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)
---------------------------------------------------------------------------
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.
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