DEQ Systems Corp.

DEQ Systems Corp.

July 11, 2007 16:05 ET

DEQ Announces its Financial Results for the Second Quarter and Will Hold a Conference Call

LEVIS, QUEBEC--(Marketwire - July 11, 2007) - DEQ Systems Corporation (TSX VENTURE:DEQ) today reported the filing of its interim financial results for the second quarter ended May 31st, 2007. An investor conference call will be held tomorrow, July 12th at 10am EST to present and discuss these results. Key strategic partnerships have been concluded in the second quarter of 2007 including Harrah's, Shuffle Master, Station Casinos and Paltronics of which virtually no revenue has been recognized.

"We are very proud of the strategic accomplishments and the financial progression of the company in the second quarter", stated Earle G. Hall, President & CEO of DEQ. "Our former competitors are now partners and clients, two of the major casino chains in the USA are now clients and one of those groups has even officially named DEQ as their Table Game Bonusing R&D partner. Our cost base is now stabilized and our recurring revenue is growing. We have distribution channels in virtually every important market in the world through our recently announced partnerships and our focus is now on market penetration through these channels."

Earle G. Hall, President and Chief Executive Officer, and Francois Proulx, Chief Financial Officer of DEQ, will be hosting a conference call on Thursday, July 12, 2007, at 10AM Eastern Time to present the Company's 2007 Second Quarter Results.

Those interested in participating in the call should dial (416) 644-3418 or toll free 1 (800) 731-5319, approximately 5 minutes before the call start time. A visual presentation (web enabled Powerpoint) will be available on DEQ's website ( to support the call content. The presentation will be accessible on the home page of the website in the Events section under "Second Quarter 2007 Results Presentation." The Consolidated Financial Statements are available on SEDAR ( and DEQ's website.

Second Quarter Highlights:

- Station Casinos Patent Licensing and Strategic R&D Agreement (NYSE:STN) for a five (5) year term with minimum revenue of $3M.

- National Patent Licence to Harrah's Entertainment (NYSE:HET) for the G3 Side Betting and Table Game Bonusing System.

- Shuffle Master (NASDAQ:SHFL) became the exclusive provider of the G3 system for its suite of more than 4500 table game and electronic game products. Financial Conditions were not disclosed.

- Paltronics selected DEQ Systems as its Exclusive Table Game Bonusing Partner for an initial three (3) year term with a USD$500,000 upfront payment covering the royalties for the first year of the contract.

- Station Casinos made a Private Placement for Joint R&D (900 000 units @ $0.65 per unit)

- TSX VENTURE 50 recognized DEQ as one of the 10 Best Venture Companies in the Technology Sector in 2007.

The Company reports:

Second Quarter ended May 31st, 2007

- Increase in cash and cash equivalents from $296,000 to $1,877,000 during the second quarter.

- 112% increase in gross profit plus deferred revenue in the 2nd quarter to $1,340,000, representing a $709,000 increase compared to $631,000 for the same period in 2006.

- Major increase in adjusted operating cash flow in the 2nd quarter of 2007 to $698,000, representing an increase of $662,000 compared to $36,000 for the 2nd quarter of last year.

- 15% increase in quarterly recurring revenue to $519,000 in the 2nd quarter of 2007 representing an increase of $66,000 compared to $453,000 for the same period in 2006. The value of this increase has been overshadowed by the negative impact of the US exchange rate.

- Net 2nd quarter 2007 loss before interest, tax, amortization, stock-based compensation and other items of ($138,000) (earnings of $31,000 in the 2nd quarter of 2006) and a net loss of $582,000 (net loss of $275,000 in the 2nd quarter of 2006). Q2 results in 2006 were positively affected by a one time patent right sale to Harrah's.

- Foreign exchange loss of $347,000 due to recent Canadian dollar appreciation.

- A shareholders' equity of $11.85 million and working capital of $2.89 million.

Six-Month Period ended May 31st, 2007

- 31% increase in recurring revenue for a total of $1,246,000 representing an increase of $296,000 compared to $942,000 for the same six-month period in 2006.

- 76% increase in gross profit plus deferred revenue for a total of $2,498,000. This is an increase of $1,079,000 compared to $1,419,000 for the same period in 2006.

- Significant increase in adjusted operating cash flows for a total of $710,000 representing an increase of $561,000 compared to $149,000 for the same period in 2006.

- 34% increase in net earnings before interest, tax, amortization, stock-based compensation and other items for a total of $223,000 ($166,000 for the six-month period ended May 31st, 2006) and a net loss of $515,000 (net loss of $350,000 for the six-month period in 2006).

Statement of Earnings Second Quarter Six Months
ended May 31 ended May 31
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)

Royalties $439,697 303,424 1,080,701 616,012
Sale of equipment 72,621 772,879 680,319 992,494
Equipment rental 79,287 149,210 165,615 325,771
Patent rights - 162,832 - 504,232

591,604 1,388,345 1,926,636 2,438,509

GROSS PROFIT 529,074 630,787 1,690,305 1,419,470

NET LOSS $(583,972) $(274,979) $(516,286) $(387,923)
Net loss per share (0.01) (0.01) (0.01) (0.01)

Additional information:

NET LOSS $(583,972) $(274,979) $(516,286) $(387,923)

- Depreciation and
amortization 138,601 153,340 278,703 306,414
- Stock-based compensation 48,867 42,571 259,190 73,220
- Interest capitalized on
advances (60,264) (28,170) (118,753) (54,286)
- Future income taxes - 6,241 - (20,349)
- Foreign exchange loss
(gain) 347,202 137,426 285,483 231,891
(109,566) 36,429 188,337 148,967

- Deferred revenue variation 807,687 - 522,137 -

Adjusted operating cash
flow (i) $698,121 $36,429 $710,474 $148,967

(i) Adjusted cash flow from operations is a non-GAAP measure that
represents cash flow from operations before changes in assets and
liabilities after deferred revenue

Balance Sheet May 31, February 28, November 30, November 30,
2007 2007 2006 2005
(unaudited) (unaudited) (audited) (audited)

Cash and cash
equivalents 1,877,221 295,856 3,591,367 131,468
Current assets (other
than cash) 2,277,573 2,013,389 2,783,913 1,863,419
Long-term assets 9,664,062 10,474,325 7,329,713 9,348,947
Total Assets $13,818,856 $12,783,570 $13,704,993 $11,343,834

Current liabilities 1,261,482 379,067 1,581,378 2,152,972
Long-term liabilities 710,526 654,574 655,896 674,982
Shareholders' equity 11,846,847 11,749,929 11,467,719 8,515,880
Total Liabilities and
Equity $13,818,856 $12,783,570 $13,704,993 $11,343,834

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 50 countries such as the USA, Macau, Australia and Canada. DEQ's bonusing solutions and products are present in more than 200 casinos in over 30 countries.

DEQ Systems Corp. was recognized as a TSX Venture 50™ company in 2007. TSX Venture 50 is a trademark of TSX, Inc. and is used under license.

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.

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