DEQ Systems Corp.
TSX VENTURE : DEQ

DEQ Systems Corp.

October 26, 2006 15:28 ET

DEQ Increases its Recurring Revenues in the Third Quarter

LEVIS, QUEBEC--(CCNMatthews - Oct. 26, 2006) - DEQ Systems Corp.(TSX VENTURE:DEQ) today announced a 41% increase in its recurring revenues for the third quarter of fiscal year 2006. The company recorded royalty and leasing revenues of $558,791 for the three-month period ended August 31, 2006, compared to $395,755 for the same period in 2005. This increase is primarily attributable to recurring royalty agreements, in particular the agreement with Severn Enterprises, which generated royalties of $127,793 during the period.

Sales of auxiliary electronic systems for casino table games amounted to $274,971, compared to $251,832 for the same quarter in 2005, representing an increase of 9%. Total revenues for the third quarter of 2006 were down compared to the third quarter of 2005. The decrease is primarily attributable to deferred recognition of a US$1,450,000 technology sale to the fourth quarter of 2006. The sale, which specified the installation of the technology, was not completed until October 2006.

The cost of goods sold amounted to $295,112, or 34% of revenues, compared to $1,168,478, or 70% of revenues, for the third quarter of 2005. In keeping with the company's recurring revenue business model, the manufacturing cost of the products was reduced in proportion to revenues.

Administrative costs fell from $489,155 in 2005 to $373,986 in 2006, representing a reduction of $115,169 (24%). Given the marketing efforts deployed in the United States and Europe, where significant agreements were signed, notably with Progressive Gaming International Corporation (PGIC) and Harrah's Entertainment, marketing expenses were $223,947 for the quarter, compared to $103,780 for the same quarter in 2005.

In order to accelerate the reduction of manufacturing costs and the increase in profit margins, the level of research and development activity for the third quarter of 2006 was higher than for the corresponding period in 2005, with expenses of $159,600 compared to $139,072. The company recorded R&D tax credits amounting to $66,000 during the third quarter of 2006.

DEQ reported a loss before taxes, interest, amortization, exchange rates and stock-purchase option costs of $120,411 (-14%), compared to a loss of $425,906 (-25%) for the same quarter in 2005. The net loss was $336,694 for the three-month period ended August 31, 2006, compared to $1,565,606 for the same period in 2005.

Earle G. Hall, President and Chief Executive Officer says, "We are very proud of our progress in increasing our recurring revenues as well as our profit margin by product. Our cost of goods sold is representative of our image as a recurring-revenue business. We made significant investments during the quarter to reduce our manufacturing costs and to prepare for the most important marketing period of the year, the G2E show in Las Vegas from November 14 to 16, 2006."

Earle G. Hall, CEO, and Marcel Lachance, CFO, will present these third-quarter results as part of a conference call to take place on Thursday, October 26, 2006 at 4:15 p.m. (Eastern Time) in English and at 4:45 p.m. in French at (418) 266-2795 or toll-free at 1-866-249-2165. A visual presentation accompanying the conference call will be available on DEQ's Web site (www.deq.com). The presentation will be available directly on the Web site's home page in the Events section under the name "Presentation of results for the third quarter of 2006". Quarterly financial statements are accessible on SEDAR (www.sedar.com).

About DEQ

DEQ is a public company renowned as a worldwide supplier of technology products for the gaming industry, including auxiliary electronic systems for casino table games. DEQ's products are used in 200 casinos located in 30 countries around the world. DEQ has developed and holds a significant portfolio of international patents that is the basis for its current products.

Certain announcements in this press release are forward-looking statements that involve risks and uncertainties. Actual results could differ from those envisaged in these announcements and forward-looking statements.

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

Contact Information