Tuesday, November 17, 2009 5:17:27 PM
EGMI Q3 2009 CC Transcript
Still nothing on Seekingalpha.
EGMI Q3 2009 CC
Kevin Donovan, CEO, Co-Chairman
Lee Cole, Board member, previous Interim CEO
Yvonne Zappulla, IR Representative
YVONNE ZAPPULLA
[Introductory remarks]
On December 10th at 11:00 am east coast time, Electronic Game Card will be holding its annual shareholder meeting in our offices at Grannus Financial, 1120 Avenue of the Americas in Manhattan. All are welcome. Please e-mail either myself or John _____ to let us know if you will be attending. Kevin.
KEVIN DONOVAN
Great. Well, thank you very much Yvonne, and thank you all for joining us this morning.
During this past year, the late honorable Lord Leonard Steinberg assembled a small but hardworking, effective team at Electronic Game Card, all with skills beyond what is normally expected of a company of this size. We work very well together and share a common goal of building this company into a significant entity. Under Lord Steinberg’s stewardship we transitioned from a one-product company, turnaround story, to a company with multiple product lines selling into multiple distributors globally. We grieve and are deeply saddened by Lord Steinberg’s untimely and sudden passing last week. We lost a dear friend, family member, mentor, chairman, and leader of the Jewish community and cricket club in Manchester, England. Today we are even more resolute in continuing Lord Steinberg’s legacy and building this company into one in which he would be so very proud.
During third quarter 2009, Electronic Game Card generated record revenues of $4.2 million, slightly ahead of analysts’ expectations and a meaningful step up from prior quarters’ revenue. Revenue growth during the quarter was predominantly driven by repeat business as well as further penetration of the Electronic Game Card into the promotions market, additional licensing, and trial orders of new product lines. The company’s current contracted backlog is expected to generate our business for the remainder of the year, further validating our confidence in revenue guidance of $16 million for 2009.
Electronic Game Card’s operating income grew 42% year-over-year and grew by 38% over the prior second quarter. We generated $2.9 million or $.04 per diluted share in comprehensive net income applicable to common stockholders, marking our 11th consecutive profitable quarter. As of September 30, 2009, Electronic Game Card had approximately 68.1 million shares of common stock outstanding with a weighted fully-diluted share count totaling 72.2 million.
The gross profit generated for the three months ended September 30, 2009 was at the record level of $3.3 million, generating a 78% gross margin. Growing and maximizing gross profit dollars is our top focus. Please note that as future events unfold throughout the year and 2010, some of our current contracted opportunities may greatly accelerate our revenues at margin percentage levels that, while still strong, could be less than the 70+ margins we have enjoyed on 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.
Operating expenses during the third quarter 2009 totaled $798,000, or approximately 19% of revenue, and represents an increase of approximately $274,000 over the third quarter 2008 and an increase of $159,000 over the previous 2009 quarter. This increase was attrivut3d predominantly to higher costs resulting from the strengthened management team and a heightened marketing effort. Going forward we anticipate three strategic personnel additions to our sales and project management teams as we increase our activity in North America, the Pacific Rim, and continental Europe.
For the nine months ended September 30, 2009, Electronic Game Card revenues increased 31% to $10.2 million over the prior year nine-month period. Net income totaled $6.6 million or $.10 per diluted share compared to a net income of $4.3 million or $.07 per diluted share during the prior year’s first nine-month period.
Cash and equivalents on September 30, 2009 totaled $12.7 million, an increase of approximately $4.5 million from year-end December 31, 2008, and an increase of over $1.4 million from the period ended June 30, 2009. Consistent with the prior second quarter, the company’s current ratio remained flat at 17:1 and EGC’s 6% convertible redeemable preferred debt instrument, which converts at $1.01, was reduced to $2.8 million from the prior second quarter 2009 of $3.3.
Importantly, Stockholders Equity continued to rise, to $23.2 million, an increase of $4.7 million from the prior second quarter.
Thus far, the balance of the year is shaping up to deliver an acceleration in revenues and earnings to put us on target of hitting our guidance of $16 million in revenues and $.14 earnings per share.
And looking forward into 2010 we have a number of initiatives already announced, and others soon to be announced, that will create significant momentum to add to our 2009 base. Before reviewing our business lines and future initiatives, it is important to discuss our base of operations and infrastructure that will enable us to smoothly ramp up our revenue levels.
First, replacements to the Board and executive ranks. As a result of the death of our Executive Chairman, The Lord Leonard Steinberg, the Board of Electronic Game Card has elected to replace our loss in the interim with Eugene Christiansen and myself as joint Chairmen of the company. Eugene was nominated by Lord Steinberg and elected to the Board of Electronic Game Card in September 2008. Mr. Christiansen has been active as an executive consultant to the commercial gambling and entertainment industries since 1976 through New York-based Christiansen Capital Advisors. Mr. Christiansen has conducted studies of the economics, taxation, financial structure, and regulation of casino gaming, pari-mutual wagering, and lotteries, and has counseled Manhattan and Washington, D.C. law firms in legal proceedings regarding in legal proceedings regarding gaming issues and has also authored numerous articles dealing with all aspects of the gaming industry. I look forward to working even more closely with Eugene in the coming months.
We plan additional changes to the Board within the next 30 days with the goal to establish an independent Board. We are already in advanced discussions with several prospective candidates. Our plan is to replace three to four new members. Our criteria in our selection process is based upon adding exponential value through potential new business revenue from their relationship network and seasoned public market, legal and finance experience.
I would like to take a moment to discuss the announcement from last week of Tom Schiff’s stepping down as CFO. This move in his name function, given Tom’s personal situation and frankly the company’s oversight is not sending in the D&O insurance payment – until such time as all paperwork was properly filed and coverage resumed, Tom will be operating as a consultant, albeit closely attending to our books and financial details very similar to his prior responsibilities prior to this unfortunate oversight. We hope Tom will join our executive ranks once again in the near future.
Over the next six months our additional staffing plans are modest. We may add two or three admin and mid-level individuals as project, sales, marketing, and operations managers specific to new growth areas and management of evergreen accounts.
We are also pleased to announce that we have hired a top design, branding, marketing, and media relations firm based here in New York City, Perillo & Co., which will be helping us to increase our company profile and launch our new CirQ brand, website, iPhone applications, and overall new business development marketing initiatives. Joe Perillo, co-founder of Perillo & Company’s experience is vast in public and private enterprises including his previous tenure as the first ever chief marketing officer for the City of New York appointed by Mayor Bloomberg. He is also Vice President of Marketing for the New York Yankees and held several key global brand accounts including the History Channel. I’ve been privileged to work with Perillo & Co. in the past, achieving fantastic results, and expect to do the same with the launch of our new brand, CirQ.
Secondarily, branding of our company. As you all know, my roots are based in branding and marketing from the Salt Lake 2002 Winter Olympic Games to the NASCAR Speed Parks. As we’ve discussed in the past, our name is too limiting to properly carry this company forward and our vision into the future. Therefore, over the next couple of months we will rebrand the company to CirQ, and with that launching our new brand and website before year-end at cirp.com. The new CirQ brand, inspiring technology, will provide the company with a broader scope of recognition for our expanded suite of technology platforms and easier adaptability to the new business applications, market opportunities, and B2B partnerships. Perillo & Co. have been working behind the scenes over the past couple of months. We are very excited to unveil a highly impressive, next gen look and image within the next 60 days.
With these final organizational milestones in place, here’s what I see as the opportunities in each of our three business segments.
First, promotions. Here historically lie the bulk of our revenues, and I’m happy to report that we continue to see impressive growth opportunities in this business segment. In progressing our relationships further with BD&A, the third largest promotions agency in the U.S., and their partnerships with high-profile entertainment brands and professional sports marketing and properties, with our integrated vertical marketing approach. Also, as we further develop our relationship with Havi Global Logistics and their family of companies worldwide.
Second is in gaming. This quarter we recognized revenues from our two license deals with Sovereign Game Card, our native American casinos-focused licensed distribution partner, and Scientific Games. Sovereign has been working diligently on several key initiatives in turnkey promotional orders within tribes in Southwest, Northwest, and Midwest regions of the U.S.
Another important recent development is our announced agreement to form a strategic partnership with China Lot Synergy, which is responsible for the welfare lottery in China. This is only one of two legal lotteries in the People’s Republic of China and, as we know, effective this past July 1, the massive illegal lotteries in China have been outlawed, thereby creating an excellent opportunity to capture business for the legal lotteries in China. The Chinese welfare lottery market currently sells approximately 9 billion scratch tickets annually. During my recent visit with Lee Cole to China Lot Synergy at their office in Beijing we met with their Chairman, CEO, COO, and several other senior level executives in marketing, operations, and logistics. They are a first-class, high-knowledgeable, and well-run organization. I plan to be in China again in the next three weeks with Lee Cole to kick off our relationship as we establish our joint company and launch strategy plans into the first three provinces in China. We plan to launch the trial of our Electronic Game Cards in three provinces during the first half of 2010, and hope to expand nationally during the second half of the year upon successful conclusion of those trials.
In addition, we have been working on sectors such as national and state lotteries outside the United States and casino gaming projects in Las Vegas, Australian, and Asian markets where Miss Anna Houssels, our Executive Vice President of Sales and Director, has long-established, successful relationships.
And finally, a quick update on EGC products into betting shop opportunities in Eastern Europe. As you might recall, the Lord Leonard Steinberg had introduced the company to the Stanley Leisure betting shops in Eastern Europe, namely Romania, Croatia, and Poland. We continue to advance in regulations, and there are several other tax reductions into those particular markets which are accelerating the opportunities for new growth in Europe.
Number three, our vertical market of education. This is a $2.2 billion global market and growing. To our knowledge, there are no interactive learning systems products that are as affordable, from $8 to $12 retail price points. We are confident we have a category buster as an on-the-go, edutainment-style game card product by early responses from our European B2B network reaction and here at home in the United States. Currently there are several gold standard brands in education, publishing, and media in review of this new product offering. We expect the first cards to be shipped in the UK in first quarter 2010.
And finally, an update on our most recent platform and agreement to form a joint venture with Poken Holding. This interesting opportunity for our company which we anticipate over time will have activity in all three of our business verticals. I spent several days at Poken headquarters in Switzerland. There is incredible synergy between our two companies and our two management teams have great chemistry together. We have before us what we suspect will be an immediate development, sales, and distribution opportunity in North America, which we hope to share with all of you in the near future. We also believe that there are opportunities to expand our relationship, which we are currently investigating. So please stay tuned. This relationship could fodder some exciting developments into the close of this current year.
Now in closing. The management, Board, and consultants of Electronic Game Card would like to express our heartfelt condolences to the Steinberg family and the Lord Leonard Steinberg, a great man who was generous with his time and gave this company a great foundation from which to grow. It is all our intention to build this company into the success that Leonard so envisioned.
With that, I will now open this call up for questions.
19:00
Q&A
TODD EILERS – ROTH CAPITAL PARTNERS
Q. Morning, everyone. Kevin, I was wondering if you could maybe break down your revenue a little bit under – you know maybe give how much was promotions, how much was gaming and lottery and how much was under the educational segment. And then also maybe if you could give the unit breakdown for those segments as well.
LC. You want me to do that, Kevin?
KD. Yes, Lee, please feel free. Thank you.
LC. Hi, Todd. Basically, I mean we’re reclassifying the segments with new products, but I mean, and we’re sort of throwing[?] more in the promotional segment, so I would say putting promotion and toys together, really it’s probably about 80% promotion and toys and 20% gaming and lottery. And really the growth in sales this quarter was mainly due to a pick-up in licenses that we’ve got and additional licenses.
Q. OK. And Lee can you also give, I know in the past you’ve given how much your total royalty and recurring revenue was in the quarter. Can you give that again?
LC. I haven’t got the exact figure. It’s approximately $2 million.
Q. OK. And then, did you guys ship any of the iQuiz cards or the Thomas ePlay cards in the international markets in the quarter?
LC. No, Thomas is going out Q1 and the iQuiz cards are going out in this quarter.
Q. And will that - will the iQuiz, will that be just international markets or will that also be domestic?
LC. What domestic U.S.? It will be domestic U.S. next year. It’s just - the ones that are going out this quarter are just UK.
20:30
Q. OK. And then can you maybe also give an update on I guess the distribution relationship with FMM. Are they - will they just be distributing the iQuiz Card and the Thomas ePlay cards or will they also be distributing other products for you guys? And I’m assuming, it sounds like we should expect a first quarter, second quarter next year rollout domestically.
KD. Lee, do you want me to take that?
LC. Yeah, thanks Kevin.
KD. Great. Todd, you know we have a great relationship with this 52 year-old company who’s very well-respected in retail marketing and placements. And we enjoy a great relationship with them. The core products will be distributed in the second half of 2010 in the U.S. based on the six major categories of retailers that they service on a daily basis. We’re looking to add to that. As you know we have a deal with SSD Company Limited out of Japan, and the smart stick pen scanner and the barcode scanning system, and so we’re looking at placement there. With Poken for North America we’ve been approached by several other new retailers in the past 30 days and we’re looking at including the Poken products also into those retail channels and distribution from a very strategic standpoint. And FMM is well-suited with us to handle that.
Q. OK. Perfect. And then I guess a follow up question on the China Lot opportunity. You kind of highlighted the expected trial there coming up. Can you maybe in general kind of give us a sense of what will determine a successful trial for you guys. Is there – can you maybe talk in general about that? And then also what do you see as the biggest risk to that opportunity for you guys?
KD. Well, if I may, and then Lee, please jump in. Todd, I think it’s why we’re going to China, based on our discussions – when you get in the room in the early part of December, we’re working through the criteria. And also making the decision on which of the three out of the first 13 provinces that we’re going to launch in, and the number of cards. So all those decisions are forthcoming. We have an annual shareholders meeting back here in New York by which we’ll be able to share additional information after our meetings in China.
LC. Yeah, and just on risks, I mean the China Lot Synergy relationship isn’t in any of our forecasts.
Q. OK. And then one last question. Lee, can you – I think I forgot to ask this. But can you give the total number of game cards sold in the quarter?
LC. Yeah, it was approximately 1.7 million. It wasn’t up that much because we had a lot more licensing revenue, which also explains the increase in margin.
Q. OK. All right. Thanks. Thanks, guys. Congrats on a great quarter.
KD. Thanks, Todd.
RICHARD FETYKO - MERRIMAN
Q. Good morning, guys. Congrats on the results. Lee, could you explain a little more about the sequential increase in the revenues. You mentioned more licensing. What type of licensing? From promotional type of clients and what type of clients are they? And then looking into fourth quarter, your 16 million revenue guidance implies a $1.5 million sequential increase in revenue in the fourth quarter, which is phenomenal, it’s great, just curious what will drive that. If you have a couple of things that you expect on a sequential basis to contribute to that increase.
24:20
LC. Sure. Yeah, the increase in licensing is one special bespoke license where we’re developing a new product. And the other is just another promotional distributor in a different territory. With regard to the increase in revenues, that is all from Quiz Cards and that’s all to do with – that all comes from Quiz Card shipments basically. You know we were expecting them to ship back end of Q3 but you know just due to technical matters you know they’re actually finally shipping this month.
Q. Gotcha. And on that Quiz Card shipment, is there a certain level of commitment that you have for the next few months?
LC. Yeah, if you look at Q1 of next year you’re not going to see much increase because it’s just, you know, Q1’s fairly steady with Q4 because – where you’ll see the increase next year is Q2 onwards when U.S. – when we expect U.S. revenues to start kicking in.
Q. From the same Quiz Cards and then on top of that I guess the Thomas, the Engine cards?
LC. Yeah. All the different initiatives that we’re working on there. That’s right, isn’t it, Kevin?
KD. That’s correct.
25:50
Q. OK, great. And Kevin, on the promotions side, you’ve been having a lot of conversations with BD&A. I don’t know to the extent you can give us a little more color on how that’s progressing, what type of cards or content ____ they’re interested in using the platform for?
KD. Sure thanks, Richard. So BD&A, based in Seattle, Washington. You can go on their website, bdainc.com, to find out more about the company. They have their entertainment division down in Irvine, CA. We’ve been working closely with them. Third-largest agent’s promotions agency in the country. They have a line-up of entertainment accounts which also includes Freemantle, and Freemantle has brands like American Idol, The Price is Right, Family Feud, and some of the top game shows on television. And so we’re working very closely with them and their licensor partners, both the promotions side of integrating the IP into our technology platforms, primarily the iQuiz Digital Squirt, and then also the iQuiz smaller version of the card without the sound. And into the promotions side with their clients that are sponsors of the shows. And then also from the retail side of bridging it back over with the FMM-The Moscoe Group into the other channels of distribution. We really have a great relationship with them. We’re working through orders and will be forthcoming announcements regarding greater details on that relationship.
Q. Great. And then lastly perhaps Lee has an update on the investments on your balance sheet and some of the private companies with regards to monetizing some of those. Any update there, Lee?
LC. Yeah, I mean as we’ve said previously we’re looking to monetize the whole investment sector by the middle of next year, and we’ve got – we’re in active negotiations on a very large portion of that at the moment. And then the other real sector of the investments is PrizeMobile, where their business is progressing nicely. They’re in a very interesting space which we think could be synergistic with us in some respects. And they’re hopeful to get their mobile platform – they’ve got some good news with a couple of large carriers in Europe, hopes going to emerge soon. So basically, bottom line is we feel very confident of getting out of all of our investments by the middle of next year and hopefully at a profit but definitely not at a loss.
Q. Gotcha. All right, thanks guys.
STEVE MAIDEN – MAIDEN CAPITAL
Q. Hi, guys. Great Quarter. Couple of questions for you. One was, trying to understand as you ran through the growth going forward what your operational expenses are going to look like going forward. Are you going to have to hire a bunch of headcounts. Trying to get an idea of your ability to drop profits to the bottom line.
KD. Sure. I’d like to start on that. Steve, it’s not a bunch of people. First of all we’ve identified two to three key areas for types of[?] consultants with performance criteria, specific projects. We will not have all the other employee benefits that are typically associated so we hold a lean operation and will continue to do so, watching the bottom line. And these are additive based on an increase in volume and revenue that we are projecting into 2010.
Q. Gotcha. I think – can you talk just generally a bit about the – both the China economics and the Poken economics to some degree. You talked you know about 9 billion scratch cards being sold annually in China. I saw a Roth report that said only 4 million sales – 4 million cards sold from Electronic Game Card would add about $.01 in earnings. I don’t know if you can bless that or if you can talk through the economics of that but that seems like just a massive opportunity. And then sort of a similar question on Poken. I don’t know if you’re willing or able to talk about that, but Poken’s getting a lot of buzz and I just want to understand what it could mean to the company.
KD. Well, I really – I don’t
LC. Do you want me to….
KD. I don’t want to disclose either one of those at this point, and it’s not for withholding information. It’s clearly – as we’re defining the economics and I’d rather reserve our comments to properly address the marketplace as it pertains to China Lot Synergy and the China welfare. We are reviewing it, we are getting to the final numbers, and especially as it comes out of the criteria for these three provinces. So I’d like to reserve judgment on that and communication further.
The Poken opportunity is also another enormous opportunity. It’s a proprietary, an incredible technology of social engagement. As we all know, the social online media space is enormous and massive with a value per user as well as having a retail product to generate revenue from, so it’s a unique business model. So we’ll be divulging all that information to the market in upcoming announcements.
LC. And again, it’s not in our forecast.
Q. Yeah, that was going to be my next question. Just kind of asked last quarter, comfort with the forecast that’s out there. It’s $.20, basically a doubling of revenue to something like $27 million, I think, in 2010. So $.14 earnings per share going to $.20. I think you said last year none of China is in there. Certainly I assume Poken’s not in there So any comments you can make on the comfort of hitting those numbers or exceeding them.
LC. I mean, they’re analyst estimates. And, you know, we – if with our current pipeline and if with the initiatives we’ve got out there on our current products kick in as we expect they will, then we don’t see anything too contradictory in those revenues, but we haven’t actually given an estimate. Put it this way, we certainly see our earnings bright.
KD. Yeah. Well said. And I think, Steven, you can look at it and say, what were the products that we were able to deliver on in 2009 vs. the products we’ll be able to put into the market and promotions and retail and other strategic opportunities for revenue in 2010 are vastly different. It’s rounding off the suite of technology with greater opportunities regardless of who that B2B or consumer client is.
LC. Yeah, what Kevin’s done and what the company’s done is expand the distribution base and have expanded the product base and continued to expand his product base so we’ve probably got – probably have three times the product base going into two times the distribution base next year.
Q. Yeah. It would be hard not to grow materially with that. And the China opportunity seems enormous. Well, that’s great. And I guess one more just housekeeping. I think I noticed your Paid-in Capital growing. I don’t know if there’s any color you can give on that.
LC. I think it’s mainly where the stock price has gone up and people have been converting options and warrants from old financings and converting Preferred shares.
Q. OK, OK. Continued success, guys. Thank you.
LC. Thanks, Steve.
KD. Thanks very much, Steve.
JOE MAXIM[?] – DOUGHERTY & COMPANY.
Q. Hi. Thank you. Kevin, just wondering if you have working models of your prototypes you know for the larger Quiz Cards and education cards yet?
LC. Yes.
KD. Hi, Joe. How are you?
Q. I’m doing well, thank you.
KD. Good. good. Thanks for joining the call today. We do. Lee, do you want to expand on that further?
LC. Yeah, we’ve got working prototypes for the first generation of the Quiz Cards and the Edu Cards. And the ones I think you’re referring to is the one of the specific brands where, which is part of our shipment strategy for next year, where we’re actually putting sound on the cards as well. Again, we’re – tthey’ll – we’ll have them before the year-end as well. So we’re already set quite nicely for next year, Q1, Q2 shipping now that we’ve finally got the prototypes done.
35.30
Q. You have working models but you need to add sound to them yet.
LC. Correct [?]
Q. What’s the feedback then from your potential customers. Has everyone seen these? And obviously I’m assuming they like them that’s why you’re excited about next year, but I just wanted to get your comments.
LC. Yes.
KD. Joe, when you look at it from our PowerPoint presentations posted online from the various conferences we’ve had at Roth Capital China in Miami and also this past week in New York here at the Merriman conference, the two core new products are in ePlay, and the ePlay is that educational learning platform with Thomas & Friends. And that does have audio embedded in for the play with numbers and also the character association products, And so that’s a defining line.
The second is with the iQuiz Cards. Now, there’s two different types of iQuiz cards. There’s the one with the sound, right around an $8.99 MSRP in the States, and then a smaller version that does not have sound which is similar to our size and dimension of our Electronic Game Cards, but a little bit thicker than a credit card. And that particular platform does not have sound and is priced between $3.99 and $4.99 MSRP and has a variety of genre associated, popular culture and interests.
Q. OK. that’s helpful. On the World Expo potential in China, where do you see yourselves standing? Do you think there’s still an opportunity or are you a little – or based on your initial move into the country, will you be able to still, you know.
KD. Let’s look at it in terms of where we’re going in terms of beginning of December with them. So we’re working through the details for the next year. Although the Shanghai World Expo starts in May, it does run all the way through the end of October, and one of the key initiatives we have together is to hit tourism, and that will be one of the featured highlight areas of tourism in the country of China during 2010. So the final decisions have not been made yet. There have been discussions with China Lot Synergy and the local government and legal officials there in Shanghai, so we’ll be able to disclose whether we’re part of that or not forthcoming, we hope, in December.
Q. OK., Lastly, just a quick update on the CFO situation. Are you looking for a new CFO currently or what is your plan?
KD. At the present time we are working very closely with Tom Schiff, who’s a great person, very talented, and well-skilled, and seasoned experience at the CFO position with public companies. And so we are in the process of working through a little bit of time here, and the ability to see if we can bring Tom back in. In the event that Tom does not come back in, we will have another CFO added to our Board.
Q. All right. Thank you very much.
KD. Thank you, Joe.
JACK CUMMINS
Q. Great job. When are you guys going to move to NASDAQ?
KD. Thank you, Jack. We’re doing everything we can on a daily basis to organically grow this company and the stock and our sales efforts. So, you know, that’s our core goal. And so we hope to get there sooner than later. Lee?
LC/Q ________
KD. Thank you very much, Jack.
ANDREW COWAN – TRICADIA
Q. Hi, guys. Great quarter. Really nice execution across the board. Quick question. I know that Lord Steinberg had been working with getting the cards into his betting parlors of Eastern Europe. I’m just wondering with his unfortunately untimely passing, where that stands and if there were any other lottery opportunities going on in Europe that I thought I had heard that he had been working on or the company had been working on previously in addition to the lottery opportunity in China.
LC. Yes, I mean with the betting parlors we’ve actually got samples going out I think next month into a variety of stores in a test market. And with the lotteries, we’re currently talking to two other lotteries in Europe, which we don’t – which we’re not at the stage to disclose yet.
Q. OK. That’s all I had. Great quarter.
KD. Thank you very much, Andrew.
RICHARD FETYKO – MERRIMAN
Q. Hey guys. My question is just to follow up on the betting parlors. What type of cards are we talking about? Promotional cards or some other, you know, concept?
LC. Actually, some other concepts where they’d be betting. I haven’t actually been dealing with it. The guy who’s been dealing with it actually isn’t with us today because his wife’s just had a baby. So yeah, but they’re going out. I will get you some samples of the mock-ups, Richard.
Q. That’s fantastic. And on the D&O insurance. Just curious, what is the timing of having the D&O insurance? I assume you’re looking to have that.
KD. We do have the D&O insurance in place now.
Q. OK.
KD. It was an oversight by the management, not by Tom Schiff. And so what – we do have that in place nowl and so we’re just working through the process of the item of getting Tom back on board.
Q. Got it. All right. Thanks.
KD. Thank you very much, Richard.
MICHAEL WEISS – JOSLYNDA CAPITAL
Q. Hi, guys. Very good quarter. Can you speak a little bit – I haven’t heard you speak about your sports initiatives lately. How’s that going? Or are you de-emphasizing that at all?
KD. No. Not at all. Hi, Michael. How are you?
Q. Hey, Kevin. How are you?
KD. Good, thanks. We continue on the sports front. The major sports properties with the relationship we have with BD&A. BD&A is a master licensee of the majority of sports properties and we’re looking at a couple that continue with the promotional cards for Electronic Game Card and also now with the new Poken product because the Poken product leads the consumer in that sports fan initiative online. And you can only imagine the possibilities that stem from having that product leading the consumer online, online engagement, online interaction, and the measurability of that product. And so the discussions have been helping the other products grow in further opportunities within the sports properties. And so there’ll be some forthcoming information, you know, released in greater detail.
Q. Thank you very much.
KD. Thank you, Michael.
DAVID WATSON
Q. Yeah, hi. I’m just curious, you know you guys are building a pretty large cash position. What do you plan on doing with that?
47:45
LC. Well, I mean as the company grows, it’s going to need to take in more inventory and there’s potential acquisitions that can grow our EPS. That’s actually what the near term is, wouldn’t you say, Kevin?
KD. Yes. Absolutely. Those are the two – or usage for the capital.
Q. Can you describe sort of what your criteria – when you’re going to do an acquisition what your criteria might be?
KD. Well, we look at an acquisition and the first thing is always having a controlling interest of an acquisition, And it has to be complementary in technology to reach a larger growth market, and so that’s core and fundamental. And so we work through the business model with our strategic consultants to assess and evaluate, and if that technology fits within a formula that we have based on low cost, high margin, high volume, customizable to the B2B market, then there could be some great fits. So based on that – we also look at doing joint ventures. We also, as our track record has showed, we’re not afraid to license in for exclusive rights and distribution. So we just have to continue along the evaluation of those three routes of acquisition, joint venture, or licensing in.
Q. And so you guys haven’t given guidance for 2010 but sort of your base business, which is the promotions market as well as some of the licenses you get from Sci Games and the tribal gaming. That core business, assuming you didn’t get any new business from a lot of the new stuff that you guys have talked about, how much growth would you expect in that base business next year?
LC. Well, even if you only add 10% or 15% growth on that base business, that would be $.16 on its own. But we’re expecting more growth with all the new products.
Q. OK. So the base business, you feel like 10 to 15% growth is achievable, so next year just on the base business you’d assume $.16 EPS.
LC. Yes. And with all the new products and all the new initiatives that’s where we see the real growth. _____ all products have life cycles.
Q. OK. Thanks.
KD. Thanks, David.
{Operator comments]
KD. Well thank you very much, everyone, for your great questions, Yvonne Zappulla, our Board. And I would like to personally thank all of you for your interest and support of our company. We are in an enviable position. We have a company that has a solid financial base to address a multi-billion dollar market opportunity with several proprietary product platforms that generate high margins with little competition. To this we have added an infrastructure of high level outstanding executives, high level joint venture partners and distributors, as well as top-quality, low-cost manufacturers with ample capacity to meet the extraordinary growth we intend to deliver.
Our annual shareholder meeting is now scheduled for Thursday, December 10th at 11:00 am Eastern Standard Time at the Grannus Financial offices in Manhattan, New York. Please contact Yvonne Zappulla if you plan to attend.
And that is it. I’d like to thank all my colleagues here in the U.S. and the London office. And I want to personally thank each and every one of you from the company. Have a happy holiday season. And we have many things to be thankful for.
Still nothing on Seekingalpha.
EGMI Q3 2009 CC
Kevin Donovan, CEO, Co-Chairman
Lee Cole, Board member, previous Interim CEO
Yvonne Zappulla, IR Representative
YVONNE ZAPPULLA
[Introductory remarks]
On December 10th at 11:00 am east coast time, Electronic Game Card will be holding its annual shareholder meeting in our offices at Grannus Financial, 1120 Avenue of the Americas in Manhattan. All are welcome. Please e-mail either myself or John _____ to let us know if you will be attending. Kevin.
KEVIN DONOVAN
Great. Well, thank you very much Yvonne, and thank you all for joining us this morning.
During this past year, the late honorable Lord Leonard Steinberg assembled a small but hardworking, effective team at Electronic Game Card, all with skills beyond what is normally expected of a company of this size. We work very well together and share a common goal of building this company into a significant entity. Under Lord Steinberg’s stewardship we transitioned from a one-product company, turnaround story, to a company with multiple product lines selling into multiple distributors globally. We grieve and are deeply saddened by Lord Steinberg’s untimely and sudden passing last week. We lost a dear friend, family member, mentor, chairman, and leader of the Jewish community and cricket club in Manchester, England. Today we are even more resolute in continuing Lord Steinberg’s legacy and building this company into one in which he would be so very proud.
During third quarter 2009, Electronic Game Card generated record revenues of $4.2 million, slightly ahead of analysts’ expectations and a meaningful step up from prior quarters’ revenue. Revenue growth during the quarter was predominantly driven by repeat business as well as further penetration of the Electronic Game Card into the promotions market, additional licensing, and trial orders of new product lines. The company’s current contracted backlog is expected to generate our business for the remainder of the year, further validating our confidence in revenue guidance of $16 million for 2009.
Electronic Game Card’s operating income grew 42% year-over-year and grew by 38% over the prior second quarter. We generated $2.9 million or $.04 per diluted share in comprehensive net income applicable to common stockholders, marking our 11th consecutive profitable quarter. As of September 30, 2009, Electronic Game Card had approximately 68.1 million shares of common stock outstanding with a weighted fully-diluted share count totaling 72.2 million.
The gross profit generated for the three months ended September 30, 2009 was at the record level of $3.3 million, generating a 78% gross margin. Growing and maximizing gross profit dollars is our top focus. Please note that as future events unfold throughout the year and 2010, some of our current contracted opportunities may greatly accelerate our revenues at margin percentage levels that, while still strong, could be less than the 70+ margins we have enjoyed on 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.
Operating expenses during the third quarter 2009 totaled $798,000, or approximately 19% of revenue, and represents an increase of approximately $274,000 over the third quarter 2008 and an increase of $159,000 over the previous 2009 quarter. This increase was attrivut3d predominantly to higher costs resulting from the strengthened management team and a heightened marketing effort. Going forward we anticipate three strategic personnel additions to our sales and project management teams as we increase our activity in North America, the Pacific Rim, and continental Europe.
For the nine months ended September 30, 2009, Electronic Game Card revenues increased 31% to $10.2 million over the prior year nine-month period. Net income totaled $6.6 million or $.10 per diluted share compared to a net income of $4.3 million or $.07 per diluted share during the prior year’s first nine-month period.
Cash and equivalents on September 30, 2009 totaled $12.7 million, an increase of approximately $4.5 million from year-end December 31, 2008, and an increase of over $1.4 million from the period ended June 30, 2009. Consistent with the prior second quarter, the company’s current ratio remained flat at 17:1 and EGC’s 6% convertible redeemable preferred debt instrument, which converts at $1.01, was reduced to $2.8 million from the prior second quarter 2009 of $3.3.
Importantly, Stockholders Equity continued to rise, to $23.2 million, an increase of $4.7 million from the prior second quarter.
Thus far, the balance of the year is shaping up to deliver an acceleration in revenues and earnings to put us on target of hitting our guidance of $16 million in revenues and $.14 earnings per share.
And looking forward into 2010 we have a number of initiatives already announced, and others soon to be announced, that will create significant momentum to add to our 2009 base. Before reviewing our business lines and future initiatives, it is important to discuss our base of operations and infrastructure that will enable us to smoothly ramp up our revenue levels.
First, replacements to the Board and executive ranks. As a result of the death of our Executive Chairman, The Lord Leonard Steinberg, the Board of Electronic Game Card has elected to replace our loss in the interim with Eugene Christiansen and myself as joint Chairmen of the company. Eugene was nominated by Lord Steinberg and elected to the Board of Electronic Game Card in September 2008. Mr. Christiansen has been active as an executive consultant to the commercial gambling and entertainment industries since 1976 through New York-based Christiansen Capital Advisors. Mr. Christiansen has conducted studies of the economics, taxation, financial structure, and regulation of casino gaming, pari-mutual wagering, and lotteries, and has counseled Manhattan and Washington, D.C. law firms in legal proceedings regarding in legal proceedings regarding gaming issues and has also authored numerous articles dealing with all aspects of the gaming industry. I look forward to working even more closely with Eugene in the coming months.
We plan additional changes to the Board within the next 30 days with the goal to establish an independent Board. We are already in advanced discussions with several prospective candidates. Our plan is to replace three to four new members. Our criteria in our selection process is based upon adding exponential value through potential new business revenue from their relationship network and seasoned public market, legal and finance experience.
I would like to take a moment to discuss the announcement from last week of Tom Schiff’s stepping down as CFO. This move in his name function, given Tom’s personal situation and frankly the company’s oversight is not sending in the D&O insurance payment – until such time as all paperwork was properly filed and coverage resumed, Tom will be operating as a consultant, albeit closely attending to our books and financial details very similar to his prior responsibilities prior to this unfortunate oversight. We hope Tom will join our executive ranks once again in the near future.
Over the next six months our additional staffing plans are modest. We may add two or three admin and mid-level individuals as project, sales, marketing, and operations managers specific to new growth areas and management of evergreen accounts.
We are also pleased to announce that we have hired a top design, branding, marketing, and media relations firm based here in New York City, Perillo & Co., which will be helping us to increase our company profile and launch our new CirQ brand, website, iPhone applications, and overall new business development marketing initiatives. Joe Perillo, co-founder of Perillo & Company’s experience is vast in public and private enterprises including his previous tenure as the first ever chief marketing officer for the City of New York appointed by Mayor Bloomberg. He is also Vice President of Marketing for the New York Yankees and held several key global brand accounts including the History Channel. I’ve been privileged to work with Perillo & Co. in the past, achieving fantastic results, and expect to do the same with the launch of our new brand, CirQ.
Secondarily, branding of our company. As you all know, my roots are based in branding and marketing from the Salt Lake 2002 Winter Olympic Games to the NASCAR Speed Parks. As we’ve discussed in the past, our name is too limiting to properly carry this company forward and our vision into the future. Therefore, over the next couple of months we will rebrand the company to CirQ, and with that launching our new brand and website before year-end at cirp.com. The new CirQ brand, inspiring technology, will provide the company with a broader scope of recognition for our expanded suite of technology platforms and easier adaptability to the new business applications, market opportunities, and B2B partnerships. Perillo & Co. have been working behind the scenes over the past couple of months. We are very excited to unveil a highly impressive, next gen look and image within the next 60 days.
With these final organizational milestones in place, here’s what I see as the opportunities in each of our three business segments.
First, promotions. Here historically lie the bulk of our revenues, and I’m happy to report that we continue to see impressive growth opportunities in this business segment. In progressing our relationships further with BD&A, the third largest promotions agency in the U.S., and their partnerships with high-profile entertainment brands and professional sports marketing and properties, with our integrated vertical marketing approach. Also, as we further develop our relationship with Havi Global Logistics and their family of companies worldwide.
Second is in gaming. This quarter we recognized revenues from our two license deals with Sovereign Game Card, our native American casinos-focused licensed distribution partner, and Scientific Games. Sovereign has been working diligently on several key initiatives in turnkey promotional orders within tribes in Southwest, Northwest, and Midwest regions of the U.S.
Another important recent development is our announced agreement to form a strategic partnership with China Lot Synergy, which is responsible for the welfare lottery in China. This is only one of two legal lotteries in the People’s Republic of China and, as we know, effective this past July 1, the massive illegal lotteries in China have been outlawed, thereby creating an excellent opportunity to capture business for the legal lotteries in China. The Chinese welfare lottery market currently sells approximately 9 billion scratch tickets annually. During my recent visit with Lee Cole to China Lot Synergy at their office in Beijing we met with their Chairman, CEO, COO, and several other senior level executives in marketing, operations, and logistics. They are a first-class, high-knowledgeable, and well-run organization. I plan to be in China again in the next three weeks with Lee Cole to kick off our relationship as we establish our joint company and launch strategy plans into the first three provinces in China. We plan to launch the trial of our Electronic Game Cards in three provinces during the first half of 2010, and hope to expand nationally during the second half of the year upon successful conclusion of those trials.
In addition, we have been working on sectors such as national and state lotteries outside the United States and casino gaming projects in Las Vegas, Australian, and Asian markets where Miss Anna Houssels, our Executive Vice President of Sales and Director, has long-established, successful relationships.
And finally, a quick update on EGC products into betting shop opportunities in Eastern Europe. As you might recall, the Lord Leonard Steinberg had introduced the company to the Stanley Leisure betting shops in Eastern Europe, namely Romania, Croatia, and Poland. We continue to advance in regulations, and there are several other tax reductions into those particular markets which are accelerating the opportunities for new growth in Europe.
Number three, our vertical market of education. This is a $2.2 billion global market and growing. To our knowledge, there are no interactive learning systems products that are as affordable, from $8 to $12 retail price points. We are confident we have a category buster as an on-the-go, edutainment-style game card product by early responses from our European B2B network reaction and here at home in the United States. Currently there are several gold standard brands in education, publishing, and media in review of this new product offering. We expect the first cards to be shipped in the UK in first quarter 2010.
And finally, an update on our most recent platform and agreement to form a joint venture with Poken Holding. This interesting opportunity for our company which we anticipate over time will have activity in all three of our business verticals. I spent several days at Poken headquarters in Switzerland. There is incredible synergy between our two companies and our two management teams have great chemistry together. We have before us what we suspect will be an immediate development, sales, and distribution opportunity in North America, which we hope to share with all of you in the near future. We also believe that there are opportunities to expand our relationship, which we are currently investigating. So please stay tuned. This relationship could fodder some exciting developments into the close of this current year.
Now in closing. The management, Board, and consultants of Electronic Game Card would like to express our heartfelt condolences to the Steinberg family and the Lord Leonard Steinberg, a great man who was generous with his time and gave this company a great foundation from which to grow. It is all our intention to build this company into the success that Leonard so envisioned.
With that, I will now open this call up for questions.
19:00
Q&A
TODD EILERS – ROTH CAPITAL PARTNERS
Q. Morning, everyone. Kevin, I was wondering if you could maybe break down your revenue a little bit under – you know maybe give how much was promotions, how much was gaming and lottery and how much was under the educational segment. And then also maybe if you could give the unit breakdown for those segments as well.
LC. You want me to do that, Kevin?
KD. Yes, Lee, please feel free. Thank you.
LC. Hi, Todd. Basically, I mean we’re reclassifying the segments with new products, but I mean, and we’re sort of throwing[?] more in the promotional segment, so I would say putting promotion and toys together, really it’s probably about 80% promotion and toys and 20% gaming and lottery. And really the growth in sales this quarter was mainly due to a pick-up in licenses that we’ve got and additional licenses.
Q. OK. And Lee can you also give, I know in the past you’ve given how much your total royalty and recurring revenue was in the quarter. Can you give that again?
LC. I haven’t got the exact figure. It’s approximately $2 million.
Q. OK. And then, did you guys ship any of the iQuiz cards or the Thomas ePlay cards in the international markets in the quarter?
LC. No, Thomas is going out Q1 and the iQuiz cards are going out in this quarter.
Q. And will that - will the iQuiz, will that be just international markets or will that also be domestic?
LC. What domestic U.S.? It will be domestic U.S. next year. It’s just - the ones that are going out this quarter are just UK.
20:30
Q. OK. And then can you maybe also give an update on I guess the distribution relationship with FMM. Are they - will they just be distributing the iQuiz Card and the Thomas ePlay cards or will they also be distributing other products for you guys? And I’m assuming, it sounds like we should expect a first quarter, second quarter next year rollout domestically.
KD. Lee, do you want me to take that?
LC. Yeah, thanks Kevin.
KD. Great. Todd, you know we have a great relationship with this 52 year-old company who’s very well-respected in retail marketing and placements. And we enjoy a great relationship with them. The core products will be distributed in the second half of 2010 in the U.S. based on the six major categories of retailers that they service on a daily basis. We’re looking to add to that. As you know we have a deal with SSD Company Limited out of Japan, and the smart stick pen scanner and the barcode scanning system, and so we’re looking at placement there. With Poken for North America we’ve been approached by several other new retailers in the past 30 days and we’re looking at including the Poken products also into those retail channels and distribution from a very strategic standpoint. And FMM is well-suited with us to handle that.
Q. OK. Perfect. And then I guess a follow up question on the China Lot opportunity. You kind of highlighted the expected trial there coming up. Can you maybe in general kind of give us a sense of what will determine a successful trial for you guys. Is there – can you maybe talk in general about that? And then also what do you see as the biggest risk to that opportunity for you guys?
KD. Well, if I may, and then Lee, please jump in. Todd, I think it’s why we’re going to China, based on our discussions – when you get in the room in the early part of December, we’re working through the criteria. And also making the decision on which of the three out of the first 13 provinces that we’re going to launch in, and the number of cards. So all those decisions are forthcoming. We have an annual shareholders meeting back here in New York by which we’ll be able to share additional information after our meetings in China.
LC. Yeah, and just on risks, I mean the China Lot Synergy relationship isn’t in any of our forecasts.
Q. OK. And then one last question. Lee, can you – I think I forgot to ask this. But can you give the total number of game cards sold in the quarter?
LC. Yeah, it was approximately 1.7 million. It wasn’t up that much because we had a lot more licensing revenue, which also explains the increase in margin.
Q. OK. All right. Thanks. Thanks, guys. Congrats on a great quarter.
KD. Thanks, Todd.
RICHARD FETYKO - MERRIMAN
Q. Good morning, guys. Congrats on the results. Lee, could you explain a little more about the sequential increase in the revenues. You mentioned more licensing. What type of licensing? From promotional type of clients and what type of clients are they? And then looking into fourth quarter, your 16 million revenue guidance implies a $1.5 million sequential increase in revenue in the fourth quarter, which is phenomenal, it’s great, just curious what will drive that. If you have a couple of things that you expect on a sequential basis to contribute to that increase.
24:20
LC. Sure. Yeah, the increase in licensing is one special bespoke license where we’re developing a new product. And the other is just another promotional distributor in a different territory. With regard to the increase in revenues, that is all from Quiz Cards and that’s all to do with – that all comes from Quiz Card shipments basically. You know we were expecting them to ship back end of Q3 but you know just due to technical matters you know they’re actually finally shipping this month.
Q. Gotcha. And on that Quiz Card shipment, is there a certain level of commitment that you have for the next few months?
LC. Yeah, if you look at Q1 of next year you’re not going to see much increase because it’s just, you know, Q1’s fairly steady with Q4 because – where you’ll see the increase next year is Q2 onwards when U.S. – when we expect U.S. revenues to start kicking in.
Q. From the same Quiz Cards and then on top of that I guess the Thomas, the Engine cards?
LC. Yeah. All the different initiatives that we’re working on there. That’s right, isn’t it, Kevin?
KD. That’s correct.
25:50
Q. OK, great. And Kevin, on the promotions side, you’ve been having a lot of conversations with BD&A. I don’t know to the extent you can give us a little more color on how that’s progressing, what type of cards or content ____ they’re interested in using the platform for?
KD. Sure thanks, Richard. So BD&A, based in Seattle, Washington. You can go on their website, bdainc.com, to find out more about the company. They have their entertainment division down in Irvine, CA. We’ve been working closely with them. Third-largest agent’s promotions agency in the country. They have a line-up of entertainment accounts which also includes Freemantle, and Freemantle has brands like American Idol, The Price is Right, Family Feud, and some of the top game shows on television. And so we’re working very closely with them and their licensor partners, both the promotions side of integrating the IP into our technology platforms, primarily the iQuiz Digital Squirt, and then also the iQuiz smaller version of the card without the sound. And into the promotions side with their clients that are sponsors of the shows. And then also from the retail side of bridging it back over with the FMM-The Moscoe Group into the other channels of distribution. We really have a great relationship with them. We’re working through orders and will be forthcoming announcements regarding greater details on that relationship.
Q. Great. And then lastly perhaps Lee has an update on the investments on your balance sheet and some of the private companies with regards to monetizing some of those. Any update there, Lee?
LC. Yeah, I mean as we’ve said previously we’re looking to monetize the whole investment sector by the middle of next year, and we’ve got – we’re in active negotiations on a very large portion of that at the moment. And then the other real sector of the investments is PrizeMobile, where their business is progressing nicely. They’re in a very interesting space which we think could be synergistic with us in some respects. And they’re hopeful to get their mobile platform – they’ve got some good news with a couple of large carriers in Europe, hopes going to emerge soon. So basically, bottom line is we feel very confident of getting out of all of our investments by the middle of next year and hopefully at a profit but definitely not at a loss.
Q. Gotcha. All right, thanks guys.
STEVE MAIDEN – MAIDEN CAPITAL
Q. Hi, guys. Great Quarter. Couple of questions for you. One was, trying to understand as you ran through the growth going forward what your operational expenses are going to look like going forward. Are you going to have to hire a bunch of headcounts. Trying to get an idea of your ability to drop profits to the bottom line.
KD. Sure. I’d like to start on that. Steve, it’s not a bunch of people. First of all we’ve identified two to three key areas for types of[?] consultants with performance criteria, specific projects. We will not have all the other employee benefits that are typically associated so we hold a lean operation and will continue to do so, watching the bottom line. And these are additive based on an increase in volume and revenue that we are projecting into 2010.
Q. Gotcha. I think – can you talk just generally a bit about the – both the China economics and the Poken economics to some degree. You talked you know about 9 billion scratch cards being sold annually in China. I saw a Roth report that said only 4 million sales – 4 million cards sold from Electronic Game Card would add about $.01 in earnings. I don’t know if you can bless that or if you can talk through the economics of that but that seems like just a massive opportunity. And then sort of a similar question on Poken. I don’t know if you’re willing or able to talk about that, but Poken’s getting a lot of buzz and I just want to understand what it could mean to the company.
KD. Well, I really – I don’t
LC. Do you want me to….
KD. I don’t want to disclose either one of those at this point, and it’s not for withholding information. It’s clearly – as we’re defining the economics and I’d rather reserve our comments to properly address the marketplace as it pertains to China Lot Synergy and the China welfare. We are reviewing it, we are getting to the final numbers, and especially as it comes out of the criteria for these three provinces. So I’d like to reserve judgment on that and communication further.
The Poken opportunity is also another enormous opportunity. It’s a proprietary, an incredible technology of social engagement. As we all know, the social online media space is enormous and massive with a value per user as well as having a retail product to generate revenue from, so it’s a unique business model. So we’ll be divulging all that information to the market in upcoming announcements.
LC. And again, it’s not in our forecast.
Q. Yeah, that was going to be my next question. Just kind of asked last quarter, comfort with the forecast that’s out there. It’s $.20, basically a doubling of revenue to something like $27 million, I think, in 2010. So $.14 earnings per share going to $.20. I think you said last year none of China is in there. Certainly I assume Poken’s not in there So any comments you can make on the comfort of hitting those numbers or exceeding them.
LC. I mean, they’re analyst estimates. And, you know, we – if with our current pipeline and if with the initiatives we’ve got out there on our current products kick in as we expect they will, then we don’t see anything too contradictory in those revenues, but we haven’t actually given an estimate. Put it this way, we certainly see our earnings bright.
KD. Yeah. Well said. And I think, Steven, you can look at it and say, what were the products that we were able to deliver on in 2009 vs. the products we’ll be able to put into the market and promotions and retail and other strategic opportunities for revenue in 2010 are vastly different. It’s rounding off the suite of technology with greater opportunities regardless of who that B2B or consumer client is.
LC. Yeah, what Kevin’s done and what the company’s done is expand the distribution base and have expanded the product base and continued to expand his product base so we’ve probably got – probably have three times the product base going into two times the distribution base next year.
Q. Yeah. It would be hard not to grow materially with that. And the China opportunity seems enormous. Well, that’s great. And I guess one more just housekeeping. I think I noticed your Paid-in Capital growing. I don’t know if there’s any color you can give on that.
LC. I think it’s mainly where the stock price has gone up and people have been converting options and warrants from old financings and converting Preferred shares.
Q. OK, OK. Continued success, guys. Thank you.
LC. Thanks, Steve.
KD. Thanks very much, Steve.
JOE MAXIM[?] – DOUGHERTY & COMPANY.
Q. Hi. Thank you. Kevin, just wondering if you have working models of your prototypes you know for the larger Quiz Cards and education cards yet?
LC. Yes.
KD. Hi, Joe. How are you?
Q. I’m doing well, thank you.
KD. Good. good. Thanks for joining the call today. We do. Lee, do you want to expand on that further?
LC. Yeah, we’ve got working prototypes for the first generation of the Quiz Cards and the Edu Cards. And the ones I think you’re referring to is the one of the specific brands where, which is part of our shipment strategy for next year, where we’re actually putting sound on the cards as well. Again, we’re – tthey’ll – we’ll have them before the year-end as well. So we’re already set quite nicely for next year, Q1, Q2 shipping now that we’ve finally got the prototypes done.
35.30
Q. You have working models but you need to add sound to them yet.
LC. Correct [?]
Q. What’s the feedback then from your potential customers. Has everyone seen these? And obviously I’m assuming they like them that’s why you’re excited about next year, but I just wanted to get your comments.
LC. Yes.
KD. Joe, when you look at it from our PowerPoint presentations posted online from the various conferences we’ve had at Roth Capital China in Miami and also this past week in New York here at the Merriman conference, the two core new products are in ePlay, and the ePlay is that educational learning platform with Thomas & Friends. And that does have audio embedded in for the play with numbers and also the character association products, And so that’s a defining line.
The second is with the iQuiz Cards. Now, there’s two different types of iQuiz cards. There’s the one with the sound, right around an $8.99 MSRP in the States, and then a smaller version that does not have sound which is similar to our size and dimension of our Electronic Game Cards, but a little bit thicker than a credit card. And that particular platform does not have sound and is priced between $3.99 and $4.99 MSRP and has a variety of genre associated, popular culture and interests.
Q. OK. that’s helpful. On the World Expo potential in China, where do you see yourselves standing? Do you think there’s still an opportunity or are you a little – or based on your initial move into the country, will you be able to still, you know.
KD. Let’s look at it in terms of where we’re going in terms of beginning of December with them. So we’re working through the details for the next year. Although the Shanghai World Expo starts in May, it does run all the way through the end of October, and one of the key initiatives we have together is to hit tourism, and that will be one of the featured highlight areas of tourism in the country of China during 2010. So the final decisions have not been made yet. There have been discussions with China Lot Synergy and the local government and legal officials there in Shanghai, so we’ll be able to disclose whether we’re part of that or not forthcoming, we hope, in December.
Q. OK., Lastly, just a quick update on the CFO situation. Are you looking for a new CFO currently or what is your plan?
KD. At the present time we are working very closely with Tom Schiff, who’s a great person, very talented, and well-skilled, and seasoned experience at the CFO position with public companies. And so we are in the process of working through a little bit of time here, and the ability to see if we can bring Tom back in. In the event that Tom does not come back in, we will have another CFO added to our Board.
Q. All right. Thank you very much.
KD. Thank you, Joe.
JACK CUMMINS
Q. Great job. When are you guys going to move to NASDAQ?
KD. Thank you, Jack. We’re doing everything we can on a daily basis to organically grow this company and the stock and our sales efforts. So, you know, that’s our core goal. And so we hope to get there sooner than later. Lee?
LC/Q ________
KD. Thank you very much, Jack.
ANDREW COWAN – TRICADIA
Q. Hi, guys. Great quarter. Really nice execution across the board. Quick question. I know that Lord Steinberg had been working with getting the cards into his betting parlors of Eastern Europe. I’m just wondering with his unfortunately untimely passing, where that stands and if there were any other lottery opportunities going on in Europe that I thought I had heard that he had been working on or the company had been working on previously in addition to the lottery opportunity in China.
LC. Yes, I mean with the betting parlors we’ve actually got samples going out I think next month into a variety of stores in a test market. And with the lotteries, we’re currently talking to two other lotteries in Europe, which we don’t – which we’re not at the stage to disclose yet.
Q. OK. That’s all I had. Great quarter.
KD. Thank you very much, Andrew.
RICHARD FETYKO – MERRIMAN
Q. Hey guys. My question is just to follow up on the betting parlors. What type of cards are we talking about? Promotional cards or some other, you know, concept?
LC. Actually, some other concepts where they’d be betting. I haven’t actually been dealing with it. The guy who’s been dealing with it actually isn’t with us today because his wife’s just had a baby. So yeah, but they’re going out. I will get you some samples of the mock-ups, Richard.
Q. That’s fantastic. And on the D&O insurance. Just curious, what is the timing of having the D&O insurance? I assume you’re looking to have that.
KD. We do have the D&O insurance in place now.
Q. OK.
KD. It was an oversight by the management, not by Tom Schiff. And so what – we do have that in place nowl and so we’re just working through the process of the item of getting Tom back on board.
Q. Got it. All right. Thanks.
KD. Thank you very much, Richard.
MICHAEL WEISS – JOSLYNDA CAPITAL
Q. Hi, guys. Very good quarter. Can you speak a little bit – I haven’t heard you speak about your sports initiatives lately. How’s that going? Or are you de-emphasizing that at all?
KD. No. Not at all. Hi, Michael. How are you?
Q. Hey, Kevin. How are you?
KD. Good, thanks. We continue on the sports front. The major sports properties with the relationship we have with BD&A. BD&A is a master licensee of the majority of sports properties and we’re looking at a couple that continue with the promotional cards for Electronic Game Card and also now with the new Poken product because the Poken product leads the consumer in that sports fan initiative online. And you can only imagine the possibilities that stem from having that product leading the consumer online, online engagement, online interaction, and the measurability of that product. And so the discussions have been helping the other products grow in further opportunities within the sports properties. And so there’ll be some forthcoming information, you know, released in greater detail.
Q. Thank you very much.
KD. Thank you, Michael.
DAVID WATSON
Q. Yeah, hi. I’m just curious, you know you guys are building a pretty large cash position. What do you plan on doing with that?
47:45
LC. Well, I mean as the company grows, it’s going to need to take in more inventory and there’s potential acquisitions that can grow our EPS. That’s actually what the near term is, wouldn’t you say, Kevin?
KD. Yes. Absolutely. Those are the two – or usage for the capital.
Q. Can you describe sort of what your criteria – when you’re going to do an acquisition what your criteria might be?
KD. Well, we look at an acquisition and the first thing is always having a controlling interest of an acquisition, And it has to be complementary in technology to reach a larger growth market, and so that’s core and fundamental. And so we work through the business model with our strategic consultants to assess and evaluate, and if that technology fits within a formula that we have based on low cost, high margin, high volume, customizable to the B2B market, then there could be some great fits. So based on that – we also look at doing joint ventures. We also, as our track record has showed, we’re not afraid to license in for exclusive rights and distribution. So we just have to continue along the evaluation of those three routes of acquisition, joint venture, or licensing in.
Q. And so you guys haven’t given guidance for 2010 but sort of your base business, which is the promotions market as well as some of the licenses you get from Sci Games and the tribal gaming. That core business, assuming you didn’t get any new business from a lot of the new stuff that you guys have talked about, how much growth would you expect in that base business next year?
LC. Well, even if you only add 10% or 15% growth on that base business, that would be $.16 on its own. But we’re expecting more growth with all the new products.
Q. OK. So the base business, you feel like 10 to 15% growth is achievable, so next year just on the base business you’d assume $.16 EPS.
LC. Yes. And with all the new products and all the new initiatives that’s where we see the real growth. _____ all products have life cycles.
Q. OK. Thanks.
KD. Thanks, David.
{Operator comments]
KD. Well thank you very much, everyone, for your great questions, Yvonne Zappulla, our Board. And I would like to personally thank all of you for your interest and support of our company. We are in an enviable position. We have a company that has a solid financial base to address a multi-billion dollar market opportunity with several proprietary product platforms that generate high margins with little competition. To this we have added an infrastructure of high level outstanding executives, high level joint venture partners and distributors, as well as top-quality, low-cost manufacturers with ample capacity to meet the extraordinary growth we intend to deliver.
Our annual shareholder meeting is now scheduled for Thursday, December 10th at 11:00 am Eastern Standard Time at the Grannus Financial offices in Manhattan, New York. Please contact Yvonne Zappulla if you plan to attend.
And that is it. I’d like to thank all my colleagues here in the U.S. and the London office. And I want to personally thank each and every one of you from the company. Have a happy holiday season. And we have many things to be thankful for.
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
