DEQ Systems Corp.
TSX VENTURE : DEQ

DEQ Systems Corp.

November 13, 2006 16:41 ET

DEQ Restates its Third Quarter Interim Financial Statements

LEVIS, QUEBEC--(CCNMatthews - Nov. 13, 2006) - DEQ Systems Corp. (TSX VENTURE:DEQ) announces that the company has filed unaudited restated interim consolidated financial statements for the three-month and nine-month periods ended August 31, 2006 and its amended management report for the third quarter of 2006 (corresponding to the three-month and nine-month periods ended August 31, 2006). While reviewing the third quarter interim financial statements in connection with the current offering of units by way of a short form prospectus, the auditors PwC have recommended that the Company modify its accounting policies for revenue recognition as well as the accounting treatment of the advances to Severn Enterprises, in the context of the Guatemala project.

Revenue recognition

The restatement of the revenue recognition relates to the October 2005 royalty agreement with Severn Enterprises. In discussions with its auditors, the Company has determined that revenue under the contract should not be recognized on a straight-line basis. Furthermore, the Company has also determined that all amounts previously recognized for this contract should be deferred, as such revenues should only be recognized when due to the Company. As a result, DEQ expects to recognize revenues under the Severn contract starting December 1, 2006.

The effect of this change on the unaudited interim consolidated revenues is as follows:



August 31, 2006 August 31, 2006
(3 months) (9 months)
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Reported Revenues $833,762 $3,524,494
Restated Revenues $705,969 $3,144,478
Difference ($127,793) ($380,016)


Advances to third party

As reported in the prior year, on October 1, 2005, the Company advanced an amount of US$2,750,000 to Severn Enterprises for the purchase of equipment from third-party manufacturers, bearing interest at 5% per year compounded monthly for a 7-year term, payable by equal and consecutive instalments equal to 1/12 of the total amount of the loan every 6 months, the first instalment being payable on December 1st, 2006.

The Company has determined that the interest rate to be paid on the advances was not reflective of market rates at the time it was made and resulted in the Company providing a sales incentive to Severn which should have been reflected in the financial statements. The Company has determined that the fair value of the loan, based on a market rate of 10%, was CDN$2,592,241. This amount will be accreted to its face value over the term of the loan which began on December 1, 2005. The difference between the fair value and the face value of the loan, being CDN$616,734, has been treated as a sales incentive to the royalty agreement with Severn. The sales incentive will be charged to income, as a reduction in royalty revenue, as royalty revenue from the Severn agreement is recognized in the statement of earnings. There was no effect on the results of operations for the year ended November 30, 2005.

None of the above-mentioned restatements had an effect on the Company's net cash flows for the periods presented.

In conjunction with the filing of the unaudited restated interim consolidated financial statements, the Company expects to file an amendment to its final short-form prospectus dated October 26, 2006. DEQ expects the ongoing offering to proceed as expected and close promptly, once a final receipt for the amendment has been issued by the securities commissions.

For greater detail, please refer to the unaudited restated consolidated financial statements and the amended management's discussion and analysis that are available on Sedar at www.sedar.com.

About DEQ Systems Corp

DEQ is a worldwide provider of gaming technology products including multiple bet electronic side-betting systems. DEQ's internationally patented technology enhances performance and the pleasure of existing casino gaming products. DEQ's products are present in more than 200 casinos located in more than 30 countries around the world. DEQ has developed and holds an extensive international patent portfolio that is the basis of the current product line.

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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