AirIQ Inc.
TSX : IQ

AirIQ Inc.

March 28, 2006 07:00 ET

AirIQ Announces 2005 Fourth Quarter and Year End Results

TORONTO, ONTARIO--(CCNMatthews - March 28, 2006) -

Exceeds 200,000 active subscribers with annual revenue increase over 80%

AirIQ Inc. (TSX:IQ), a leader in global wireless security, today announced its results for the fourth quarter and year ended December 31, 2005.

Highlights:

- Annual revenue increased by 84 per cent year over year to $40.0 million

- Gross profit increased by 69 per cent year over year to $14.8 million

- Ratio of expenses to revenue for 2005 improved to 56.5 per cent, compared to 72.7 per cent in 2004

- Reached an active subscriber base of 201,634

- Launched GSM (Global System for Mobile Communications) services creating a strong platform for international expansion

- Entered into Agreements with major GSM network carriers in the United States and Mexico

- Expanded presence in the consumer market through private label agreements with LoJack Corporation and with Directed Electronics' four leading brands: Viper®, Python®, Clifford® and Automate®

- Recently announced private placement and financing arrangements to facilitate payment obligations

"AirIQ grew steadily in 2005 and our financial performance moved us closer to the important inflexion point where we turn from a Company using cash to one that produces cash," said Donald Simmonds, President and CEO of AirIQ. "Last year we integrated the two businesses acquired in 2004 and launched our services on the GSM platform. Although we were confronted with several unforeseen challenges during the year, we expect a very strong first quarter of unit shipments which will demonstrate that the challenges are behind us now."

With strength in all market sectors, AirIQ expects to deliver approximately 30,000 units in the first quarter of 2006, a record for the company.

"In the past year we surpassed 200,000 subscribers, a significant milestone and ensured our technical platform continues to deliver a competitive advantage," Mr. Simmonds continued. "Despite network issues in Mexico, unexpected customer churn and the effects of the stronger Canadian dollar, we increased our revenue and gross profit while improving our expense to revenue ratio. Along with these important trends, we are encouraged that business and consumer understanding of the benefits of wireless security for mobile assets is accelerating our momentum."

"As we announced last week, we have entered into a bought deal private placement and term loan and the Company will use these funds to satisfy its upcoming earn-out obligation," stated Mark Kohler, CFO of AirIQ. "Along with annualized expense reductions of $2.0 million in January that should take effect fully in the second quarter, the leveraging effect of our recurring revenues should create a marked improvement in cash generation in the first and second quarters of 2006."

"With the Company's decision to begin transitioning its new services to a digital-based (GSM) technology platform in the fourth quarter of 2005, management determined that to be conservative a non-cash provision related to analogue network based inventory should be taken amounting to approximately $2,085,000," continued Mr. Kohler. "The benefits of the new digital solution are greater efficiency in costs per transaction, improvements in hardware costs (once volume procurement initiatives are established), and the ability to grow our business internationally. We began shipping GSM units to Mexico based customers in the fourth 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.

Overview

The accompanying condensed consolidated statements of loss and deficit are presented for the years and quarters ended December 31, 2005 and December 31, 2004, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries. The accompanying 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 audited consolidated financial statements as at and for the year ended December 31, 2005, including notes thereto, the accompanying Management's Discussion and Analysis, and the Company's 2005 Annual Report, 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.

Subscriber Base

Shipments of hardware units to customers totaled 20,952 in the fourth quarter of 2005. During the fourth quarter, the Company decided to permanently discontinue service to an Aircept customer with approximately 7,500 remaining units and discontinued approximately 3,000 units in Mexico from its service, in each case, due to lack of payment on overdue accounts. These actions were taken after repeated attempts to resolve the overdue accounts. This unusual churn resulted in lower than expected net active subscriber additions in the quarter. The Company does not expect churn levels experienced in the fourth quarter to continue in 2006.

Revenue Increased

Revenues for the year ended December 31, 2005, increased 83.9 per cent to $40.0 million from $21.8 million in 2004. The increase in revenues resulted from subscriber additions and the integration of the Aircept and Boatracs businesses acquired in 2004. For the three months ended December 31, 2005, revenues increased by 10.1 per cent to $10.0 million from $9.0 million for same period last year and decreased by approximately $300,000 from the previous three months ended September 30, 2005, largely due to the strengthening Canadian-U.S. dollar exchange rate and competitive pricing of hardware units.

Gross Profit Improved

Gross profit for the year ended December 31, 2005, was $14.8 million, an increase of 69.3 per cent compared to gross profit of $8.7 million for 2004. Excluding the write-down of inventory due to technology change, gross profit for the year was $16.9 million. For the three months ended December 31, 2005, gross profit was $4.2 million (before inventory write-down), a decrease of approximately $185,000 from the previous three months ended September 30, 2005. Gross profit as a percentage of revenue for the fourth quarter of 2005 was 42.1 per cent (before inventory write-down), compared to 42.6 per cent for the three months ended September 30, 2005.

Expenses

Expenses for the year ended December 31, 2005, totaled $22.6 million, compared to $15.8 million for 2004. The increase is primarily due to a full year's operational costs generated by the integrated Aircept and Boatracs businesses. In the fourth quarter of 2005, expenses were $6.9 million or 68.9 per cent of revenue, compared to $5.8 million or 64.6 per cent of revenue in the same period last year, reflecting an increase in bad debt provisions and professional fees related to legal activities regarding a potential acquisition and a new financing that did not have sufficient merit to proceed.

The Company announced in January 2006, that it has made a workforce reduction of approximately 13% which is planned to reduce operating expenses by approximately $2 million on an annualized basis.

Net Loss per Share

The net loss for the year ended December 31, 2005, was $13.1 million, or $0.11 per share, compared with a net loss of $11.3 million or $0.13 per share for 2004. For the three months ended, December 31, 2005, net loss was $5.7 million or $0.05 per share, compared to a net loss of $3.8 million or $0.03 per share for the same period last year.

Liquidity and Capital Resources

As at December 31, 2005, the Company had cash and cash equivalents of approximately $1.4 million and negative adjusted working capital of approximately $7.9 million. Amounts owing under the bank financing and the earn-out commitment are included in the calculation of working capital. The working capital position will be improved through the closing of the recently announced financings.

On March 24, 2006, the Company announced that it had entered into a commitment agreement with Paradigm Capital pursuant to which Paradigm Capital agreed to purchase on a bought deal private placement basis 26,545,455 special warrants for gross proceeds of $5,309,091. The proceeds of this financing are to be used to satisfy the earn-out commitment. In addition, on the same day the Company announced that it had entered into an agreement in principle for a $4 million five year term loan with certain existing shareholders. The proceeds of this financing are to be used to reduce the amount outstanding on the bank financing. Both financings are expected to close on or about April 4, 2006.

The Company expects the bank financing will be amended contemporaneously with the closings of the financings, and will include an extension of the due date of the remaining credit facility.



Consolidated Balance Sheets

As at December 31 2005 2004
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Assets
Current
Cash and cash equivalents $ 1,383,827 $ 4,902,089
Accounts receivable 5,641,893 5,072,938
Inventory 4,824,907 3,808,331
Future tax asset - 100,000
Prepaid expenses 468,949 494,301
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Total current assets 12,319,576 14,377,659

Property, plant and equipment, net 4,534,196 5,749,246
Intangible assets, net 7,176,667 9,468,691
Goodwill 16,620,353 9,646,817
Deferred financing costs, less
accumulated amortization of $164,848
(2004 - $62,070) - 102,778
Deferred service contract costs, less
accumulated amortization of $24,961,547
(2004 - $10,851,642) 9,677,759 9,911,855
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$ 50,328,551 $ 49,257,046
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Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities $ 7,970,721 $ 6,854,983
Accrual for earn-out payment 4,942,750 -
Income taxes payable 118,736 165,000
Term loan - 1,932,980
Bank financing 6,985,968 -
Deferred revenue 10,042,872 9,255,940
Obligations for service contracts 882,235 1,086,801
Obligations under capital lease 213,921 136,566
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Total current liabilities 31,157,203 19,432,270

Term loan - 3,027,978
Obligations under capital lease 237,773 69,098
National Research Council loan 117,637 201,081
Deferred revenue 1,909,605 1,696,016
Obligations for service contracts 581,142 1,451,792
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Total liabilities 34,003,360 25,878,235
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Shareholders' equity
Share capital 83,591,703 78,121,413
Other paid-in capital 3,610,254 3,610,254
Contributed surplus 1,190,969 567,080
Deficit (72,067,735) (58,919,936)
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Total shareholders' equity 16,325,191 23,378,811
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$ 50,328,551 $ 49,257,046
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Consolidated Statements of Loss and Deficit

Three months ended Twelve months ended
December December December December
31, 2005 31, 2004 31, 2005 31, 2004
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Revenues $ 9,954,546 $ 9,040,690 $ 40,048,499 $ 21,779,260
Direct cost
of sales 5,764,233 5,080,218 23,176,054 13,042,589
Write-down of
inventory due
to technology
change 2,085,000 - 2,085,000 -
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Gross profit 2,105,313 3,960,472 14,787,445 8,736,671
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Expenses
Sales and
marketing 1,412,624 1,804,309 5,801,196 4,821,834
Engineering
and research 1,282,833 1,315,761 5,080,406 3,728,939
General and
administration 4,146,195 2,542,501 11,017,174 6,894,737
Stock-based
compensation 128,889 127,403 623,889 453,963
Loss (gain) on
foreign exchange (111,371) 51,939 108,806 (61,111)
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6,859,170 5,841,913 22,631,471 15,838,362
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Loss before
the following (4,753,857) (1,881,441) (7,844,026) (7,101,691)
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Other expenses
Net interest
expense 73,901 293,895 1,123,686 1,362,209
Other charges 77,414 296,140 415,173 296,140
Amortization 784,343 760,602 3,256,776 2,015,053
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935,658 1,350,637 4,795,635 3,673,402
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Loss before
income taxes (5,689,515) (3,232,078) (12,639,661) (10,775,093)

Provision for
(recovery of)
income taxes
Current (177,862) 165,000 (41,862) 165,000
Future 215,000 365,000 550,000 365,000
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37,138 530,000 508,138 530,000
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Net loss for
the year (5,726,653) (3,762,078) (13,147,799) (11,305,093)

Deficit, beginning
of year (66,341,082) (55,157,858) (58,919,936) (47,614,843)
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Deficit, end of
year $ (72,067,735)$(58,919,936)$(72,067,735)$(58,919,936)
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Loss per share
- basic and
diluted $ (0.05)$ (0.03)$ (0.11)$ (0.13)
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Weighted average
number of common
shares used in
computing loss
per share,
basic and
diluted 124,527,235 111,324,675 120,033,750 84,691,011
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Consolidated Statements of Cash Flows

Three months ended Twelve months ended
December December December December
31, 2005 31, 2004 31, 2005 31, 2004
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Operating activities
Net loss for
the year $ (5,726,653) $(3,762,078)$(13,147,799)$(11,305,093)
Add items not
involving cash
Future tax
expense 100,000 365,000 550,000 365,000
Stock-based
compensation 128,889 127,403 623,889 453,963
Interest accreted
on term loan - 65,935 358,526 273,720
Amortization of
property, plant
and equipment 635,857 507,539 2,564,615 2,018,209
Amortization of
deferred service
contract costs 3,562,617 3,151,652 14,109,905 7,304,969
Amortization of
intangible assets 590,818 556,157 2,363,274 956,321
Amortization of
deferred
development
costs - - - 300,518
Amortization of
deferred financing
costs - 9,798 102,778 39,192
Changes in non-cash
working capital
balances related
to operations
Accounts
receivable (672,686) (599,628) (568,955) (460,602)
Inventory 419,999 936,060 (1,016,576) (706,378)
Prepaid expenses 511,851 508,217 25,352 74,871
Accounts payable
and accrued
liabilities 754,258 (841,160) 1,115,738 1,481,947
Income taxes
payable (63,013) 165,000 (46,264) 165,000
Deferred revenue 92,270 1,052,662 1,000,521 2,868,171
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Cash provided by
operating
activities 334,207 2,242,557 8,035,004 3,829,808
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Investing activities
Purchase of net
assets including
transaction costs,
net of - (646,329) - (13,414,370)
cash acquired
Purchase of
intangible assets (71,250) - (71,250) -
Purchase of
property, plant
and equipment (116,015) (300,619) (861,604) (149,673)
Deferred service
contract costs (3,787,385) (3,902,969) (13,875,809) (9,028,385)
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Cash used in
investing
activities (3,974,650) (4,849,917) (14,808,663)(22,592,428)
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Financing activities
Repayment of
obligations
under capital
lease (67,166) (50,889) (241,931) (226,816)
Repayment of
National Research
Council loan (13,372) (22,724) (83,444) (92,029)
Repayment of
term loan - (447,058) (5,319,484) (880,516)
Proceeds from bank
financing 1,875,000 - 6,985,968 -
Repayment of
obligations for
service contracts (229,634) (413,594) (1,075,216) (1,802,123)
Share issuance
costs (28,734) (768,268) (28,734) (768,268)
Issuance of common
shares and equity
instruments 43,996 5,369,011 3,018,238 12,012,761
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Cash provided by
financing
activities 1,580,090 3,666,478 3,255,397 8,243,009
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Net increase or
(decrease) in
cash and cash
equivalents (2,060,353) 1,059,118 (3,518,262)(10,519,611)

Cash and cash
equivalents,
beginning of
year 3,444,180 3,842,971 4,902,089 15,421,700
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Cash and cash
equivalents,
end of year $ 1,383,827 $ 4,902,089 $ 1,383,827 $ 4,902,089
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Supplementary
cash flow
information
Cash interest $ 59,073 $ 187,316 $ 517,661 $ 788,437
Non-cash investing
and financing
transactions
Property, plant
and equipment
purchased under
capital leases 36,562 11,588 487,961 293,245
Accrual for
earn-out
settlement 4,942,750 - 4,942,750 -
Common shares
issued on
acquisition 2,480,786 - 2,480,786 6,636,000
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Conference Call and Webcast

AirIQ will hold a conference call on Tuesday, March 28, 2006, at 10:00 a.m. ET. To access the call please dial 416-644-3417 or 1-800-814-4941. A replay of the conference call will be available at noon the same day until midnight April 4, 2006. To access the replay, dial 416-640-1917 or 1-877- 289-8525 followed by the passcode 21181912#. The call will also be webcast live on the Company's website at www.airiq.com.

The Company's Annual Report, including complete financial statements and Management's Discussion and Analysis will be available for the call at www.airiq.com and later the same day at www.sedar.com.

AirIQ will hold its Annual General Meeting of Shareholders on Tuesday, May 9, 2006, at 10:00 a.m. (Eastern Standard Time) at The Toronto Stock Exchange Conference Centre, The Exchange Tower, 130 King Street West, Toronto, Ontario, Canada M5X 1J2.

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 Telematics. Telematics is the name given to information and control messages sent wirelessly to and from vehicles and vessels. 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, 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 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.

Contact Information

  • AirIQ Finance
    Mark Kohler
    Chief Financial Officer
    (905) 831-6444, Ext. 4250
    mkohler@airiq.com
    or
    AirIQ Corporate
    Mary-Catherine Telemaque
    Manager, Corporate Communications
    (905) 831-6444, Ext. 4326
    mctelemaque@airiq.com