DEQ Reports its 2011 First Quarter Results
LEVIS, QC, April 20 /PRNewswire-FirstCall/ - DEQ Systems Corp. (TSX-V: DEQ) ("DEQ" or the "Company") announces today the filing of its first quarter financial results for the period ended February 28, 2011. The Consolidated Financial Statements are available on SEDAR (www.sedar.com) and DEQ's website. A conference call will be held on Thursday, April 21, 2011 at 10am EST to present and discuss these results. Those interested in participating should dial toll free 1 (800) 735-5968 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 FIRST QUARTER RESULTS HIGHLIGHTS:
Financial Metrics
- Revenue
- 141 new installations during the quarter as compared to 66 new installations in the Q1-2010 for a net increase of 113% installs at an average lease of $4,200 per annum
- 62% increase direct leasing quarterly revenue from $296,000 in 2010 to $480,000 in 2011
- Loss of $106,000 of royalties explained by Station Casinos' bankruptcy
- Termination of the Paltronics revenue recognition in 2010 that affected our revenue by $57,000
- Settlement agreement on the Severn Project concluded on March 3, 2011 that will affect our recurring revenue by approximately $200,000 per quarter starting on March 1, 2011
- 81% gross margin in 2011 compared to 90% in 2010 explained by the loss of revenue from Paltronics and Station Casinos
- Operating Costs
- Quarterly operating costs increased to $1,146,000 in 2011 compared to $953,000 2010. This is explained by the Asian commercialisation in Macau and Malaysia as well as the increased number of products installed in North America, mostly from G3 systems in California
- As announced in March 2011, the Company has reduced annual operating expenses by more than $500,000 following the loss of revenue from Severn Enterprises
- EBITDA
- Negative EBITDA of $310,000 in Q1 2011 compared to a positive EBITDA of $70,000 in 2010. This is explained by the loss of $163,000 of royalties from Station Casinos and Paltronics as well as the higher operating costs with our recent installations in Macau and Malaysia as well as a patent right sale of $130,000 in 2010
- Cash Flow
- During the first quarter of 2011, our cash position decreased by $767,000 explained mostly by our $500,000 investment in inventory and lease equipments. DEQ's very strong sales funnel has compelled us to build more systems in one quarter than we have in the past two years combined to ensure that we have no back orders when compared to projected installations
Operational Highlights
- Product Installations
- In the first quarter of 2011, DEQ directly installed 141 new products in worldwide.
- As of February 28, 2011, DEQ had 625 directly installed products in North America, 105 products installed in Asia and 390 products installed through distributors worldwide for a total of 1,120 products in operation worldwide
Earle G. Hall, President and CEO of DEQ stated, "The financial results of Q1 are no reflection of the momentum or, potential of DEQ. In Q1 we reacted to the Severn loss by immediately restructuring our costs and realigning our priorities with our revenues. As well, the ever weak US dollar had a negative effect on our revenues. We have invested over half of a million dollars in inventory. This is the largest production run of our history and was done to ensure that we could keep up with the ensuing orders. That translated into more than 140 new installations in Q1 and a Q2 that will be our strongest quarter in the history of the company in term of new installations. DEQ is a solid growth company that strictly manages cost while seeking any and all viable commercial ventures. Q1 saw the arrival of LT Game as a strategic partner and the full breadth of this relationship will be seen in late 2011 and in 2012. Q1 was a quarter of construction, adjustment and fine tuning to ensure that we are ready for the success before us and we are very excited as to the opportunities and potential that lay before us.
| Statement of Earnings | ||||||||||
| (unaudited) | ||||||||||
| Feb. 28, 2010 | Feb. 28, 2011 | |||||||||
| (3 months) | (3 months) | |||||||||
| Direct leasing | 296,000 | 480,000 | ||||||||
| Royalties (excluding Severn Enterprises)(1) | 445,000 | 312,000 | ||||||||
| Royalties (Severn Enterprises)(2) | 212,000 | 218,000 | ||||||||
| Total recurring revenue | 953,000 | 1,010,000 | ||||||||
| Non recurring revenue | 189,000 | 24,000 | ||||||||
| Total Revenue | 1,142,000 | 1,034,000 | ||||||||
| Gross Profit | 1,023,000 | 836,000 | ||||||||
| % Gross margin | 90 % | 81 % | ||||||||
| Operating Costs | 953,000 | 1,146,000 | ||||||||
| EBITDA (3) | 70,000 | (310,000) | ||||||||
| Stock based compensation | 78,000 | 26,000 | ||||||||
| Amortization expenses | 567,000 | 598,000 | ||||||||
| Interest (revenue) expenses | 18,000 | 13,000 | ||||||||
| Foreign exchange (gain) loss | (2,000) | 84,000 | ||||||||
| Future income taxes | (69,000) | (21,000) | ||||||||
| Other items | - | (170,000) | ||||||||
| Net Income (Loss) | (522,000) | (840,000) | ||||||||
| Net Income (Loss ) per share | $(0.008) | $(0.012) | ||||||||
| Note 1: | Our royalties (excluding Severn Enterprises) have decreased by $133,000 in 2011 explained by Station Casinos bankruptcy in 2010 ($106,000) and by the termination of Paltronics five-year agreement in the second quarter of 2010 ($56,000). |
| 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 is terminated as of February 28, 2011. This settlement agreement sees DEQ assigning and transferring all amounts payable as royalties by Severn Enterprises S.A. to DEK International for the remainder of the 10 year agreements concluded in October 2005 and December 2006. This transfer of the defaulted royalties to DEK International will completely discharge and release the Company from any and all obligations regarding the final payment of the balance of purchase price of $831,595 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 | |||||||||||||
| Feb. 28, 2009 | Nov. 30, 2010 | Feb. 28, 2011 | |||||||||||
| (unaudited) | (Audited) | (unaudited) | |||||||||||
| Cash and cash equivalents | 5,203,000 | 3,933,000 | 3,166,000 | ||||||||||
| Current assets (other than cash) | 1,990,000 | 2,001,000 | 1,608,000 | ||||||||||
| Long-term assets | 14,364,000 | 12,700,000 | 12,502,000 | ||||||||||
| Total Assets | $21,557,000 | $18,634,000 | $17,276,000 | ||||||||||
| Current liabilities | 1,930,000 | 1,852,000 | 1,308,000 | ||||||||||
| Long-term liabilities | 1,276,000 | 0 | 0 | ||||||||||
| Shareholders' equity | 18,351,000 | 16,782,000 | 15,968,000 | ||||||||||
| Total Liabilities and Equity | $21,557,000 | $18,634,000 | $17,276,000 | ||||||||||
| Number of shares outstanding | 69,529,000 | 69,302,000 | 69,302,000 |
||||||||||
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.
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.
SOURCE DEQ SYSTEMS CORP.
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