DEQ Systems Corp.
TSX VENTURE : DEQ

DEQ Systems Corp.

April 22, 2010 16:40 ET

DEQ Releases its 2010 First Quarter Results

LEVIS, QUEBEC--(Marketwire - April 22, 2010) - DEQ Systems Corp. ("DEQ") (TSX VENTURE:DEQ) announced today the filing of its financial results for the first quarter ending on February 28, 2010. The Consolidated Financial Statements are available on SEDAR (www.sedar.com) and DEQ's website. A conference call will be held on Friday, April 23, 2010 at 11am EST to present and discuss these results. Those interested in participating should dial toll free: 1 (800) 678-2337 or (416) 359-1270. A PowerPoint presentation will be available on DEQ's website in the Invest/Financial Reports/PowerPoint section to support the call content.

2010 FIRST QUARTER RESULTS HIGHLIGHTS:

Financial Metrics

  • Revenue
    • Total revenue for Q1 was $1,142,000 with recurring revenue of $952,000.
    • Recurring revenue from product leasing grew by 92% in Q1 to $296,000 compared to Q1 2009.
    • 22% increase in gross profit to $1.02M in the first quarter compared to the previous quarter.
    • 90% gross margin in Q1 2010.
    • Canadian Dollar appreciation from 81 cents to 95 cents affected recurring revenue by $105,000 when compared to Q1 2009.
    • The full impact of the previously disclosed Russian casino closures can now be seen in our results and DEQ's recurring revenue from DEK International's royalties has decreased by $175,000 in Q1 2010 when compared to Q1 2009. The total net loss in recurring royalties on an annual basis is $450,000.
    • In 2008, DEQ bought back the exclusive rights to international distribution from DEK International. The likelihood of the Russian casino closures was taken into account and an adjustement clause was added to the agreement to offset this eventuality. Therefore, with an annualized decrease of 27% of these royalties, there will be a 25% decrease in our two final purchase price payments in July of 2010 and 2011. It is important to note that this exclusivity was a strategic decision to open up the European and Asian markets to direct commercialization where DEQ has already placed product in Macau, Singapore, Switzerland and Ireland.
  • EBITDA
    • Positive EBITDA of $70,000 in the first quarter of 2010.
  • Operating Costs
    • Operating costs increased slightly to $950,000 in first quarter of 2010 from $810,000 in 2009.
    • Non recurring expenses for a trademark issue that had to be resolved and a permit required for the Singapore contract account for more than 65% of the increase in cost of operations.
    • Commercialization costs and travelling costs did increase in Q1 because of addition of sales personnel in Asia and North America as well as travel expenses for sales. These investments are necessary for DEQ to grow in these markets. We are confident that ongoing and pending sales in Asia and North America will justify these commercial investments. However, in the short term, this increase in operating cost will be apparent in our expenses until such time as the influx of recurring revenue offsets them to the point where they return to an acceptable economy of scale.
  • Cash Flow
    • In Q1 2010, DEQ generated $200,000 in operating cash flow before change in non-cash working capital. However, DEQ's cash position decreased by $600,000.
    • This reduction is extraordinary and is explained by the changes in non-cash working capital items such as:
      • Our accounts receivable increased by more than $250,000 in the quarter mainly because of a late payment from a client that was received in April 2010.
      • Our inventory level of finished goods increased by $150,000 because of upcoming and potential installations.
      • Accounts payable and accrued liabilities decreased by $130,000 affected by annual payments for suppliers, permits and projects due at year-end that were paid in the month of December.

Operational Highlights

  • Product Installations
    • During Q1 2010, we installed 62 new products in North America. We have directly commercialized and installed 340 products in only 16 months. As of Q1 2010, DEQ has 325 G3 Systems installed with distributors worldwide. The total number of DEQ products currently in operation worldwide is 665.
    • In Q1 2010, we began the installation of the 33 G3 systems at Marina Bay Sands in Singapore. The installation has since been completed in early Q2.
    • Key product installs during Q1 included:
      • MGM Grand in Las Vegas - 8 G3 linked on their poker derivatives
      • Barona in California - 10 G3 linked on their poker derivatives
      • Station Casinos - 15 G3 on Progressive Pai Gow in 3 casinos.
      • New Jersey EZ Baccarat and EZ Trak products grew by 8 new installs in Q1
  • Recent News Releases and Information of Interest
    • Marina Bay Sands Singapore orders 33 G3 Systems.
    • Barona Installs G3 on 9 of its Poker Derivative Table Games.
    • Station Casinos Installs 15 G3 on Progressive Pai Gow.
    • Bryan Jenkins and Lee Martin appointed to lead Asian Commercialization.

"The first quarter of 2010 was one of investment," stated Earle G. Hall, President and CEO of DEQ. "With almost 25 jurisdictional licenses and 4 very promising product lines, it is time for DEQ to aggressively penetrate all the markets that it is authorized to commercialize in. Our G3 system is impressing casinos such as MGM Grand, Monte Carlo, Barona, Chukchansi and Ameristar on the poker derivatives while EZ Baccarat and EZ Track are doing the same all over the USA. Now that we have solid performance data on our systems, it is time to go after the market share that our products deserve. We are making the necessary investments in people and travel to capture those sales and we are confident that in the quarters to come, the return on investment will be there."

"It is easy to assume that DEQ has not experienced growth in Q1 and that would be a false assumption," stated Francois Proulx, Chief Financial Officer of DEQ. "While the disclosed 2009 Russian casino closures were foreseen and did negatively affect our royalty revenue, this eventuality was accounted for in the DEK Repurchase Agreement. While this distributor based revenues were negatively impacted, DEQ directly commercialized more products in the USA and Canada in 16 months than the sum total of all its distributors. In 2008, when we saw that distributors were having problems in certain markets and internally as companies, we chose to change our commercialization strategy for direct leasing. This change in strategy was intended to offset the impact of these trends and to ensure the long term viability and progression of DEQ. We are proud to say that we have succeeded in this task and the recurring revenue from leasing and the gross margins reflect our achievement. While some operating costs have increased such as commercialization and travel, they have been carried out in a very controlled manner and are monitored very closely for return on investment."

Statement of Earnings
  Feb. 28, 2009 Feb. 28, 2010 Feb. 28, 2010
  (Unaudited) (Unaudited) (Unaudited)
 
Revenues (3 months) (3 months) (12 months)
       
  Recurring revenue (1) 965,073 953,166 3,700,576
  Non recurring revenue 339,421 188,687 555,848
  1,304,494 1,141,853 4,256,424
Gross Profit 1,152,523 1,022,645 3,665,683
  % Gross Margin 88% 90% 86%
Operational Costs (2) (809,216)  (952,831)  (3,406,529)
EBITDA (3) 343,307 69,814 259,154
Amortization and depreciation (4) (550,624)  (566,590) (2,244,460)
Other items (216,077) (25,053) 318,729
Net income (loss) (423,394)  (521,829)  (1,666,577)
Net income (loss) per share $(0.006) $(0.008) $(0.024)
   
Note 1: Recurring revenue is comprised of Royalties and Equipment rental.
Note 2: Operating costs exclude stock option based compensation.
Note 3: We use EBITDA (Earnings before Stock option based compensation, Interest, Taxes, Depreciation and Amortization) as performance measurements in our financial disclosure. This measure is not recognized under generally accepted accounting principles. The reconciliations above demonstrate how we calculate such measurements from our financial statements.

Balance Sheets

  Feb. 28, 2009 Nov. 30, 2009 Feb. 28, 2010
  (Unaudited) (Audited) (Unaudited)
       
Cash and cash equivalents 6,235,437 5,828,981 5,203,388
Current assets (other than cash) 2,280,104 1,696,490 1,990,189
Long-term assets 16,499,268 14,816,416 14,363,885
Total Assets $25,014,808 $22,341,887 $21,557,462
       
Current liabilities 2,589,898 2,175,579 1,929,736
Long-term liabilities 2,821,226 1,348,101 1,276,586
Shareholders' equity 19,603,684 18,818,207 18,351,140
Total Liabilities and Equity $25,014,808 $22,341,887 $21,557,462
       
Number of shares outstanding 69,760,315 69,589,815 69,529,315

ABOUT DEQ

Founded in 1998, DEQ Systems Corp. (TSXV: DEQ) is a leader in the table game bonusing technology field. DEQ's patents, products and features include side bet bonusing games with progressive and random jackpot prizes, slot machine style mystery bonusing, multiple credit and denomination betting flexibility, dealer hand betting, electronic credit bank, electronic rake, baccarat hand tracking, multimedia animation and sound effects. DEQ has an extensive patent portfolio that is recognized in more than 40 countries such as the USA, Macau, Australia and Canada. DEQ's bonusing solutions and products are present in more than 250 casinos in over 30 countries. For further information, please visit www.deq.com

Forward-looking statements contained in this Press Release involve known and unknown risks, uncertainties and other factors that may cause actual results, performance and achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the said forward-looking statements.

TSX Venture does not accept any responsibility regarding the accuracy of the information contained in this press release.

Contact Information