PSB Portfolio Update February 2010

| February 23, 2010

February 23, 2010

Trading Halted in Electronic Game Card (OTCBB: EGMI) Shares

On Friday, February 19, 2010, the SEC temporarily suspended trading in EGMI.  This was a serious bolt out of the blue.  The shares will resume trading on Thursday, March 4, 2010.

According to the SEC’s Order of Suspension of Trading, it appears there is “a lack of current and accurate information… because of questions regarding the accuracy of assertions by EGMI, and by others, in financial disclosures to investors concerning, among other things, the company’s assets.”

Yesterday, EGMI filed the following Form 8-K/A with the SEC:

Non-Reliance on Previous Financials, Audits or Interim Review

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Audit Report.

(b) On February 12, 2010 , 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the independent auditors for Electronic Game Card, Inc. (“EGCI”), informed the EGCI Board of Directors that it had withdrawn its audit opinions for EGCI’s financial statements for the years ended December 31, 2006, 2007 and 2008.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 EG CI, 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 Reports on Form 10-Q for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009 as soon as practicable.

It looks like the company’s conference call scheduled for Thursday, February 25th, is still a go.  I’ll be listening closely for more details about this situation.

Keep your eyes peeled for another update on EGMI shortly after the call ends.

If you own shares of EGMI, I urge you to listen to the call if you can.  You can pre-register for the call here:

Unfortunately, the risk of an accounting scandal is one of the many potential risks we take when investing in stocks.  These aren’t just limited to penny stocks either.  You might recall the major accounting scandals at previously well-respected companies like Tyco International, WorldCom, and Enron.

At this point, we don’t have enough information to know the extent and severity of the situation.  I expect to have a much better understanding after listening to the conference call.

Action To Take

  • None at this time.

Category: PSB Portfolio Updates

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