4Kids Entertainment Q2 2009 Earnings Call Transcript

4Kids Entertainment (KDE)

Q2 2009 Earnings Call

August 10, 2009 9:00 am ET

Executives

Garth Russell - Investor Relations, KCSA Strategic Communications

Bruce R. Foster - Chief Financial Officer

Alfred R. Kahn - Chairman and Chief Executive Officer

Presentation

Operator

Good morning and welcome to the second quarter 2009 earnings conference call. My name is Rachel and I will be facilitating the audio portion of today’s interactive broadcast. (Operator Instructions) At this time, I would like to turn the event over to Mr. Garth Russell with KCSA Strategic Communications. Please go ahead, sir.

Garth Russell

Thank you, Rachel and good morning, everyone. Welcome to the 4Kids Entertainment second quarter 2009 conference call. Before we begin I must state that the information contained in this conference call other than historical information consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors beyond the company’s control including general economic conditions, consumer spending levels, competition from toy companies, motion picture studios and other licensing companies, the uncertainty of public response to the company’s properties and other factors could cause actual results to differ materially from the company’s expectations.

At this time I would now like to turn the call over to Bruce Foster, Chief Financial Officer of 4Kids Entertainment.

Bruce R. Foster

Thank you, Garth and good morning. I’d like to spend a few minutes reviewing with you the company’s second quarter of 2009 financial results. Revenues by reportable segment for the company as a whole were as follows.

In the licensing segment revenue for the three months ended June 30 ’09 was approximately $2.3 million as compared to $3 million in ’08, a decrease of $0.7 million. Revenue for the six months ended June 30 ’09 was approximately $7.9 million, as compared to $8.5 million in ’08, a decrease of approximately $0.6 million. These decreased revenues for the three and six months ended June 30 ’09 were primarily attributable to reduced licensing revenues on the Yu-Gi-Oh! and Shaman King properties domestically of approximately $0.8 million and $0.4 million respectively, as well as reduced licensing revenues on the Teenage Mutant Ninja Turtles property worldwide of approximately $0.7 million, partially offset by increased revenues attributable to the Monster Jam property domestically of approximately $1.2 million.

In the advertising, media and broadcast segment, revenues for the three months ended June 30 09 was approximately $0.2 million as compared to approximately $4.1 million in ’08, a decrease of approximately $3.9 million. Revenues for the six months ended June 30 09 was approximately $1 million, as compared to $7.7 million in ’08, a decrease of approximately $6.7 million. These decreased revenues for the three months and six months ended June 30 09 were primarily attributed to the CW’s $2.7 million and $5.7 million minimum guaranteed shares of revenue for the three and six months ended June 30 09 respectively, was offset against the company’s revenue from the sale of network advertising time in the CW for kids of approximately $2.2 million and $5.4 million respectively as compared to the same period in the prior year in which the Fox Broadcast revenue was approximately 3.9 and 7.1 respectively, and the broadcast fee was amortized and of course classified as an expense rather than offsetting revenues, all of which were partially offset by increased revenue from the sale of Internet advertising time on the company’s websites for the three and six months of approximately $0.1 million and $0.4 million respectively when we compare to the same periods in ’08.

In the television and film production distribution segment, revenue for the three months ended June 30 09 was approximately $2.1 million as compared to $4.4 million in ’08, a decrease of approximately $2.3 million. Revenue for the six months ended June 30 09 was approximately $5.4 million, as compared to $7.9 million in ’08, a decrease of approximately $2.5 million.

The decreased revenues for the three months ended June 30 09 as compared to the same period in ’08 were primarily attributed to decreased international broadcast sales from the Yu-Gi-Oh! And Teenage Mutant Ninja Turtles television series of approximately $0.9 million and $0.8 million respectively, as well as decreased production service revenue from the Teenage Mutant Ninja Turtles Chaotic and Viva Piñata television series of approximately $0.4 million, $0.4 million, and $0.3 million respectively, partially offset by increased domestic broadcast sales from the Chaotic television series of approximately $0.4 million.

The decreased revenues for the six months ended June 30 09 were primarily attributed to decreased international broadcast sales from the Yu-Gi-Oh! And Teenage Mutant Ninja Turtles television series of approximately $1 million and $0.8 million respectively, as well as decreased production service revenue from the Viva Piñata, Teenage Mutant Ninja Turtles, and Chaotic television series of approximately $1 million, $0.7 million, and $0.3 million respectively and again, partially offset by increased international broadcast sales from the dinosaur king television series of approximately $1 million, as well as increased domestic broadcast sales from the Chaotic television series of approximately $0.3 million.

The trading card game and distribution segment began to report significant revenues in the first quarter of ’08 as a result of the launch of the Chaotic trading game to retail and mass market distribution. During the three and six months ended June 30 09, retail sales were negatively impacted by the continued global economic downturn. As a result of the downturn, many retailers maintained reduced inventory levels and the company’s trading card and game distribution segment was negatively impacted by the resulting cut-back by the company’s distributors on their orders placed with T.C. Digital. Many of the company’s larger trading card distributors who service mass market retailers have changed to a point of sale model in response to the demands from the applicable retailers and the company has entered into agreements with these distributors reflecting such a change.

Under the POS model, sales are reported and paid for by the retailer and distributors once the sales are made to the ultimate consumer. While under the current prevailing FOB shipping point model, sales are recorded and paid for upon shipment to distributors. In anticipation of the migration to the POS model, certain of the company’s retailers and distributors have significantly reduced inventory levels over the last several months, causing the company to record reduced revenue and higher inventory levels for the three and six months ended June 30 09.

Additionally, due to the economic downturn and the migration to a POS model, the company has given to these distributors allowances and promotional markdowns which have amounted to approximately $1.3 million and $2.4 million for the three and six months ended June 30 09 respectively.

On a consolidated basis, net revenue for the second quarter of 09 was approximately $4.4 million as compared to approximately $6.5 million in ’08, a decrease of approximately $12.1 million. On a consolidated basis, net revenue for the six months ended June 30 09 was approximately $14.6 million as compared to 31.6 in ’08, a decrease of approximately $17 million.

Now turning to the expense side, cost of sales of trading cards represent finished goods inventory costs relating to the Chaotic trading card game. Cost of sales decreased approximately $1.1 million to $0.8 million and $1.6 million to $1.3 million for the three and six months ended June 30 09 respectively when compared to the same period in ’08. The decrease was primarily attributed to the overall decrease in trading card revenue. In an effort to increase future trading card sales, additional promotional monies were given to retailers and distributors which caused the decrease in net trading card revenues while current cost of sales remained consistent with gross sales.

Selling, general, and administrative expenses decreased approximately $2.4 million to $10.9 million for the three months ended June 30 09 when compared to the same period in ’08. The decreases were attributed to broad cost-cutting initiatives implemented throughout the company and can be specifically detailed as follows -- decreased personnel related costs of approximately $0.7 million; decreased advertising and marketing costs of $0.5 million; decreased international selling expenses, $0.5 million; decreased professional fees of approximately $0.3 million; as well as decreased travel and entertainment costs of approximately $0.3 million.

Selling, general and administrative expenses decreased approximately $3.2 million to $22.7 million for the six months ended June 30 09 when compared to the same period in ’08. The decreases were attributed to broad cost-cutting initiatives implemented throughout the company and can be specifically detailed as follows -- decreased advertising and marketing costs of $0.8 million, decreased international selling expenses of $0.8 million, decreased personnel related costs of $0.7 million, decreased travel and entertainment costs of $0.4 million, decreased website cost of approximately $0.3 million, as well as decreased professional fees of $0.3 million.

Production service costs for the three months ended June 30 09 were approximately $0.9 million as compared to approximately $2 million in ’08, a decrease of $1.1 million. Production service costs for the six months ended June 30 09 were approximately $2 million as compared to $3.5 million in ’08, a decrease of approximately $1.5 million.

The decrease in production service costs during the three and six months ended June 30 09 as compared to the same period in ’08 was primarily due to decreased production cost for the Chaotic, Teenage Mutant Ninja Turtles, and Viva Piñata television series.

Amortization of film and television costs for the three months ended June 30 09 were approximately $1.1 million as compared to $1.7 million in ’08, a decrease of approximately $0.6 million. Amortization of film and television costs for the six months ended June 30 09 were approximately $2.3 million as compared to approximately $3.4 million in ’08, a decrease of approximately $0.6 million.

Amortization of television and film costs decreased for the six -- three and six months ended June 30 09 compared to the same periods in ’08 due to decreased amortization related to the Teenage Mutant Ninja Turtles, Yu-Gi-Oh!, and Viva Piñata television series, partially offset by increased amortization related to the Chaotic and [Go-Go-Riki] television series.

There was no amortization of the 4Kids TV broadcast fee for the three and six months ended June 30 09 as compared to 3.9 and $9.1 million for the sale period in ’08 respectively. Due to the termination of the Fox agreement on December 31, 2008, there is no longer amortization of the 4Kids TV broadcast fee as the fee has been fully amortized. The minimum guaranteed payment obligation of the CW agreement were offset against the company’s revenues from the sale of network advertising time on the CW for kids rather than being amortized as a broadcast fee.

Interest income decreased $0.4 million to $0.3 million and $0.7 million to $0.7 million for the three and six months ended June 30 09 respectively, as compared to the same periods in ’08, primarily as a result of lower cash balances and the company’s investments yielding lower interest rates than the prior period. The company did not report a benefit from income taxes for the three and six months ended June 30 09 and ’08. As a result of the above, the company had a net loss for the three and six months ended June 30 09 of approximately $16.2 million and $20.3 million respectively, compared to a net loss of $5.5 million and $11.9 million for the same periods in ’08. Loss per share on a fully diluted basis was $1.04 per share and $1.19 for the three and six months ended June 30 09 respectively, as compared to a loss of $0.42 per share and $0.91 per share for the same periods in ’08.

Diluted shares were approximately 13.3 million for the three and six months ended June 30 09 and approximately 13.1 million and 13.2 million for the three and six months ended June 30 ’08.

Now turning to the balance sheet, as of June 30 09 the company’s cash and cash equivalents, as well as short and long-term investment balance was approximately $20.7 million. Of that total amount, the company had approximately $36.9 million in auction rate securities, which had been written down in the balance sheet to approximately $13.8 million.

On November 9, 2008, the company entered into an agreement with Fox to settle a pending litigation between the parties for $6.3 million. During the six months ended June 30 09, the company paid Fox $5.5 million due under the settlement agreement with the final payment of $0.8 million being paid to Fox in July of 09.

Based on the company’s projected cash flows, current cash and cash equivalents and its overall cash position, the company expects to have adequate liquidity to fund its day-to-day operations through ’09.

Working capital, consisting of current assets less current liabilities, was approximately $7.1 million as of June 30 09 and approximately $7.6 million as of December 31, 2008.

And now I would like to turn the call over to our CEO and Chairman, Alfred Kahn.

Alfred R. Kahn

Good morning. Before discussing in greater detail our second quarter results, I would like to comment on the press release we issued last week in which the company announced it had retained investment bank Montgomery & Company to assist the company in evaluating its strategic alternatives. We believe that in view of the severe recession and difficulties in our business, it is important for the company to explore all potential opportunities in order to maximize shareholder value. The board will be evaluating any offers or proposals that Montgomery & Company will receive and they will determine whether any of those proposals or offers are worth pursuing further.

That being said, I expect to report to you over the next few months a number of positive developments separate and apart from any developments related to the Montgomery & Company announcement which I believe will solidify the company’s financial position and create additional shareholder value. These are deals that we talked about over and over again that actually are possibly going to be finished in the third quarter and they would hopefully be able to reported at that point in time.

I spent more than 20 years building this company and we had 20 great years and I am committed to rebuilding it and restoring it to profitability. I remain optimistic about the company’s future and I would like to go into detail now about the second quarter to give you a sense of where that lies and where we are going forward.

As Bruce said, the company reported a second quarter loss of $13.75 million, or $1.04 per share and as Bruce mentioned in June, the company sold one of its auction rate securities, an international leased finance security, at a significant discount to its face amount, and recorded a loss on the sale of the investment security of $7.25 million. That sale added $0.55 to the company’s second quarter loss. As we’ve talked about previously, obviously the Lehman Brothers failure put all these auction rates in a different light. Certainly we would never have approved these auction rates had we known what Lehman Brothers was doing and our ability to hold the Lehman Brothers accountable for their we believe illegal actions was [decimated] when the government decided not to continue to allow Lehman Brothers to be bailed out as they did with other investment banks and therefore we had no recourse relative to the auction rates that they had put into our account.

If a $7.25 million non-recurring loss is backed out of the second quarter, the company would have lost $6.5 million for the second quarter of ’09, or approximately $0.49 per share. This loss is obviously not acceptable and obviously not where we want to be but I also want to go into detail as a part of this loss is attributable to accounting issues relating to the sale of Chaotic trading cards.

In the second quarter, Chaotic trading card sales revenues were negative 1.85, down from approximately $5.1 million in the second quarter of ’08. Although we actually shipped $2.6 million in cards in the second quarter, we did not have positive revenue for two reasons. First, we offered discounts and markdown money to help move some of the old inventory. Second, as I mentioned in the last conference call, our main distributors of Chaotic trading cards have shifted to a pay on scan model in ’08. We were able to recognize trading card revenue when Chaotic trading cards was shipped from the printer to the distributor. The account rules are to treat pay-on-scan sales as consignment sales. We can therefore only recognize Chaotic trading card revenue when the consumer has purchased the product and it goes through the registers of our main retailers.

Although our trading card subsidiary, TC Digital, shipped about 1.5 million in the second quarter of 09 to distributors who use the pay on scan model, none of that revenue could be recognized in the second quarter of ’09. Rather, we expect to recognize that revenue later in the year when consumers purchase the Chaotic trading cards shipped in the second quarter of 09.

While the second quarter -- while the Chaotic trading card sales are down year over year, when the second quarter of 09 is compared to the second quarter of ’08, the second quarter sales change decline is magnified by the change in accounting principles applicable to the recognition of trading card revenues.

Our second quarter results also do not give an accurate picture of the state of U.S. Chaotic trading card sales. In fact, sales of Chaotic trading cards at retail have substantially increased since Cartoon Network began broadcasting the Chaotic series the first week of June 09. I am pleased to report that the Chaotic ratings on Cartoon Network have been strong. The boys 6 to 11 ratings have averaged a 2.5 to a 3, and sales of Chaotic trading cards are up more than 100% as compared to trading card sales in May. There’s a definite upward trend in the point of sale data reflecting a steady increase in Chaotic trading card sales volumes, as well as a corresponding diminishing of inventory at retail. I remember we talked about Chaotic probably about a year ago or a year-and-a-half ago. We talked about the retailers having an average inventory of somewhere around 25 to 30 weeks.

Our last POS reports indicate retailer inventories between 8 and 10 weeks, which would indicate number one that Chaotic is selling but also two, that the retailers have taken a much more conservative approach to inventory levels. That’s why we are planning and are shipping substantial quantities to retailers as we speak and those quantities would be recognized as those sales are obviously sold at retail.

In addition to our complete absence of trading card revenue in the second quarter, our second quarter revenue decline reflects the loss of revenue at [inaudible] to the termination of the Fox agreement effective December 31 ’08. In the second quarter of ’08, we recorded as revenue $4.1 million in advertising proceeds, mainly from the sale of advertising on the four-hour block which we program on Fox. We also recorded an expense of $3.9 million in the second quarter of ’08, representing the amortization of the $20 million Fox time buy attributable to that quarter.

Our CW deal, however, is counted for differently, in that we record as revenue only the difference between the advertising proceeds for the second quarter, which exceed the amount paid as a guarantee to the CW for the second quarter. In other words, we now only recognize revenue which is in effect net advertising revenue -- CW advertising proceeds less the CW quarter guarantee. Our second quarter ’09 financials reflected net advertising revenue of $2 million -- $200,000 down from 4.1 in the second quarter of ’08.

So theoretically, if you took the Chaotic revenue shortfall and accounting differences between the CW agreement and the Fox agreement, resulting in a year-over-year reduction of revenues of approximately $9 million which is substantially part of the overall revenue decline between the second quarter of ’08 and the second quarter of 09.

On the expense side, I am pleased to report that second quarter of 09 costs and expenses were $13.7 million, down from the $22.8 million in the second quarter of ’08. While $3.9 million of savings is attributable to the termination of Fox agreement, the cost cutting we’ve been doing has saved over $4 million for the quarter over quarter year-over-year. Since the cost-cutting is continuing, I expect our overall costs and expenses for the remainder of the year to come down further.

Now, just look at this in context -- even though our revenues were obviously down 18, approximately $18 million, about $15 million of that is attributable to Chaotic and the accounting rules relative to Chaotic and the change from our Fox broadcasting lineup, but our expenses were down also approximately $18 million.

I think what you are seeing is a very, very positive trend to get our expenses in line with our revenues and as the second quarter -- as the second half rolls out, obviously that’s where most of our revenues from the network will pop in and certainly most of our revenues from Chaotic will pop in in the second half as well, as well as licensing -- excuse me, as well as additional licensing revenues. So we expect the second half of the year to be quite improved over the first half of this year and again, we continue to cut expenses and continue to do what we can and what we have to do to return the company to profitability.

In the first -- I’ll just give you some more Chaotic news. In the first quarter 09 conference call on May 11, I [inaudible] to you the various steps that we were taking to get Chaotic trading card sales back on track. Let me bring you up to date on where we stand. The increased exposure of Chaotic on Cartoon Network beginning in June 09 has had very positive results. We’ve had significantly expanded frequency and reach that we need to introduce the Chaotic trading card game to a much broader audience. We have seen much better retail sales of Chaotic trading cards in the U.S. Our distributors are increasing their orders of both the new booster set entitled [For Unity] and a [inaudible] starters and boosters which are featured in the Chaotic season two episodes. This fall we will be delivering new Chaotic season three episodes to Cartoon Network and will be broadcasting these new episodes on the CW in order to sustain the momentum.

The new version of the Chaotic website launched in March continues to attract users who upload their cards to the site and play online. The new version of the website has more features, is more user friendly, and requires fewer computer resources than the original Chaotic website which required users to have a sophisticated graphics card in order to play the Chaotic trading card game online.

The redesigned Chaotic website has been well-received by the Chaotic fan base, registrations are up and card uploads have increased substantially.

Our organized play program was launched successfully in the second quarter in the U.S. and Canada. Organized play demo days have been held around the country to introduce the Chaotic trading card game to kids around the country. We’ve also sponsored Chaotic tournaments for the more accomplished card players in the U.S. and Canada. We expect organized play to continue to drive interest in the brand.

Our Chaotic toy licensee Spin Master and our videogame licensee Activision are on schedule to release Chaotic merchandise in the fourth quarter. A few weeks ago I was in San Diego at ComicCon where Activision debuted its exciting Chaotic videogame. Our recent Chaotic focus groups highlighted how important a videogame is to the Chaotic fanbase. Activision will be releasing the Chaotic videogame in the fourth quarter on the Wii, the DS, and the PlayStation platforms.

The spinmaster produced Chaotic figures look great and will be released in the U.S. and Canada and possibly Europe during the fourth quarter of 09. The Chaotic [inaudible] was successfully launched in Canada and is expected to hit shelves in the U.S. in the fourth quarter. These licensees are also encouraged to include Chaotic trading cards with their purchases with their products.

During the first six months of this year, our efforts have been directed at what amounts to a relaunch of the Chaotic brand in the U.S. I am pleased to report that we have made great progress in the last few months and I am looking forward to a much better second half of ’09. With much of the inventory problems behind us and the impact of the delay in revenue recognition attributed to pay on scan somewhat reduced going forward, we expect to report substantial positive contributions by the Chaotic brand in the second half of ’09.

Let me talk about Chaotic in Europe and then I want to talk a minute about the platform that we’ve built to maintain Chaotic relative to the card management system and the coding. The launch of Chaotic in Europe is proceeding satisfactorily. The Chaotic television series is now being broadcast five days a week in the U.K. on the [Jetx] satellite network, on [GoTV] in France and on RTL2 in Germany. We have had expected [inaudible] broadcasted somewhere in the U.K. on Terrestrial channel but the U.K. terrestrial broadcast of Chaotic has been postponed until early next year.

Chaotic's European TV ratings have been very good. The Chaotic trading cards are selling well in the U.K. and Germany. The French distributors decided to roll out the Chaotic trading card game a little bit more slowly in France. Our European launch strategy will be boasted by a solid advertising and marketing plan if these European markets and by the [inaudible] of the Chaotic toy line and the Chaotic videogame late this year or early next year.

We anticipate that European sales of Chaotic trading cards beginning to attribute more meaningfully to trading card revenue in the second half of the year and that the success in the U.K., France, and Germany will set the stage for the rollout of the Chaotic trading card game in other European countries.

Let me again touch upon our strategy in terms of the training card PC digital business. As you know, we spent a substantial amount of money on the website, which I would guess would be estimated about $10 million to build the website that accomplished three things -- one, a card management system that will enable players to upload cards specific to them, even cards that are one of a kind and manipulate these cards online and be able to play against opponents not only in the U.S. but on a worldwide basis. That system also had a game engine attached to it which was specific to Chaotic and it also has an ability to do a number of other functions relative to game play.

It becomes apparent, and it always became apparent to us, that the investment in this platform required us to have other games that would be used in that platform. As I had talked previously, we are in the process of signing a new sports license that will be used to not only expand the PC digital reach at retail but also enable us to take better advantage of the wonderful website that has been built and the card management system side so that any new game that would be attached to it would require the use of a game engine, additional game engine but not the additional expense necessary for programming the trading card applications that we already have.

We believe that to fully maximize the potential of TC Digital that we need to have more games available for use with this website, so the second game that we are talking about, which will be a sports game which will be out sometime next year, will increase the revenues and the usage of the Chaotic, or if you will of the management system that has been developed for Chaotic.

We also believe that we need a third game and the third game should be triggered at a lower age range. What we are finding out with Chaotic is that Chaotic basically skews to nine-plus year old players with a lot of them being 12, 13, 14. We also believe that in order to get maximum shelf space at retail and maximum exposure for our brands that we need more of them so that more shelf space is allocated to TC Digital. So we expect to also be working on a third game, which will be a game that will be triggered to a younger audience using the platform in a way that if you will the Webkinz or some of the younger applications of that technology can be applied.

We are also looking at additional games that may now use website for website games that have been developed that are already in use in other parts of the world where they have shown some significant sales and we’ll be announcing those games to be added not only to the TC Digital position but also to our television position on CW because again, we realize that the three most major components of starting these trading card games are one, television exposure; two, obviously organized play; and three, certainly advertising and promotion. Things that in Chaotic have now all come together, albeit a little later than we would have liked with the addition of the videogames and the addition of the toys and the drinks and other licensed products that will hopefully create more awareness and more excitement for Chaotic and increase our sales and increase our shelf space at retail.

Some of our other properties, I am happy to report that Yu-Gi-Oh!, which we have reached agreement to run on Cartoon Network on the 5D series, does run now Monday through Saturday in the U.S. We are beginning to see Yu-Gi-Oh! trading card sales benefit from the six times a week exposure of Yu-Gi-Oh! five days on Cartoon Network. We received word from Konami, the Yu-Gi-Oh! Trading card distributor that U.S. sales are up substantially, about 35% since the June 09 debut of the Chaotic series -- I’m sorry, the Yu-Gi-Oh! series on Cartoon Network. And again, when you think -- go back and look at our history with Yu-Gi-Oh!, Yu-Gi-Oh! at one point was representing almost $25 million worth of volume and a lot of that coming from the sale of trading cards.

We obviously aren’t going to sit here and tell you that Yu-Gi-Oh! is going to come back to $25 million but there’s been a coupe of hiccups in Yu-Gi-Oh! that weren’t obviously contemplated that have now been rectified. Remember, Konami changed their distribution system and took out Upper Deck as the distributor on a worldwide basis for Yu-Gi-Oh! Trading cards outside of Asia, so obviously that resulted in a period of time when there was some confusion between retailers and distributors as to who was doing what to who and obviously that caused us additional resulting sales decreases which are reflective in our numbers.

We think that Konami has now gotten a good hold on the United States operation as reflected in the additional sales increases and we actually think that Konami, that Yu-Gi-Oh! has actually surpassed Pokemon in certain retailers as number one PC [inaudible] game in the United States.

We expect this trend to continue and that should be very positive for us in terms of additional royalties that are predicated on Yu-Gi-Oh! trading cards and other Yu-Gi-Oh! licensed products. That’s something we haven’t been able to say and I think that again, we’ve had a perfect storm -- everything that has happened to us from the auction rate securities issue at Lehman Brothers to really the lack of ability to traction Chaotic or get it going to the extent that we need to get it going to the pay on scan to the change in distributors at -- from Konami from dropping Upper Deck -- all these things have been thrust upon us and I would have to say that we have responded to them in a very, very positive and a very, very important way to make sure that we can go on and continue to do what we need to do and make this company profitable.

I can't tell you how many -- how much of this has been very, very difficult for the management team and how much of this has really been not in our control. But we’re not crying sour grapes, we’re not -- I’m not feeling -- actually I’m feeling very, very bullish and very, very excited that we have weathered what would have been a tremendous storm I’ll bet at great, great costs to both the financial wherewithal of the business and also to the perception of the consumer and the stock price as well.

With all that said, I am certainly very, very excited about not only the continuing rebuild of Chaotic but also the success of Yu-Gi-Oh!, also Teenage Mutant Ninja Turtles -- we have a new deal for Teenage Mutant Ninja Turtles feature film scheduled to come out in 2011 and we have announced that 4Kids will serve as the licensing agent for the Turtles movie. We have produced a Teenage Mutant Ninja Turtles 25th anniversary special which had its debut at San Diego ComicCon and everybody loved it. We expect that to go to DVD and to have some other releases which will generate again revenues for Turtles properties.

Dinosaur King, the property continues to do well for us in Europe where the television series is broadcast on some of the major networks and has generated substantial sales in cards and videogames and toys.

But again, as we talked about previously, the lifeblood of this company is going to be the return to licensing prominence and the lifeblood is being -- we’ve added two new brands, that I mentioned, [Grido Kids], which we added and a preschool brand on PBS called Word World. These properties were showcased at licensing show in early June and in Las Vegas and now we are in the process of negotiating deals for these new properties.

As I mentioned, we are also looking at other new properties which we expect to announce shortly as we expand our base of licensed properties and expand our revenues in that particular area. We are also close to signing a new trading card license which we will announce as that is done, and I told you that will further utilize the Chaotic game platform which we’ve invested so heavily. And we expect to announce that deal later in the summer.

In summary, I can't tell you how bad this quarter has been and how bad we have felt about the business in general over the last two-and-a-half years but I think the worst is finally behind us. I expect our quarterly results to improve dramatically in the second half of the year. We have substantially worked off our trading card inventory issue. We’ll be able to recognize payments again related to trading card revenues. We also continue to benefit from our extensive cost cutting which has not stopped and will not stop until the company shows a profitability that can be sustained over time.

The road to profitability has been much longer and bumpier than I anticipated. When I thought last year at this time that we were about to turn the corner, the bottom fell out of the economy and we again had to make some painful adjustment. Last summer the Chaotic trading card game was off to a great start. We definitely lost a great deal of momentum in the fourth quarter and the first half of this year. The great recession really hurt our forward momentum but I believe that we are back on track.

I think that we have to put everything into context to understand the company has ample resources to do what we need to do. We are looking at all of our strategic alternatives to make sure that no stone is left unturned as to what would be the best usage of the company and its resources for its shareholders.

I want to thank all the shareholders who continue to stand behind us. I know this has become a very, very difficult period and a very, very difficult period for you to hear all the issues that we’ve had and all the issues that we’ve been dealing with. However, I really believe that we are in process of really strengthening this business and being able to get back to the profitability that we, you and I deserve after all the hard work that we have put into this.

Again, I want to thank you for standing by us. I want to assure you that we are now on process to do what we need to do and I will now entertain questions.

Question-and-Answer Session

Operator

(Operator Instructions) We have no audio questions.

Alfred R. Kahn

Okay. Again, I am available, as Bruce is, for any individual conversation relative to what has transpired but again I want to leave you with the fact that this second quarter was really an anomaly quarter relative to how recognition of revenues has been changed and how all those recognition changes, whether it be the network advertising recognition or the Chaotic card recognition, all fell against the second quarter. This will start to level itself out as we go into the third and fourth, especially as advertising revenues build into our normal peak in the third and fourth quarters.

So with that, I want to thank you for your attention and we look forward to hearing from you soon and hopefully you’ll hear from us soon with some more positive -- with some real positive results. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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