AirIQ Inc.
TSX : IQ

AirIQ Inc.

May 12, 2006 07:00 ET

AirIQ Announces First Quarter Results

TORONTO, ONTARIO--(CCNMatthews - May 12, 2006) -

Record unit shipments; significant improvement in profitability metrics

AirIQ Inc. (TSX:IQ), a leader in global wireless security, today announced its results for the first quarter ended March 31, 2006.

First Quarter Highlights

- Shipments of 30,174 units were made in the quarter, a record for the Company

- Net active subscriber base grew to 222,934 units

- Revenues of $10,138,191

- Expense to revenue ratio improved to 46.6% (reflecting decreased expenses from cost reduction measures)

- Loss before other expenses and taxes (excluding stock based compensation and foreign exchange loss) of $295,105 compared to $4,736,339 in the fourth quarter of 2005

- Working capital position improved as a result of $9.3 million of financings finalized subsequent to the end of the quarter

As a recurring revenue business, the key measures of AirIQ's progress relate to various trajectories, or trends. The Company's strategy is to aggressively acquire new subscribers and service revenues from a relatively fixed and scalable infrastructure.

"During the first quarter we achieved record unit shipments and strong organic subscriber growth," said Donald Simmonds, President and CEO of AirIQ. "This positive operational momentum with reducing expenses due to our integration progress led to improved results across key financial metrics".

"Subsequent to the end of the quarter, the Company also completed two financings totaling $9.3 million," said Mark Kohler, Chief Financial Officer, "which enabled us to satisfy in full the earn-out payment obligation to the vendor of the Aircept business purchased in 2004. These financings improved our working capital position by replacing current obligations with long-term debt."

Overview

The accompanying unaudited condensed consolidated statements of loss and deficit are presented for the quarters ended March 31, 2006 and March 31, 2005, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries. The accompanying unaudited condensed consolidated balance sheets do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. The Company's unaudited interim consolidated financial statements as at and for the period ended March 31, 2006, including notes thereto and the accompanying Management's Discussion and Analysis will be filed with the Canadian securities regulatory authorities today; and will be available on the Company's website (www.airiq.com) and on the System for Electronic Document Analysis and Retrieval ("SEDAR") website (www.sedar.com).

Unless otherwise noted herein, all references to dollar amounts are in Canadian dollars.

Revenue Increased

Revenues for the three months ended March 31, 2006, increased 4.1% to $10,138,191 from $9,743,061 for the three months ended March 31, 2005. The increase in revenues resulted from continuing net additions to the Company's subscriber base. The increase in revenues was 1.8% over the previous three months ended December 31, 2005. Included in the Company's reported revenues during the three months ended March 31, 2006 is approximately $250,000, primarily from product only sales which are in addition to the Company's contracted service revenue arrangements with its customers. During the comparative period in 2005, the Company recorded approximately $355,000 from product only sales.

Gross Profit

Gross profit for the three months ended March 31, 2006 was $4.2 million, an increase of 2.8% compared to the same period in 2005. As a percentage of revenues, gross profit for the three months ended March 31, 2006, was 41.1% compared to 41.6% for the three months ended March 31, 2005 and 42.1% for the three months ended December 31, 2005.

Expenses

Expenses totaled $4.7 million for the three months ended March 31, 2006, a decrease of 12.9% compared to $5.4 million for the comparable period in 2005. The year over year decrease in operating expenses is primarily due to integration activities during 2005 and workforce reductions announced during the first quarter of 2006. Expenses as a percentage of revenues improved to 46.6% for the three months ended March 31, 2006, compared with 55.1% for the three months ended March 31, 2005, reflecting the operating leverage in the Company's growing recurring revenue business.

EBITDA Improvement

EBITDA loss was $553,393 for the first quarter, compared to an EBITDA loss of $1,308,425 in the comparable quarter in 2005. EBITDA loss excluding non-cash related expenses of stock-based compensation and loss on foreign exchange was $295,105 in the first quarter 2006 compared to $4,736,339 in the fourth quarter 2005, and $1,115,990 in the first quarter 2005.

Other Charges

A total charge of $226,862 was recorded in the first quarter of 2006. This non-recurring charge relates primarily to payroll obligations attributed to staff reductions announced in the first quarter.

Net Loss per Share

Net loss for the first quarter was $1.7 million, or $0.01 per share, compared with $2.9 million or $0.02 per share, for the first quarter of 2005. The improvement relates primarily to the implementation of the Company's integration strategy and the resulting reductions to expenses.

Liquidity and Capital Resources

As at March 31, 2006, the Company had cash and cash equivalents of $1.9 million, an increase of $484,439 over the cash balance as at December 31, 2005, and negative working capital of $8.5 million. Working capital has been calculated by netting current assets and current liabilities, excluding deferred revenue and obligations for service contracts that are non-cash items.

Subsequent Events

Special Warrant Issue

On April 5, 2006, the Company issued 26,545,455 special warrants of AirIQ at a price of $0.20 per special warrant for gross proceeds of $5,309,091. Each special warrant was automatically exercised for no additional consideration into one common share of AirIQ on May 10, 2006. The net proceeds of $4,937,455, together with additional general corporate funds, were used to satisfy in full the Company's earn-out obligation in connection with the purchase of the Aircept business in 2004.

Term Loan

On April 5, 2006, the Company obtained a five-year $4,000,000 term loan from certain existing shareholders, including Lenbrook Corp. and Quadrature Investments Inc., a company controlled by Robert Simmonds, a director of AirIQ (together, the "Lenders"). The term loan bears interest at the rate of 12% per annum payable quarterly; interest only is payable for the first two years, and quarterly blended payments of principal plus interest will be payable for the subsequent twelve quarters. Proceeds from the term loan were used to reduce the balance under the Company's credit facility to $3.0 million. In connection with the term loan, the Company issued an aggregate of 5,000,000 warrants to purchase common shares at an exercise price of $0.24 per share to the Lenders. The warrants are exercisable over a term of three years.

Credit Facility

On April 5, 2006, the Company's credit facility was amended to, among other things, reduce the commitment under the facility from $7.25 million to $3.0 million and to extend the final due date for the repayment of the credit facility from April 25, 2006 to March 31, 2007.



AirIQ Inc.
Consolidated Balance Sheets
(Unaudited)

As at March 31, 2006 December 31, 2005
--------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 1,868,266 $ 1,383,827
Accounts receivable 6,764,152 5,641,893
Inventory 1,936,453 4,824,907
Prepaid expenses 504,002 468,949
--------------------------------------------------------------------
Total current assets 11,072,873 12,319,576

Property, plant and
equipment, net 3,949,986 4,534,196
Intangible assets, net 6,585,849 7,176,667
Goodwill 16,620,353 16,620,353
Deferred service contract
costs, net 10,329,561 9,677,759
--------------------------------------------------------------------
$ 48,558,622 $ 50,328,551
--------------------------------------------------------------------
--------------------------------------------------------------------

Liabilities and
Shareholders' Equity
Current
Accounts payable and
accrued liabilities $ 7,280,064 $ 7,970,721
Accrual for earn-out
payment 4,964,000 4,942,750
Income taxes payable 118,736 118,736
Bank financing 6,985,968 6,985,968
Deferred revenue 11,324,024 10,042,872
Obligations for service
contracts 744,557 882,235
Obligations under capital
lease 206,763 213,921
--------------------------------------------------------------------
Total current liabilities 31,624,112 31,157,203

Obligations under capital
lease 187,595 237,773
National Research Council
loan 62,113 117,637
Deferred revenue 1,596,808 1,909,605
Obligations for service
contracts 425,539 581,142
--------------------------------------------------------------------
Total liabilities 33,896,167 34,003,360
--------------------------------------------------------------------


Shareholders' equity
Share capital 83,592,486 83,591,703
Other paid-in capital 3,610,254 3,610,254
Contributed surplus 1,290,969 1,190,969
Deficit (73,831,254) (72,067,735)
--------------------------------------------------------------------
Total shareholders' equity 14,662,455 16,325,191
--------------------------------------------------------------------
$ 48,558,622 $ 50,328,551
--------------------------------------------------------------------
--------------------------------------------------------------------


AirIQ Inc.
Consolidated Statements of Loss and Deficit
(Unaudited)


Three months ended March 31, 2006 March 31, 2005
--------------------------------------------------------------------

Revenues $ 10,138,191 $ 9,743,061
Direct cost of sales 5,968,630 5,685,425
--------------------------------------------------------------------

Gross profit 4,169,561 4,057,636
--------------------------------------------------------------------

Expenses
Sales and marketing 1,407,516 1,580,818
Engineering and research 978,228 1,259,491
General and administration 2,078,922 2,333,317
Stock-based compensation 100,000 120,000
Loss on foreign exchange 158,288 72,435
--------------------------------------------------------------------
4,722,954 5,366,061
--------------------------------------------------------------------

Loss before the following (553,393) (1,308,425)
--------------------------------------------------------------------

Other expenses
Net interest expense 226,072 278,720
Other charges 226,862 196,092
Amortization 757,192 810,928
--------------------------------------------------------------------
1,210,126 1,285,740
--------------------------------------------------------------------

Loss before income taxes (1,763,519) (2,594,165)

Provision for income taxes
Current - 82,000
Future - 185,000
--------------------------------------------------------------------
- 267,000
--------------------------------------------------------------------

Net loss for the period (1,763,519) (2,861,165)

Deficit, beginning of
period (72,067,735) (58,919,936)
--------------------------------------------------------------------

Deficit, end of period $ (73,831,254) $ (61,781,101)
--------------------------------------------------------------------
--------------------------------------------------------------------

Loss per share - basic and
diluted $ (0.01) $ (0.02)
--------------------------------------------------------------------
--------------------------------------------------------------------

Weighted average number of
common shares used in
computing loss per share,
basic and diluted 128,366,411 115,388,253
--------------------------------------------------------------------
--------------------------------------------------------------------


AirIQ Inc.
Consolidated Statements of Cash Flows
(Unaudited)


Three months ended March 31, 2006 March 31, 2005
---------------------------------------------------------------------

Operating activities
Net loss for the year $ (1,763,519) $ (2,861,165)
Add items not involving
cash
Future tax expense - 235,000
Stock-based compensation 100,000 120,000
Interest accreted on term
loan - 61,901
Amortization of property,
plant and equipment 605,114 657,656
Amortization of deferred
service contract costs 3,655,713 3,517,394
Amortization of intangible
assets 590,818 590,819
Amortization of deferred
financing costs - 9,798
Changes in non-cash
working capital balances
related to operations
Accounts receivable (1,122,259) (524,970)
Future tax asset - (50,000)
Inventory 2,888,454 (710,284)
Prepaid expenses (35,053) (80,594)
Accounts payable and
accrued liabilities (669,407) 1,348,602
Income taxes payable - 82,822
Deferred revenue 968,355 1,416,694
---------------------------------------------------------------------
5,218,216 3,813,673
---------------------------------------------------------------------

Investing activities
Purchase of property,
plant and equipment (20,904) (149,621)
Deferred service contract
costs (4,307,515) (4,106,073)
---------------------------------------------------------------------
(4,328,419) (4,255,694)
---------------------------------------------------------------------

Financing activities
Repayment of obligations
under capital lease (57,336) (43,766)
Repayment of National
Research Council loan (55,524) (21,581)
Repayments of term loan - (461,086)
Repayment of obligations
for service contracts (293,281) (296,970)
Issuance of common shares
and equity instruments 783 11,149
---------------------------------------------------------------------
(405,358) (812,254)
---------------------------------------------------------------------

Net increase/(decrease) in
cash and cash equivalents 484,439 (1,254,275)

Cash and cash equivalents,
beginning of period 1,383,827 4,902,089
---------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 1,868,266 $ 3,647,814
---------------------------------------------------------------------
---------------------------------------------------------------------

Supplementary disclosure
Cash interest $ 185,080 $ 172,748
Non-cash investing and
financing activities
Property, plant and
equipment purchased under
capital leases - 96,714
Accrual for earn-out
settlement 21,250 -
---------------------------------------------------------------------


Conference Call and Webcast

AirIQ will hold a conference call on Friday, May 12, 2006, at 10 a.m. ET. To access the call please dial 1-800-240-2134. A replay of the conference call will be available at noon the same day until midnight May 19, 2006. To access the replay, dial 416-640-1917 or 1-877- 289-8525 followed by the passcode 21188282#. The call will also be webcast live on the Company's website at www.airiq.com.

The Company's quarterly report, including complete financial statements and Management's Discussion and Analysis will be available on May 15, 2006 at www.airiq.com and at www.sedar.com.

Non-GAAP Disclosure

EBITDA is defined by the Company as operating income before interest expense, income taxes, other charges, depreciation and amortization. The Company has included information concerning EBITDA because it believes that it may be used by certain investors as one measure of the Company's financial performance. EBITDA is not a measure of financial performance under Canadian GAAP and is not necessarily comparable to similarly titled measures used by other companies. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity.

Forward-looking Statements

This news release contains forward-looking information based on management's best estimates and the current operating environment. These forward-looking statements are related to, but not limited to, AirIQ's operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains words such as "anticipate", "believe", "expect", "plan" or similar words suggesting future outcomes. Such forward-looking statements are as of the date which such statement is made and are subject to a number of known and unknown risks, uncertainties and other factors which could cause actual results or events to differ materially from future results expressed, anticipated or implied by such forward-looking statements. Such factors include, but are not limited to, changes in market and competition, technological and competitive developments and potential downturns in economic conditions generally. Therefore, actual outcomes and results may differ materially from those expressed in such forward-looking statements. Other than as may be required by law, AirIQ disclaims any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

About AirIQ

AirIQ trades on the Toronto Stock Exchange under the symbol IQ. A leader in Global Wireless Security, AirIQ is headquartered in Pickering, near Toronto, Canada, with offices in Lake Forest and San Diego, California, U.S.A. The Company operates as a wireless Internet applications service provider specializing in location-based services. AirIQ's services are offered to four primary markets: Commercial Fleets; Consumer; Vehicle Finance; and, Marine Fleets. AirIQ gives vehicle and vessel owners the abilities to manage and protect their mobile assets. AirIQ's services include: vehicle locating, boundary notification, automated inventory, maintenance reminders, security alerts, vehicle disabling, unauthorized movement alerts and many more features. For additional information on AirIQ or its products and services, please visit the Company's website at www.airiq.com.

Contact Information

  • AirIQ Finance:
    Mark Kohler
    Chief Financial Officer
    (905) 831-6444, Ext. 4250
    mkohler@airiq.com
    or
    Investor Relations:
    Barnes McInerney Inc.
    John Vincic
    Executive Vice President, IR Division
    (416) 367-5000, Ext. 249
    jvincic@barnesmcinerney.com