AirIQ Inc.
TSX : IQ

AirIQ Inc.

November 13, 2007 07:00 ET

AirIQ Announces Third Quarter Results

Currency Shift Prompts Operating Cost Reductions

TORONTO, ONTARIO--(Marketwire - Nov. 13, 2007) - AirIQ Inc. (TSX:IQ), a leader in Wireless Location-Based Services, specializing in Telematics and Security, today announced its results for the three months and nine months ended September 30, 2007.

Third Quarter Observations and Highlights

During the quarter the Company was significantly affected by foreign exchange fluctuations between the Canadian and US dollars, and had an unusual total cash use of approximately $4.2 million.

Other than cash used in operations of $425,000 in the quarter (excluding other charges and other non-cash working capital changes), cash balances were reduced by the following:

- foreign exchange fluctuations reduced Canadian dollar equivalent cash receipts and cash balances by over $294,000;

- capital expenditures made totalling approximately $122,000;

- one-time payments of severance and other post-March 16th business divestiture costs totalling approximately $910,000;

- other working capital changes totalling approximately $2,450,000 relating primarily to the timing between several large customer payments and supplier payments in the quarter.

The Company expects an improvement in cash generated from working capital during the fourth quarter. This expectation is supported by the customer payment activity since September 30th.

As at November 9, 2007, the Company has maintained its cash on hand balances at approximately $6.3 million (using the exchange rate at quarter end), including restricted cash balances of $1.9 million.

With over 95% of revenues originating in the US, and strong balance sheet assets held in US currency, the strengthening Canadian dollar versus the US dollar had a particularly negative effect on other key GAAP financial metrics as follows:

- foreign exchange loss was approximately $598,000,

- recorded quarterly revenues were reduced by approximately $132,000, and

- recorded quarterly gross profit was reduced by approximately $87,000.

"While we consider the Q3 results to be extraordinary, AirIQ recognizes that the dramatic shift in currency rates requires a dramatic structural change to our business," said Steve Willey, President and Chief Executive Officer. "Management is responding immediately and vigorously to re-shape our business in the face of this new reality for Canadian suppliers. We are specifically implementing the following five internal programs:

1. No longer favoring a centralizing of costs in Canada,

2. Re-setting of overall expense levels,

3. Organizational re-alignment to drive new operating efficiencies,

4. Executive team consolidation, and

5. Focus on higher-margin predictable businesses."

Additionally, the Company is managing through the last stages of the analogue to digital network transition expected to be completed by February 1, 2008.

Other Highlights

- Core business quarterly gross profit as a percentage of revenues increased to 43.2% from 39.0% (excluding product only sales to CalAmp and a write-down of $231,000 in inventory for analogue parts and components);

- Adjusted quarterly expense level was consistent with previous quarter at approximately $2,859,000 (excluding non-cash stock-based compensation expense, foreign exchange loss, and third quarter bad debt reserves of $602,000);

- Transitioning expenses to the US office initiated through the addition of a replacement Vice President, Marketing and Sales;

- Concluded substantially all contractual product and support obligations to CalAmp DataCom, Inc. ("CalAmp") allowing management to proceed on necessary changes to business structure;

- New Northwest US fisheries regulation announcement provides additional opportunities for the Marine segment;

- Market launch of an enhanced private label Heavy Equipment tracking system; and

- Appointment of a new and accomplished VP Technology who will drive both internal and outsourced development activities and will formalize AirIQ quality programs.

Overview

The accompanying unaudited interim condensed consolidated statements of loss and deficit are presented for the three months and nine months ended September 30, 2007 and September 30, 2006, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries. The Company's unaudited interim consolidated financial statements as at and for the period ended September 30, 2007, including notes thereto and the accompanying Management's Discussion and Analysis will be filed with the Canadian securities regulatory authorities by end of day November 13, 2007; 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

Revenues for the three months ended September 30, 2007 were $4,673,202, a decrease from $9,911,177 for the three months ended September 30, 2006; and decreased to $19,980,059 from $30,267,055 for the nine months ended September 30, 2007 and 2006, respectively. The decrease in revenues was 30.6% over the previous three months ended June 30, 2007.

The decrease in revenues resulted primarily from the transfer of certain customers and customer contracts upon the sale of certain assets of the Company's subsidiary, AirIQ U.S., Inc. ("AirIQ US") relating to its vehicle finance industry tracking business to CalAmp on March 16, 2007.

In addition, the decrease in year over year quarterly revenues was affected by the strengthening Canadian dollar in comparison to the US dollar and the related impact on monthly service revenues.

The impact of the fluctuation in the US dollar exchange rate had a notional effect of lowering the Company's year to date third quarter service revenues by approximately $414,000 year over year, and a quarter over quarter impact of lowering service revenues by approximately $132,000.

Included in the Company's reported revenues during the three months and nine months ended September 30, 2007 is approximately $141,000 and $441,000, respectively, primarily from product only sales which are in addition to the Company's contracted service revenue arrangements with its customers, plus approximately $123,000 and $2,563,000, respectively, in sales to CalAmp for product under the Company's transition agreements with CalAmp. During the comparative periods in 2006, the Company recorded approximately $203,000 and $833,000, respectively, from product only sales.

Gross Profit

Gross profit for the three months ended September 30, 2007 was $1,735,930 representing a decrease from gross profit of $3,860,732 for the same period in 2006.

The decrease in comparative year over year gross profit is due primarily from the transfer of certain customers and customer contracts upon the sale of certain assets of the Company's subsidiary, AirIQ US relating to its vehicle finance industry tracking business to CalAmp on March 16, 2007.

As a percentage of revenues, gross profit for the three months ended September 30, 2007, was 43.2% compared to 39.0% for the three months ended September 30, 2006 and 39.0% for the three months ended June 30, 2007 in the core businesses (excluding product only sales to CalAmp and excluding a write-down in inventory for analogue parts and components of $231,000 in the third quarter).

The reduction in gross profit is also due to the strengthening Canadian dollar versus the US dollar.

The negative effect on revenue of the weakening of the US dollar relative to the Canadian dollar was partially offset by a decreased US dollar cost of sales. The overall negative impact on gross profit from the year over year fluctuation in the US dollar exchange rates is estimated to be approximately $218,000, and approximately $87,000 quarter over quarter.

Expenses

Expenses totaled $4,197,409 and $12,614,127, respectively for the three months and nine months ended September 30, 2007, compared to $4,216,015 and $13,433,712 for the three months and nine months ended September 30, 2006, and $3,793,817 for the three months ended June 30, 2007.

The US dollar exchange rate decreased from approximately $1.06 as at June 30, 2007 to $0.99 as at September 30, 2007. The quarter over quarter fluctuation had the effect of reducing the recorded value of the US dollar restricted cash balance by approximately $113,000, and other US cash and working capital balances by approximately $486,000 during the quarter.

Employees totaled 75 as at September 30, 2007, a further reduction from 83 as at June 30, 2007, and 123 as at December 31, 2006.

Included in third quarter 2007 expenses is an unusual bad debt reserve in the amount of approximately $602,000 recorded in conjunction with management's review of its entire customer base and estimated collectability of the related accounts.

Net Interest

Net interest expense and other financing charges for the three months ended September 30, 2007, totaled $77,805 compared to $322,737 for the three months ended September 30, 2006. Of the total net interest expense and other financing charges for the three months ended September 30, 2007, $95,332 represented cash interest paid.

Included in the net interest expense and other financing charges for the three months and nine months ended September 30, 2007 was the amount of $23,560 and $75,061, respectively, related to the accreted interest on the term loan.

Amortization

Amortization for the three months ended September 30, 2007, was $272,124 compared with $543,187 for the three months ended September 30, 2006, and $225,723 for the three months ended June 30, 2007.

Year over year depreciation of property plant and equipment decreased due to the lower cost of assets. This decrease was also coupled with lower amortization of the identifiable intangible assets, namely, purchased technology and trade names, valued and recorded upon the acquisition of the Aircept and Boatracs businesses by the Company in 2004.

The quarter over quarter increase in amortization is primarily due to the purchase of property, plant and equipment during the third quarter.

Other Charges

As previously disclosed, the Company finalized agreement terms with its Chairman (the former Chief Executive Officer of the Company), and paid cash of $500,000 (less applicable withholdings) to the Chairman during the quarter in consideration for terminating his employment arrangement with the Company, as legally required pursuant to his employment agreement.

The Company also recorded $84,200 in costs in the three months ended September 30, 2007 related to terminations of other employees.

Net Loss

Net loss for the three months and nine months ended September 30, 2007 was $3,395,608 and $4,962,220, respectively, or $0.02 and $0.03 per share, respectively, compared with a net loss $1,221,207 and $4,854,045, or $0.01 and $0.03 per share, respectively, for the three and nine months ended September 30, 2006, and $2,238,539 for the three months ended June 30, 2007.

The increase in quarterly net loss relates primarily to non-recurring termination related costs of approximately $585,000, bad debt reserves of approximately $602,000, and a write-down in analogue parts and inventory components of approximately $231,000 recorded in the third quarter 2007.

Liquidity and Capital Resources

As at September 30, 2007, the Company had unrestricted cash and cash equivalents of $4,580,165 and positive working capital of $5,891,897. Working capital has been calculated by netting current assets and current liabilities, excluding restricted cash, and deferred revenue and obligations for service contracts that are non-cash items.

The accompanying unaudited interim condensed consolidated financial statements 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.



AirIQ Inc.
Consolidated Balance Sheets
(Unaudited)

September 30, December 31,
As at 2007 2006
-------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 4,580,165 $ 2,292,475
Accounts receivable 5,711,333 7,250,744
Inventory 1,163,776 1,717,630
Prepaid expenses 222,190 499,244
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Total current assets 11,677,464 11,760,093
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Restricted cash 1,931,761 -

Property, plant and equipment, net 2,229,532 2,923,896
Intangible assets, net 1,997,892 5,218,400
Goodwill 1,985,391 16,620,353
Deferred financing, net - 288,692
Deferred service contract costs, net 2,858,097 7,693,961
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$ 22,680,137 $ 44,505,395
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Liabilities and Shareholders' Equity
Current
Accounts payable and accrued
liabilities $ 5,201,699 $ 8,795,943
Income taxes payable 202,736 202,736
Revolving operating loan - 3,900,000
Deferred revenue 2,447,628 8,391,081
Obligations for service contracts 136,645 547,878
Term loan and secured debenture 209,738 -
Obligations under capital lease 171,394 244,085
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Total current liabilities 8,369,840 22,081,723
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National Research Council loan - 82,304
Deferred revenue 1,023,729 1,200,350
Obligations for service contracts 23,729 78,869
Term loan and secured debenture 2,393,902 5,443,997
Obligations under capital lease 117,649 155,656
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Total liabilities 11,928,849 29,042,899
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Shareholders' equity
Share capital 89,066,118 89,072,046
Other paid-in capital 4,447,754 4,447,754
Contributed surplus 1,845,409 1,588,469
Deficit (84,607,993) (79,645,773)
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Total shareholders' equity 10,751,288 15,462,496
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$ 22,680,137 $ 44,505,395
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AirIQ Inc.
Consolidated Statements of Loss and Deficit
(Unaudited)

September 30, September 30,
Three months ended 2007 2006
--------------------------------------------------------------------

Revenues $ 4,673,202 $ 9,911,177
Direct cost of sales 2,937,272 6,050,445
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Gross profit 1,735,930 3,860,732
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Expenses
Sales and marketing 575,441 1,116,471
Engineering and research 788,008 792,607
General and administration 2,098,057 2,187,151
Stock-based compensation 137,465 105,000
Loss on foreign exchange 598,438 14,786
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4,197,409 4,216,015
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Loss before the following (2,461,479) (355,283)
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Other
Net interest and other financing
charges 77,805 322,737
Other charges 584,200 -
Amortization 272,124 543,187
Gain on sale of assets - -
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934,129 865,924
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Loss before income taxes (3,395,608) (1,221,207)

Provision for income taxes
Current - -
Future - -
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- -
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Net loss for the period (3,395,608) (1,221,207)

Deficit, beginning of period (81,212,385) (75,700,573)
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Deficit, end of period $ (84,607,993) $ (76,921,780)
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Loss per share - basic and diluted $ (0.02) $ (0.01)
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Weighted average number of common
shares used in computing loss per
share, basic and diluted 160,845,930 154,913,501
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AirIQ Inc.
Consolidated Statements of Loss and Deficit
(Unaudited)

September 30, September 30,
Nine months ended 2007 2006
------------------------------------------------------------------

Revenues $ 19,980,059 $ 30,267,055
Direct cost of sales 13,289,718 18,180,989
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Gross profit 6,690,341 12,086,066
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Expenses
Sales and marketing 2,165,041 3,670,099
Engineering and research 2,409,845 2,615,828
General and administration 5,929,115 6,560,279
Stock-based compensation 256,940 307,500
Loss on foreign exchange 1,853,186 280,006
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12,614,127 13,433,712
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Loss before the following (5,923,786) (1,347,646)
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Other
Net interest and other financing
charges 1,065,986 1,084,073
Other charges 584,200 354,435
Amortization 956,896 2,067,891
Gain on sale of assets (3,568,648) -
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(961,566) 3,506,399
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Loss before income taxes (4,962,220) (4,854,045)

Provision for income taxes
Current - -
Future - -
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- -
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Net loss for the period (4,962,220) (4,854,045)

Deficit, beginning of period (79,645,773) (72,067,735)
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Deficit, end of period $ (84,607,993) $ (76,921,780)
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Loss per share - basic and diluted $ (0.03) $ (0.03)
------------------------------------------------------------------
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Weighted average number of common
shares used in computing loss per
share, basic and diluted 160,855,860 142,369,505
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AirIQ Inc.
Consolidated Statements of Cash Flows
(Unaudited)

September 30, September 30,
Three months ended 2007 2006
--------------------------------------------------------------------------

Operating activities
Net loss for the period $ (3,395,608) $ (1,221,207)
Add items not involving cash
Foreign exchange loss on restricted cash 112,796 -
Stock-based compensation 137,465 105,000
Interest accreted on term loan 23,560 46,064
Amortization of property,
plant and equipment 194,364 442,658
Amortization of deferred service
contract costs 937,846 3,973,643
Amortization of intangible assets 143,206 405,194
Amortization of deferred financing costs 4,093 19,057

Changes in non-cash working capital
balances related to operations
Accounts receivable (916,100) 99,746
Inventory 485,616 615,782
Prepaid expenses (4,228) (10,654)
Accounts payable and accrued liabilities (368,112) 461,375
Accrual for earn-out payment - -
Income taxes payable - 37,500
Deferred revenue (561,277) (1,185,326)
--------------------------------------------------------------------------
(3,206,379) 3,788,832
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Investing activities
Purchase of property, plant and equipment (122,731) (7,291)
Deferred financing - -
Deferred service contract costs (646,600) (3,684,586)
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(769,331) (3,691,877)
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Financing activities
Repayment of obligations under capital lease (58,686) (64,577)
Repayment of National Research Council loan - (26,666)
Proceeds from revolving operating loan - -
Repayment of revolving operating loan - (1,100,000)
Repayment of non-revolving credit facility - -
Repayment of term loan and secured debenture - -
Proceeds from term loan and secured debenture - -
Repayment of obligations for service contracts (153,707) (39,982)
Repurchase of common shares (5,875) -
Issuance of common shares and equity
instruments - -
--------------------------------------------------------------------------
(218,268) (1,231,225)
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Net decrease in cash and cash equivalents (4,193,978) (1,134,270)

Cash and cash equivalents, beginning of period 8,774,143 2,873,834
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Cash and cash equivalents, end of period $ 4,580,165 1,739,564
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Supplementary disclosure
Cash interest $ 95,332 $ 170,732
Non-cash investing and financing activities
Property, plant and equipment purchased
under capital leases 26,025 61,585
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AirIQ Inc.
Consolidated Statements of Cash Flows
(Unaudited)


September 30, September 30,
Nine months ended 30, 2007 30, 2006
-------------------------------------------------------------------------
Operating activities
Net loss for the period $ (4,962,220) $ (4,854,045)
Add items not involving cash
Foreign exchange loss on restricted cash 261,980 -
Stock-based compensation 256,940 307,500
Interest accreted on term loan 218,312 233,393
Amortization of property,
plant and equipment 844,528 1,603,491
Amortization of deferred service
contract costs 5,301,646 11,450,877
Amortization of intangible assets 627,451 1,594,328
Amortization of deferred financing costs 230,022 19,061
Gain on sale of assets (3,568,649) -

Changes in non-cash working capital balances
related to operations
Accounts receivable (22,009) (1,415,174)
Inventory 553,854 3,636,777
Prepaid expenses 201,154 36,473
Accounts payable and accrued liabilities (4,086,822) (911,737)
Accrual for earn-out payment - (4,942,750)
Income taxes payable - -
Deferred revenue (1,912,803) (1,141,147)
-------------------------------------------------------------------------
(6,056,616) 5,617,047
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Investing activities
Purchase of property, plant and equipment (496,152) (49,420)
Deferred financing - (372,154)
Deferred service contract costs (3,727,539) (11,440,322)
-------------------------------------------------------------------------
(4,223,691) (11,861,896)
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Financing activities
Proceeds from sale of assets 22,328,800 -
Proceeds from sale of assets transferred
to escrow (2,193,740) -
Repayment of obligations under
capital lease (146,201) (177,366)
Repayment of National Research Council loan (26,731) (107,624)
Proceeds from revolving operating loan - 5,000,000
Repayment of revolving operating loan - (1,100,000)
Repayment of non-revolving credit facility - (6,985,968)
Repayment of term loan and secured debenture - (1,000,000)
Proceeds from term loan and secured debenture - 7,000,000
Proceeds from short term loan 1,250,000 -
Repayments of short term loan (1,250,000) -
Repayment of operating loan (3,900,000) -
Repayment of secured debenture (3,000,000) -
Repayment of obligations for
service contracts (488,256) (641,185)
Repurchase of common shares (5,875) -
Issuance of common shares and
equity instruments - 4,612,729
-------------------------------------------------------------------------
12,567,997 6,600,586
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Net increase in cash and cash equivalents 2,287,690 355,737

Cash and cash equivalents,
beginning of period 2,292,475 1,383,827
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 4,580,165 $ 1,739,564
-------------------------------------------------------------------------

Supplementary disclosure
Cash interest $ 523,864 $ 523,313
Non-cash investing and financing activities
Property, plant and equipment purchased
under capital leases 56,765 123,387
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Conference Call and Webcast

AirIQ will hold a conference call today, Tuesday, November 13, 2007, at 10:00 a.m. EST. To access the call, please dial 416-641-6125 or 1-866-542-4236. A replay of the conference call will be available as of noon the same day until midnight November 20, 2007. To access the replay, dial 416-695-5800 or 1-800-408-3053 followed by the pass code 3240803#. The call will also be webcast live on the Company's web site at www.airiq.com.

The Company's quarterly report, including complete financial statements and Management's Discussion and Analysis will be available at www.airiq.com and at www.sedar.com by end of day November 13, 2007.

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 net income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) or 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 such information, future events or otherwise.

About AirIQ

AirIQ trades on the Toronto Stock Exchange under the symbol IQ. A leader in Wireless Location Services, specializing in Telematics and Security, AirIQ is headquartered in Pickering, near Toronto, Canada, with an office in San Diego, California, USA. The Company operates as a wireless Internet applications service provider specializing in location-based services. AirIQ's services are offered to three primary markets: Commercial Fleets; Consumer; 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