DEQ Systems Corp.
TSX VENTURE : DEQ

DEQ Systems Corp.

July 08, 2010 17:04 ET

DEQ Releases its 2010 Second Quarter Results

LEVIS, QUEBEC--(Marketwire - July 8, 2010) - DEQ Systems Corp. ("DEQ") (TSX VENTURE:DEQ) announced today the filing of its financial results for the second quarter that ended on May 31, 2010. The Consolidated Financial Statements are available on SEDAR (www.sedar.com) and DEQ's website. A conference call will be held on Monday, July 12, 2010 at 11am EST to present and discuss these results. Those interested in participating should dial toll free: 1 (800) 681-8606 or (416) 981-9090. A PowerPoint presentation will be available on DEQ's website in the Invest/Financial Reports/PowerPoint section to support the call content.

2010 SECOND QUARTER RESULTS HIGHLIGHTS:

Financial Metrics

  • Revenue
    • 28% increase in total revenue for the second quarter from $1.07 M in 2009 to $1.37 M in 2010
    • 15% increase in gross profit to $1.11 M in the second quarter 2010 compared with 2009
    • 81% gross margin in second quarter 2010
  • Operating Costs
    • Operating costs increased to $0.97 M in second quarter of 2010 compare to $0.79 M in 2009 but stable when compared to first quarter 2010 which were $0.95 M
    • The increase is attributable to our important commercialization efforts ongoing in the United States and Asia as well as the installation costs required to complete important installations, including 33 G3 Systems installed at Marina Bay Sands in Singapore
  • EBITDA and Net Loss
    • Positive EBITDA of $0.14 M in the second quarter and a net loss of $0.42 M attributable to amortization of $0.57 M
    • For the six-month period, DEQ had a positive EBITDA of $0.21 M and a net loss of $0.94 M which is attributable to amortization of $1.14 M
  • Cash Flow
    • In the second quarter 2010, DEQ generated $0.2 M of cash flow from operating activities before change in non-cash working capital items. For the six-month period, DEQ has generated $0.4 M from operating cash flow before change in non-cash working capital items.
    • During the second quarter, our cash position has decreased mostly attributable to accounts receivable due from some major clients that were received after the end of quarter as well as a significant increase in inventory needed for upcoming installations that will be done in third and fourth quarter
    • In the second quarter, DEQ has repurchased a total of 227,000 shares at an average price of $0.34 as part of the normal course issuer bid.

Operational Highlights

  • Product Installations
    • During second quarter 2010, DEQ installed directly 70 new products in North America and Asia.
    • As of May 31, 2010, DEQ has 364 products directly installed in North America and 330 installed through distributors worldwide for a total of 694 products currently in operation worldwide.
  • Station Casinos bankruptcy
    • The 2010 annual royalty payment due in April 2010 by Station Casinos was not received. This will affect our monthly royalties by $35,000. DEQ is currently exploring options in this situation.

"Our second quarter is a continuation of our increased commercialization efforts both in Asia and the USA. Even through these tough economic times, we are increasing our new clients as well as expanding our footprint with existing clients," stated Earle G. Hall, President & CEO of DEQ. "Our increased commercialization costs will translate into results as we capture new territories all over the world and we are 100% convinced that these investments are sound and the ROI will be there."

Statement of Earnings                      
  Second Quarter     Six-Month Period  
  May. 31, 2009     May 31, 2010     May 31, 2009     May 31, 2010  
  (unaudited   (unaudited   (unaudited   (unaudited ) 
                       
Direct leasing 180,000     308,000     334,000     605,000  
Royalties 757,000     628,000     1,568,000     1,284,000  
Total recurring revenue (1) 937,000     936,000     1,902,000     1,889,000  
Non recurring revenue 139,000     432,000     479,000     621,000  
Total Revenue 1,076,000     1,368,000     2,381,000     2,510,000  
                       
Gross Profit 966,000     1,107,000     2,118,000     2,129,000  
% Gross margin 90 %   81 %   89 %   85 %
                       
Operating Costs 794,000     967,000     1,604,000     1,920,000  
                       
EBITDA (2) 172,000     140,000     514,000     209,000  
                       
Stock based compensation 71,000     64,000     163,000     142,000  
Amortization expenses 554,000     572,000     1,105,000     1,139,000  
Interest expenses 23,000     23,000     30,000     41,000  
Foreign exchange (gain) loss (496,000 )   (30,000 )   (373,000 )   (33,000 )
Future income taxes (7,000 )   (69,000 )   (14,000 )   (138,000 )
Net Income (Loss) 27,000     (420,000 )   (397,000 )   (942,000 )
Net Income (Loss) per share $0.000     $(0.006 )   $(0.006 )   $(0.014 )
                       

Note 1: Recurring revenue is comprised of Royalties and Equipment rental (Direct leasing)

Our recurring revenue was stable in the second quarter due to the Russian casino closures that occurred on July 1, 2009. This impacted our quarterly recurring revenue by $115,000. As well, the average exchange rate during the second quarter decreased by 16% from 1.22 to 1.02, which affected our recurring revenue by $110,000.

Note 2: We use EBITDA (Earnings before Stock option based compensation, Interest, Taxes, Depreciation, Amortization and Foreign exchange) 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

  May 31, 2009   Nov. 30, 2009   May 31, 2010
  (Unaudited)   (Audited)   (Unaudited)
           
Cash and cash equivalents 6,567,000   5,829,000   4,413,000
Current assets (other than cash) 2,269,000   1,696,000   2,568,000
Long-term assets 15,716,000   14,817,000   13,969,000
Total Assets $24,552,000   $22,342,000   $20,950,000
           
Current liabilities 2,332,000   2,176,000   1,830,000
Long-term liabilities 2,557,000   1,348,000   1,200,000
Shareholders' equity 19,663,000   18,818,000   17,920,000
Total Liabilities and Equity $24,552,000   $22,342,000   $20,950,000
           
Number of shares outstanding 69,590,000   69,590,000   69,302,000

ABOUT DEQ

Founded in 1998, DEQ Systems Corp. (TSX VENTURE: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 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.

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