DEQ Systems Corp.
TSX VENTURE : DEQ

DEQ Systems Corp.

October 21, 2010 16:00 ET

DEQ Releases its 2010 Third Quarter Results

LEVIS, QUEBEC--(Marketwire - Oct. 21, 2010) - DEQ Systems Corp. ("DEQ") (TSX VENTURE:DEQ) announced today the filing of its financial results for the third quarter that ended on August 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, October 25, 2010 at 11am EST to present and discuss these results. Those interested in participating should dial toll free: 1 (800) 669-4993 or (416) 981-9070. A PowerPoint presentation will be available on DEQ's website in the Invest/Financial Reports/PowerPoint section to support the call content.

2010 THIRD QUARTER RESULTS HIGHLIGHTS:

Financial Metrics

  • Revenue
    • 80% increase in direct leasing revenue in third quarter from $0.19 M in 2009 to $0.35 M in 2010.
    • 24% increase in total revenue in third quarter from $0.92 M in 2009 to $1.14 M in 2010.
    • 24% increase in gross profit in third quarter from $0.84 M in 2009 to $1.05 M in 2010.
    • 92% gross margin in third quarter 2010 which was comparable to previous year.

  • Operating Costs
    • Operating costs increased to $964,000 in the third quarter of 2010 compared to $679,000 in 2009 but stable when compared to first and second quarter 2010. Please see explanation below.

  • EBITDA and Net Loss
    • Positive EBITDA of $84,000 in the third quarter and a net loss of $270,000 attributable to amortization of $589,000 but offset by a gain on a balance of purchase price of $210,000.
    • For the nine-month period, DEQ had a positive EBITDA of $293,000 and a net loss of $1.2 M which is mostly attributable to amortization of $1.7 M.

  • Cash Flow
    • In the third quarter 2010, DEQ generated $292,000 of cash flow from operating activities before change in non-cash working capital items. For the nine-month period, DEQ has generated $688,000 from operating cash flow before change in non-cash working capital items.
    • During the third quarter, our cash position has decreased by $333,000 explained by our annual payment on our balance of purchase price of $698,000.

Operational Highlights

  • Product Installations
    • During the third quarter 2010, DEQ installed directly 111 new products in North America.
    • As of August 31, 2010, DEQ has 463 products directly installed in North America, 45 products directly installed in Asia and 336 installed through distributors worldwide for a total of 844 products currently in operation worldwide.

  • Operating Costs
      • DEQ's operating costs have increased over the course of the past 12 months due to:
        • Major installations completed in California for the G3 Systems.
        • New market penetration in commercialization in Asia and Australia regions.
        • Direct commercialization effort in recently obtained jurisdictions licenses as well as the important roll out of our recent new product EZ Pai Gow™.

      • We expect these costs to stabilize at approximately the same level for the next twelve months as we have achieved a new level of economy of scale.

"The third quarter was tangible proof of the results of our investments over the past three quarters in sales and commercialization" stated Earle G. Hall, President & CEO of DEQ. "With more than 100 new installations generating long term recurring revenue, our sales efforts are finally paying off. The team has reacted in an incredible way to this sharp increase in the popularity of our products and we do not see this as a surge or a peak in business but more as a trend. With all the recent contracts signed recently that have not been installed at this time, our fourth quarter looks very promising as all our products are gaining momentum in the USA and abroad."

Statement of Earnings                
  Third Quarter   Nine-Month Period  
  Aug. 31, 2009   Aug. 31, 2010   Aug. 31, 2009   Aug. 31, 2010  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)  
   
Direct leasing 193,000   347,000   527,000   952,000  
Royalties 688,000   543,000   2,256,000   1,826,000  
Total recurring revenue (1) 881,000   890,000   2,783,000   2,778,000  
Non recurring revenue 39,000   252,000   519,000   873,000  
Total Revenue 920,000   1,142,000   3,302,000   3,651,000  
   
Gross Profit 842,000   1,048,000   2,960,000   3,177,000  
% Gross margin 92 % 92 % 90 % 87 %
Operating Costs 679,000   964,000   2,282,000   2,884,000  
EBITDA (2) 163,000   84,000   678,000   293,000  
   
Stock based compensation 83,000   54,000   246,000   197,000  
Amortization expenses 556,000   585,000   1,661,000   1,723,000  
Interest expenses 24,000   23,000   55,000   64,000  
Foreign exchange (gain) loss 27,000   (29,000 ) (346,000 ) (62,000 )
Gain on balance purchase price -   (210,000 ) -   (210,000 )
Future income taxes (7,000 ) (69,000 ) (21,000 ) (207,000 )
Net Income (Loss) 520,000   (270,000 ) (917,000 ) (1,212,000 )
Net Income (Loss ) per share $0.007   $(0.004 ) $(0.013 ) $(0.017 )

 

   
Note 1: Recurring revenue is comprised of Royalties and Equipment rental (Direct leasing).
  Our recurring revenue was stable in the third quarter due to Station Casinos bankruptcy and the Canadian dollar appreciation that affected our revenue by $105,000 and $40,000 respectively.
   
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 Sheet

  Aug. 31, 2009 Nov. 30, 2009 Aug. 31, 2010
  (Unaudited) (Audited) (Unaudited)
Cash and cash equivalents 6,070,759 5,829,000 4,080,000
Current assets (other than cash) 1,670,315 1,696,000 2,144,000
Long-term assets 15,269,528 14,817,000 13,619,000
Total Assets $23,010,603 $22,342,000 $19,843,000
 
Current liabilities 2,160,610 2,176,000 1,885,000
Long-term liabilities 1,624,600 1,348,000 254,000
Shareholders' equity 19,225,393 18,818,000 17,704,000
Total Liabilities and Equity $23,010,603 $22,342,000 $19,843,000
 
Number of shares outstanding 69,589,815 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

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

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.

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