DEQ Systems Corp.
TSX VENTURE : DEQ

DEQ Systems Corp.

July 14, 2011 16:01 ET

DEQ Reports its 2011 Second Quarter Results

LEVIS, QUEBEC--(Marketwire - July 14, 2011) - DEQ Systems Corp. (TSX VENTURE:DEQ) ("DEQ" or the "Company") announces today the filing of its second quarter financial results for the period ended May 31, 2011. The Consolidated Financial Statements are available on SEDAR (www.sedar.com) and DEQ's website. A conference call will be held on Friday, July 15, 2011 at 11am EST to present and discuss these results. Those interested in participating should dial toll free 1 (800) 736-4594 or (416) 981-9000. A PowerPoint presentation will be available on DEQ's website in the Invest/Financial Reports/PowerPoint section to support the call content.

2011 SECOND QUARTER RESULTS HIGHLIGHTS:

Financial Metrics

  • Revenue
    • 183 new installations during the quarter compared to 75 new installations in the Q2-2010 for a net increase of 144% at an average annual lease price of $4,200. Also, for the six-month period, there were 324 new installations in 2011, compared to 141 new installations for the same period in 2010, an increase of 130% over the six-month period.
    • 81% increase in direct leasing quarterly revenue from $310,000 in 2010 to $562,000 in 2011. Also a 72% increase in direct leasing revenue for the six-month period, from $606,000 in 2010 to $1,042,000 in 2011.
    • The termination of Severn Agreement at the end of the first quarter of 2011 has reduced our quarterly recurring royalties by $231,000.
    • Patent right sale of $175,000 in the second quarter of 2011.
  • Operating Costs
    • Reduction of operating costs by $65,000 to $1,080,000 in Q2-2011 compared to $1,145,000 in Q1-2011, explained by the cost reduction plan that was announced in March 2011 for which most of the benefits will be seen starting in Q3-2011.
    • Increase of $203,000 of the stock based compensation (non-cash item) explained by the one-time accounting impact of the stock option repricing completed in May 2011.
  • EBITDA
    • EBITDA of $(193,000) in Q2-2011 compared to $(310,000) in Q1-2011 explained by the operating cost reduction program that was completed in April 2011 and the increase in the number of installations, but off-set by the loss of Severn Agreement at the end of the first quarter of 2011 for an amount of $231,000.
  • Cash Flow
    • During the second quarter of 2011, our cash position decreased by $799,000 explained mostly by our negative EBITDA, the change in non cash working capital of $291,000 as well as the investment in leased equipment with new installations for an amount of $174,000.

Operational Highlights

  • Product Installations
    • In the second quarter of 2011, DEQ directly installed 183 new products worldwide (324 for the six-month period ending May 31, 2011).
    • As of May 31, 2011, DEQ had 742 directly installed products in North America, 101 products installed in Asia and 385 products installed through a distributor worldwide for a total of 1,228 products in operation worldwide.

"We are pleased to announce that DEQ had a total of 183 new installations in Q2-2011, for a total of 324 for the six-month period (an increase of 144% and 130% respectively over 2010), making Q2 our strongest quarter in the history of the company in terms of new installations. This important increase in installations shows the growing interest in our products from customers all around the world", stated Earle G. Hall, President and CEO of DEQ. "The positive results of all the efforts and investments in licensing that we have done are paying off by the significant increase in our direct leasing revenue which has grown by more than 80% compared to the same quarter last year. With regards to operating expenses, we have started to see the benefits of our reduction plan that was implemented in March 2011 and we are very happy with the cost control measures in place to ensure maximum shareholder value going forward."

Statement of Earnings
(unaudited) Second Quarter Six-month Period
May. 31, 2010 May. 31, 2011 May. 31, 2010 May. 31, 2011
(unaudited) (unaudited) (unaudited) (unaudited)
Direct leasing 310,000 562,000 606,000 1,042,000
Royalties (excluding Severn)(1) 395,000 328,000 840,000 640,000
Royalties (Severn Enterprises)(2) 231,000 - 444,000 218,000
Total recurring revenue 936,000 890,000 1,890,000 1,900,000
Non recurring revenue 432,000 280,000 621,000 304,000
Total Revenue 1,368,000 1,170,000 2,511,000 2,204,000
Gross Profit 1,107,000 887,000 2,129,000 1,723,000
% Gross margin 81 % 76 % 85 % 78 %
Operating Costs 967,000 1,080,000 1,920,000 2,225,000
EBITDA (3) 140,000 (193,000 ) 209,000 (502,000 )
Stock based compensation 64,000 266,000 142,000 293,000
Amortization expenses 573,000 615,000 1,139,000 1,215,000
Interest expenses 23,000 1,000 41,000 12,000
Foreign exchange (gain) loss (31,000 ) 2,000 (33,000 ) 86,000
Future income taxes (69,000 ) (21,000 ) (138,000 ) (43,000 )
Other items - - - (170,000 )
Net Income (Loss) (420,000 ) (1,056,000 ) (942,000 ) (1,895,000 )
Net Income (Loss ) per share $(0.006 ) $(0.015 ) $(0.014 ) $(0.027 )

Note 1: Our royalties (excluding Severn Enterprises) decreased in Q2-2011, explained by Station Casinos' bankruptcy in 2010 and by the termination of Paltronics three-year agreement in the second quarter of 2010.

Note 2: On March 3, 2011, the Company entered into a settlement agreement with DEK International on the Severn Project and the royalty from Severn Enterprises was terminated as of February 28, 2011.

Note 3: 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

May 31, 2010 Nov. 30, 2010 May 31, 2011
(unaudited) (Audited) (unaudited)
Cash and cash equivalents 4,413,000 3,933,000 2,367,000
Current assets (other than cash) 2,568,000 2,001,000 1,825,000
Long-term assets 13,969,000 12,700,000 12,182,000
Total Assets $20,950,000 $18,634,000 $16,374,000
Current liabilities 1,830,000 1,852,000 1,195,000
Long-term liabilities 1,200,000 0 0
Shareholders' equity 17,920,000 16,782,000 15,179,000
Total Liabilities and Equity $20,950,000 $18,634,000 $16,374,000
Number of shares outstanding 69,302,000 69,182,000 69,182,000

ABOUT DEQ

DEQ Systems Corp. (TSXV: DEQ) is a global provider of gaming technology in over 30 countries. Protected by more than 20 patents in 50 countries, DEQ specializes in progressive and random bonusing systems for table games. DEQ's innovation and ingenuity has been to replace the single dollar coin slot and sensor with its internationally award winning G3™ technology. The G3 incorporates multiple credit betting, dealer hand betting and mystery bonusing. DEQ also commercializes technology and patents including the award winning baccarat revolution, EZ Baccarat™ and related auxiliary products such as EZ Trak™. DEQ is and will continue to lead innovation in the table game bonusing segment of the global gaming market. 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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