It is important to note for the foreseeable future we intend to increase the share count only to accommodate key executive management and Board of Director stock options, and only at levels that are reasonable.
The gross profit generated for the three months ended March 31, 2009 was at the record level of $2.3 million, and generating a 76% gross margin. Growing and maximizing gross profit dollars is our top focus. As events unfold over the coming quarters throughout this year, some of our current contracted opportunities will greatly accelerate our revenues at margin percentage levels that will still be very strong. Could be less than 70% of margins if we have enjoyed from less robust revenues and volumes. [?]
Conversely there are a number of potential license royalty relationships with well-established household brand names that naturally generate little cost against revenues. As these new business relationships become public we will update you with proper guidance.
The company’s operating expenses during the first quarter totaled $530,000 or less than 18% of revenue. As we manage our growing business going forward absolute costs will increase as we continue to build upon our internal talent and broaden geography to reach an even greater client base. However, we do not anticipate expenses as a percentage of revenue to increase from levels we have generated over the past quarter. Your company and Board of Directors have been very highly disciplined in managing expenses and will continue to do so under my direction.
Our balance sheet continues to strengthen. Cash and equivalents on March 31st 2009 were $9.7 million, an increase of approximately 4 million from first quarter 2008 and an increase of 1.4 million from December 31, 2008. At quarter-end the company’s current assets totaled 12.8 million and current liabilities were 1.2 million, representing a 10.7 current ratio. The Series A Convertible Redeemable Preferred stock totaled 4.5 million at quarter end. And importantly Stockholders Equity has risen for the ninth consecutive quarter to $14.6 million, an increase of 1.3 million in a three-month period.
One year ago we established our fully diluted earnings guidance of $.14 per share for 2009. Today, given the current global economic environment, we reiterate our confidence in achieving our earnings per share goal based on our current contracted backlog and despite approximately 10% increase in our fully diluted share count and essentially a doubling of our overall quarterly expenses as we prepare the company for our next level of growth. We intend to add to that goal with all the hard work and extensive network this new execute management team brings to Electronic Game Card.
Now, most importantly, the upcoming second quarter of 2009 is shaping up in line with our plan to deliver record revenue and earnings.
Now let me pause a moment and discuss our business model. Particularly in context to this year’s expectations. Electronic Game Card is both a consumer goods technology development and marketing licensing company of innovative technology focused on maximizing net profit dollar distribution per unit. 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 the distinct vertical markets such as gaming, promotions, 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.
Now let me shift the conference call focus from the figures to short-term milestones going forward. So our opportunities in each of our three business segments.
First, gaming. In the past this area only reflected $125,000 per quarter we received from Scientific Games. Now beginning this first quarter 2009 we added $250,000 per quarter guaranteed license minimum from Sovereign Game Card who is our Native American casinos-focused licensed distributor partner. In addition we have been working on sectors such as national and state lotteries outside of the United States and casino gaming projects in the European, Las Vegas, Australian, and Asian markets, where Miss Anna Houssels, our Executive Vice President of Sales and Director, has long-established successful relationships entry [?] of EGC products into betting shop opportunities in Eastern Europe.
Now as you might recall, our Executive Chairman, the Lord Leonard Steinberg, maintains his Perpetual President role at the company he launched 50 years ago and subsequently sold, Stanley Leisure plc, which controls 1,500 betting shops and parlors throughout East and Western Europe, whereby the company’s management team continues to gain progress in these new areas and territories such as Romania, Poland, and others.
11:35
Now our second key business segment, promotions. The bulk of our current and future internal sales efforts and distributor relationships for interactive entertainment technology are focused on this promotion vertical market, which includes hotels, casinos, resorts, marketing and promotional firms, quick-service and casual restaurant chains, consumer packaged goods companies, large-scale mass-market retailers, toy manufacturers, video game publishers, trading card companies, popular entertainment and sports properties and brands. Now specifically these areas of promotions focus on redemption or product launch programs, self-liquidating promotions, increasing foot traffic in the retailers, in the restaurants, and continuity programs for collectability, as well as loyalty rewards-driven motivators for areas such as players’ clubs and slots programs
Now our new iQuiz card, which focuses on trivia, is a new platform which has natural synergies with sports and entertainment genres while appealing to large-scale fan bases. So we’re hooking into those large-scale fan bases with this promotional platform. We have multiple opportunities in this dynamic promotional marketing area as our credit-card-sized platform allows for B2B clients to easily customize their promotion, their brand message, thus re-skinning the graphic formats on each card to the new clients.
There is a clear, wide-ranging enthusiasm from the field which we’re receiving for the new iQuiz cards, and entities are actively considering our iQuiz cards at this current moment.
13:42
Our third segment, education. This is a $2.2 billion global market and growing. To our knowledge, there are no products at the affordable $10 retail price and under, and we’re confident we have a new category-buster as an on-the-go, mobile-style, and mobile-type entertainment game card for parents and their children. And a product that is not connected to the internet and not connected to any mobile phones or carriers. And early responses from our European business-to-business network and based on the reaction of Thomas and Friends, which is an enormous global brand, our Electronic Education Game Card has tremendous possibilities. Currently there are several gold standard brands in education publishing and education media who are currently in review of this new product offering of EGC. We expect the first cards to be shipped in time for this Christmas and holiday season in the U.K. market.
Now let me talk about distribution partnerships. When looking forward to future milestones it is important to understand that we intend to maintain an outsourced business model. While we continue to work with an internal sales effort, we are firm believers in the power of utilizing strategic distribution partnerships. We are in active discussions today with several regional and channel partners, and it is our goal to announce a new relationship before the end of this current quarter.
Increased IP, patents, and regulatory approvals. Given that we are a technology company, continued IP development will be key to building our value, and thus we will continue to be aggressive in protecting our technology. We are in the process of filing more patents by expanding our protection of our current technology and surrounding our new product lines as well.
Additions to the Board and executive ranks. Now that we have firmly established our business model within our three business segments of gaming, promotions, and education, and we’ve delivered nine successful consecutive quarters through a very difficult time in our economy while maintaining strong profitability, and have identified new markets of focus, we are in a unique position to make one to two strategic additions to our Board of Directors, who by our criteria and our selection process is based upon adding exponential value through potential new business revenue from their relationship network and seasoned public market experience as we position and prepare your company, Electronic Game Card, to reach our future goal of becoming a successful Nasdaq-listed company.
In addition, our CFO, Linden Boyne, who served the company extremely well over all these years, will be retiring in the second half of this year, and therefore we are in the active process of reviewing applicants for CFO. I and the Board have already met with some incredible talent to be the new CFO.
Insider buying. You may have noticed that there has been a significant insider buying just before our window closed in anticipation of reporting this quarter. The Lord Leonard Steinberg purchased two million shares in the open market, bringing his holdings up to 13.9% of the outstanding shares. All executives in our company own EGC stock, of which most was purchased in the open market. When appropriate we plan to continue that tradition.
In addition our Series A shareholders have formally approved the company’s 5% share repurchase, and when it strategically makes sense we now have the flexibility to act.
So therefore to summarize, we’ve had a successful 2008 and Q1 2009. Our current backlog momentum gives us confidence in our guidance moving forward throughout 2009. The new executive 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 current guidance of 17 to 18 million in 2009 full-year earnings, per share guidance of $.14 fully diluted EPS.
Now with that, I will now open this call up for questions. Operator.
19:30
Q&A
[Operator instructions.]
TODD EILERS – ROTH CAPITAL PARTNERS
Q. Hi guys, thanks for taking my question. Kevin, can you maybe talk a little bit - lets see, how many, can you tell us how many game cards total you guys sold in the quarter and also what your backlog is at this point?
LC. You want me to…?
KD. What I’d like to do is – Lee would you like to field that question from Todd? And Todd, good morning, thanks very much for joining the call.
Q. Thank you.
LC. We’ve got – we were just south of 1.6 million game cards for the quarter, but we’ve got a very healthy backlog. We’ve got at least 60% of this year’s business already contracted.
Q. OK. And then can you maybe give us the mix or the breakdown of how much of your revenue was sales vs. recurring revenue, also including in that recurring revenue obviously the Sci Games and the Sovereign…
LC. Yes, exactly. Well basically, what we call recurring revenue is the Sci Games, The Sovereign and other licensing contracts. And currently that’s probably somewhere around 65/35 and that could increase on the licensing side because as Kevin says, you know, that’s very profitable business for us.
Q. You said 65% sales, 35% licensing royalty?
LC. Yes, approx. Yeah, yeah. Give or take a point.
Q. And then, let’s see, you guys obviously have a lot of new opportunities you’re looking at. As far as going into Q2 can we expect any of these initiatives, whether it be the Quiz Cards or the Thomas & Friends educational card or on the gaming side, whether it’s selling into the betting shops or signing a large enterprise deal with a casino operator. Can we expect any of these to start contributing in Q2 and just how should we look at that going forward?
LC. I think Q2 you’re not really going to see it kicking in. I mean, remember Kevin and Anna only joined us the beginning of February. I think Kevin can talk to this about some of the opportunities which they’re working on which are very significant which you’re probably going to see more in Q3, Q4. Kevin?
KD. Yeah, in terms of being launched and activated, but being announced we’re targeting, Todd, at least two to be able to announce in the second quarter.
Q. OK. OK, that’s helpful. And I guess the other question is with regards to some cash flow numbers. In the press release I think you guys indicated you generated 2 million in free cash but if I look at the cash and investments it looks like it sequentially went up by about a million. Can you maybe tell me what you guys spent the other million on? Where that went.
LC. Yes. A good part of it was the buyback of the preferred.
KD. Trafelet.
LC. Yeah, which was about $800,000. And the rest was a follow-on investment in one of our investments.
Q. OK. And then just to follow on that, going forward over the next couple of quarters, do you anticipate monetizing any of those investments or making any, I guess, any more significant investments?
LC. No, I think the Board’s policy going forward – I mean previously going back historically with the company, we made these investments in synergistic technologies, but the Board has changed policy and we will be monetizing the investments, and in future we’ll be looking to make acquisitions or do licensing deals.
Q. OK. And then last question, related to the Sovereign tribal opportunity. Obviously you guys get the minimum royalty fees that they kicked in this quarter. Can you maybe talk about how that business is performing and should we anticipate you guys maybe getting a little upside above and beyond the minimum royalty payments for this year?
KD. I think currently the key is the minimum, and anything above that is gravy. They are actively marketing and selling to several tribes in various regions throughout the U.S. and so we’re really working very closely with them.
LC. And, Todd, I think the important thing is when you’ve got new business like Sovereign is building, it does take a while to do focus groups, trials, and get it out there. But this is the foundation, if not for this year but real incremental revenue next year.
Q. OK. That’s helpful. Thanks guys, appreciate it.
25:00
MICHAEL WEISS – JOSLYNDA CAPITAL
Q. Hi, I was going to ask a little bit if you could – further on the investments, which are actually a fairly large number on your balance sheet, do you have any time frame or is anything close, I know we want…
LC. Yeah, Michael, we – the Board has stipulated they want to be out of all but one of the investments in the next 12 months. So we’ve got one very strategic investment in PrizeMobile, which I imagine we’ll hold on to, but the others, which are in different technologies, we’ll be looking to monetize in the next 12 months and be out of all of them and turn it into cash.
Q. OK. Second thing was how much are your future infrastructure and hiring plans, is that, are you expecting a big number, and in essence have you really raised guidance but kept it flat because of additional expenses and additional shares outstanding?
LC. I think we always budgeted for additional expenses as the company ramps, and you’ll see more expenses next year but not until we’ve got the revenues. Kevin do you want to….
KD. Yeah, Michael, I think it’s as needed as it centers around projects and reoccurring promotional programs. There’s no need to add additional cost just for adding add additional cost. So we’re keeping it extremely tight.
Q. And I’m sorry I missed the answer to the prior question. What was the percent of backlog – what’s the percentage this year that’s already booked?
LC. Six-zero. 60.
Q. 60%. Thank you very much.
LC/KD. Thanks, Michael.
STEVE MAIDEN – MAIDEN CAPITAL
Q. Hi guys. Good quarter. I had a question, just one question. When you might be thinking about putting out your 2010 guidance. And you know there’s – Roth has numbers out there, I wondered if you could comment on them? They were estimating 21.9 in revenues and $.18 cents in earnings. Do you think that’s achievable? Can you make any comments?
LC. Yeah, I mean we definitely think that’s achievable. And you know we’re waiting to see if some of these large orders which are incremental to our current guidance shape up and when we think they’re going to kick in. So that’s why we’re being prudent about putting next year’s numbers out there because we’re hoping to beat it.
Q. So you’re likely to put out next year’s guidance once you are able to hopefully announce one of these game-changing type deals?
LC. Yeah, I think that’s a good summary, don’t you, Kevin?
KD. I totally agree.
Q. And did I hear you, Kevin, say that you’re hoping to announce as many as two of these in Q2, meaning by the end of June?
KD. In terms of strategic relationships and opportunities bringing new revenue to the company.
Q. That would be fabulous. All right, guys. Thanks a lot.
KD. Thanks very much.
28:30
STEVE GITTEMORE[?] – VERTIS[?] CAPITAL
Q. Yeah, hi. It’s Steve Gittemore[?] from Vertis[?] Capital. I just want to go back to that 14 – I’m sorry, to the – I guess it’s 14 million of investment assets. Do I have that right? But I mean it’s the $1,880,000 that you guys booked this quarter. The – how are you – let me see, I’m sorry it’s 7.4 million, right, up from 6.5. OK, so we added a million dollars at cost from quarter-over-quarter. How are you treating – you said you bought back $800,000 of the Preferred. How does that work? I mean are you guys holding that? Are you going to get dividends on it or you’re going to convert it into stock and then it becomes reduction of an investment, it becomes a contribution to shareholders capital. Could you just walk me through the accounting on that? I guess my question, my ultimate question, is why wouldn’t that have just been retired?
LC. The Preferred was retired. I think the increasing investments wasn’t yet – the investments have increased due to a small investment of around $500,000 and the other was a gain in the investments.
Q. Well. OK. So well now I’m having trouble with the cash then because I thought you said – and my own analysis suggests that the investments obviously went up by something close to $900,000 and you said that you bought back $800,000 of Preferred so I thought that was that. But….
LC. No, if you – $800,000 of Preferred, $500,000 of investments is approximately 1.2, 1.3. I haven’t got the numbers in front of me, but that’s how it works out
Q. OK. But on the repurchase of the Preferred – oh, this is kind of – OK, so the Preferred is still shown on your balance sheet as 4.46 million as it was at 12/31 and then it’s still the same number on…
LC. Yeah, there was an anomaly there, because actually – we actually purchased the Preferred after year-end. So we purchased it in Q1, but the holders of the Preferred converted to common stock prior to year-end. That make sense?
Q. Well, maybe, yeah. So wouldn’t – but then the cash usage wouldn’t….
LC. We didn’t pay for it. I mean they converted Preferred to common stock by year-end, so effectively we purchased common, not Preferred. But they were a Preferred holder, we’d agreed to buy their Preferred, but by the time we got our permission from our Preferred shareholders to purchase it it was in the middle of January. And prior to them agreeing to sell it to us in mid-December and us getting permission they had converted it at the end of December to common.
Q. So then why – then your deal would have been off, right?
LC. No.
Q. Why buy it back at that point?
LC. Because we bought it back at a very advantageous price and we had permission to buy it back. Otherwise it would have been 3 million shares hitting the market.
Q. OK.
LC. OK?
Q. Yeah, I think, OK, I see. OK. But just then – but I’m still trying to understand why the investments went up by 900.
LC. Because there was a $500,000 invested and then there was a gain in one of the investments.
Q. Oh, so you booked a gain.
LC. Yeah, yeah, yeah.
Q, And did that run through in the income statement?
LC. Yeah.
Q. Oh, I see and then that could have – where would I have found that on the income statement, I’m looking at it right now.
LC. When you get the Q, you’ll see it in the Q. You don’t see it. I mean…
Q. So, well it has to hit something on here, right? Is it in revenue is where you have it?
LC. I haven’t got it in front of me. When the Q gets published, it’s very clear.
Q. “It’s very clear.” OK. Because that would be – I would think that something like Other Comprehensive Income, but that’s too small looks like.
LC. Yeah.
Q. Ah, no, no. It is a…. Ah, no… small…. OK. Ummmm…..
LC. And it’s miniscule in the scheme of things, but it’s definitely mentioned in the Q. I haven’t got it in front of me unfortunately.
Q OK. And I know a number of prior callers have asked about the guidance for the year. Right now you’re on – I’m more concerned on the revenue side. Is there anything – so right now we’re on track for maybe 12 million in revenue if you just annualize this first quarter. Is that way under what you guys are expecting? Or is that?
LC. No. That’s in line with guidance. I mean we were expecting a ramp-up at the back end of the year as new products come into play. And you know we’re very – we’ve stuck with this guidance for a while.
Q. OK. And you don’t think we’ll be – there’s no seasonality here that would have us slip back in a sense, right? Every quarter should be about at least 3 million do you think or could there be a slip back in Q2?
LC. No, there won’t be a slip back cause we ramp up towards the back end of the year. There is some seasonality for October[?] as people get ready for the holiday season.
Q. Great. Love the way you guys are growing cash. I thought you had a good quarter. Thank you. Thank you very much.
LC. Thanks for your questions.
JACK CUMMINGS – PRIVATE INVESTOR
Q. I think most of my questions have been answered. I think you all are doing a great job. I do – where is headquarters now? You operating out of California or New York or London or what?
KD. Jack, the primary office right now in terms of where we have our largest amount of our employees are currently in London. We’re building out the Southern California office, which includes myself, Anna Houssels, our EVP of Sales and Director, and then also the new CFO that we’re bringing on board and transferring the duties, the daily duties and operations in accounting and HR, and all the bookkeeping we’ll be transfer to California. And that will occur in August of this year when Linden retires. But we’re building out the team in Southern California and gaining greater exposure for our U.S. operations and supporting Europe with London.
LC. Yeah, the key to growth has always been really expanding in the U.S., which we’ve never done previously, so moving the HQ to California and aggressively attacking the U.S. market is key.
Q. OK. Thank you very much. You all are doing a great job.
KD. Jack, thank you so much. Have a great day.
Q. You, too.
KD. Thank you, sir.
CRAIG PETROVSKY – BRIARCLIFF CAPITAL
Q. Hi guys, how you doing? Nice quarter.
KD. Thank you, Craig.
Q. Just a real quick question on the 5% share repurchase program that you spoke of earlier in the call. Should I assume that’s based off the shares outstanding at this current point so we’re talking roughly around three million shares as being authorized?
LC. Right.
KD. That’s correct.
Q. Thank you.
KD. Thanks, Craig.
LEON FRANKEL – TRIAGE MANAGEMENT
Q. Good morning. Very good quarter. You answer almost all the questions. My specific question was about the dilution of share repurchase because your having so much cash on you ______ money, so shrinking the share base is a pretty good idea.
KD. Thank you so much.
GLENN DAVIS – PAULSON INVESTMENT
Q. Yes, good morning, gentlemen. I apologize, I’ve been bouncing back and forth so if this has been answered already, excuse me. But with regard to your currency exposure, what are some strategies there that you might employ because of the international nature of the business?
LC. To date, we haven’t been hedging, but as our business grows we will definitely look into hedging.
Q. OK What percent of the business is outside the United States right now?
LC. At the moment it’s about 90%. No it’s not, it’s more like 80% because of the licensing.
DAVID WATSON – Private Investor
Q. Two quick questions. One is around the Sci Games relationship. I know you get the license. What is Sci Games really doing to grow that market, if anything, in your eyes?
LC. Kevin, do you want me to… {Laughter.]
KD. [Laughter.] Great question, David. Umm, uh, we’re….
LC. I mean we think Sci Games have got their own products and you know you could look at Sci Games’ license as a way – it could be viewed as one of two ways. It could be viewed that it was just – when it was done it was probably a way to keep – it could be viewed that it was a way to keep our product out of the market. But when it was done the company was in a very different place and it just affects the U.S. lottery market for us.
KD. Yeah, temporarily. But David what is in our control is what we’re focused on in terms of opening up the other new markets in Europe and Asia and Australia. Tremendous opportunities there as it pertains to state and national lotteries. And so we’re focused on what we can control. We can’t control what Sci Games is going to do and what they’re not going to do. So we’re just truly focused on our day-to-day operations and looking at this market. We have a great terminal. This format has really opened the eyes of key influencers in the market. And so we’re confident in our product and we’re confident in our sales efforts.
Q. Second question, a much broader brush question which is, I think when you were named CEO you talked about you could see growing this to $100 million. You’ve been on board now a couple of months. How do you feel about that statement and sort of what time frame are you thinking?
KD. Great question and thanks very much for bringing it forward. Our target is a five-year $110 million target . And that reaches 50 million from the gaming market over five years, 50 million from the promotional market over five years, and 10 million from the education market. And our Board and our executive management team is working very, very diligently for our first year and working through the next four years to hit those targets.
Q. So, but, I’m sorry, so when you say $110 million is that cumulative or is that run rate? Five years from now you’ll be at a $110 million run rate.
LC. 110 million run rate.
KD. Run rate.
Q. I think I’ll have to stock up on some shares. Great. Thanks guys,
KD. Thank you so much, David.
CONSTANCE N. – PRIVATE INVESTOR
Q. Hi, thanks for taking my question. I just wanted to clarify one thing if I could. When you said you hoped to announce two contracts by the end of June, did you mean that you hope to close those contracts or that they’ve been closed and you hope it will be the time to publicize them within the next six weeks?
KD. Thank you very much, Constance. Our goal is to close the contracts before the end of June.
Q. OK. And one other thing. Is there any detail that you could give us on the sports cards? I know that I think as far away as a year ago it sounded like the contract with the soccer – soccer organization in Europe was almost closed at that point. Could you give us any insight on what’s going on with the sports?
LC. Yeah, I can answer that one, Kevin.
KD. Maybe you can answer the soccer, the European football.
LC. And then I’ll pass it back.
KD. I’ll talk about the U.S.
LC. Perfect. Yeah, we were discussing last summer with the U.K. soccer league, but unfortunately nothing actually came of that. With such a lean organization we can only pursue so many prospects. That’s why it’s great that we’ve now got more infrastructure and Kevin and Anna. And I think Kevin’s really made some leeway in the sports since he’s been there. Kevin?
KD. Yeah, thanks Lee. And Constance, great question. As it pertains to the U.S. we have some tremendous large fan-base sports properties. And we’re currently under review with two major sports properties because of the new platform with the iQuiz card. So you can only imagine with these sports, it’s statistics-based so the fan bases – whether it’s on a particular team or athlete or key events within sports, that they’re really prompting and asking those questions. And it’s a great parent and child type activity ______ in the stadiums as a stadium promotion or from a retail merchandize as an impulse item. And so we’re working diligently to try to close some portion of either one of the sports properties opportunities. And we’re just very, very fortunate to gain the type of exposure that we have for our product in a very quick period of time.
LC. And we’re developing additional product which is relevant for those markets as well. And we haven’t really touched upon on the call is that we’ve – Kevin’s leadership, we’re diversifying into some other very interesting areas which are synergistic with current customer base and our current technology.
Q. You’re saying a different sports – a different card besides the Quiz Cards?
LC. Yes, different functionality on the card.
Q. OK. Great. Yes, I’ve been wondering what the sports cards would actually look like, what there would be on them.
KD. Well, if you can imagine on the front as – on the front of the card, as the iQuiz card, it has a player and a league type of imagery. And then you have the questions and then you have the option of pushing A, B, or C as a multiple choice answer. Then on the back are the player’s stats similar to a traditional trading card but this is as an interactive entertainment platform. So, Constance, do you have a particular favorite sport or one that you follow in the industry?
Q. Baseball.
KD. Baseball!
Q. In New York.
KD. Do you have a favorite team?
Q. The Mets.
KD. All right. How do you like Johan Santana?
Q. He’s a wonderful player, wonderful spirit aside from his talent.
KD. He certainly is. I’m a big Twins fan and grew up in Minnesota. And so we were very sorry to see him leave and he’s such a great gentleman as well.
Q. Yes, yes. We were lucky to get him.
KD. Well, enjoy the Mets and thanks very much for your questions, Constance, and your support for the company.
Q. OK. Thank you very much.
KD. Have a great day.
CLOSING REMARKS
KD. Great. Thank you very much operator, and thank you everyone for your great questions, all of your time and attention today. I personally thank you for your trust, support, financial resources, and taking time out of your busy day to attend our call. We’ve outlined a number of short and intermediate catalysts which we believe will have meaning to our stock as we leverage our unique products in our key verticals of promotion, education, and gaming.
And I would like to leave you with this final thought. Our mission on a daily basis is to maximize shareholder value. We definitely have the energy, we’re extremely interested in everything we’re doing with our platforms and with our partners, as well as growing our talent to precisely do that. We’re looking forward to updating you on our next call when we review the second quarter of 2009. And if you have any questions whatsoever in the meantime, please don’t hesitate to contact Yvonne Zappulla through the usual phone number and e-mail address.
And that is it. I’d like to thank all of my colleagues on the Board and management team and IR and the London office and I would like to personally thank each and every one of you from the company. Thank you very much and have a great day.
May 14, 2009
Kevin Donovan, CEO
Lee Cole, Former Interim CEO, Current Board Member
Yvonne Zappulla, IR Representative
KEVIN DONOVAN
Well, thank you very much Yvonne. And thank you all for joining us this morning. Those of you who do know Yvonne Zappulla, I’m sure you can support my compliments to Yvonne for doing an outstanding job of balancing both the company and also the IR daily activities. And she just does an amazing job.
I want to thank all of you again for spending your time with us today because these are very, very exciting times for the company and our shareholders. It is truly a privilege for me to report to all of you today our achievements during our first quarter of this year.
And for the first quarter of 2009 Electronic Game Card generated revenues of $3 million, an increase of approximately 29% over the prior year first quarter revenue of $2.3 million, and 5% above fourth quarter 2008 of $2.8 million. The first quarter increase was diluted by a 40% increase in the value of the U.S. Dollar over the British Pound Sterling.
Our revenue growth during the quarter was predominantly driven by our further penetration of Electronic Game Card into the promotional market, additional licensing revenue in the Native American gaming market, and interest in the new lines introduced. Electronic Game Card reported comprehensive net income of $1.7 million, which equates to $.03 cents per diluted share. This was slightly above expectations and compares to a net income of $1.3 million or $.02 per diluted share during the same period last year, and income of 1.4 million excluding the $419,000 investment sale for the fourth quarter 2008. Importantly, first quarter 2009 income from operations totaled $1.8 million. This is a record level for the company compared to operating income of 1.4 million for the first quarter and 1.5 million for the fourth quarter of 2008.
As of March 31, 2009, Electronic Game Card had approximately 60 million shares of common stock outstanding with a weighted fully diluted share count totaling 67.8 million. The aggregate proceeds if all options and warrants were to be exercised would generate over $5 million into the company. It is important to note for the foreseeable future we intend to increase the share count only to accommodate key executive management and Board of Director stock options, and only at levels that are reasonable.
The gross profit generated for the three months ended March 31, 2009 was at the record level of $2.3 million, and generating a 76% gross margin. Growing and maximizing gross profit dollars is our top focus. As events unfold over the coming quarters throughout this year, some of our current contracted opportunities will greatly accelerate our revenues at margin percentage levels that will still be very strong. Could be less than 70% of margins if we have enjoyed from less robust revenues and volumes. [?]
Conversely there are a number of potential license royalty relationships with well-established household brand names that naturally generate little cost against revenues. As these new business relationships become public we will update you with proper guidance.
The company’s operating expenses during the first quarter totaled $530,000 or less than 18% of revenue. As we manage our growing business going forward absolute costs will increase as we continue to build upon our internal talent and broaden geography to reach an even greater client base. However, we do not anticipate expenses as a percentage of revenue to increase from levels we have generated over the past quarter. Your company and Board of Directors have been very highly disciplined in managing expenses and will continue to do so under my direction.
Our balance sheet continues to strengthen. Cash and equivalents on March 31st 2009 were $9.7 million, an increase of approximately 4 million from first quarter 2008 and an increase of 1.4 million from December 31, 2008. At quarter-end the company’s current assets totaled 12.8 million and current liabilities were 1.2 million, representing a 10.7 current ratio. The Series A Convertible Redeemable Preferred stock totaled 4.5 million at quarter end. And importantly Stockholders Equity has risen for the ninth consecutive quarter to $14.6 million, an increase of 1.3 million in a three-month period.
One year ago we established our fully diluted earnings guidance of $.14 per share for 2009. Today, given the current global economic environment, we reiterate our confidence in achieving our earnings per share goal based on our current contracted backlog and despite approximately 10% increase in our fully diluted share count and essentially a doubling of our overall quarterly expenses as we prepare the company for our next level of growth. We intend to add to that goal with all the hard work and extensive network this new execute management team brings to Electronic Game Card.
Now, most importantly, the upcoming second quarter of 2009 is shaping up in line with our plan to deliver record revenue and earnings.
Now let me pause a moment and discuss our business model. Particularly in context to this year’s expectations. Electronic Game Card is both a consumer goods technology development and marketing licensing company of innovative technology focused on maximizing net profit dollar distribution per unit. 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 the distinct vertical markets such as gaming, promotions, 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.
Now let me shift the conference call focus from the figures to short-term milestones going forward. So our opportunities in each of our three business segments.
First, gaming. In the past this area only reflected $125,000 per quarter we received from Scientific Games. Now beginning this first quarter 2009 we added $250,000 per quarter guaranteed license minimum from Sovereign Game Card who is our Native American casinos-focused licensed distributor partner. In addition we have been working on sectors such as national and state lotteries outside of the United States and casino gaming projects in the European, Las Vegas, Australian, and Asian markets, where Miss Anna Houssels, our Executive Vice President of Sales and Director, has long-established successful relationships entry [?] of EGC products into betting shop opportunities in Eastern Europe.
Now as you might recall, our Executive Chairman, the Lord Leonard Steinberg, maintains his Perpetual President role at the company he launched 50 years ago and subsequently sold, Stanley Leisure plc, which controls 1,500 betting shops and parlors throughout East and Western Europe, whereby the company’s management team continues to gain progress in these new areas and territories such as Romania, Poland, and others.
11:35
Now our second key business segment, promotions. The bulk of our current and future internal sales efforts and distributor relationships for interactive entertainment technology are focused on this promotion vertical market, which includes hotels, casinos, resorts, marketing and promotional firms, quick-service and casual restaurant chains, consumer packaged goods companies, large-scale mass-market retailers, toy manufacturers, video game publishers, trading card companies, popular entertainment and sports properties and brands. Now specifically these areas of promotions focus on redemption or product launch programs, self-liquidating promotions, increasing foot traffic in the retailers, in the restaurants, and continuity programs for collectability, as well as loyalty rewards-driven motivators for areas such as players’ clubs and slots programs
Now our new iQuiz card, which focuses on trivia, is a new platform which has natural synergies with sports and entertainment genres while appealing to large-scale fan bases. So we’re hooking into those large-scale fan bases with this promotional platform. We have multiple opportunities in this dynamic promotional marketing area as our credit-card-sized platform allows for B2B clients to easily customize their promotion, their brand message, thus re-skinning the graphic formats on each card to the new clients.
There is a clear, wide-ranging enthusiasm from the field which we’re receiving for the new iQuiz cards, and entities are actively considering our iQuiz cards at this current moment.
13:42
Our third segment, education. This is a $2.2 billion global market and growing. To our knowledge, there are no products at the affordable $10 retail price and under, and we’re confident we have a new category-buster as an on-the-go, mobile-style, and mobile-type entertainment game card for parents and their children. And a product that is not connected to the internet and not connected to any mobile phones or carriers. And early responses from our European business-to-business network and based on the reaction of Thomas and Friends, which is an enormous global brand, our Electronic Education Game Card has tremendous possibilities. Currently there are several gold standard brands in education publishing and education media who are currently in review of this new product offering of EGC. We expect the first cards to be shipped in time for this Christmas and holiday season in the U.K. market.
Now let me talk about distribution partnerships. When looking forward to future milestones it is important to understand that we intend to maintain an outsourced business model. While we continue to work with an internal sales effort, we are firm believers in the power of utilizing strategic distribution partnerships. We are in active discussions today with several regional and channel partners, and it is our goal to announce a new relationship before the end of this current quarter.
Increased IP, patents, and regulatory approvals. Given that we are a technology company, continued IP development will be key to building our value, and thus we will continue to be aggressive in protecting our technology. We are in the process of filing more patents by expanding our protection of our current technology and surrounding our new product lines as well.
Additions to the Board and executive ranks. Now that we have firmly established our business model within our three business segments of gaming, promotions, and education, and we’ve delivered nine successful consecutive quarters through a very difficult time in our economy while maintaining strong profitability, and have identified new markets of focus, we are in a unique position to make one to two strategic additions to our Board of Directors, who by our criteria and our selection process is based upon adding exponential value through potential new business revenue from their relationship network and seasoned public market experience as we position and prepare your company, Electronic Game Card, to reach our future goal of becoming a successful Nasdaq-listed company.
In addition, our CFO, Linden Boyne, who served the company extremely well over all these years, will be retiring in the second half of this year, and therefore we are in the active process of reviewing applicants for CFO. I and the Board have already met with some incredible talent to be the new CFO.
Insider buying. You may have noticed that there has been a significant insider buying just before our window closed in anticipation of reporting this quarter. The Lord Leonard Steinberg purchased two million shares in the open market, bringing his holdings up to 13.9% of the outstanding shares. All executives in our company own EGC stock, of which most was purchased in the open market. When appropriate we plan to continue that tradition.
In addition our Series A shareholders have formally approved the company’s 5% share repurchase, and when it strategically makes sense we now have the flexibility to act.
So therefore to summarize, we’ve had a successful 2008 and Q1 2009. Our current backlog momentum gives us confidence in our guidance moving forward throughout 2009. The new executive 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 current guidance of 17 to 18 million in 2009 full-year earnings, per share guidance of $.14 fully diluted EPS.
Now with that, I will now open this call up for questions. Operator.
19:30
Q&A
[Operator instructions.]
TODD EILERS – ROTH CAPITAL PARTNERS
Q. Hi guys, thanks for taking my question. Kevin, can you maybe talk a little bit - lets see, how many, can you tell us how many game cards total you guys sold in the quarter and also what your backlog is at this point?
LC. You want me to…?
KD. What I’d like to do is – Lee would you like to field that question from Todd? And Todd, good morning, thanks very much for joining the call.
Q. Thank you.
LC. We’ve got – we were just south of 1.6 million game cards for the quarter, but we’ve got a very healthy backlog. We’ve got at least 60% of this year’s business already contracted.
Q. OK. And then can you maybe give us the mix or the breakdown of how much of your revenue was sales vs. recurring revenue, also including in that recurring revenue obviously the Sci Games and the Sovereign…
LC. Yes, exactly. Well basically, what we call recurring revenue is the Sci Games, The Sovereign and other licensing contracts. And currently that’s probably somewhere around 65/35 and that could increase on the licensing side because as Kevin says, you know, that’s very profitable business for us.
Q. You said 65% sales, 35% licensing royalty?
LC. Yes, approx. Yeah, yeah. Give or take a point.
Q. And then, let’s see, you guys obviously have a lot of new opportunities you’re looking at. As far as going into Q2 can we expect any of these initiatives, whether it be the Quiz Cards or the Thomas & Friends educational card or on the gaming side, whether it’s selling into the betting shops or signing a large enterprise deal with a casino operator. Can we expect any of these to start contributing in Q2 and just how should we look at that going forward?
LC. I think Q2 you’re not really going to see it kicking in. I mean, remember Kevin and Anna only joined us the beginning of February. I think Kevin can talk to this about some of the opportunities which they’re working on which are very significant which you’re probably going to see more in Q3, Q4. Kevin?
KD. Yeah, in terms of being launched and activated, but being announced we’re targeting, Todd, at least two to be able to announce in the second quarter.
Q. OK. OK, that’s helpful. And I guess the other question is with regards to some cash flow numbers. In the press release I think you guys indicated you generated 2 million in free cash but if I look at the cash and investments it looks like it sequentially went up by about a million. Can you maybe tell me what you guys spent the other million on? Where that went.
LC. Yes. A good part of it was the buyback of the preferred.
KD. Trafelet.
LC. Yeah, which was about $800,000. And the rest was a follow-on investment in one of our investments.
Q. OK. And then just to follow on that, going forward over the next couple of quarters, do you anticipate monetizing any of those investments or making any, I guess, any more significant investments?
LC. No, I think the Board’s policy going forward – I mean previously going back historically with the company, we made these investments in synergistic technologies, but the Board has changed policy and we will be monetizing the investments, and in future we’ll be looking to make acquisitions or do licensing deals.
Q. OK. And then last question, related to the Sovereign tribal opportunity. Obviously you guys get the minimum royalty fees that they kicked in this quarter. Can you maybe talk about how that business is performing and should we anticipate you guys maybe getting a little upside above and beyond the minimum royalty payments for this year?
KD. I think currently the key is the minimum, and anything above that is gravy. They are actively marketing and selling to several tribes in various regions throughout the U.S. and so we’re really working very closely with them.
LC. And, Todd, I think the important thing is when you’ve got new business like Sovereign is building, it does take a while to do focus groups, trials, and get it out there. But this is the foundation, if not for this year but real incremental revenue next year.
Q. OK. That’s helpful. Thanks guys, appreciate it.
25:00
MICHAEL WEISS – JOSLYNDA CAPITAL
Q. Hi, I was going to ask a little bit if you could – further on the investments, which are actually a fairly large number on your balance sheet, do you have any time frame or is anything close, I know we want…
LC. Yeah, Michael, we – the Board has stipulated they want to be out of all but one of the investments in the next 12 months. So we’ve got one very strategic investment in PrizeMobile, which I imagine we’ll hold on to, but the others, which are in different technologies, we’ll be looking to monetize in the next 12 months and be out of all of them and turn it into cash.
Q. OK. Second thing was how much are your future infrastructure and hiring plans, is that, are you expecting a big number, and in essence have you really raised guidance but kept it flat because of additional expenses and additional shares outstanding?
LC. I think we always budgeted for additional expenses as the company ramps, and you’ll see more expenses next year but not until we’ve got the revenues. Kevin do you want to….
KD. Yeah, Michael, I think it’s as needed as it centers around projects and reoccurring promotional programs. There’s no need to add additional cost just for adding add additional cost. So we’re keeping it extremely tight.
Q. And I’m sorry I missed the answer to the prior question. What was the percent of backlog – what’s the percentage this year that’s already booked?
LC. Six-zero. 60.
Q. 60%. Thank you very much.
LC/KD. Thanks, Michael.
STEVE MAIDEN – MAIDEN CAPITAL
Q. Hi guys. Good quarter. I had a question, just one question. When you might be thinking about putting out your 2010 guidance. And you know there’s – Roth has numbers out there, I wondered if you could comment on them? They were estimating 21.9 in revenues and $.18 cents in earnings. Do you think that’s achievable? Can you make any comments?
LC. Yeah, I mean we definitely think that’s achievable. And you know we’re waiting to see if some of these large orders which are incremental to our current guidance shape up and when we think they’re going to kick in. So that’s why we’re being prudent about putting next year’s numbers out there because we’re hoping to beat it.
Q. So you’re likely to put out next year’s guidance once you are able to hopefully announce one of these game-changing type deals?
LC. Yeah, I think that’s a good summary, don’t you, Kevin?
KD. I totally agree.
Q. And did I hear you, Kevin, say that you’re hoping to announce as many as two of these in Q2, meaning by the end of June?
KD. In terms of strategic relationships and opportunities bringing new revenue to the company.
Q. That would be fabulous. All right, guys. Thanks a lot.
KD. Thanks very much.
28:30
STEVE GITTEMORE[?] – VERTIS[?] CAPITAL
Q. Yeah, hi. It’s Steve Gittemore[?] from Vertis[?] Capital. I just want to go back to that 14 – I’m sorry, to the – I guess it’s 14 million of investment assets. Do I have that right? But I mean it’s the $1,880,000 that you guys booked this quarter. The – how are you – let me see, I’m sorry it’s 7.4 million, right, up from 6.5. OK, so we added a million dollars at cost from quarter-over-quarter. How are you treating – you said you bought back $800,000 of the Preferred. How does that work? I mean are you guys holding that? Are you going to get dividends on it or you’re going to convert it into stock and then it becomes reduction of an investment, it becomes a contribution to shareholders capital. Could you just walk me through the accounting on that? I guess my question, my ultimate question, is why wouldn’t that have just been retired?
LC. The Preferred was retired. I think the increasing investments wasn’t yet – the investments have increased due to a small investment of around $500,000 and the other was a gain in the investments.
Q. Well. OK. So well now I’m having trouble with the cash then because I thought you said – and my own analysis suggests that the investments obviously went up by something close to $900,000 and you said that you bought back $800,000 of Preferred so I thought that was that. But….
LC. No, if you – $800,000 of Preferred, $500,000 of investments is approximately 1.2, 1.3. I haven’t got the numbers in front of me, but that’s how it works out
Q. OK. But on the repurchase of the Preferred – oh, this is kind of – OK, so the Preferred is still shown on your balance sheet as 4.46 million as it was at 12/31 and then it’s still the same number on…
LC. Yeah, there was an anomaly there, because actually – we actually purchased the Preferred after year-end. So we purchased it in Q1, but the holders of the Preferred converted to common stock prior to year-end. That make sense?
Q. Well, maybe, yeah. So wouldn’t – but then the cash usage wouldn’t….
LC. We didn’t pay for it. I mean they converted Preferred to common stock by year-end, so effectively we purchased common, not Preferred. But they were a Preferred holder, we’d agreed to buy their Preferred, but by the time we got our permission from our Preferred shareholders to purchase it it was in the middle of January. And prior to them agreeing to sell it to us in mid-December and us getting permission they had converted it at the end of December to common.
Q. So then why – then your deal would have been off, right?
LC. No.
Q. Why buy it back at that point?
LC. Because we bought it back at a very advantageous price and we had permission to buy it back. Otherwise it would have been 3 million shares hitting the market.
Q. OK.
LC. OK?
Q. Yeah, I think, OK, I see. OK. But just then – but I’m still trying to understand why the investments went up by 900.
LC. Because there was a $500,000 invested and then there was a gain in one of the investments.
Q. Oh, so you booked a gain.
LC. Yeah, yeah, yeah.
Q, And did that run through in the income statement?
LC. Yeah.
Q. Oh, I see and then that could have – where would I have found that on the income statement, I’m looking at it right now.
LC. When you get the Q, you’ll see it in the Q. You don’t see it. I mean…
Q. So, well it has to hit something on here, right? Is it in revenue is where you have it?
LC. I haven’t got it in front of me. When the Q gets published, it’s very clear.
Q. “It’s very clear.” OK. Because that would be – I would think that something like Other Comprehensive Income, but that’s too small looks like.
LC. Yeah.
Q. Ah, no, no. It is a…. Ah, no… small…. OK. Ummmm…..
LC. And it’s miniscule in the scheme of things, but it’s definitely mentioned in the Q. I haven’t got it in front of me unfortunately.
Q OK. And I know a number of prior callers have asked about the guidance for the year. Right now you’re on – I’m more concerned on the revenue side. Is there anything – so right now we’re on track for maybe 12 million in revenue if you just annualize this first quarter. Is that way under what you guys are expecting? Or is that?
LC. No. That’s in line with guidance. I mean we were expecting a ramp-up at the back end of the year as new products come into play. And you know we’re very – we’ve stuck with this guidance for a while.
Q. OK. And you don’t think we’ll be – there’s no seasonality here that would have us slip back in a sense, right? Every quarter should be about at least 3 million do you think or could there be a slip back in Q2?
LC. No, there won’t be a slip back cause we ramp up towards the back end of the year. There is some seasonality for October[?] as people get ready for the holiday season.
Q. Great. Love the way you guys are growing cash. I thought you had a good quarter. Thank you. Thank you very much.
LC. Thanks for your questions.
JACK CUMMINGS – PRIVATE INVESTOR
Q. I think most of my questions have been answered. I think you all are doing a great job. I do – where is headquarters now? You operating out of California or New York or London or what?
KD. Jack, the primary office right now in terms of where we have our largest amount of our employees are currently in London. We’re building out the Southern California office, which includes myself, Anna Houssels, our EVP of Sales and Director, and then also the new CFO that we’re bringing on board and transferring the duties, the daily duties and operations in accounting and HR, and all the bookkeeping we’ll be transfer to California. And that will occur in August of this year when Linden retires. But we’re building out the team in Southern California and gaining greater exposure for our U.S. operations and supporting Europe with London.
LC. Yeah, the key to growth has always been really expanding in the U.S., which we’ve never done previously, so moving the HQ to California and aggressively attacking the U.S. market is key.
Q. OK. Thank you very much. You all are doing a great job.
KD. Jack, thank you so much. Have a great day.
Q. You, too.
KD. Thank you, sir.
CRAIG PETROVSKY – BRIARCLIFF CAPITAL
Q. Hi guys, how you doing? Nice quarter.
KD. Thank you, Craig.
Q. Just a real quick question on the 5% share repurchase program that you spoke of earlier in the call. Should I assume that’s based off the shares outstanding at this current point so we’re talking roughly around three million shares as being authorized?
LC. Right.
KD. That’s correct.
Q. Thank you.
KD. Thanks, Craig.
LEON FRANKEL – TRIAGE MANAGEMENT
Q. Good morning. Very good quarter. You answer almost all the questions. My specific question was about the dilution of share repurchase because your having so much cash on you ______ money, so shrinking the share base is a pretty good idea.
KD. Thank you so much.
GLENN DAVIS – PAULSON INVESTMENT
Q. Yes, good morning, gentlemen. I apologize, I’ve been bouncing back and forth so if this has been answered already, excuse me. But with regard to your currency exposure, what are some strategies there that you might employ because of the international nature of the business?
LC. To date, we haven’t been hedging, but as our business grows we will definitely look into hedging.
Q. OK What percent of the business is outside the United States right now?
LC. At the moment it’s about 90%. No it’s not, it’s more like 80% because of the licensing.
DAVID WATSON – Private Investor
Q. Two quick questions. One is around the Sci Games relationship. I know you get the license. What is Sci Games really doing to grow that market, if anything, in your eyes?
LC. Kevin, do you want me to… {Laughter.]
KD. [Laughter.] Great question, David. Umm, uh, we’re….
LC. I mean we think Sci Games have got their own products and you know you could look at Sci Games’ license as a way – it could be viewed as one of two ways. It could be viewed that it was just – when it was done it was probably a way to keep – it could be viewed that it was a way to keep our product out of the market. But when it was done the company was in a very different place and it just affects the U.S. lottery market for us.
KD. Yeah, temporarily. But David what is in our control is what we’re focused on in terms of opening up the other new markets in Europe and Asia and Australia. Tremendous opportunities there as it pertains to state and national lotteries. And so we’re focused on what we can control. We can’t control what Sci Games is going to do and what they’re not going to do. So we’re just truly focused on our day-to-day operations and looking at this market. We have a great terminal. This format has really opened the eyes of key influencers in the market. And so we’re confident in our product and we’re confident in our sales efforts.
Q. Second question, a much broader brush question which is, I think when you were named CEO you talked about you could see growing this to $100 million. You’ve been on board now a couple of months. How do you feel about that statement and sort of what time frame are you thinking?
KD. Great question and thanks very much for bringing it forward. Our target is a five-year $110 million target . And that reaches 50 million from the gaming market over five years, 50 million from the promotional market over five years, and 10 million from the education market. And our Board and our executive management team is working very, very diligently for our first year and working through the next four years to hit those targets.
Q. So, but, I’m sorry, so when you say $110 million is that cumulative or is that run rate? Five years from now you’ll be at a $110 million run rate.
LC. 110 million run rate.
KD. Run rate.
Q. I think I’ll have to stock up on some shares. Great. Thanks guys,
KD. Thank you so much, David.
CONSTANCE N. – PRIVATE INVESTOR
Q. Hi, thanks for taking my question. I just wanted to clarify one thing if I could. When you said you hoped to announce two contracts by the end of June, did you mean that you hope to close those contracts or that they’ve been closed and you hope it will be the time to publicize them within the next six weeks?
KD. Thank you very much, Constance. Our goal is to close the contracts before the end of June.
Q. OK. And one other thing. Is there any detail that you could give us on the sports cards? I know that I think as far away as a year ago it sounded like the contract with the soccer – soccer organization in Europe was almost closed at that point. Could you give us any insight on what’s going on with the sports?
LC. Yeah, I can answer that one, Kevin.
KD. Maybe you can answer the soccer, the European football.
LC. And then I’ll pass it back.
KD. I’ll talk about the U.S.
LC. Perfect. Yeah, we were discussing last summer with the U.K. soccer league, but unfortunately nothing actually came of that. With such a lean organization we can only pursue so many prospects. That’s why it’s great that we’ve now got more infrastructure and Kevin and Anna. And I think Kevin’s really made some leeway in the sports since he’s been there. Kevin?
KD. Yeah, thanks Lee. And Constance, great question. As it pertains to the U.S. we have some tremendous large fan-base sports properties. And we’re currently under review with two major sports properties because of the new platform with the iQuiz card. So you can only imagine with these sports, it’s statistics-based so the fan bases – whether it’s on a particular team or athlete or key events within sports, that they’re really prompting and asking those questions. And it’s a great parent and child type activity ______ in the stadiums as a stadium promotion or from a retail merchandize as an impulse item. And so we’re working diligently to try to close some portion of either one of the sports properties opportunities. And we’re just very, very fortunate to gain the type of exposure that we have for our product in a very quick period of time.
LC. And we’re developing additional product which is relevant for those markets as well. And we haven’t really touched upon on the call is that we’ve – Kevin’s leadership, we’re diversifying into some other very interesting areas which are synergistic with current customer base and our current technology.
Q. You’re saying a different sports – a different card besides the Quiz Cards?
LC. Yes, different functionality on the card.
Q. OK. Great. Yes, I’ve been wondering what the sports cards would actually look like, what there would be on them.
KD. Well, if you can imagine on the front as – on the front of the card, as the iQuiz card, it has a player and a league type of imagery. And then you have the questions and then you have the option of pushing A, B, or C as a multiple choice answer. Then on the back are the player’s stats similar to a traditional trading card but this is as an interactive entertainment platform. So, Constance, do you have a particular favorite sport or one that you follow in the industry?
Q. Baseball.
KD. Baseball!
Q. In New York.
KD. Do you have a favorite team?
Q. The Mets.
KD. All right. How do you like Johan Santana?
Q. He’s a wonderful player, wonderful spirit aside from his talent.
KD. He certainly is. I’m a big Twins fan and grew up in Minnesota. And so we were very sorry to see him leave and he’s such a great gentleman as well.
Q. Yes, yes. We were lucky to get him.
KD. Well, enjoy the Mets and thanks very much for your questions, Constance, and your support for the company.
Q. OK. Thank you very much.
KD. Have a great day.
CLOSING REMARKS
KD. Great. Thank you very much operator, and thank you everyone for your great questions, all of your time and attention today. I personally thank you for your trust, support, financial resources, and taking time out of your busy day to attend our call. We’ve outlined a number of short and intermediate catalysts which we believe will have meaning to our stock as we leverage our unique products in our key verticals of promotion, education, and gaming.
And I would like to leave you with this final thought. Our mission on a daily basis is to maximize shareholder value. We definitely have the energy, we’re extremely interested in everything we’re doing with our platforms and with our partners, as well as growing our talent to precisely do that. We’re looking forward to updating you on our next call when we review the second quarter of 2009. And if you have any questions whatsoever in the meantime, please don’t hesitate to contact Yvonne Zappulla through the usual phone number and e-mail address.
And that is it. I’d like to thank all of my colleagues on the Board and management team and IR and the London office and I would like to personally thank each and every one of you from the company. Thank you very much and have a great day.
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