Yes, profit margin is high. Is it sustainable? For the time being it is, because they do have a patented device, so there is a monopoly. If they hit their 5 yr revenue targets, I'm sure there will be competitors. It seems though they are not resting on laurels of their device and are expanding its applications, that is why they are going after the different markets besides lottery. They are partnering with the right people to license and distribute.
Is there a high barrier to entry to make a competing device? Not really. SGMS already did that, they effectively stole the idea and pushed EGMI out of the three top lottery markets. SGMS design looks different enough to not violate a patent, but it looks a little more complicated. They are marketing their own proprietary product already in the US lottery market. EGMI though took a lump on the chin in the US, but they didn't back down. They've got the China contract in the works and Lord Steinberg's buddies for European distribution. EGMI will bide their time until they can get into the US again.
Could their manufacturer screw them over? A possibility, but the company is looking into manufacturing capabilities. Not sure where they go with this, as little has been said.
Sure there are risks with competition, but they have first mover advantage. It seems they are targeting the right channels to grow. My timeframe for reevaluation is in mid 2010. Negligible growth in the current Q doesn't mean much to me right now, but +/- 10% revenue and I will be listening intently to the business dynamics.
