DEQ Systems Corp. ("DEQ") (TSX VENTURE: DEQ) announced today the
filing of its financial results for the first quarter ending on
February 28, 2010. The Consolidated Financial Statements are
available on SEDAR (www.sedar.com) and DEQ's website. A conference
call will be held on Friday, April 23, 2010 at 11am EST to present
and discuss these results. Those interested in participating should
dial toll free: 1 (800) 678-2337 or (416) 359-1270. A PowerPoint
presentation will be available on DEQ's website in the
Invest/Financial Reports/PowerPoint section to support the call
content.
2010 FIRST QUARTER RESULTS HIGHLIGHTS:
Financial Metrics
-- Revenue
-- Total revenue for Q1 was $1,142,000 with recurring revenue of
$952,000.
-- Recurring revenue from product leasing grew by 92% in Q1 to $296,000
compared to Q1 2009.
-- 22% increase in gross profit to $1.02M in the first quarter compared
to the previous quarter.
-- 90% gross margin in Q1 2010.
-- Canadian Dollar appreciation from 81 cents to 95 cents affected
recurring revenue by $105,000 when compared to Q1 2009.
-- The full impact of the previously disclosed Russian casino closures
can now be seen in our results and DEQ's recurring revenue from DEK
International's royalties has decreased by $175,000 in Q1 2010 when
compared to Q1 2009. The total net loss in recurring royalties on an
annual basis is $450,000.
-- In 2008, DEQ bought back the exclusive rights to international
distribution from DEK International. The likelihood of the Russian
casino closures was taken into account and an adjustement clause was
added to the agreement to offset this eventuality. Therefore, with
an annualized decrease of 27% of these royalties, there will be a
25% decrease in our two final purchase price payments in July of
2010 and 2011. It is important to note that this exclusivity was a
strategic decision to open up the European and Asian markets to
direct commercialization where DEQ has already placed product in
Macau, Singapore, Switzerland and Ireland.
-- EBITDA
-- Positive EBITDA of $70,000 in the first quarter of 2010.
-- Operating Costs
-- Operating costs increased slightly to $950,000 in first quarter of
2010 from $810,000 in 2009.
-- Non recurring expenses for a trademark issue that had to be resolved
and a permit required for the Singapore contract account for more
than 65% of the increase in cost of operations.
-- Commercialization costs and travelling costs did increase in Q1
because of addition of sales personnel in Asia and North America as
well as travel expenses for sales. These investments are necessary
for DEQ to grow in these markets. We are confident that ongoing and
pending sales in Asia and North America will justify these
commercial investments. However, in the short term, this increase in
operating cost will be apparent in our expenses until such time as
the influx of recurring revenue offsets them to the point where they
return to an acceptable economy of scale.
-- Cash Flow
-- In Q1 2010, DEQ generated $200,000 in operating cash flow before
change in non-cash working capital. However, DEQ's cash position
decreased by $600,000.
-- This reduction is extraordinary and is explained by the changes in
non-cash working capital items such as:
-- Our accounts receivable increased by more than $250,000 in the
quarter mainly because of a late payment from a client that was
received in April 2010.
-- Our inventory level of finished goods increased by $150,000
because of upcoming and potential installations.
-- Accounts payable and accrued liabilities decreased by $130,000
affected by annual payments for suppliers, permits and projects
due at year-end that were paid in the month of December.
Operational Highlights
-- Product Installations
-- During Q1 2010, we installed 62 new products in North America. We
have directly commercialized and installed 340 products in only 16
months. As of Q1 2010, DEQ has 325 G3 Systems installed with
distributors worldwide. The total number of DEQ products currently
in operation worldwide is 665.
-- In Q1 2010, we began the installation of the 33 G3 systems at Marina
Bay Sands in Singapore. The installation has since been completed in
early Q2.
-- Key product installs during Q1 included:
-- MGM Grand in Las Vegas - 8 G3 linked on their poker derivatives
-- Barona in California - 10 G3 linked on their poker derivatives
-- Station Casinos - 15 G3 on Progressive Pai Gow in 3 casinos.
-- New Jersey EZ Baccarat and EZ Trak products grew by 8 new
installs in Q1
-- Recent News Releases and Information of Interest
-- Marina Bay Sands Singapore orders 33 G3 Systems.
-- Barona Installs G3 on 9 of its Poker Derivative Table Games.
-- Station Casinos Installs 15 G3 on Progressive Pai Gow.
-- Bryan Jenkins and Lee Martin appointed to lead Asian
Commercialization.
"The first quarter of 2010 was one of investment," stated Earle
G. Hall, President and CEO of DEQ. "With almost 25 jurisdictional
licenses and 4 very promising product lines, it is time for DEQ to
aggressively penetrate all the markets that it is authorized to
commercialize in. Our G3 system is impressing casinos such as MGM
Grand, Monte Carlo, Barona, Chukchansi and Ameristar on the poker
derivatives while EZ Baccarat and EZ Track are doing the same all
over the USA. Now that we have solid performance data on our
systems, it is time to go after the market share that our products
deserve. We are making the necessary investments in people and
travel to capture those sales and we are confident that in the
quarters to come, the return on investment will be there."
"It is easy to assume that DEQ has not experienced growth in Q1
and that would be a false assumption," stated Francois Proulx,
Chief Financial Officer of DEQ. "While the disclosed 2009 Russian
casino closures were foreseen and did negatively affect our royalty
revenue, this eventuality was accounted for in the DEK Repurchase
Agreement. While this distributor based revenues were negatively
impacted, DEQ directly commercialized more products in the USA and
Canada in 16 months than the sum total of all its distributors. In
2008, when we saw that distributors were having problems in certain
markets and internally as companies, we chose to change our
commercialization strategy for direct leasing. This change in
strategy was intended to offset the impact of these trends and to
ensure the long term viability and progression of DEQ. We are proud
to say that we have succeeded in this task and the recurring
revenue from leasing and the gross margins reflect our achievement.
While some operating costs have increased such as commercialization
and travel, they have been carried out in a very controlled manner
and are monitored very closely for return on investment."
Statement of Earnings
Feb. 28, 2009 Feb. 28, 2010 Feb. 28, 2010
(Unaudited) (Unaudited) (Unaudited)
---------------------------------------------------------------------------
Revenues (3 months) (3 months) (12 months)
Recurring revenue (1) 965,073 953,166 3,700,576
Non recurring revenue 339,421 188,687 555,848
------------------------------------------------
1,304,494 1,141,853 4,256,424
------------------------------------------------
------------------------------------------------
Gross Profit 1,152,523 1,022,645 3,665,683
% Gross Margin 88% 90% 86%
Operational Costs (2) (809,216) (952,831) (3,406,529)
------------------------------------------------
EBITDA (3) 343,307 69,814 259,154
Amortization and (550,624) (566,590) (2,244,460)
depreciation (4)
Other items (216,077) (25,053) 318,729
------------------------------------------------
Net income (loss) (423,394) (521,829) (1,666,577)
Net income (loss) per share $(0.006) $(0.008) $(0.024)
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Note 1: Recurring revenue is comprised of Royalties and Equipment rental.
Note 2: Operating costs exclude stock option based compensation.
Note 3: We use EBITDA (Earnings before Stock option based compensation,
Interest, Taxes, Depreciation and Amortization) 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
Feb. 28, 2009 Nov. 30, 2009 Feb. 28, 2010
(Unaudited) (Audited) (Unaudited)
----------------------------------------------
Cash and cash equivalents 6,235,437 5,828,981 5,203,388
Current assets (other than 2,280,104 1,696,490 1,990,189
cash)
Long-term assets 16,499,268 14,816,416 14,363,885
----------------------------------------------
Total Assets $25,014,808 $22,341,887 $21,557,462
----------------------------------------------
Current liabilities 2,589,898 2,175,579 1,929,736
Long-term liabilities 2,821,226 1,348,101 1,276,586
Shareholders' equity 19,603,684 18,818,207 18,351,140
----------------------------------------------
Total Liabilities and Equity $25,014,808 $22,341,887 $21,557,462
----------------------------------------------
Number of shares outstanding 69,760,315 69,589,815 69,529,315
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ABOUT DEQ
Founded in 1998, DEQ Systems Corp. (TSXV: 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 40
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.
Contacts: DEQ Systems Corp. Earle G. Hall President & CEO
418-839-3012 earle.hall@deq.com DEQ Systems Corp. Francois Proulx
Chief Financial Officer 418-839-3012 francois.proulx@deq.com