AirIQ Inc.
TSX VENTURE : IQ.H

AirIQ Inc.

November 20, 2009 11:12 ET

AirIQ Delivers Third Consecutive Quarter of Positive EBITDAS

Further Increase in Gross Profit Percentage and Expense Reduction

TORONTO, ONTARIO--(Marketwire - Nov. 20, 2009) - AirIQ Inc. ("AirIQ")(TSX VENTURE:IQ.H), a leader in Wireless Location-Based Services, specializing in Telematics and Security, today announced its results for the quarter ended September 30, 2009.

"We are pleased to announce a third and consecutive quarter of positive earnings (EBITDAS), and a continuance of the expense reduction programs", said Mr. Stephen Willey, President and Chief Executive Officer of AirIQ. "Combined with a seventh consecutive quarter of improved gross profit percentage, the Company's operations are managing through the tough economic environment", continued Mr. Willey.

Third Quarter Highlights

  • Met corporate goal of delivering positive EBITDAS for a third and consecutive quarter.
  • Company employees continue to find ways to reduce expenses.
  • Land and Marine operating businesses continue to experience some subscriber churn due to the economic environment.
  • Use of cash for operating activities declined from $593,000 in the second quarter to $155,000 in the current quarter
  • The Company's head office moved into less expensive facilities during the third quarter resulting in a substantial rent reduction.

Overview

The accompanying condensed unaudited interim balance sheets are presented as at September 30, 2009 and December 31, 2008, and the consolidated statements of loss, comprehensive loss and cash flows are presented for the three months and nine months ended September 30, 2009 and September 30, 2008, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries. The accompanying condensed consolidated interim financial statements have been prepared by management and have not been reviewed by the Company's auditors. The Company's unaudited interim consolidated financial statements as at and for the period ended September 30, 2009, including notes thereto and the accompanying Management's Discussion and Analysis for the three months and nine months ended September 30, 2009 will be filed with the Canadian securities regulatory authorities 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.

AirIQ Inc.

Notice to Reader:The following unaudited interim condensed consolidated financial statements have been prepared by management of AirIQ Inc. and have not been reviewed by the Company's external auditors.
  
CONSOLIDATED BALANCE SHEETS 
  
(in thousands of Canadian dollars) 
  
(Going Concern Uncertainty) 
Unaudited    
  
As atSeptember 30, 2009 December 31, 2008 
 $ $ 
  
ASSETS    
Current    
Cash1,138 2,439 
Accounts receivable1,288 2,397 
Inventory636 739 
Prepaid expenses176 154 
Total current assets3,238 5,729 
Property, plant and equipment, net741 1,183 
Intangible assets, net701 1,272 
Deferred service contract costs, net1,464 2,450 
 6,144 10,634 
  
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)    
Current    
Accounts payable and accrued liabilities2,326 4,086 
Income taxes payable214 241 
Deferred revenue1,852 2,487 
Obligations under capital lease111 141 
Current portion of term loan949 1,053 
Total current liabilities5,452 8,008 
Deferred revenue1,218 1,838 
Obligations under capital lease37 117 
Term loan855 1,348 
Total liabilities7,562 11,311 
  
Shareholders' equity (deficiency)    
Share capital89,066 89,066 
Other paid-in capital4,448 4,448 
Contributed surplus2,272 2,092 
Deficit(97,204)(96,283)
Total shareholders' equity (deficiency)(1,418)(677)
 6,144 10,634 
Commitments and contingencies    

AirIQ Inc.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(in thousands of Canadian dollars except per share information)
     
Unaudited    
     
Three months endedSeptember 30, 2009 September 30, 2008 
 $ $ 
 (amended)
     
Revenues2,609 3,025 
Direct cost of sales1,061 1,540 
Gross profit1,548 1,485 
     
Expenses    
Sales and marketing351 427 
Engineering and research217 459 
General and administration910 1,451 
Stock-based compensation60 45 
Foreign exchange loss (gain)51 (138
 1,589 2,244 
Income (loss) before the following(41) (759
Interest expense, net88 133 
Amortization and depreciation268 263 
 356 396 
Net loss and comprehensive loss for the period(397) (1,155
     
Loss per share - basic and diluted$(0.00) $(0.01
     
Weighted average number of common shares used in computing loss per share, basic and diluted160,813,408 160,813,408 

AirIQ Inc.

CONSOLIDATED STATEMENTS OF LOSS AND
COMPREHENSIVE LOSS
(in thousands of Canadian dollars except per share information)
     
Unaudited    
     
     
Nine months endedSeptember 30, 2009 September 30, 2008 
 $ $ 
   (amended)
     
Revenues8,957 9,577 
Direct cost of sales3,777 5,533 
Gross profit5,180 4,044 
     
Expenses    
Sales and marketing1,264 1,286 
Engineering and research651 1,640 
General and administration2,675 4,406 
Stock-based compensation180 135 
Foreign exchange loss (gain)128 (273)
 4,898 7,194 
Income (loss) before the following282 (3,150)
Interest expense, net297 374 
Amortization and depreciation906 725 
 1,203 1,099 
Net loss and comprehensive loss for the period(921)(4,249)
     
Loss per share - basic and diluted($0.01)($0.03)
     
Weighted average number of common shares used in computing loss per share, basic and diluted160,813,408 160,813,408 

AirIQ Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands of Canadian dollars) 
  
Unaudited    
  
Three months endedSeptember 30, 2009 September 30, 2008 
 $ $ 
   (amended)
OPERATING ACTIVITIES    
Net loss for the period(397)(1,155)
Add (deduct) items not involving cash    
 Stock-based compensation60 45 
 Interest accreted on term loan28 38 
 Amortization of property, plant and equipment141 154 
 Amortization of intangible assets191 149 
Changes in non-cash balances related to operations    
 Accounts receivable50 360 
 Inventory121 39 
 Prepaid expenses53 (279)
 Accounts payable and accrued liabilities(326)102 
 Income taxes payable(15) 
 Deferred revenue(263)(463)
 Deferred service contract costs202 461 
Cash provided by (used in) operating activities(155)(549)
INVESTING ACTIVITIES    
Purchase of property, plant and equipment(104)(31)
Proceeds from disposal of property, plant and equipment6  
Cash provided by (used in) investing activities(98)(31)
FINANCING ACTIVITIES    
Repayment of obligations under capital lease(39)(14)
Repayment of term loan(237)(210)
Repayment of obligations for service contracts (11)
Cash provided by (used in) financing activities(276)(235)
Net increase (decrease) in cash during the period(529)(815)
Cash, beginning of period1,667 3,908 
Cash, end of period1,138 3,093 
Supplementary cash flow information    
Cash interest72 104 
Non-cash investing and financing transactions    
 Property, plant and equipment purchased under capital leases4 9 

AirIQ Inc.

  
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands of Canadian dollars) 
  
Unaudited    
  
Nine months endedSeptember 30, 2009 September 30, 2008 
 $ $ 
   (amended)
OPERATING ACTIVITIES    
Net loss for the period(921)(4,249)
Add (deduct) items not involving cash    
 Stock-based compensation180 135 
 Interest accreted on term loan93 119 
 Amortization of property, plant and equipment545 577 
 Amortization of intangible assets571 436 
Changes in non-cash balances related to operations    
 Accounts receivable1,109 3,598 
 Inventory103 126 
 Prepaid expenses(22)(512)
 Accounts payable and accrued liabilities(1,760)(3,017)
 Income taxes payable(27) 
 Deferred revenue(1,255)(919)
 Deferred service contract costs986 1,199 
Cash provided by (used in) operating activities(398)(2,507)
INVESTING ACTIVITIES    
Purchase of property, plant and equipment(117)(104)
Proceeds from the disposal of property, plant and equipment14  
Cash provided by (used in) investing activities(103)(104)
FINANCING ACTIVITIES    
Transfer of proceeds to (from) sale of certain assets and liabilities    
 transferred to restricted cash 1,946 
Repayment of obligations under capital lease(110)(98)
Repayment of term loan(690)(210)
Repayment of obligations for service contracts (54)
Cash provided by (used in) financing activities(800)1,584 
Net increase (decrease) in cash during the period(1,301)(1,027)
Cash, beginning of year2,439 4,120 
Cash, end of period1,138 3,093 
Supplementary cash flow information    
Cash interest242 316 
Non-cash investing and financing transactions    
 Property, plant and equipment purchased under capital leases 29 

AirIQ Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
 
(in thousands of Canadian dollars except per share information)
 
Unaudited
   OtherContributed  
 Share capitalpaid-insurplusDeficitTotal
   capital   
 #$$$$$
 Balance, December 31, 2007, as amended160,813,40889,0664,4481,893(88,130)7,277
       
 Stock-based compensation199199
 Net loss for the year(8,153)(8,153)
 Balance, December 31, 2008160,813,40889,0664,4482,092(96,283)(677)
 Nine months ended September 30, 2009180(921)(741)
 Balance, September 30, 2009160,813,40889,0664,4482,272(97,204)(1,418)

The Company's quarterly report, including complete financial statements, notes and Management's Discussion and Analysis will be available today on SEDAR at www.sedar.com and later on the Company's website www.airiq.com.

Non-GAAP Disclosure

EBITDAS is defined by the Company as net income before interest expense, income taxes, other charges, depreciation, amortization, stock-based compensation, restructuring charges, special committee charges, gain on sale of assets and goodwill impairment. The Company has included information concerning EBITDAS because it believes that it may be used by certain investors as one measure of the Company's financial performance. EBITDAS is not a measure of financial performance under Canadian GAAP and is not necessarily comparable to similarly titled measures used by other companies. EBITDAS 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.

Revenues

Revenues for the three months ended September 30, 2009, decreased 13.8% to $2,609,240 from $3,025,447 for the comparative three month period ended September 30, 2008, and decreased by 15.8% from $3,098,158 for the three months ended June 30, 2009. Revenues for the nine months ended September 30, 2009, decreased 6.5% to $8,957,618 from $9,577,385 for the comparative nine month period ended September 30, 2008.

The average U.S. dollar exchange rate increased to $1.10 for the three months ended September 30, 2009 from $1.04 for the three months ended September 30, 2008. The difference in the average US dollar exchange rates had an estimated notional positive effect on the Company's September 30, 2009 quarterly revenues of approximately $142,322. As a result, revenues decreased by approximately $558,529 without the effect of the U.S. exchange impact. The average U.S. dollar exchange rate increased to $1.17 for the nine months ended September 30, 2009 from $1.02 for the nine months ended September 30, 2008. The difference in the average US dollar exchange rates had an estimated notional positive effect on the Company's nine month revenues of approximately $1,148,413 for the period ended September 30, 2009 when compared to the same nine month period ended September 30, 2008. As a result, revenues decreased by approximately $1,768,180 without the effect of the U.S. exchange impact.

The decrease in revenues (before the foreign exchange impact) can be attributed to current sales being lower than those of prior years due to the expiration of customer hardware and service contracts and a subscriber base which has been lowered following the termination of the analog networks in Canada and the United States and decreased sales of digital products. Operating revenues in the current quarter were approximately 17% lower than the reported GAAP revenues for the quarter.

Included in the Company's reported revenues during the three months and nine months ended September 30, 2009, is approximately $60,759 and $435,126 respectively, primarily from product only sales which are in addition to the Company's contracted service revenue arrangements with its customers. During the comparative three and nine month periods ended September 30, 2008, the Company recorded approximately $90,319 and $388,894 respectively, from product only sales.

Gross Profit

Gross profit for the three months and nine months ended September 30, 2009, increased 4.3% and 28.1%, respectively, to $1,548,159 and $5,180,295, respectively, from $1,484,822 and $4,043,899, respectively, for the comparative three month and nine month periods ended September 30, 2008.

Overall, gross profit increased by $63,337 and $1,136,396, respectively, during the three months and nine months ended September 30, 2009 when compared to the same three month and nine month periods the previous year.

The difference in the average US dollar exchange rates had an estimated notional positive effect on the Company's quarterly gross profit of approximately $56,297. In addition, the Company reduced its wireless service costs by approximately $132,912 when compared to the same three month period the previous year.

The difference in the average US dollar exchange rates had an estimated notional positive effect on the Company's nine months ended September 30, 2009 gross profit of approximately $664,140. In addition, the Company reduced its wireless service costs by approximately $311,027 when compared to the same three month period the previous year. The decrease in service costs was primarily due to lower wireless costs resulting from the expiration of customer service contracts following the termination of the analog networks in Canada and the United States. In addition, the Company has negotiated more favourable service contract terms with its wireless service providers. During the nine months ended September 30, 2009, the Company's gross profit also improved by $100,000 related to revenues associated with a dealer revenue sharing program that was completed during the second quarter of 2009.

Expenses

Expenses totalled $1,589,085 and $4,897,846, respectively, for the three months and nine months ended September 30, 2009 compared to $2,244,280 and $7,195,242, respectively, for the three month and nine month periods ended September 30, 2008.

Overall, expenses were reduced by $655,195 for the three month period ended September 30, 2009 when compared to the same three month period the previous year. Expense reductions were achieved in the following areas; a) wages and related expense reductions of approximately $501,675 due to the Company's restructuring initiatives completed in December 2008, b) bad debt expense of approximately $292,500, and c) other general net cost reductions of approximately $153,983. These expense reductions were negatively impacted by changes in foreign currency exchange rates by approximately $187,960.

Overall, expenses were reduced by $2,297,396 for the nine month period ended September 30, 2009 when compared to the same nine month period the previous year. Expense reductions were achieved in the following areas; a) wages and related expense reductions of approximately $1,035,850 due to the Company's restructuring initiatives completed in December 2008, b) bad debt expense of approximately $508,680, and c) other general net cost reductions of approximately $313,380. These expense reductions were negatively impacted by changes in foreign currency exchange rates during the nine month period ended September 30, 2009 when compared to the same nine month period the previous year by approximately $401,610.

For the three months and nine months ended September 30, 2009, the Company recorded foreign exchange losses of $51,485 and $127,809, respectively, and stock-based compensation expense of $60,000 and $180,000, respectively. This compares with recorded foreign exchange gain of approximately $138,473 and a foreign exchange gain of $273,801, respectively, and $45,000 and $135,000, respectively, in stock-based compensation expense for the three month and nine month periods ended September 30, 2008.

Net Interest and other financing charges

Net interest expense for the three months and nine months ended September 30, 2009, was $88,178 and $296,833, respectively, compared to $132,318 and $373,966, respectively for the three months and nine months ended September 30, 2008.

The decrease in net interest expense for the three months and nine months ended September 30, 2009 compared to the same three month and nine month periods the previous year is primarily due to the repayment of principal by the Company of the term loans. (See Term Loans below under Cash from financing activities.)

Restructuring charges

During 2008, the Company finalized severance arrangements with approximately 36% of its employees. The amount remaining to be paid under these restructuring arrangements at September 30, 2009 is approximately $11,000 and is included in accounts payable and accrued liabilities.

Depreciation and Amortization

Amortization for the three months and nine months ended September 30, 2009, was $267,412 and $906,205, respectively, compared with $263,114 and $725,519, respectively, for the three months and nine months ended September 30, 2008.

Net Loss

The net loss for the three months and nine months ended September 30, 2009 was $437,516 and $960,588, respectively, or (nil) and ($0.01) per share, respectively, compared with $1,154,890 and $4,249,828, respectively, or ($0.01) and ($0.03) per share, respectively, for the three months and nine months ended September 30, 2008.

Liquidity and Capital Resources

As at September 30, 2009, the Company had unrestricted cash of $1,138,233 and negative working capital of $402,175. Working capital has been calculated by netting current assets and current liabilities excluding deferred revenue that are non-cash items.

The Company has incurred significant losses, including $397,516 and $920,588 for the three months and nine months ended September 30, 2009, and has an accumulated deficit of $97,204,441 as at September 30, 2009.

The Company's continuation as a "going concern" is uncertain and may depend upon its ability to achieve profitable operations and upon its ability to obtain additional financing or equity in the future. The outcome of these matters cannot be predicted at this time.

The Company forecasts having sufficient cash and working capital to continue operations and meet all of its obligations as they come due through fiscal 2009. The Company expects to make all of its debt payments in 2009, and does not foresee significant risk in meeting its debt covenants.

About AirIQ

AirIQ trades on the NEX, a separate board of the TSX Venture Exchange under the symbol IQ.H. A leader in Wireless Location Services specializing in Telematics, AirIQ has offices in Pickering, Ontario, Canada, and in San Diego, California, United States. The Company offers a suite of location based services (LBS) under a 'software as a service' (SaaS) model that yields recurring revenues for each device deployed. AirIQ delivers services to three primary markets: Commercial Fleets; dealers that service Consumer segments; and Marine Fleets (fisheries and workboat). AirIQ provides vehicle and vessel owners with the ability to monitor, manage and protect their mobile assets. Services include: instant vehicle locating, boundary notification, automated inventory reports, maintenance reminders, security alerts and vehicle disabling and unauthorized movement alerts. Management believes that AirIQ maintains a dominant market share in North America, in three segments, namely, rental vehicle fleets, regulated fisheries, and marine workboat markets. For additional information on AirIQ or its products and services, please visit the Company's website at www.airiq.com.

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 statements with words such as "goal", "anticipate", "believe", "expect", "plan" or similar words suggesting future outcomes. These statements are based upon certain material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking statements, including AirIQ's perception of historical trends, current conditions and expected future developments as well as other factors management believes are appropriate in the circumstances. 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 may differ materially from those expressed in such forward-looking statements. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. 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.

The current global financial market downturn has resulted in some of the world's best known financial institutions disappearing, as well as significant erosion of stock market values, and severe restrictions on credit availability. The volatile and uncertain economic environment presents many companies with new business challenges, not the least of which is communicating the impact of the current economic environment to its shareholders. For a more complete analysis of risks faced by the Company, and additional comments on the global economic environment, please refer to the section "Risk Factors" section included in management's discussion and analysis of the financial condition and results of operations for the three months and nine months ended September 30, 2009.

For additional information on AirIQ or its products and services, please visit the Company's website at www.airiq.com.

Contact Information