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Tuesday, 08/18/2009 10:54:54 AM

Tuesday, August 18, 2009 10:54:54 AM

Post# of 14386
Roth Update

Electronic Game Card, Inc. | EGMI - $1.60 - OTC | Buy

Prev Close: $1.60
Price Target: $2.00
Market Cap: $97.3

EGC Enters S. Korea Market with Kellof Distribution Agreement

* EGC enters Korea Market. This morning EGC announced that it signed a 3-yr license agreement with Kellof, Inc. for the distribution of its Electronic GameCard, iQuizCard, and Edutainment Play Cards for the South Korea market.
* Deal terms. Per the agreement, Kellof will market, sell, and distribute EGC's products in South Korea and will pay EGC royalty fees ranging from 20-25% of the gross selling price with a minimum annual guarantee of $200,000.
* Impact to EGC. We estimate the minimum guarantee likely equates to Kellof selling anywhere from 350k up to 1.0 million units depending on the product mix. EGC expects to record the first royalty payment of $50,000 in 4Q09.
* Strategy gaining traction. Mgt continues to execute on its strategy to add new distribution channels/partners for its electronic gamecards by signing key distribution agreements in both domestic and international markets. We look for these agreements to drive revenue and EPS growth in FY10.
* More insider buying. We also note further insider buying with the company's Chairman, Lord Steinburg, purchasing another one million shares this week bringing his total ownership interest up to 16.4% of the company's common stock.
* Investment thesis. We reiterate our BUY rating as we continue to like the stock at current levels with shares trading for only 19x and 13x our tax adjusted FY09 and FY10 EPS estimates despite expectations for 40% earnings growth in both FY09 and FY10.

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