Electronic Game Card (EGMI) From Stockholder to Stuckholder
If anyone hasn’t seen the latest saga on EGMI I’ve pasted it below:
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February 19, 2010
The Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of Electronic Game Card, Inc. (“EGMI”), of Irvine, California, at 9:30 a.m. on February
19, 2010, and terminating at 11:59 p.m. on March 4, 2010.
The Commission temporarily suspended trading in the securities of EGMI because of questions that have been raised about the accuracy of assertions by EGMI, and by others, in financial disclosures to investors concerning, among other things, the company’s assets.
The Commission cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.
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The company after the close on Friday then issued an 8k:
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Audit Report.
(b) On February 12, 2009, Mendoza Berger and Company, LLP (“M&B”), the independent auditors for Electronic Game Card, Inc. (“EGCI”), informed the EGCI Board of Directors that it had withdrawn its audit opinions for EGCI’s financial statements for the years ended December 31, 2006, 2007 and 2008.
M&B advised EGCI that it had become aware of irregularities in the audit confirmation of a bank account represented to M&B as having been held by Electronic Game Card (UK) Limited (“EGC Ltd”), a wholly owned subsidiary of EGCI that conducts its European operations. Based upon M&B’s investigation and inability to confirm the balances in the account, M&B concluded that its prior audits could no longer be relied upon and that it was withdrawing its audit opinions related to EGCI’s financial statements for the years ended December 31, 2006, 2007 and 2008 as of February 12, 2010.
Kevin Donovan, the Chief Executive Officer of ECCI, has discussed all matters described above with M&B, and has provided a copy of this Form 8-K to M&B.
EGCI intends to determine the adjustments necessary to reissue its prior financial statements, and file amended Annual Reports on Form 10-K for the years ended December 31, 2006, December 31, 2007 and December 31, 2008, and amended Quarterly Report on Form 10-Q for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009 as soon as practicable
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Reading between the lines you can see it’s a question of the cash. The auditor is questioning whether it’s there. So we are left with two outcomes:
1.) The company is able to prove the cash is there (bankers meet with auditers). The company is able to communicate this to the street. The stock takes a dip but has a chance of recovering.
2.) The company isn’t able to prove the cash is there. The stock drops much more then in outcome 1.
I’ve looked at other situations when stocks were halted and to be honest it doesn’t look good. But with EGMI it wouldn’t surprise me if the cash is there. How the auditor after three years only now decides to raise questions on the cash doesn’t make sense. With the well publicized/bantered management power struggle of late, did someone whistleblow a little early on purpose. There are plenty of conspiracy theories, but we will all find out the truth shortly. On Friday I was thinking we were 95% screwed, and now I’m thinking we are 75% screwed. Not comforting I know but that is the reality. I still think the company is planning to do their conference call this week, so that should be interesting.
Disclosure: Stuckholder
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I did not read anywhere that the deal with chinalotsynergy was finalized.
Help me out here.
I have no news on EGMI since 5 March. If anybody has some info please pass it here.
Your fellow patient in the EGMI ward – Steve
Ian and others,
any information???
trading every day…..this mean that the charges are ” not material” as the company stated.
large purchases….either speculators or someone knows something
John:
Nothing new to report. I wouldn’t look to much into anything as its a waste of time until the auditors complete the process.
Like Tarzan said to Jane, “it’s a jungle out there”.
IC
Ian,
As of 2:20 in the afternoon EGMI is up 50% to 48 cents per share on decent volume with no news… Is this speculation upon a Monday qtrly report?
If EGMI is squirming through these audit and class action issues with an acceptable balance sheet and business propects the stock is a roaring buy at these levels. Howevere, it seems to me even in the best case, management is questionable and a worry for investors. How does good management let this happen to them if the balance sheet is accurate??
My best – Steve
On EGMI’s website, Anna Housell (or however you spell it) is no longer listed in the management section. According to others she was listed there as recently as a few weeks ago. A sign of what’s going on maybe?
So where is the opportunity here? Should one use this latest advance to sell (at a loss, but less a loss) and raise capital, or to buy more now on recent signs of strength however speculative? I am not persuaded EGMI is the watershed company we may have considered it to be several weeks/months back. The recent pps advances may only be speculation against the next report and the possibility the balance sheet is intact despite the chaos we have seen, right?
The salient point in all of this is we do not have quality information.
May providence be with us – Steve
Steve:
I expect the stock to drift higher. The questions are, what business will be left when the dust settles? Has current operations taken a hit with all this negative publicity? Is this management BS still going on ? If you want to know what I’m doing. I’m selling as the stock rises.
IC
Hello Ian,
Thank you for the reply. Since you intend to take advantage of what you believe will be a drifting higher pps you must not have any residual “real belief” in the company. That is reasonable and seems to be in line with what we should expect after recent events.
Steve
Ian, I know you probably won’t comment on this post, as you have probably liquidated your entire position.
I was wondering if you would offer a brief take on EGMI latest PR.
Plus i figured I would make it an even 60 on the posts.
Thanks Mark
Hello Mark,
Real quiet in this sick house. I should have recognized trouble at so many junctures with EGMI but I made the huge mistake of falling in love with the stock. ‘All stocks are bad’ is the correct mentality of a winning investor. Ian may be trying to understand this latest press release and one must ask what can be believed at this point. On the EGMI Yahoo board a “participant” said he saw the EGMI Irvine address and it was only a post office box. Maybe this is not in itself evidence of fraud, but fraud is the fear. Departure of the “babe” officer raises questions. What was her corporate function?
I would be laughing about my losses with EGMI were it not that I have recently had some others and all money should be respected.
Your EGMI sickfellow – Steve
All I know is that the way that the PR was worded, it was almost like they were trying to get the stock to tank. Conspiracy theory #83 with this stock.
IC
Yes, I agree Ian…
I am afraid this company is all fraud but when I read this recent PR my perception was one of an attempt at being jettisoned so others could scoop my shares up at bottom dollar. Really don’t know what to think but, I have to believe Donovan et al may be broaching the legal plane.
What do we really know about Donovan? This looks corrupt. Avoiding fraud is a key to junior stock investing. Somehow, I have managed to encounter fraud more than a purely white view of the U.S. business environment would portend.
Steve
curioser and curioser. this is no longer investing for me, now it is blatant gambling. but gamble i will. and learn… hopefully. egmi hasn’t been forthcoming to it’s investors except when there is positive news. we are so far in the dark, anything could happen. best of luck to the rest of you stuckholders. i am 15k shares in w/ an average around 1.25. if i were warren buffet i would laugh this off… i am not warren buffet. and i am not laughing. well maybe a little. whaddayagonnado?
I have been looking at GC Anderson partners.
They have helped a lot of companies with their businesses.
While others viewd this as a negative, I beleive it is actually a positive one.
I think this is the first smart thing management has done.
They have admitted they are inept to run the company a need help.
I beleive GC Anderson will thoroughly go over egmi business accounts, and determine the best approach.
I realized most investors look at this as the 12 million being gone. Hence what I believed cause the huge sell off. That is not necessarily true.
The money could be gone, but if the busines model is intact which i beleive it is,there is hope for shareholders.
I don’t believe GC anderson would be involved if this was a scam, or if there was no value to the company, it just doesn’t make sense.
I also believe that EGMI has been talking with these guys for a few weeks
With that said there could be an unbelievable opportunity at these levels.
.18 a share seems a bit overdone here.
JMHO.
Mark, Jefferee, Ian and all…
“.18 a share seems a bit overdone here” – Well, as Jefferee says buying at this level (and with an out of touch and maybe disfunctional mgmt team) is gambling, not investing. I have given some thought to buying into this catastrophe but that seems to throw good money after bad. It would be nice to know if GC Anderson confirmed the latest PR. This shows how little I trust what Donovan says at this point. And still no explanation on the recently departed “babe officer.” This makes it look like they were playing with company funds and all of EGMI business results may be a scam. If not, maybe 18 cents is overdone.
Steve
adding…
For me to add shares now requires some cumulative understanding of the following:
- The company did not cook the books and assets are mostly intact.
- The recently departed officer was not a hired sex toy and departed for the good of the company.
- This is not a conspiracy for mgmt to take over the company at bottom dollar.
- GC Anderson is really inboard with turning EGMI around.
- And, chapter 11 is not in play.
- Mgmt is not missing, on holidays in an unknown location.
- And, the post office box in Irvine, CA is not all there was/is to the Irvine Office.
This is a lot to clear up, isn’t it? Given the info we have seen of late it would represent a cascade of positive clarifications. Too much to expect??
Steve
What no vaseline !!!
Kidding aside, Anderson seems to have a good track record ( on the surface anyway). The $64.00 questions are : what are they doing with these loosers and how in GODS name to they expect to get paid. ( What % of the company are they going to have to take)
I guess sykes got this POS correct.
Again, their would be no reason for any group to get involved in this unless they know the cash is there. My guess is after they issue themselves a bunch of warrants/options and equity they come out with a series of news saying the cash is there and plan to move forward. I still doubt this is an outright fraud but more continued mismanagement from this management team. And now this other group will take control and position themselves as the white knight. It is quite the chess game and unfort investors lose once again. Really wish I sold the rest of my position but i still think we get one last pump in this thing as the new consultants will likely come out with their plan to move fwd after auditors reinstate #’s (after they issue themselves a bunch of options). Anyway that’s my conspiracy theory.
IC
Ian,
To brutally oversimplify your words, you do not currently see EGMI as a buy, even at 20 cents, and you will look for an opportunity to sell at a higher bounce price. Everyone reading this should understand this is a best guess, a highly speculative guesstimate and, EGMI may not bounce higher.
Good to see your comments leaning away from outright fraud but simply inept mgmt. Heh, sometimes one must squint to find a silver lining!
If not 20 cents, then maybe 15 cents is a buy?? Nahhh!
Steve
Ian I think you are pretty much on the mark, one caveat is some sort of merger, if the earnings are at all true it would be accretive to the parent. Buying now would be strictly gambling.
Alfred,
Are we not entitled to a quarterly report about now? EGMI seems to be unable to report. Is there anything with which to form a merger other than the babe officer? (No promiscuity is suggested here…) How will we shareholders be rewarded in this failed situation?
I am listening and ready to buy on the right information. I believe such information is not in play… Surprise me.
Steve
Steve I go with the babe, at this point I would not touch this stock; catching a falling knife is not my game. I bought in on what I beleived to be a strong uptrend. I was negilliant in selling only because I’M stupid. At this point there is no way any one, of us, can make a reasonable determination of an possible outcome.
excuse the grammar ETC. erors.
Alfred,
I agree and also failed to sell when the warning signs popped up, I just believed EGMI was a “good company.” I am NOT averaging down.
Steve
They are paying this consultant team with more that what everyone believes to be worthless stock !!!!!
Only I work for nothing !!!
There was a broker willing to trade it….
Who cares if they have an office at a PO box. So does 1/2 the world
If they sell product they can work out of their basement !!!
John please elaborate?
Fellow EGMI wounded,
It has been a long time without news. The longer we wait the more difficult it is to find even minute confidence in EGMI. Is it permanently condemned to the pink sheets?
Steve
Steve:
I got this odd feeling one of these days we’ll wake up to a PR stating the “cash” is thr, and a plan moving fwd. In which that is when the stock gets a bump but also will piss off a lot of people who sold at sub 20c. Who knows maybe not, but nothing with this company would surprise me.
IC
Hello Ian,
You have identified another one of my reasons for doubting EGMI… if it turns out the cash is there and things are very roughly okay, then hasn’t the mgmt really let down shareholders who were compelled to sell at bottom dollar? Even this case, although now desired by longterm holders, is a sad situation for many.
Even so, I hope our shares will be worth more than twenty cents.
Steve
They announced that there would be no material change to the assets.
Whatever that could mean.
Think they will report earnings tomorrow???
Ian’s is probably correct.
What I consider that holds some hope:
1. G.C Anderson steps into the mix ( hopefully they have a plan)
2. Steinberg Estate has not filed intent to sell.
3. Tricadia and Manatuck have not filed. ( Maybe they pushed for G.C. Anderson)
4. K.D. has not redacted his last statement.
5. SEC allowed them to resume trading.
6. Brokers are willing to make a market (SEC shows these guys what they have and they decide what they want to do, typically if there is fraud they won’t touch it.)
7. Other then the Poken deal I have not seen any other deal fall apart. (WE HOPE).
I would not be surprised if this was not just an accounting firm issue, so now there covering their ass.
EGMI management style needs to grow up or get out.
So Cole took the money and resigned? If this is the case I hope he goes to jail.
Folks,
Can you believe that “news release?” Was it not just more obfuscation? How can several supposedly productive managers depart without replacement – there are no duties to perform? It is clear they need legal counsel! Notice Anderson was nowhere in the release.
Way bad.
Steve
Ian,
What are your thoughts on this latest development? These two firms are big well respected guns so if there was nothing left, why bother bringing them in at all?
This PR is great news. Means there is an actual biz there to save and lends credence to the rumors this was the result of a management dispute not a collapse of the company.
This is one HIGH POWER law firm and they don’t represent nobodies.
Look for a big jump tomorrow and better days ahead.
I have to agree this is definitely a strong move.
this definitely confirms the internal power struggle going on.
Ian didn’t you say one of the reasons you invested in EGMi was because of KD.
Looks like he is grabbing the bull by the horns now.
What we need now is quick, but healthy management replacements in those key positions.
Even the timing of the release was much better, giving investors time to absorb and understand what’s going on.
THE REST OF THE STORY:
Sent by Overnight Courier and Email]
Dear fellow Board Members,
To: Kevin Donovan, CEO, Co-Chairman, Director [EGMI]
Cc: Eugene Christensen, Co-Chairman, Director
Cc: Lee Cole, Director
I am writing this letter to you today as a matter of utmost urgency now as I have been for the last two months, and continue to be, extremely concerned for the well-being of this company and its shareholders. As a director I do not feel that I am currently able to fulfill my fiduciary responsibility while I still cannot get clarification on a variety of issues that I have continuously brought to the Board’s attention and as to which I have not, as of yet, been able to reach any sort of conclusion. It is impossible for me to look out for the interests of others if I cannot get answers to these questions. Seeing as I have not been able to receive full clarification of the matters listed below, nor been able to obtain material progress in resolution of the same at the board meeting on January 7, 2010, I must formally advise you of my intent to resign as a member of the Board.
There are a myriad of issues that I have raised recently as part of my obligations as a Board member. To reiterate:
1- Bank Confirmations
– The last Bank Confirmation was September 2009. As BOD’s we have all continuously requested Confirmation of Funds and have been unable to secure them. I have no idea what the reasons for this are but I know that without this I am not doing my job as a director in protecting the shareholders. I have requested bank Confirmations repeatedly. I of course I have kept the 25-30 or so requests along this line – If you want I can forward them to you should you need evidence of this;
2- Transfer of Funds to the US for PAYROLL (almost three months overdue)
– I have not received a paycheck for two months and have asked about my paycheck repeatedly. I am unaware if other US bills are being timely paid. This is unacceptable. I know that funds came into the US December 27th 2009 and I am not sure where these funds went. I am aware that there are numerous bills that EGMI must address, however, we are less than ten days away from being three months late on payroll;
3- Series A Stock (Status)
– Numerous requests have been made for documentation on the Series A stock, nothing has been resolved and this has raised some concerns. As per Tom Schiff’s advice, specifically, Linden needs to explain/ reconcile the difference between the activity summary and what was published in the last 10Q. Also, he should be able to provide a list of Series A holders and amounts owned by each. (Actual Documentation, not verbal confirmation);
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4- Common Stock – Outstanding
– As per Tom Schiff’s advice, “Kevin Donovan, as CEO of the company, should request from Michael Mullings of Continental Transfer a current copy (thru the date of request) of the Master Control for EGC Common Stock. This will show stock issuance activity that will shed light on the 70MM share number shown on the face of the latest 10Q filing generated by Lee and Linden”. I am unsure where we stand on this;
5- EGMI Nevada Corp., EGMI Delaware (Manufacturing) – Clarification
(Please see notes below from Thomas Morgan):
EGMI-Delaware was never “up stream” merged with EGMI-Nevada, and is a separate entity. While wholly owned by EGMI-Nevada, EGMI-Delaware’s assets were never transferred to EGMI-Nevada. I don’t know if EGMI-Delaware is in good standing, but will find ask a paralegal to find out. I have not seen any evidence that business has been conducted in the name of EGMI-Delaware. I don’t know what assets it had when acquired, or how they have been managed since the acquisition.
Two “EGMI” entities that show up as Delaware entities-
Electronic Game Card, Inc.
Electronic Game Card Manufacturing, Inc.
Do any of you know about the second corp?
EGMI-Delaware was never listed in an exhibit to SEC filings as a Subsidiary as require;.
6- Audit Committee
– We need an Audit Committee but do not have enough Board Members as of yet;
7- Compensation Committee
– I am a member of the Compensation Committee and have never been made privy to the new consultant’s pay (two sales consultants, one marketing), nor was I aware of their date of hire. Joe Perello was also brought in as a consultant and I saw his contract but had no part in negotiating it nor did I ever approve it;
8- Poken
– There was a Termination Letter in Mid-December, as far as all Board members were told, negotiations had ceased. Then, out of the blue Poken is back and there is a new redlined LOI. I have no idea where Lee Cole stands on this. The Board has no Bank Confirmations, yet there is a promise of monies to be paid to Poken? I find this appalling as a director and also as the EVP of sales. Poken and EGC have just been tied together in the press for Sundance and I had to read about it on the EGC Stock update online? There is still a redlined LOI floating around and no one has seen or heard from one of our Board members, Lee Cole. This is unsettling. To reiterate my concern here, I am not able to look out for our shareholders if I am in the dark. Not knowing where all of my fellow board members stand on the Poken issue is not something that I am comfortable with.
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9- Indemnification
– I have asked for, and have been promised many times, that the standard written indemnification agreement for Board members be signed. As of the deadline I gave previously (3:00 PM Pacific Standard Time) and then extended (to 4:00 PM Pacific Standard Time) after the individual indemnification agreements were sent to me unsigned, has passed without fulfilling this promise, I cannot remain serving the company.
Perhaps I should have drawn my own “line in the sand” long ago. However, I wanted to carry on for the benefit of the company and with the hope and expectations that we could weather the storm brought upon by Lord Steinberg’s death. Unfortunately, I must now conclude that since there have been no significant and meaningful resolutions of all the above-listed items since I began requesting clarification and resolution, I have no other course but to begin the process of resigning as a Board member.
By separate letter you will receive my formal 10 business day Notice of Intent to Terminate Employment for Good Reason under Paragraph 5(f) of my Agreement. Per Paragraph 5(i) of the Agreement, I cannot resign as a member of the Board while I am an employee. Therefore, I am taking the necessary steps to resign as an employee first, and then I will resign as a member of the Board thereafter. If the Company wishes to permit me to resign as a member of the Board immediately, if I receive in writing such permission to do so notwithstanding the language of the Agreement, you will have my resignation as a member of the Board immediately.
Sincerely,
DIRECTOR:
Anna Houssels